<PAGE>
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for use of the Commission Only (as permitted by rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to Sec.240.14a-12
BRUNO'S, INC.
(Name of Registrant as Specified In Its Charter)
BRUNO'S, INC.
(Name of Person(s) Filing Proxy Statement)
Payment of Filing Fee (Check the appropriate box):
/ / $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
/ / $500 per each party to the controversy pursuant to Exchange Act Rule
14a-6(i)(3).
/X/ Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies: Common
Stock, par value $.01 per share, of the Registrant.
(2) Aggregate number of securities to which transaction applies: 77,503,341,
being the maximum number of shares of Bruno's Stock to be converted into
either the right to receive cash or to retain Bruno's Common Stock in the
transaction.
(3) Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (set forth the amount on which the filing fee is
calculated and state how it was determined): The filing fee of $186,008.02 is
calculated in accordance with Rule 0-11-(c)1(1) under the Exchange Act as
one-50th of one percent of the product of 77,503,341 shares and $12.00 per
share.
(4) Proposed maximum aggregate value of transaction: $930,040,092.
/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing of which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
________________________________________________________________________________
(2) Form, Schedule or Registration Statement No.:
________________________________________________________________________________
(3) Filing Party:
________________________________________________________________________________
(4) Date Filed:
________________________________________________________________________________
<PAGE>
BRUNO'S, INC.
800 Lakeshore Parkway
Birmingham, Alabama 35211
July 17, 1995
Dear Fellow Shareholders:
You are invited to attend a special meeting of the shareholders of Bruno's,
Inc. ("Bruno's") to vote on the proposed merger (the "Merger") of Bruno's with
Crimson Acquisition Corp., as of the date hereof a wholly owned subsidiary of
Crimson Associates, L.P. (the "Partnership"), a partnership organized by
Kohlberg Kravis Roberts & Co., L.P. Details of the Merger are discussed in the
enclosed Bruno's Proxy Statement, the forepart of which includes a summary of
the terms of the Merger and certain other information relating to the proposed
transaction.
At the special meeting, Bruno's shareholders will be asked to (i) approve
and adopt the Agreement and Plan of Merger, dated as of April 20, 1995, as
amended as of May 18, 1995 (the "Merger Agreement"), including the Merger; (ii)
approve the increase of $1.1 billion in the bonded indebtedness of Bruno's to
finance the purchase of approximately 94.7% of Bruno's common stock, par value
$.01 per share ("Bruno's Common Stock"), currently held by shareholders of
Bruno's, to refinance other outstanding indebtedness and to provide for working
capital requirements; and (iii) approve and adopt the Amended and Restated
Articles of Incorporation, in the form attached as Exhibit A to the Merger
Agreement. A copy of the Merger Agreement is attached as ANNEX I to the enclosed
Proxy Statement. Matters (ii) and (iii) will be considered at the Special
Meeting only if the Merger Agreement is approved by the shareholders. The
approval of matter (ii) will constitute a "consent" to the increase in bonded
indebtedness for purposes of Alabama law.
Holders of Bruno's Common Stock will be entitled to dissenters' rights under
Alabama law in connection with the Merger as described in the accompanying Proxy
Statement.
The Board of Directors has received the written opinion of The
Robinson-Humphrey Company, Inc., that, from a financial point of view, the
consideration offered in the Merger is fair to the shareholders of Bruno's. At
its meetings on April 20, 1995 and May 18, 1995, Bruno's Board of Directors
unanimously determined, among other things, that the transactions contemplated
by the Merger Agreement, including the Merger, taken together, are fair and in
the best interests of the shareholders of Bruno's, and the Board recommends that
holders of Bruno's Common Stock vote FOR the approval and adoption of the Merger
Agreement and the transactions contemplated thereby, including the Merger, and
FOR the other proposals to be voted on at the special meeting.
The special meeting will be held at the Medical Forum Auditorium,
Birmingham-Jefferson Civic Center, 950 22nd Street North, Birmingham, Alabama
35203, on Friday, August 18, 1995, beginning at 8:00 a.m., Central Time. IT IS
VERY IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE SPECIAL MEETING, WHETHER
OR NOT YOU PLAN TO ATTEND PERSONALLY. THEREFORE, YOU SHOULD COMPLETE AND SIGN
THE ENCLOSED PROXY CARD AND RETURN IT AS SOON AS POSSIBLE IN THE ENCLOSED
POSTAGE-PAID ENVELOPE. THIS WILL ENSURE THAT YOUR SHARES ARE REPRESENTED AT THE
SPECIAL MEETING.
Yours very truly,
/s/ RONALD G. BRUNO
RONALD G. BRUNO
Chairman of the Board and
Chief Executive Officer
<PAGE>
BRUNO'S, INC.
800 Lakeshore Parkway
Birmingham, Alabama 35211
(205) 940-9400
-------------------
NOTICE OF SPECIAL MEETING OF SHAREHOLDERS
TO BE HELD AUGUST 18, 1995
-------------------
To the Shareholders of
BRUNO'S, INC.
NOTICE IS HEREBY GIVEN that a Special Meeting of the shareholders (including
any adjournments or postponements thereof, the "Special Meeting") of Bruno's
Inc., an Alabama corporation ("Bruno's"), will be held at the Medical Forum
Auditorium, Birmingham-Jefferson Civic Center, 950 22nd Street North,
Birmingham, Alabama, 35203, on Friday, August 18, 1995, at 8:00 a.m., Central
Time for the following purposes, all of which are more fully described in the
accompanying Proxy Statement:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Merger, dated as of April 20, 1995, as amended as of
May 18, 1995 (the "Merger Agreement"), between Bruno's and Crimson
Acquisition Corp., an Alabama corporation ("Crimson"), which as of the date
hereof is a wholly owned subsidiary of Crimson Associates, L.P., a
partnership organized by Kohlberg Kravis Roberts & Co., L.P. (the
"Partnership"). The Merger Agreement provides, among other things, for the
merger of Crimson with and into Bruno's (the "Merger") pursuant to which
each share of Bruno's common stock, $.01 par value per share ("Bruno's
Common Stock") (other than (i) shares of Bruno's Common Stock held by
Bruno's, the Partnership, Crimson or any subsidiary thereof, which will be
cancelled and retired, and (ii) shares of Bruno's Common Stock subject to
dissenters' rights) will be converted into either (a) the right to receive
$12.00 in cash or (b) the right to retain one share of Bruno's Common Stock.
Because 4,173,682 shares in the aggregate of Bruno's Common Stock must be
retained by existing Bruno's shareholders either through election or
proration, the right to receive either $12.00 in cash for each share or to
retain that share of Bruno's Common Stock is subject to proration, as set
forth in the Merger Agreement and described in the accompanying Proxy
Statement. A copy of the Merger Agreement (including the principal exhibits
thereto) is attached as ANNEX I to the accompanying Proxy Statement.
2. To consider and vote upon a proposal to approve the increase in the
bonded indebtedness of Bruno's of $1.1 billion to finance the conversion to
cash of approximately 94.7% of the Bruno's Common Stock currently held by
shareholders of Bruno's, to refinance the outstanding indebtedness of
Bruno's and to provide for working capital requirements. The approval of
this matter will constitute a "consent" to the increase in bonded
indebtedness for purposes of Alabama law.
3. To approve and adopt the Amended and Restated Articles of
Incorporation.
4. To transact such other business as may properly come before the
Special Meeting or any adjournments or postponements thereof.
Matters (2) and (3) will be considered at the Special Meeting only if the
Merger Agreement is approved by the shareholders. The affirmative vote of
sixty-six and two-thirds percent (66- 2/3%) of the shares of Bruno's Common
Stock entitled to vote thereon is required to approve the Merger Agreement, and
the affirmative vote of a majority of the outstanding shares of Bruno's Common
Stock is required to approve and adopt the Amended and Restated Articles of
Incorporation and approve the increase in the bonded indebtedness of Bruno's.
<PAGE>
The record date for the determination of shareholders entitled to notice of,
and to vote at, the Special Meeting, and any adjournments or postponements
thereof, is July 7, 1995 (the "Record Date"). Only holders of record of shares
of Bruno's Common Stock at the close of business on the Record Date are entitled
to notice of, and to vote at, the Special Meeting. A list of Bruno's
shareholders entitled to vote at the Special Meeting will be available for
examination by any Bruno's shareholder, for proper purposes, during normal
business hours, at Bruno's corporate offices, 800 Lakeshore Parkway, Birmingham,
Alabama, 35211, commencing two business days after the date of this Notice of
Special Meeting and continuing through the date of the Special Meeting.
Holders of Bruno's Common Stock have a right to dissent from the Merger, and
if the Merger is consummated, to receive "fair value" for their shares in cash
by complying with the provisions of Alabama law, including Sections 10-2B-13.02,
- -13.03, -13.21, -13.23, -13.24, -13.28 and -13.30 of the Alabama Business
Corporation Act. The full text of Article 13 of the Alabama Business Corporation
Act relating to the rights of shareholders to dissent from the Merger is
attached at ANNEX V to the Proxy Statement accompanying this Notice of Special
Meeting.
YOUR VOTE IS VERY IMPORTANT REGARDLESS OF HOW MANY SHARES OF BRUNO'S COMMON
STOCK YOU OWN. REGARDLESS OF WHETHER YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU
ARE REQUESTED TO SIGN, DATE AND RETURN THE ENCLOSED PROXY WITHOUT DELAY IN THE
ENCLOSED POSTAGE-PAID ENVELOPE. YOU MAY REVOKE YOUR PROXY AT ANY TIME PRIOR TO
ITS EXERCISE. IF YOU ARE PRESENT AT THE SPECIAL MEETING OR ANY ADJOURNMENTS OR
POSTPONEMENTS THEREOF, YOU MAY REVOKE YOUR PROXY AND VOTE PERSONALLY ON THE
MATTERS PROPERLY BROUGHT BEFORE THE SPECIAL MEETING.
BY ORDER OF THE BOARD OF DIRECTORS
/s/ RONALD G. BRUNO,
RONALD G. BRUNO,
Chairman
July 17, 1995
-------------------
PLEASE SIGN AND DATE THE ENCLOSED PROXY AND
RETURN IT PROMPTLY IN THE ENCLOSED POSTAGE-PAID ENVELOPE
-------------------
SHAREHOLDERS ELECTING TO RETAIN BRUNO'S COMMON STOCK SHOULD RETURN THE ENCLOSED
FORM OF NON-CASH ELECTION TOGETHER WITH DULY ENDORSED BRUNO'S STOCK CERTIFICATES
AS INSTRUCTED IN THE PROXY STATEMENT.
2
<PAGE>
BRUNO'S, INC.
PROXY STATEMENT/PROSPECTUS
---------------------
This Proxy Statement (the "Proxy Statement") is being furnished to
shareholders of Bruno's, Inc., an Alabama corporation ("Bruno's" or the
"Company"), in connection with the solicitation of proxies by the Board of
Directors of the Company for use at the Special Meeting of shareholders of the
Company, including any adjournments or postponements thereof, scheduled to be
held on Friday, August 18, 1995 at 8:00 a.m., Central Time, at the Medical Forum
Auditorium, Birmingham-Jefferson Civic Center, 950 22nd Street North,
Birmingham, Alabama 35203 (the "Special Meeting"). This Proxy Statement relates
to the proposed merger (the "Merger") of Crimson Acquisition Corp., an Alabama
corporation ("Crimson"), as of the date hereof a wholly owned subsidiary of
Crimson Associates, L.P. (the "Partnership"), a partnership organized by
Kohlberg Kravis Roberts & Co., L.P. ("KKR"), with and into the Company pursuant
to the Agreement and Plan of Merger, dated as of April 20, 1995, as amended as
of May 18, 1995 (the "Merger Agreement"), between Crimson and the Company, and
the transactions contemplated thereby.
Pursuant to the Merger, each share of Bruno's common stock, par value $.01
per share ("Bruno's Common Stock"), issued and outstanding immediately prior to
the effective time of the Merger (the "Effective Time of the Merger") (other
than (i) shares of Bruno's Common Stock held by Bruno's, its subsidiaries, the
Partnership, Crimson or any subsidiary thereof, which will be cancelled and
retired and will cease to exist, and (ii) shares of Bruno's Common Stock subject
to dissenters' rights) will be converted at the election of the holder thereof
and subject to the terms described herein, into either (a) the right to receive
$12.00 in cash, or (b) the right to retain one fully paid and nonassessable
share of Bruno's Common Stock. Because the number of shares of Bruno's Common
Stock to be retained by existing shareholders must equal 4,173,682, the right to
receive $12.00 in cash or to retain Bruno's Common Stock is subject to proration
as set forth in the Merger Agreement and described in this Proxy Statement. See
"THE MERGER--Merger Consideration."
This Proxy Statement also constitutes a prospectus of the Company with
respect to the 4,173,682 shares of Bruno's Common Stock to be retained by
shareholders in the Merger.
The Merger requires the approval at the Special Meeting of the holders of
not less than 66 2/3% of the shares of Bruno's Common Stock entitled to vote
thereon. Holders of Bruno's Common Stock will be entitled to dissenters' rights
under Alabama law in connection with the Merger as described herein. See "THE
SPECIAL MEETING-- Dissenters' Rights" and "DISSENTING SHAREHOLDERS' RIGHTS."
If the Merger is approved, holders of Bruno's Common Stock will also be
asked at the Special Meeting to (a) approve an increase of $1.1 billion in the
bonded indebtedness of Bruno's to finance the purchase of approximately 94.7% of
Bruno's Common Stock currently held by shareholders of Bruno's, to refinance
other outstanding indebtedness and to provide for working capital requirements,
and (b) approve and adopt the Amended and Restated Articles of Incorporation.
See "PROPOSAL TWO-- APPROVAL OF INCREASE IN BONDED INDEBTEDNESS OF BRUNO'S" and
"PROPOSAL THREE-- APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION."
Such matters require the affirmative vote of a majority of the shares entitled
to vote thereon.
Pursuant to a Stockholders Agreement, holders of approximately 24% of
Bruno's Common Stock have agreed to vote their shares in favor of the Merger,
the Merger Agreement and any other actions contemplated thereby, including
Proposal Two and Proposal Three.
At its meetings on April 20, 1995 and May 18, 1995, the Board of Directors
of the Company unanimously approved the Merger and determined, among other
things, that the Merger Agreement and the transactions contemplated thereby,
including the Merger, taken together, are fair to the shareholders of the
Company, and recommended that holders of Bruno's Common Stock approve and adopt
the Merger and the Merger Agreement.
Bruno's Common Stock is listed for trading on the Nasdaq National Market
System ("Nasdaq") under the symbol "BRNO." On July 14, 1995, the last reported
sale price of Bruno's Common Stock was $11 3/4 per share. On April 20, 1995,
the last trading day before public announcement of the execution of the Merger
Agreement, the last sale price of Bruno's Common Stock as reported on Nasdaq was
$9 1/4 per share. If the Merger is approved, the Company anticipates that it
will seek to have the Bruno's Common Stock delisted from Nasdaq. See "RISK
FACTORS--Delisting; Loss of Liquidity."
This Proxy Statement, the accompanying form of proxy (the "Proxy") and the
other enclosed documents are first being mailed to shareholders of the Company
on or about July 18, 1995.
-------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 20 FOR A DISCUSSION OF CERTAIN FACTORS THAT
SHOULD BE CONSIDERED BY SHAREHOLDERS OF BRUNO'S COMMON STOCK IN CONNECTION WITH
THEIR CONSIDERATION OF THE MERGER.
-------------------
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. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
-------------------
The date of this Proxy Statement is July 17, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
AVAILABLE INFORMATION................................................................. 1
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE....................................... 2
SUMMARY............................................................................... 3
The Special Meeting................................................................. 3
The Merger.......................................................................... 5
Selected Consolidated Historical Financial Data of Bruno's, Inc..................... 16
Selected Pro Forma Consolidated Financial Data of Bruno's, Inc...................... 18
Price of Bruno's Common Stock....................................................... 19
RISK FACTORS.......................................................................... 20
Control by KKR...................................................................... 20
Discontinuation of Dividends........................................................ 20
Delisting; Loss of Liquidity........................................................ 20
Substantial Leverage; Shareholder Deficit; Liquidity................................ 20
Potential Dilution of Bruno's Shareholders.......................................... 21
Non-Cash Election and Proration into Cash--Possible Dividend Treatment.............. 22
Competition......................................................................... 22
Difficutly in Achieving Post-Merger Business Strategy............................... 22
Labor Relations..................................................................... 23
Geographic Concentration............................................................ 23
INTRODUCTION.......................................................................... 23
THE COMPANY........................................................................... 24
THE SPECIAL MEETING................................................................... 27
Matters to be Considered............................................................ 27
Required Votes...................................................................... 28
Voting and Revocation of Proxies.................................................... 29
Record Date; Stock Entitled To Vote; Quorum......................................... 29
Dissenters' Rights.................................................................. 30
Solicitation of Proxies............................................................. 30
PROPOSAL ONE--THE MERGER.............................................................. 30
Background of the Merger............................................................ 30
Accounting Adjustments.............................................................. 35
Recommendation of the Board of Directors; Reasons for the Merger.................... 35
Opinion of Financial Advisor........................................................ 38
Information Concerning the Company's Financial Advisor.............................. 41
Merger Consideration................................................................ 41
Non-Cash Election................................................................... 43
Non-Cash Election Procedure......................................................... 44
Effective Time of the Merger........................................................ 44
Conversion/Retention of Shares; Procedures for Exchange of Certificates............. 44
Fractional Shares................................................................... 46
Conduct of Business Pending the Merger.............................................. 46
Conditions to the Consummation of the Merger........................................ 46
Federal Income Tax Consequences..................................................... 46
Anticipated Accounting Treatment.................................................... 50
Effect on Stock and Employee Benefit Matters........................................ 50
Interests of Certain Persons in the Merger.......................................... 51
Nasdaq De-Listing................................................................... 53
Resale of Bruno's Common Stock Following the Merger................................. 53
Merger Financings................................................................... 53
Conversion of Crimson Stock......................................................... 54
</TABLE>
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PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS................................. 56
DESCRIPTION OF BRUNO'S CAPITAL STOCK.................................................. 61
General............................................................................. 61
Voting Rights....................................................................... 61
Dividend Rights..................................................................... 61
Liquidation Rights.................................................................. 61
Bruno's Common Stock Following the Merger........................................... 61
CERTAIN PROVISIONS OF THE MERGER AGREEMENT............................................ 61
The Merger.......................................................................... 61
Representations and Warranties...................................................... 62
Certain Pre-Closing Covenants....................................................... 62
No Solicitation of Transactions..................................................... 64
Board of Directors and Officers of the Company Following the Merger................. 65
Stock and Employee Benefit Plans.................................................... 65
Access to Information and Confidentiality........................................... 65
Cooperation and Best Efforts........................................................ 65
Indemnification and Insurance....................................................... 66
Conditions to the Consummation of the Merger........................................ 66
Termination......................................................................... 68
Amendment and Waiver................................................................ 69
Expenses and Certain Required Payments.............................................. 69
CERTAIN RELATED AGREEMENTS............................................................ 70
Stockholders Agreement.............................................................. 70
Stock Option Agreement.............................................................. 72
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........................ 74
BUSINESS.............................................................................. 76
REGULATORY APPROVALS.................................................................. 84
CRIMSON AND THE PARTNERSHIP........................................................... 85
DISSENTING SHAREHOLDERS' RIGHTS....................................................... 85
EXPERTS............................................................................... 87
Financial Statements................................................................ 87
Legal Opinions...................................................................... 87
PROPOSAL TWO--APPROVAL OF INCREASE IN BONDED INDEBTEDNESS OF BRUNO'S.................. 88
PROPOSAL THREE--APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION............ 88
OTHER INFORMATION AND SHAREHOLDER PROPOSALS........................................... 88
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SCHEDULE I Certain Information Regarding Crimson Acquisition Corp., the Partnership and
KKR Associates
ANNEX I Agreement and Plan of Merger
ANNEX II Stockholders Agreement
ANNEX III Stock Option Agreement
ANNEX IV Opinion of The Robinson-Humphrey Co., Inc., dated May 18, 1995
ANNEX V Excerpts from Alabama Business Corporation Act Relating to Dissenters'
Rights
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<PAGE>
AVAILABLE INFORMATION
No person is authorized to give any information or to make any
representations, other than as contained in this Proxy Statement, in connection
with the Merger, and, if given or made, such information or representations must
not be relied on as having been authorized by Bruno's, Crimson or the
Partnership. This Proxy Statement does not constitute an offer to sell or a
solicitation of an offer to buy the securities to which it relates in any
jurisdiction in which, or to any person to whom, it is unlawful to make such an
offer or solicitation. Neither the delivery of this Proxy Statement nor any
offer or sale made hereunder shall, under any circumstances, create any
implication that there has been no change in the information set forth herein or
in the affairs of the Company since the date hereof.
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and in accordance therewith files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission"). Reports, proxy statements and other information
filed by the Company with the Commission can be inspected and copied at the
public reference facilities maintained by the Commission at Room 1024, Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549 or at its regional offices
located at 500 West Madison Street, Suite 1400, Chicago, Illinois 60661, and 7
World Trade Center, Suite 1300, New York, New York 10048. Copies of such
material can be obtained from the Public Reference Section of the Commission at
450 Fifth Street, N.W., Washington, D.C. 20549 at prescribed rates.
This Proxy Statement also constitutes a prospectus of the Company filed as
part of a Registration Statement on Form S-4 under the Securities Act of 1933,
as amended. This Proxy Statement omits certain information contained in the
Registration Statement and the Exhibits thereto. Reference is made to the
Registration Statement and related exhibits for further information with respect
to the Company and the retention of Company Stock. Any statement herein
concerning the provision of any document is not necessarily complete, and in
each instance reference is made to the copy of the document filed as an exhibit
to the Registration Statement or otherwise filed with the Commission.
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<PAGE>
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
This Proxy Statement incorporates by reference documents which are not
presented herein or delivered herewith. Copies of any such documents relating to
the Company, other than exhibits to such documents (unless such exhibits
specifically are incorporated by reference in such documents), are available
without charge, upon written or oral request, from Bruno's, Inc., 800 Lakeshore
Parkway, Birmingham, Alabama 35211, Attention: Glenn J. Griffin, Assistant
Secretary, telephone: (205) 940-9400. In order to ensure timely delivery of the
documents requested, any such request should be made by August 11, 1995.
The following documents previously filed by the Company (File No.
0-00006544) with the Commission are incorporated in this Proxy Statement by
reference:
(1) The Company's Annual Report on Form 10-K for the fiscal year ended
July 2, 1994.
(2) The Company's Proxy Statement, dated September 16, 1994, which was
mailed to the Company's shareholders in connection with the annual meeting
of shareholders held on October 21, 1994.
(3) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended September 24, 1994.
(4) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended December 31, 1994.
(5) The Company's Quarterly Report on Form 10-Q for the fiscal quarter
ended April 8, 1995.
(6) The description of Bruno's Common Stock set forth in the Company's
Registration Statement on Form 8-A, dated September 25, 1972, as amended.
(7) The Company's Current Report on Form 8-K dated April 27, 1995, as
amended by the Current Report on Form 8-K/A dated May 30, 1995, Current
Report on Form 8-K dated May 18, 1995, Current Report on Form 8-K dated June
12, 1995, as amended by the Current Report on Form 8-K/A dated July 17,
1995, and Current Report on Form 8-K dated June 22, 1995.
All reports and other documents subsequently filed by the Company pursuant
to Sections 13(a), 13(c), 14 and 15(d) of the Exchange Act prior to the date of
the Special Meeting shall be deemed to be incorporated by reference herein and
to be part hereof from the date of the filing of such reports and documents.
Any statement contained in a document incorporated or deemed to be
incorporated by reference herein shall be deemed to be modified or superseded
for purposes of this Proxy Statement to the extent that a statement contained
herein, or in any other subsequently filed document that 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 part of this Proxy Statement.
2
<PAGE>
SUMMARY
The following is a summary of certain information contained elsewhere in
this Proxy Statement. Reference is made to the more detailed information
contained or incorporated by reference in this Proxy Statement and the ANNEXES
hereto. Shareholders of the Company are urged to read this Proxy Statement and
the ANNEXES hereto in their entirety.
FOR A DISCUSSION OF CERTAIN IMPORTANT FACTORS THAT SHOULD BE CONSIDERED BY
HOLDERS OF BRUNO'S COMMON STOCK IN CONNECTION WITH THEIR CONSIDERATION OF THE
MERGER, INCLUDING CERTAIN RISKS RELATED TO CONTINUING TO HOLD BRUNO'S COMMON
STOCK, SEE "RISK FACTORS."
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THE SPECIAL MEETING
Time and Place; Record Date..... A Special Meeting of the shareholders of Bruno's will be
held on Friday, August 18, 1995, at 8:00 a.m. Central
Time at the Medical Forum Auditorium,
Birmingham-Jefferson Civic Center, 950 22nd Street
North, Birmingham, Alabama 35203. Shareholders of
record at the close of business on July 7, 1995 (the
"Record Date") will be entitled to notice of, and to
vote at, the Special Meeting. The date of the mailing
of this Proxy Statement to shareholders of the Company
will be on or about July 18, 1995. At the close of
business on the Record Date, there were outstanding
and entitled to vote 77,503,341 shares of Bruno's
Common Stock.
Matters to be Considered.......... The purpose of the Special Meeting is to (i) vote upon a
proposal to approve and adopt the Merger Agreement,
including the Merger, pursuant to which (1) Crimson
will merge with and into the Company, (2) the
shareholders of Bruno's will receive the consideration
described below in the Summary under "THE
MERGER--Effect of the Merger" and (3) the stock of
Crimson, all of which is owned by the Partnership on
the date hereof, will be converted into 20,833,333
shares of Bruno's Common Stock and warrants (the
"Warrants") to purchase up to an additional 10,000,000
shares of Bruno's Common Stock; (ii) approve the
increase of $1.1 billion in the bonded indebtedness of
Bruno's to finance the conversion into cash of
approximately 94.7% of the issued and outstanding
shares of Bruno's Common Stock upon consummation of
the Merger, to refinance the outstanding indebtedness
of the Company and to provide for working capital
requirements (the "Bonded Indebtedness"); and (iii)
approve and adopt the Amended and Restated Articles of
Incorporation, which amend the Company's articles of
incorporation to, among other things, reduce the
authorized shares of Bruno's Common Stock from
200,000,000 to 60,000,000. Matters (ii) and (iii) will
be considered at the Special Meeting only if the
Merger Agreement is approved by the shareholders.
After the Effective Time of the Merger, there will be
25,007,015 shares of Bruno's Common Stock issued and
outstanding, and, if the Warrants are exercised in
full after the Merger, there will be
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35,007,015 shares of Bruno's Common Stock issued and
outstanding.
Required Votes.................... Approval of the Merger Agreement requires the
affirmative vote of 66 2/3% of the shares of Bruno's
Common Stock entitled to vote thereon. Approval of the
increase in Bonded Indebtedness and the Amended and
Restated Articles of Incorporation requires the
affirmative vote of the shareholders of a majority of
the shares of Bruno's Common Stock entitled to vote at
the Special Meeting. Approval of the increase in
Bonded Indebtedness and the Amended and Restated
Articles of Incorporation will be sought at the
Special Meeting only if the shareholders approve the
Merger. Certain shareholders, who own, or through
fiduciary capacities have the right to vote, an
aggregate of 19,195,009 shares of Bruno's Common
Stock, constituting approximately 24% of Bruno's
Common Stock outstanding, have agreed, subject to
certain conditions, to vote all shares of Bruno's
Common Stock held by them in favor of all matters to
be considered by the shareholders at the Special
Meeting. The shareholders who are parties to the
Stockholders Agreement consist of three of the members
of the Board of Directors of the Company (Ronald G.
Bruno and Kenneth J. Bruno, who are brothers, and
Joseph S. Bruno, who is their uncle) along with both
immediate and non-immediate members of their
respective families and certain trusts and foundations
that are controlled by those persons. See "THE SPECIAL
MEETING--Required Votes" and "THE MERGER--Interests of
Certain Persons in the Merger."
Voting of Proxies................. Shares of Bruno's Common Stock represented by all
properly executed Proxies received in time for the
Special Meeting will be voted in the manner specified
in the Proxy. Proxies that do not contain any
instruction to vote for or against or to abstain from
voting on a particular matter will be voted in favor
of such matter. See "THE SPECIAL MEETING-- Required
Votes."
It is not expected that any matter other than those
referred to herein will be brought before the
shareholders at the Special Meeting. If, however,
other matters are properly presented, the persons
named as proxies will vote in accordance with their
best judgment with respect to such matters, unless
authority to do so is withheld in the Proxy.
Adjournments; Revocability of
Proxies......................... If the Special Meeting is adjourned, for whatever
reason, the approval of the Merger Agreement shall be
considered and voted upon by shareholders at the
subsequent, reconvened meeting, if any.
You may revoke your Proxy at any time prior to its
exercise (i) by attending the Special Meeting and
voting in person (although attendance at the Special
Meeting will not in and of itself constitute
revocation of a Proxy), (ii) by giving
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notice of revocation of your Proxy at the Special
Meeting, or (iii) by delivering (a) a written notice
of revocation of your Proxy, or (b) a duly executed
Proxy relating to the matters to be considered at the
Special Meeting, bearing a date later than the Proxy
previously executed, to the Secretary of Bruno's, 800
Lakeshore Parkway, Birmingham, Alabama 35211. Unless
revoked in one of the manners set forth above, Proxies
in the form enclosed will be voted at the Special
Meeting in accordance with your instructions.
Solicitation of Proxies........... The cost of soliciting Proxies will be borne by the
Company. The Company may solicit Proxies and the
Company's directors, officers and employees may also
solicit Proxies by telephone, telegram or personal
interview. These persons will receive no additional
compensation for their services. Arrangements will be
made to furnish copies of Proxy materials to
fiduciaries, custodians and brokerage houses for
forwarding to beneficial owners of Bruno's Common
Stock. Such persons will be paid reasonable
out-of-pocket expenses.
MacKenzie Partners, Inc. will assist in the solicitation
of Proxies by the Company for a fee of $7,000, plus
reasonable out-of-pocket expenses.
SHAREHOLDERS OF BRUNO'S COMMON STOCK SHOULD NOT SEND
STOCK CERTIFICATES WITH THEIR PROXY CARDS. SEE "THE
MERGER--NON-CASH ELECTION" FOR INSTRUCTIONS FOR SHARE-
HOLDERS ELECTING TO RETAIN SHARES.
Security Ownership of
Management...................... As of July 11, 1995, directors and executive officers of
the Company and their affiliates were beneficial owners
of an aggregate of 13,937,992 shares of Bruno's Common
Stock (approximately 17.8% of the outstanding shares).
THE MERGER
Effect of the Merger............ At the Effective Time of the Merger, Crimson will be
merged with and into Bruno's and Bruno's will continue
as the surviving corporation in the Merger. Subject to
certain provisions as described herein with respect to
shares owned by Bruno's, any subsidiary of Bruno's,
the Partnership or Crimson, and with respect to
fractional shares and Dissenting Shares (as defined
under "Dissenting Shareholders' Rights" below), (i)
each issued and outstanding share of Bruno's Common
Stock (other than Electing Shares, as defined below)
will be converted into the right to receive in cash
from Bruno's following the Merger an amount equal to
$12.00 (the "Cash Election Price") and (ii) each
issued and outstanding share of Bruno's Common Stock
with respect to which an election to retain Bruno's
Common Stock has been made and not withdrawn in
accordance with the Merger Agreement (an "Electing
Share") will be converted into the right to retain one
fully paid and nonassessable share of Bruno's Common
Stock (a "Non-Cash Election Share"). Each shareholder
of Bruno's may receive the Cash Election
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Price with respect to some of the shareholder's shares
of Bruno's Common Stock and Non-Cash Election Shares
with respect to other shares of Bruno's Common Stock;
provided, that the aggregate number of shares of
Bruno's Common Stock to be retained at the Effective
Time of the Merger shall be equal to 4,173,682 (the
"Non-Cash Election Number").
The Merger contemplates that approximately 94.7% of the
presently issued and outstanding shares of Bruno's
Common Stock will be converted into cash, as described
above, and that approximately 5.3% of the shares will
be retained by shareholders. Because 5.3% (or
4,173,682) of the shares must be retained by
shareholders in the Merger, shareholders who do not
elect to retain any shares may, due to proration, be
required to retain some shares of Bruno's Common
Stock. In addition, shareholders who elect to retain
shares may be prorated into shares of Bruno's Common
Stock and cash which vary from the amounts such
holders elected to retain.
SEE "THE MERGER--MERGER CONSIDERATION" FOR EXAMPLES
ILLUSTRATING THE POTENTIAL EFFECTS OF PRORATION.
Because the total number of outstanding shares of
Bruno's Common Stock will decrease from approximately
78,000,000 to 25,007,015, the 5.3% of the outstanding
Bruno's Common Stock (4,173,682 shares) to be retained
by existing shareholders in the Merger will represent
approximately 16.67% of the shares outstanding
immediately after the Merger and the 20,833,333 shares
to be owned by the Partnership will represent
approximately 83.33% of the shares outstanding
immediately after the Merger. If the Partnership
exercised the Warrants in full immediately after the
Merger, it would hold approximately 88% of the out-
standing shares.
Recommendation of the Board of
Directors....................... At its April 20, 1995 and May 18, 1995 meetings, the
Board of Directors of the Company, with all members in
attendance, unanimously (i) determined that the Merger
was fair to the Company's shareholders, (ii)
determined that the Merger Agreement and the Option
Agreement were fair to the Company's shareholders,
(iii) recommended that the Company's shareholders
approve and adopt the Merger Agreement, and (iv)
approved the Merger Agreement and the Option Agreement
and the transactions contemplated thereby. See "THE
MERGER--Background of the Merger" and
"--Recommendation of the Board of Directors; Reasons
for the Merger."
Opinion of Financial Advisor...... On April 20, 1995 and May 18, 1995, The Robinson-
Humphrey Company, Inc. ("Robinson-Humphrey") deliv-
ered its written opinions to Bruno's Board of
Directors that, as of such dates and with respect to
the proposals being
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considered, the consideration to be received by the
shareholders of Bruno's Common Stock in the Merger was
fair to the shareholders from a financial point of
view. In rendering its opinion, Robinson-Humphrey
reviewed, among other things, (i) the Merger
Agreement, (ii) publicly available information
concerning Bruno's, (iii) financial and operating
information with respect to the business, operations
and prospects of Bruno's, which was furnished to
Robinson-Humphrey by Bruno's, (iv) a trading history
of Bruno's Common Stock from April 13, 1992 through
May 17, 1995, and a comparison of that trading history
with those of other companies which Robinson-Humphrey
deemed relevant, (v) a comparison of the historical
financial results and present financial condition of
Bruno's with those of other companies which
Robinson-Humphrey deemed relevant, (vi) a comparison
of the financial terms of the Merger, as amended, with
the financial terms of certain other recent
transactions which Robinson-Humphrey deemed relevant,
and (vii) certain historical data relating to
percentage premiums paid in acquisitions of publicly
traded companies. For information on the assumptions
made, matters considered and limits of the review by
Robinson-Humphrey, see "THE MERGER-- Opinion of
Financial Advisor." Shareholders of Bruno's Common
Stock are urged to read in its entirety the opinion of
Robinson-Humphrey, dated May 18, 1995, a copy of which
appears as ANNEX IV to this Proxy Statement.
Non-Cash Election................. Subject to the Non-Cash Election Number, record holders
of shares of Bruno's Common Stock will be entitled to
make an unconditional election (a "Non-Cash
Election"), on or prior to the Election Date (as
defined below), to retain Non-Cash Election Shares. If
the number of Electing Shares exceeds the Non-Cash
Election Number, then (i) the number of Electing
Shares covered by each Non-Cash Election to be
converted into the right to retain Non-Cash Election
Shares will be determined by multiplying the total
number of Electing Shares covered by such Non-Cash
Election by a proration factor determined by dividing
the Non-Cash Election Number by the total number of
Electing Shares and (ii) such number of Electing
Shares will be so converted. All Electing Shares,
other than those shares converted into the right to
retain Non-Cash Election Shares as described in the
immediately preceding sentence, will be converted into
cash (on a consistent basis among shareholders who
made the election to retain Non-Cash Election Shares,
pro rata to the number of shares as to which they made
such election) as if such shares were not Electing
Shares.
If a shareholder elects to make a Non-Cash Election and
receives cash as a result of the proration procedures
described above, such shareholder may receive dividend
treatment (rather than capital gain treatment) for any
cash
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received in the Merger as a result of such proration
procedures. See "RISK FACTORS--Non-Cash Election and
Proration into Cash--Possible Dividend Treatment." See
also "THE MERGER--Federal Income Tax Conse-
quences--Shareholders Receiving Cash."
If the number of Electing Shares is less than the
Non-Cash Election Number, then (i) all Electing Shares
will be converted into the right to retain Non-Cash
Election Shares in accordance with the Merger
Agreement, (ii) additional shares of Bruno's Common
Stock, other than Electing Shares, will be converted
into Non-Cash Election Shares, which number of
additional shares shall be determined by multiplying
the total number of shares, other than Electing
Shares, by a proration factor determined by dividing
(x) the difference between the Non-Cash Election
Number and the number of Electing Shares by (y) the
total number of shares of Bruno's Common Stock, other
than Electing Shares, and (iii) such additional shares
of Bruno's Common Stock shall be converted into
Non-Cash Election Shares in accordance with the Merger
Agreement (on a consistent basis among shareholders
who held shares of Bruno's Common Stock as to which
they did not make the Non-Cash Election, pro rata to
the number of shares as to which they did not make
such election). See "THE MERGER--Non-Cash Election."
Non-Cash Election Procedure....... Shareholders of Bruno's Common Stock electing to retain
Non-Cash Election Shares must properly complete and
sign the Non-Cash Election Form (the "Form of
Election") accompanying this Proxy Statement, and such
Form of Election, together with all certificates
representing shares of Bruno's Common Stock duly
endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by
appropriate guarantee of delivery, as set forth in
such Form of Election), must be received by Chemical
Mellon Shareholder Services (the "Exchange Agent") at
one of the addresses listed on the Form of Election by
5:00 p.m., Eastern time, on the business day next
preceding the date of the Special Meeting (the
"Election Date") and must not be withdrawn. See "THE
MERGER--Non-Cash Election Procedure."
Fractional Shares................. Fractional shares of Bruno's Common Stock will not be
issued in the Merger. Holders of Bruno's Common Stock
otherwise entitled to a fractional share of Bruno's
Common Stock following the Merger will be paid cash in
lieu of such fractional share determined and paid as
described in "THE MERGER--Fractional Shares."
Conditions to the Merger.......... The obligations of Bruno's and Crimson to consummate the
Merger are subject to various conditions, including,
without limitation, obtaining requisite shareholder
approval, the termination or expiration of the
relevant waiting period under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the
"HSR Act") and the absence of any
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injunction or other legal restraint or prohibition
preventing the consummation of the Merger.
Crimson's obligations to effect the Merger are further
subject to the receipt of financing proceeds, on terms
satisfactory to Crimson, in an amount sufficient to
consummate the transactions contemplated by the
Merger, including an amount sufficient to (i) pay the
Cash Election Price, (ii) refinance certain of Bruno's
outstanding indebtedness, (iii) pay transaction fees
associated with the Merger Agreement and (iv) provide
for the Company's working capital needs following the
Merger. It is anticipated that financing proceeds and
an equity contribution aggregating approximately $1.15
billion will be required to consummate such
transactions. The equity contribution to be made by
the Partnership to the Company will constitute $250
million of such $1.15 billion. See "CERTAIN PROVISIONS
OF THE MERGER AGREEMENT--Conditions to the
Consummation of the Merger" and "REGULATORY
APPROVALS."
If the Merger is consummated in accordance with the
Merger Agreement, the Company will pay to KKR a fee of
$15 million in cash. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Expenses and Certain Required
Payments."
Regulatory Approvals.............. On June 20, 1995, the Federal Trade Commission and the
Antitrust Division granted early termination of the
waiting period under the HSR Act with respect to the
Merger effective immediately. See "REGULATORY APPROV-
ALS."
Certain Federal Income Tax Conse-
quences......................... The receipt of cash by a shareholder pursuant to the
Merger will, depending on a shareholder's ownership of
Bruno's Common Stock before and after the Merger, be
treated as either (i) a sale of stock generating
capital gain equal to the cash received less the
shareholder's basis in the stock sold or (ii) a
dividend included in income as ordinary income (with-
out reduction for basis). See also "RISK FACTORS--Non-
Cash Election and Proration into Cash--Possible
Dividend Treatment."
Bruno's may, in certain circumstances, be required to
withhold tax from cash paid to shareholders. A
shareholder who retains Bruno's Common Stock and does
not receive cash will have no tax consequences with
respect to such retained shares as a result of the
Merger. See "THE MERGER-- Federal Income Tax
Consequences."
BECAUSE CERTAIN TAX CONSEQUENCES OF THE MERGER MAY VARY
DEPENDING UPON THE PARTICULAR CIRCUMSTANCES OF EACH
SHAREHOLDER, IT IS RECOMMENDED THAT SHAREHOLDERS OF
BRUNO'S COMMON STOCK CONSULT THEIR TAX ADVISORS
CONCERNING THE
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FEDERAL (AND ANY STATE, LOCAL AND FOREIGN) TAX
CONSEQUENCES OF THE MERGER IN THEIR PARTICULAR
CIRCUMSTANCES.
Treatment of Company Stock
Options......................... No holder of a Company Stock Option (as defined under
"THE MERGER--Effect on Stock and Employee Benefit
Matters") may exercise such Company Stock Option after
August 17, 1995 (the "Exercise Period"). With respect
to any person, unless exercised within the Exercise
Period (or cancelled in exchange for a cash payment
pursuant to clause (y) of the next succeeding
paragraph) each Company Stock Option will expire at
the end of the Exercise Period. With respect to any
person subject to Section 16(a) of the Exchange Act
(generally directors, certain executive officers and
beneficial owners of 10% or more of a class of capital
stock), no such person will be entitled to a cash
payment in the manner described in clause (y) of the
next succeeding paragraph.
At the Effective Time of the Merger, (x) each Company
Stock Option granted under the Stock Plans (as defined
under "THE MERGER--Effect on Stock and Employee
Benefit Matters") outstanding immediately prior to the
Effective Time of the Merger will vest as a
consequence of the Merger and (y) with respect to any
person not subject to Section 16(a) of the Exchange
Act, each Company Stock Option having an exercise
price of less than $12.00, will be cancelled in
exchange for a payment from the Company after the
Merger (subject to any applicable withholding taxes)
equal to the product of (1) the total number of shares
of Bruno's Common Stock subject to such Company Stock
Option and (2) the excess of $12.00 over the exercise
price per share of Bruno's Common Stock subject to
such Company Stock Option, payable in cash immediately
following the Effective Time of the Merger.
The Stock Plans will terminate as of the Effective Time
of the Merger, and following the Effective Time of the
Merger no holder of a Company Stock Option nor any
participant in any Stock Plan will have any right
thereunder to acquire equity securities of the Company
following the Merger.
Interests of Certain Persons in
the Merger...................... Certain directors and officers of the Company have
interests, described herein, that may present them with
potential conflicts of interest in connection with the
Merger. The Board of Directors is aware of the
conflicts described below and considered them in
addition to the other matters described under "THE
MERGER--Recommendation of the Board of Directors;
Reasons for the Merger."
The five executive officers of the Company, Ronald G.
Bruno, Paul F. Garrison, Glenn J. Griffin, Kenneth J.
Bruno, and R. Michael Conley (the "Executive
Officers"), are parties to Employment and Deferred
Compensation Agreements
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("Deferred Compensation Agreements") with Bruno's. The
Deferred Compensation Agreements provide for monthly
payments of retirement benefits to such persons equal
to 5% of the average annual compensation for the three
fiscal years ended immediately prior to the initial
payment date for a period of 180 months upon the
earlier of retirement after age 65, retirement after
25 years of service, disability, death or the
occurrence of an event which would entitle the
employee to receive benefits under his Employment Con-
tinuity Agreement (as discussed below). As a result of
the Merger, the Executive Officers will be paid, in
lump sum amounts, the present value of retirement
benefits that would have been payable to them under
the terms of their respective Deferred Compensation
Agreements based on a discount rate of 8% per annum,
if such Executive Officer remains, in general, in the
employ of Bruno's until one year following the
Effective Time of the Merger or for such shorter
period as may be determined by the Board of Directors
following the Merger. See "THE MERGER--Interests of
Certain Persons in the Merger."
The five Executive Officers and 14 other employees of
the Company are parties to Employment Continuity
Agreements with the Company. The Employment Continuity
Agreements provide for lump sum cash payments equal to
three times, in the case of Ronald G. Bruno, two
times, in the case of the other Executive Officers and
one time, in the case of the other employees, the sum
of the employee's annual base salary at the time of
termination, plus his incentive compensation bonus for
the year preceding termination. Benefits under the
Employment Continuity Agreements are payable if a
covered employee's employment is terminated by the
employee for "good reason" or by the Company without
"cause" within one year following a "change of
control." Upon consummation of the Merger, the five
Executive Officers will be entitled to any amounts to
which they would have been entitled under the terms of
their respective Employment Continuity Agreements, if
such five Executive Officers remain, in general, in
the employ of the Company until one year following the
Effective Time of the Merger or for such shorter
period as may be determined by the Board of Directors
of Bruno's following the Merger. Ronald G. Bruno, Paul
F. Garrison, Glenn J. Griffin and Kenneth J. Bruno are
also Directors of the Company. See "THE
MERGER--Interests of Certain Persons in the Merger."
The estimated total value of all payments to which the
Executive Officers will be entitled under the Employ-
ment Continuity Agreements and the Deferred Compensa-
tion Agreements, together with the value of their
stock options which will vest in connection with the
Merger, is approximately $10,888,000.
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Shares of Bruno's Common Stock held by officers and
Directors of Bruno's will be converted into the right
to receive the same consideration as shares of Bruno's
Common Stock held by other shareholders. Company Stock
Options (as defined herein) held by the officers and
Directors of Bruno's will be treated in the same
manner as Company Stock Options held by other
shareholders, except that no such officers or Direc-
tors will be entitled to a cash payment equal to the
excess of $12.00 over the exercise price per share
subject to such Company Stock Option as described
under "THE MERGER--Effect on Stock and Employee
Benefit Matters."
Company Stock Options owned by the five Directors of the
Company who are not employed by the Company will vest
as a result of the Merger, providing a gain of
approximately $77,500 to each of such five
non-employee Directors for an aggregate gain of
approximately $387,500. See "THE MERGER--Interests of
Certain Persons in the Merger."
Pursuant to the Merger Agreement, the Company has agreed
for six years after the Effective Time of the Merger
to indemnify all present and former Directors and
officers of the Company and its subsidiaries and will,
subject to certain limitations, maintain for six years
its current directors' and officers' insurance and
indemnification policy. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Indemnification and Insurance."
Termination of the Merger
Agreement....................... The Merger Agreement may be terminated at any time prior
to the Effective Time of the Merger: (i) by mutual
consent of Crimson and Bruno's; (ii) by either Crimson
or Bruno's (a) if a court or other governmental entity
shall have issued a final and nonappealable order,
decree or ruling or taken any other final and
nonappealable action permanently enjoining or
otherwise prohibiting the Merger or (b) if the Merger
shall not have been consummated on or before October
31, 1995 (other than due to the failure of the party
seeking to terminate the Merger Agreement to perform
its obligations under the Merger Agreement required to
be performed at or prior to the Effective Time of the
Merger); or (iii) by Crimson or Bruno's in certain
other situations. Under certain circumstances
generally related to the presence of a third party
transaction proposal or the acquisition by a third
party of Bruno's Common Stock, termination of the
Merger Agreement prior to the Effective Time of the
Merger will result in the payment of a fee of $30
million from the Company to KKR. See "CERTAIN PROVI-
SIONS OF THE MERGER AGREEMENT--Termination" and
"--Expenses and Certain Required Payments."
Stockholders Agreement............ Pursuant to the Stockholders Agreement, holders of
19,195,009 (approximately 24%) of the outstanding
shares of Bruno's Common Stock have agreed, among
other things
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and subject to certain conditions, to vote in favor of
the Merger Agreement. In addition, the shareholders
party to the Stockholders Agreement are prohibited,
subject to certain conditions and exceptions, from
soliciting or responding to certain inquiries or
proposals made by any person or entity (other than the
Partnership, Crimson or any affiliate of Crimson) with
respect to the Company that constitutes or could
reasonably be expected to lead to a transaction propo-
sal with another party and from taking certain other
actions. Subject to certain conditions and exceptions,
these shareholders are also not permitted to dispose
of, or enter into any contract, option or other
arrangement or understanding with respect to or
consent to the disposition of, any or all such
shareholder's Bruno's Common Stock or any interest
therein. In addition, the Stockholders Agreement also
(i) provides that Ronald G. Bruno will serve as a
Director of the Company for three years following the
Effective Time of the Merger, subject to the customary
right of a director to resign, and (ii) includes
certain non-competition agreements. The covenants and
agreements in the Stockholders Agreement terminate on
the first to occur of (i) the Effective Time of the
Merger and (ii) the termination of the Merger
Agreement in accordance with its terms; provided that
certain covenants will survive the Effective Time of
the Merger. For a summary of the foregoing provisions
and certain other provisions of the Stockholders
Agreement, see "CERTAIN RELATED
AGREEMENTS--Stockholders Agreement."
Stock Option Agreement............ Pursuant to the terms of the Option Agreement, as
amended, Bruno's has granted to Crimson an irrevocable
option (the "Option") to purchase up to 15,541,570
newly issued shares of Bruno's Common Stock
(representing approximately 19.9% of the outstanding
Bruno's Common Stock) (the "Option Shares") at a price
of $12.00 per share, subject to upward adjustment in
certain circumstances involving third party
transactions. The Option may be exercised by Crimson,
or its designee (which may be an affiliate or a third
party), in whole or in part, at any time, or from time
to time, during the period beginning on the date of
the Merger Agreement and ending on the first to occur
of (i) the Effective Time of the Merger and (ii) April
30, 1996. In the event Crimson exercises the Option
prior to the Effective Time of the Merger, upon
payment of $186,498,840 to the Company, it would be
entitled to receive 15,541,570 shares of Bruno's
Common Stock, which would represent approximately
16.6% of the outstanding Bruno's Common Stock after
giving effect to the issuance of such shares. Such
shares would be cancelled and would not be entitled to
be converted into any merger consideration in the
Merger. For a summary of the foregoing provisions and
certain other provisions of the Option Agreement, see
"CERTAIN RELATED AGREEMENTS--Stock Option Agreement."
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With respect to the potentially dilutive effects of
any exercise of the Option, see "RISK
FACTORS--Potential Dilution of Bruno's Shareholders."
Crimson and the Partnership....... Crimson, an Alabama corporation and as of the date
hereof a wholly owned subsidiary of the Partnership, was
organized in connection with the Merger and has not
carried on any activities to date other than those
incident to its formation and the transactions
contemplated by the Merger Agreement. As of the date
hereof, the Partnership owns 100% of the outstanding
shares of common stock of Crimson. The Partnership is
a Delaware limited partnership, the general partner of
which is KKR Associates, an affiliate of KKR. The
principal assets of the Partnership consist of the
shares of common stock it owns of Crimson. The
principal offices of Crimson and the Partnership are
located at 9 West 57th Street, New York, New York,
10019; telephone number (212) 750-8300.
Conversion of Crimson Stock....... As a result of the Merger, in connection with an equity
contribution of $250 million, the Partnership will
receive 20,833,333 shares of Bruno's Common Stock,
which is estimated to be approximately 83.33% of the
shares of Bruno's Common Stock expected to be
outstanding after the Merger, and warrants (the
"Warrants") to purchase up to an additional 10,000,000
shares of Bruno's Common Stock at an exercise price of
$12.00 per share, subject to certain anti-dilution
adjustments. Each Warrant will be exercisable at any
time or from time to time in whole or in part at the
discretion of the holder for a period of ten years
after the Effective Time of the Merger and will
provide for the issuance by Bruno's, at the election
of the holder of the Warrants and in lieu of the
payment of the aggregate exercise price, of newly
issued shares of Bruno's Common Stock having a value
equal to the difference between (x) the fair market
value (as defined under "THE MERGER--Conversion of
Crimson Stock") at the time of such exercise of such
number of shares of Bruno's Common Stock (or fraction
thereof) for which such Warrant is then exercisable
and (y) the exercise price multiplied by the number of
shares of Bruno's Common Stock (or fraction thereof)
for which such Warrant is then exercisable. See "RISK
FACTORS-- Potential Dilution of Bruno's Shareholders."
Dissenting Shareholders' Rights... Under Article 13 of the Alabama Business Corporation Act
(the "ABCA"), a shareholder of the Company may dissent
from the Merger and obtain payment for the fair value
of his or her shares of Bruno's Common Stock. In order
to dissent, (i) the dissenting shareholder must
deliver to the Company, prior to the vote being taken
on the Merger at the Special Meeting, written notice
of his or her intent to demand payment for his or her
shares of Bruno's Common
</TABLE>
14
<PAGE>
<TABLE>
<S> <C>
Stock if the Merger is effected and (ii) the
dissenting shareholder must not vote in favor of the
Merger. See "DISSENTING SHAREHOLDERS' RIGHTS" and
ANNEX V.
SELECTED FINANCIAL DATA Set forth on the following pages are certain selected
historical and pro forma financial and other data
relating to Bruno's and the Merger. The selected
historical data should be read in conjunction with
Bruno's historical financial statements, including the
notes thereto, incorporated by reference in this Proxy
Statement. The selected pro forma financial data
should be read in conjunction with the Pro Forma
Consolidated Condensed Financial Statements, including
the notes thereto, appearing elsewhere in this Proxy
Statement.
</TABLE>
15
<PAGE>
SELECTED CONSOLIDATED HISTORICAL FINANCIAL DATA OF BRUNO'S, INC.
The following table sets forth selected consolidated historical financial
data of the Company which for the five fiscal years ended July 2, 1994 have been
derived from, and should be read in conjunction with, the audited consolidated
financial statements of the Company incorporated by reference herein, and which
for the forty weeks ended April 9, 1994 and April 8, 1995 have been derived
from, and should be read in conjunction with, the unaudited interim consolidated
financial statements of the Company incorporated by reference herein, including
in each case the respective notes thereto. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE." In the opinion of management,
all adjustments considered necessary for a fair presentation have been included
in the unaudited interim data. Interim results for the forty weeks ended April
8, 1995, are not necessarily indicative of results which may be expected for
future periods, including the fiscal year ended July 1, 1995.
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
JUNE 30, JUNE 29, JUNE 27, JULY 3, JULY 2, APRIL 9, APRIL 8,
1990 1991 1992 1993 1994 1994 1995
(52 WEEKS) (52 WEEKS) (52 WEEKS) (53 WEEKS) (52 WEEKS) (40 WEEKS) (40 WEEKS)
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
SELECTED INCOME STATEMENT
DATA:
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $2,394,788 $2,585,934 $2,657,846 $2,872,327 $2,834,688 $2,173,757 $2,201,015
Cost of products sold....... 1,871,946 2,012,042 2,067,560 2,242,455 2,185,587 1,679,689 1,684,816
---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross profit............... 522,842 573,892 590,286 629,872 649,101 494,068 516,199
Store operating, selling
and administrative
expenses (1)............... 373,325 410,464 439,713 489,950 512,063 391,436 424,789
Depreciation and
amortization............... 36,366 40,758 44,261 48,718 52,343 41,228 41,485
Interest expense, net....... 13,240 11,005 10,777 17,817 15,925 12,717 16,011
Writedown of property and
securities................. 0 0 8,393 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before income
taxes and extraordinary
item..................... 99,911 111,665 87,142 73,387 68,770 48,687 33,914
Provision for income taxes
(2)........................ 37,275 40,854 30,776 26,493 28,189 20,725 12,887
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income from continuing
operations before
extraordinary item....... 62,636 70,811 56,366 46,894 40,581 27,962 21,027
---------- ---------- ---------- ---------- ---------- ---------- ----------
Discontinued operations,
net: (3)
Loss on disposal........... 0 0 (8,550) 0 0 0 0
Loss from operations....... (2,498) (4,085) (4,400) 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
(2,498) (4,085) (12,950) 0 0 0 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income before extraordinary
item...................... 60,138 66,726 43,416 46,894 40,581 27,962 21,027
Extraordinary item, net..... (2,039) 0 0 0 (3,288) (3,288) 0
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income................. $ 58,099 $ 66,726 $ 43,416 $ 46,894 $ 37,293 $ 24,674 $ 21,027
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Earnings per common share:
Income from continuing
operations before
extraordinary item....... $ 0.77 $ 0.87 $ 0.69 $ 0.60 $ 0.52 $ 0.36 $ 0.27
Discontinued operations,
net....................... (0.03) (0.05) (0.16) 0.00 0.00 0.00 0.00
Extraordinary item, net.... (0.03) 0.00 0.00 0.00 (0.04) (0.04) 0.00
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net income............... $ 0.71 $ 0.82 $ 0.53 $ 0.60 $ 0.48 $ 0.32 $ 0.27
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Cash dividends per common
share..................... $ 0.14 $ 0.18 $ 0.20 $ 0.22 $ 0.24 $ 0.18 $ 0.20
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
Weighted average number of
common and common
equivalent shares
outstanding................ 81,580,000 81,661,000 81,874,000 78,717,000 78,088,000 78,087,000 77,591,000
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
UNAUDITED
-----------------------
JUNE 30, JUNE 29, JUNE 27, JULY 3, JULY 2, APRIL 9, APRIL 8,
1990 1991 1992 1993 1994 1994 1995
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
SELECTED BALANCE SHEET DATA:
Working capital............. $ 118,179 $ 125,286 $ 110,968 $ 117,510 $ 174,392 $ 183,370 $ 131,280
Property and equipment,
net........................ 378,056 420,113 467,824 543,877 540,139 546,403 515,461
Total assets................ 728,149 765,696 834,683 916,923 927,208 938,543 898,480
Long-term debt and
capitalized lease
obligations................. 180,134 175,750 172,190 269,046 296,460 322,621 220,071
Shareholders' investment.... 337,136 390,187 422,443 402,667 421,354 413,541 422,478
Book value per
common share............... 4.13 4.77 5.16 5.16 5.40 5.30 5.45
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ------------
(1) Store operating, selling and administrative expenses for the forty weeks
ended April 8, 1995 include a $22.2 million charge due to a change in
accounting estimate relating to the Company's self-insurance reserves.
(2) In the fiscal year ended July 2, 1994 and the forty weeks ended April 9,
1994, the Company recorded an additional tax provision of $2.2 million to
retroactively restate income tax liabilities to reflect the change in
federal income tax rates in connection with the Omnibus Budget
Reconciliation Act of 1993.
(3) In the fiscal year ended June 27, 1992, the Company sold its interest in a
joint venture formed for the purpose of developing hypermarket stores. The
Company has since discontinued its development of this format. Operating
results were reclassified in the prior two years to reflect this event.
17
<PAGE>
SELECTED PRO FORMA CONSOLIDATED FINANCIAL DATA OF BRUNO'S, INC.
(UNAUDITED)
The following table sets forth selected unaudited pro forma consolidated
financial data of the Company, as adjusted to give effect to the Merger, which
have been derived from, and should be read in conjunction with, the unaudited
Pro Forma Consolidated Condensed Financial Statements, including the notes
thereto, appearing elsewhere in this Proxy Statement. See "PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS." The selected pro forma
consolidated financial data are presented for illustrative purposes only and are
not necessarily indicative of the operating results or financial position that
would have occurred if the Merger had been consummated on the dates indicated,
nor are they necessarily indicative of future operating results or financial
position.
<TABLE>
<CAPTION>
PRO-FORMA--UNAUDITED (2)
--------------------------------
JULY 2, 1994 APRIL 8, 1995
(52 WEEKS) (40 WEEKS)
------------ -------------
(DOLLAR AMOUNTS IN THOUSANDS,
EXCEPT PER SHARE DATA)
<S> <C> <C>
SELECTED INCOME STATEMENT DATA:
Net sales....................................................... $ 2,834,688 $ 2,201,015
Cost of products sold........................................... 2,185,587 1,684,816
------------ -------------
Gross profit.................................................... 649,101 516,199
Store operating, selling and administrative expenses (1)........ 512,063 424,789
Depreciation and amortization................................... 52,343 41,485
Interest expense, net (2)....................................... 89,025 68,111
------------ -------------
Income (Loss) before income taxes............................... (4,330) (18,186)
Income taxes.................................................... 411 (6,910)
------------ -------------
Net income (loss)............................................... $ (4,741) $ (11,276)
------------ -------------
------------ -------------
Primary earnings (loss) per share:.............................. $ (0.19) $ (0.45)
------------ -------------
------------ -------------
Weighted average shares outstanding............................. 25,007,015 25,007,015
------------ -------------
------------ -------------
SELECTED BALANCE SHEET DATA:
Working capital................................................. $ 131,280
Property and equipment, net..................................... 515,461
Total assets.................................................... 898,480
Long-term debt and capitalized lease obligations (2)............ 925,171
Shareholders' investment (deficit) (2).......................... (282,622)
Book value per common share..................................... (11.30)
</TABLE>
- ------------
(1) Store operating, selling and administrative expenses for the forty weeks
ended April 8, 1995 include a $22.2 million charge due to a change in
accounting estimate relating to the Company's self-insurance reserves.
(2) The pro forma statements give effect to the recapitalization and the
corresponding increases in debt levels and interest expense. Because
interest rates in connection with the Merger Financings have not been
determined as of the date of this Proxy Statement, the Company has estimated
pro forma interest expense for purposes of this presentation. See "PRO FORMA
CONSOLIDATED CONDENSED FINANCIAL STATEMENTS" for additional information on
assumed interest rates and the effects on certain income statement items of
incremental changes in such assumed interest rates.
18
<PAGE>
PRICE OF BRUNO'S COMMON STOCK
Bruno's Common Stock is listed and traded on the Nasdaq National Market
System ("Nasdaq") under the symbol "BRNO." The following table sets forth, for
the periods indicated, the high and low sales closing prices per share of
Bruno's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
---------------- -----------------
<S> <C> <C> <C> <C> <C>
FISCAL 1994
First Quarter (ended September 25, 1993)................... 12 1/4 9 1/8
Second Quarter (ended January 1, 1994)...................... 11 1/4 8 1/2
Third Quarter (ended April 9, 1994)........................ 9 3/8 7 1/8
Fourth Quarter (ended July 2, 1994)......................... 8 1/4 6 15/16
FISCAL 1995
First Quarter (ended September 24, 1994)................... 9 1/4 7
Second Quarter (ended December 31, 1994).................... 10 1/4 7 7/8
Third Quarter (ended April 8, 1995)........................ 10 3/16 9 1/4
Fourth Quarter (ended July 1, 1995)......................... 12 1/4 9 1/4
FISCAL 1996
First Quarter (to July 14, 1995)........................... 11 3/4 11 5/8
</TABLE>
On April 20, 1995, the last trading day before public announcement of the
execution of the Merger Agreement, the last sale price of Bruno's Common Stock
as reported on Nasdaq was $9 1/4 per share. On May 18, 1995, the last trading
day before public announcement of execution of the amendment to the Merger
Agreement, the last sale price of Bruno's Common Stock as reported on Nasdaq was
$10 1/2 per share.
On July 14, 1995, the most recent practicable date prior to the printing of
this Proxy Statement, the last sale price of Bruno's Common Stock as reported on
Nasdaq was $11 3/4 per share.
Bruno's shareholders should obtain current market quotations for Bruno's
Common Stock.
19
<PAGE>
RISK FACTORS
Holders of Bruno's Common Stock should carefully consider the following
factors in connection with their consideration of the Merger.
CONTROL BY KKR
Upon completion of the Merger, approximately 83.33% of the outstanding
shares of Bruno's Common Stock (approximately 88% if all the Warrants are
exercised; see "--Potential Dilution to Bruno's Shareholders"), will be held by
the Partnership, of which KKR Associates, a New York limited partnership and an
affiliate of KKR, is the general partner. Accordingly, KKR Associates and its
general partners will control the Company and have the power to elect all of its
directors, appoint new management and to approve any action requiring the
approval of the holders of Bruno's Common Stock, including adopting amendments
to the Company's articles of incorporation and approving mergers or sales of
substantially all of the Company's assets. The directors elected by the
Partnership will have the authority to effect decisions affecting the capital
structure of the Company, including the issuance of additional capital stock,
the implementation of stock repurchase programs and the declaration of
dividends. There can be no assurance that the capital policies of the Company in
effect prior to the Merger will continue after the Merger.
DISCONTINUATION OF DIVIDENDS
Following the Merger, the payment of regular quarterly cash dividends on
Bruno's Common Stock will be discontinued. Further, no dividends on shares of
Bruno's Common Stock following the Merger are presently contemplated. In
addition, it is anticipated that the terms of any debt instruments to be entered
into in connection with the Merger Financings (as defined below) will prohibit
or otherwise restrict any future payment of dividends.
DELISTING; LOSS OF LIQUIDITY
Following the consummation of the Merger, the Company anticipates that it
will seek to have Bruno's Common Stock, which currently is traded on Nasdaq,
delisted. Any delisting of Bruno's Common Stock, together with the substantial
decrease in the number of shares of Bruno's Common Stock to be held by holders
thereof other than the Partnership, is expected to result in a substantial
decrease in the liquidity of Bruno's Common Stock, even if the Company continues
to be a reporting company under the Exchange Act and continues to file the
periodic reports (including annual and quarterly reports) required to be filed
thereunder.
Upon any such delisting, shares of Bruno's Common Stock would trade only in
the over-the-counter market. Although prices in respect of trades would be
published by the National Association of Securities Dealers, Inc. periodically
in the "pink sheets," quotes for such shares would not be readily available. As
a result, it is anticipated that the shares will trade much less frequently
relative to the trading volume of Bruno's Common Stock prior to the Merger.
SUBSTANTIAL LEVERAGE; SHAREHOLDERS' DEFICIT; LIQUIDITY
The Company is expected to issue subordinated debt securities and enter into
a syndicated senior secured credit facility (collectively, the "Merger
Financings") to finance the cash consideration to be paid to the shareholders of
Bruno's Common Stock in the Merger, to refinance the outstanding indebtedness of
the Company and to provide for working capital requirements. Upon completion of
the Merger Financings, the Company will have consolidated indebtedness that will
be substantial in relation to its shareholders' equity and substantially greater
than the Company's pre-Merger indebtedness. Upon consummation of the Merger, it
is expected that the Company will have consolidated indebtedness of
approximately $925 million. The increased indebtedness and higher debt-to-equity
ratio
20
<PAGE>
of the Company in comparison to that of the Company on a historical basis may
have the effect of reducing the flexibility of the Company to respond to
changing business and economic conditions, as well as limiting capital
expenditures. It is also expected that the Company will have a substantial
shareholders' deficit ($282.6 million on a pro forma basis at April 8, 1995) as
a result of the Merger since the distribution to shareholders, as well as all of
the Merger expenses, will be charged to shareholders' equity. Although the
definitive terms of the debt instruments to be issued in the Merger Financings
have not been finalized as of the date of this Proxy Statement, the Company
expects that such terms will include significant operating and financial
restrictions, such as limits on the Company's ability to incur indebtedness,
create liens, sell assets, engage in mergers or consolidations, make investments
and pay dividends.
In addition, the substantial leverage will have a negative effect on the
Company's net income. For the forty weeks ended April 8, 1995, the Company's net
income (loss), on a pro forma basis as adjusted to give effect to the Merger and
the Merger Financings, would have been $(11.3) million, compared to the
historical amount for such period of $21.0 million. For the fiscal year ended
July 2, 1994, the Company's net income (loss), on a pro forma basis as adjusted
to give effect to the Merger and the Merger Financings, would have been $(4.7)
million, compared to the historical amount for such period of $40.6 million. Pro
forma interest expense would have been $69.1 million and $89.6 million for the
forty weeks ended April 8, 1995 and the year ended July 2, 1994, respectively,
as compared to $20.7 million and $20.5 million, respectively, for the same
periods on a historical basis.
After the Merger is consummated, the Company's principal sources of
liquidity are expected to be cash flow from operations and borrowings under the
revolving credit portion of the senior secured credit facility. It is
anticipated that the Company's principal uses of liquidity will be to provide
working capital, meet debt service requirements and finance the Company's
strategic plans. The revolving credit facility will be available for the
Company's working capital needs, and a portion thereof will be available for the
issuance of letters of credit. The term loan portion of the senior secured
credit facility will be drawn in full upon consummation of the Merger. See "THE
MERGER--Merger Financings."
POTENTIAL DILUTION OF BRUNO'S SHAREHOLDERS
Upon completion of the Merger, the existing shareholders of the Company will
own 4,173,682 shares of Bruno's Common Stock in the aggregate, or approximately
16.67% of the outstanding shares, and the Partnership will own 20,833,333 shares
of Bruno's Common Stock in the aggregate, or approximately 83.33% of the
outstanding shares. The partnership will also hold the Warrants, which will
entitle the holder to purchase after the Effective Time of the Merger up to an
additional 10,000,000 shares of Bruno's Common Stock at an exercise price of
$12.00 per share, subject to certain anti-dilution adjustments. The Warrants are
exercisable in whole or in part at the election of the holder by either (i) the
payment of the aggregate exercise price or (ii) the receipt of that number of
shares of Bruno's Common Stock having a value equal to the difference between
(x) the fair market value at the time of exercise of such number of shares of
Bruno's Common Stock (or fraction thereof) for which such Warrant is then
exercisable and (y) the exercise price, multiplied by the number of shares of
Bruno's Common Stock (or fraction thereof) for which such Warrant is then
exercisable. If the Warrants were exercised in full by the payment of the
aggregate exercise price, the present holders of Bruno's Common Stock would own,
in the aggregate, approximately 11.9% of the outstanding shares (as compared to
16.67% of the outstanding shares without giving effect to the exercise of the
Warrants). In addition, such holders will experience a similar dilution in the
proportionate voting power of such shares.
Following the Merger, the Company may also grant to members of management
options to purchase Bruno's Common Stock, the exercise of which would further
dilute the holdings of such shareholders and also dilute the holdings of the
Partnership. No decision has been made with respect to the granting of any such
stock options.
21
<PAGE>
The Company has also granted Crimson the Option, which may be exercised at
any time up until the first to occur of (i) the Effective Time of the Merger and
(ii) April 30, 1996, at an exercise price of $12 per share, subject to
adjustment in certain circumstances. See "CERTAIN RELATED AGREEMENTS--Stock
Option Agreement." In the event Crimson exercises the Option prior to the Merger
and the Merger is not consummated, or if the Merger Agreement is terminated and
Crimson exercises the Option, then such exercise would have the effect of
diluting the percentage ownership of the current shareholders of Bruno's.
However, if Crimson exercises the Option prior to the Merger and the Merger is
approved, then shareholders after the Merger will not experience dilution as a
result of the Option because all shares owned by Crimson will be cancelled and
will not be converted into Merger consideration. Consequently, since the
Warrants will only be issued upon completion of the Merger, simultaneous
dilution from both the Warrants and the Option is not possible.
NON-CASH ELECTION AND PRORATION INTO CASH--POSSIBLE DIVIDEND TREATMENT
As described herein (subject to the Non-Cash Election Number), a shareholder
may make a Non-Cash Election and thereby elect to retain shares of Bruno's
Common Stock in the Merger. However, if the number of Electing Shares exceeds
the Non-Cash Election Number, such electing shareholder may receive some cash
for a portion of his Bruno's Common Stock as a result of the proration
procedures described herein under "THE MERGER--Non-Cash Election." In such
event, a shareholder may receive dividend treatment (rather than the generally
more favorable capital gain treatment) for any cash received in the Merger as a
result of such proration procedures. See "THE MERGER--Federal Income Tax
Consequences--Shareholders Receiving Cash" for a more detailed discussion of the
tax consequences of receiving cash. No such dividend treatment should be
applicable in the event shareholders who do not elect to retain shares receive
cash for their shares in the Merger or receive shares of Bruno's Common Stock as
a result of proration.
COMPETITION
The supermarket industry is highly competitive and characterized by narrow
profit margins. The Company's competitors include national and regional
supermarket chains, independent and specialty grocers, drug and convenience
stores, and the newer "alternative format" food stores, including warehouse club
stores, deep discount drug stores and "Supercenters." Supermarket chains
generally compete on the basis of location, quality of products, service, price,
product variety and store condition. The Company regularly monitors its
competitors' prices and adjusts its prices and marketing strategy as management
deems appropriate in light of existing conditions. The Company faces increased
competitive pressure in all of its markets, including Alabama, where it has
historically been the single largest supermarket chain, from existing
competitors and from threatened entry by one or more major new competitors. Some
of the Company's competitors have greater financial resources than the Company
and could use these resources to take measures which could adversely affect the
Company's competitive position. See "BUSINESS--Competition."
DIFFICULTY IN ACHIEVING POST-MERGER BUSINESS STRATEGY
The post-Merger business strategy that has been developed by Crimson is
based on Crimson's review of the Company's operations and the experience of
Crimson's affiliates in the supermarket industry. See "THE COMPANY--Post-Merger
Business Strategy." After the Merger and after gaining experience with the
Company's operations, Crimson and its new management team may decide to alter or
discontinue certain parts of the post-Merger business strategy described herein
and may adopt alternative or additional strategies. In addition, there can be no
assurance that such a strategy, if implemented, will be successful or will
improve operating results. Moreover, there can be no assurance that the
successful implementation of such a strategy will result in improved operating
results. Further, other conditions may exist, such as increased competition, or
an economic downturn in the Southeast region, which may offset any improved
operating results that are attributable to such a strategy.
22
<PAGE>
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Crimson expects that the new
chief executive officer will select key executives to replace the other four
senior executive officers who have agreed to remain with the Company for up to
one year after the Merger. No assurance can be given as to the timing of the
selection of a new chief executive officer, or as to the amount of time that
will be required to select and retain a new senior management team capable of
implementing the post-Merger business strategy for the Company. Although Mr.
Bruno and the four other departing senior executive officers have agreed to
remain with the Company for up to one year, the new senior management team may
require additional time to become sufficiently familiar with the Company's
operations to implement such strategy for the Company. In addition, the
transition period could negatively impact the existing operations of the
Company.
The implementation of the post-Merger business strategy for the Company will
require significant capital expenditures as the Company renovates and expands
its store base while supporting the operations of new stores until they become
profitable. There can be no assurance that sufficient financial resources will
be available from either future earnings or other sources to maintain such a
program.
Generally, new stores opened by the Company operate at a loss for varying
periods of time, depending on such factors as prevailing competition and the
Company's market position in the surrounding community. Pursuing a strategy of
growth and expansion in light of the current highly competitive industry
conditions could lead to a near-term decline in earnings as a result of opening
and operating a substantial number of new stores, particularly with respect to
stores in new markets where the Company does not have an established presence.
LABOR RELATIONS
Approximately 77% of the Company's employees are unionized. The Company's
collective bargaining agreement with the United Food and Commercial Workers
Union for its Food World stores in Alabama, which account for 24% of the
Company's workforce and 25% of the Company's stores, is due to expire on
September 30, 1995. While the Company believes that its relations with its
employees are good, a prolonged dispute could have a material adverse effect on
the Company.
GEOGRAPHIC CONCENTRATION
All of the Company's stores are located in the Southeast region,
particularly Alabama, and thus the performance of the Company will be
particularly influenced by developments in this area. Although the Southeast
region has experienced economic and demographic growth over the past several
years, a significant economic downturn in the region could have a material
adverse effect on the Company.
INTRODUCTION
This Proxy Statement is being furnished to holders of Bruno's Common Stock
in connection with the solicitation of proxies by the Board of Directors of
Bruno's for use at the Special Meeting of Bruno's shareholders to be held at
Medical Forum Auditorium, Birmingham-Jefferson Civic Center, 950 22nd Street
North, Birmingham, Alabama 35203 on August 18, 1995, beginning at 8:00 a.m.,
Central Time, and at any adjournments or postponements thereof. This Proxy
Statement is accompanied by a form of Proxy for use at the Special Meeting. At
the Special Meeting, Bruno's shareholders will be asked to (a) approve the
Merger, pursuant to which Crimson will merge with and into Bruno's, and the
Partnership will (i) become the owner of 20,833,333 shares, or approximately
83.33%, of the issued and outstanding shares of Bruno's Common Stock and (ii)
receive Warrants which will entitle the holder to purchase up to an additional
10,000,000 shares of Bruno's Common Stock at an exercise price of $12.00 per
share, (b) approve the increase of $1.1 billion in the bonded indebtedness of
Bruno's to finance the conversion into cash of approximately 94.7% of the issued
and outstanding shares of Bruno's Common Stock upon consummation of the Merger,
to refinance other outstanding indebtedness of the Company and to
23
<PAGE>
provide for working capital requirements (the "Bonded Indebtedness") and (c)
approve and adopt the Amended and Restated Articles of Incorporation, which
amend the Company's articles of incorporation to, among other things, reduce the
authorized shares of Bruno's Common Stock from 200,000,000 to 60,000,000.
This Proxy Statement also constitutes a prospectus of the Company with
respect to the shares of Bruno's Common Stock to be retained by shareholders
pursuant to the Merger, which prospectus is part of a Registration Statement on
Form S-4 filed by the Company with the Commission under the Securities Act of
1933, as amended (the "Securities Act").
This Proxy Statement and the accompanying form of proxy are being mailed to
shareholders of the Company on or about July 18, 1995.
THE COMPANY
All references to fiscal years in this section refer to the fiscal year
ending on the Saturday nearest June 30 of each year. All references to market
share and demographic data are based on industry publications and Company data
and, unless otherwise indicated, all references to numbers of stores are as of
July 1, 1995. The information contained herein concerning the plans of Crimson
for the Company after the Merger are based on information provided to the
Company by Crimson.
GENERAL
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi, and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. Through its 60 years of operations, the Company has
developed a valuable and strategically located store base, strong name
recognition, customer loyalty, and a reputation as a quality and service leader
among supermarket operators. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of 52% in Birmingham and approximately 30% throughout
Alabama, its leading market.
The Company operates stores under three principal formats, each addressed to
a different market segment: every day low price ("EDLP") stores aimed at the
value conscious shopper, upscale stores targeted to customers seeking service
and selection, and neighborhood stores stressing convenience in a community
setting. The Company's EDLP stores, comprised of Food World and FoodMax, are
widely regarded as low price leaders in their respective markets. The EDLP
format accounted for 57% of the Company's sales for the 40 weeks ended April 8,
1995. The Company's upscale stores, which operate primarily under the Bruno's
name, are widely regarded as quality, service, and perishables leaders in the
markets the Company serves, and generally have substantial breadth and depth of
product offerings. The upscale format accounted for 21% of the Company's sales
for the 40 weeks ended April 8, 1995. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products and various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. The Company's neighborhood stores, comprised
primarily of Piggly Wiggly and Food Fair, are typically located in small to
medium-sized towns and suburban neighborhoods and emphasize friendly service and
promotional pricing. The neighborhood format accounted for 22% of the Company's
sales for the 40 weeks ended April 8, 1995.
As discussed herein, the Company has entered into the Merger Agreement with
Crimson, a subsidiary of the Partnership, a partnership organized by KKR. KKR is
a private investment firm with extensive experience in the acquisition of
supermarket operators. Affiliates of KKR have organized
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partnerships which currently own significant positions in supermarket chains
with approximately 1,650 stores and combined sales of $27.5 billion in their
latest fiscal years, including controlling positions in Safeway, Inc.
("Safeway") and The Stop & Shop Companies, Inc. ("Stop & Shop"). Safeway is a
West Coast-based supermarket chain of 1,062 stores which was acquired by an
affiliate of KKR in 1986. From 1986 to 1994, Safeway increased its EBITDA margin
(operating income plus depreciation and amortization as a percentage of sales)
from 4.2% to 6.0%. Stop & Shop, a chain of 128 stores operating in the New
England market, was acquired by a KKR affiliate in 1988 and its supermarket
division realized an improvement in EBITDA margin from 4.9% in 1988 to 8.3% in
1994. No assurance can be given that the Company will experience similar margin
improvements after the Merger.
COMPANY STRENGTHS
As a leading regional supermarket operator, the Company has developed the
following principal strengths: (i) strong competitive position, (ii) prime
locations, (iii) attractive Southeast markets, (iv) recently remodeled and new
store base, (v) enhanced store mix, (vi) experienced and well-trained workforce
and (vii) valuable real estate portfolio.
Strong Competitive Position. The Company has achieved leading competitive
positions in many of its primary markets. In Birmingham, Alabama, which is the
Company's leading market, the Company's market share increased from 45% in 1990
to 52% in 1994. In addition the Company is the market leader in the state of
Alabama with a market share of approximately 30%. The Company's Alabama markets
accounted for approximately 55% of the Company's sales for the 40 weeks ended
April 8, 1995. The Company has also established strong competitive positions in
certain areas of Georgia, Florida and Tennessee. The Company believes that its
reputation for quality and service has created a valuable franchise with strong
name recognition and customer loyalty.
Prime Locations. The Company's 60 years of operation in the Southeast have
allowed it to build its store locations selectively, and the Company believes
that many of its current store locations are in prime sites that offer
significant competitive advantages. In addition, the Company's distribution
facilities, located in Birmingham, Alabama and Vidalia, Georgia, are
conveniently located close to major highways and can efficiently supply new
stores in the Company's existing markets, as well as potential new markets that
exist within such facilities' operating radius.
Attractive Southeast Markets. The Southeast is one of the fastest growing
regions in the United States in terms of population, income, and employment and
has experienced significant additions to its manufacturing base in recent years.
According to the Bureau of the Census, the population of the Southeast region
has increased at an annual rate of 1.5% since 1990, compared to the national
average of 1.1% over the same period. Retail sales of food in the Southeast are
outpacing national levels, with growth in the years 1993 and 1994 of 3.8% and
4.1% compared to national gains of 2.6% and 3.4%, respectively. Since all of the
Company's existing stores and currently planned new stores will be in the
Southeast, the Company believes that it will continue to benefit from the
economic strength of this region. Nevertheless, individual markets or regions
within the Southeast where the Company operates may experience economic and
demographic trends which differ from those of the region as a whole.
Recently Remodeled and New Store Base. The Company has developed a modern,
well-maintained store base. During the five years ended July 1, 1995, the
Company will have invested approximately $425 million in capital expenditures,
which will have been primarily directed to building new stores, expanding and
remodeling existing stores and improving its distribution facilities. During the
five fiscal years ended July 1, 1995, the Company will have opened 77 new
stores, closed or sold 55 stores and, over the last four fiscal years, expanded
or remodeled 81 existing stores. These investments have resulted in an increase
in total square footage of 15% since fiscal 1991 and an increase in average
store size from 38,300 square feet to 41,200 square feet over the same period.
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Enhanced Store Mix. The Company attempts to optimize operating results by
selecting a format for each store that is best suited to a site's demographics,
local preferences and competition. In recent years, the Company has expanded its
EDLP and upscale formats while continuing to invest in its neighborhood store
base, where appropriate. In addition, the Company has opened all 16 of its
Supercenter stores since 1992. The result of these changes is a store mix which
emphasizes higher volume stores offering higher margin products, positioning the
Company for continued growth and enhanced profitability. Due in part to the
Company's enhanced store mix, the Company's gross margin has increased from
21.8% in fiscal 1990 to 23.5% for the 40 weeks ended April 8, 1995.
Experienced and Well-Trained Workforce. The Company, with its strong
emphasis on its customers and employees, has developed a loyal, well-trained
workforce which includes many employees who have spent their entire careers with
the Company. The Company emphasizes training, development, and internal
promotions and believes that it possesses considerable management depth among
its middle managers, with store managers having an average of over 13 years of
experience with the Company.
Valuable Real Estate Portfolio. The Company owns, directly or through joint
ventures, 79 of the 252 stores which it operates, 30 of which are located in
shopping centers that the Company owns. The Company owns its two primary
distribution centers subject to arrangements with local industrial development
agencies. In addition, the Company owns land for development or expansion, as
well as certain non-operating real estate assets. In the aggregate, the Company
owns real estate which, as of July 2, 1994, had a net book value of
approximately $260 million. The Company believes that the fair market value of
its owned real estate assets exceeds the book value of such assets.
POST-MERGER BUSINESS STRATEGY
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Ronald G. Bruno, the chief
executive officer of the Company, and the other four senior executive officers
will remain with the Company for up to one year following the Merger to
accomplish the transition of ownership in an orderly fashion. Mr. Bruno has
agreed to remain on the Board of Directors of the Company for three years after
the Merger, subject to his customary right to resign. Crimson expects that the
new chief executive officer will select key executives to replace the departing
executives.
Crimson has developed a business strategy based on its review of the
Company's operations and the experience of its affiliates in the supermarket
industry. In concert with the new senior management team, Crimson intends to
continue certain strategies that have been successfully employed by the Company
and, additionally, to: (i) expand the Company's franchise in the Southeast
region, (ii) improve working capital management, (iii) grow the Company's
private label business, (iv) continue development of the Company's management
information systems and (v) continue improvement of the Company's store and
product mix.
Expand Company Franchise. Through its 60 years of operations in the
Southeast region, the Company has developed a valuable franchise which Crimson
believes can be expanded and enhanced through opening new stores both in
existing and potential new markets while continuing to upgrade the quality of
the Company's existing store base. Crimson intends to implement this strategy
while maintaining the Company's high level of product quality and customer
service.
Improve Working Capital Management. Crimson believes that the Company can
improve its working capital management. For example, the Company's ratio of
accounts payable to inventories, typically used as a measure of the level of
vendor financing for a supermarket or retail chain, is currently approximately
43% and the Company's ratio of cost of goods sold to inventory is currently 8.4
to 1. Both of these ratios are below the industry average. Under the control of
Crimson affiliates, Safeway and Stop & Shop have achieved improvements in
working capital management, although there can be no assurance that similar
improvements can be achieved by the Company.
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Grow Private Label Business. Private label products provide a substantially
higher gross margin to the Company and provide consumers with quality products
at lower prices than national brands. Recently, the Company has been focusing on
expanding and enhancing its private label program to provide additional products
and is evaluating the addition of a premium line of private label goods.
According to an industry analyst's survey, the industry average for private
label products as a percentage of total grocery sales is approximately 18.6%,
which is greater than the percentage of total grocery sales that is currently
contributed by the Company's private label program. Crimson intends to continue
the Company's increased emphasis on the higher margin private label business to
increase its contribution to overall Company sales and profitability.
Continue Development of Management Information Systems. In recent years, the
Company has increased its investment in management information systems ("MIS")
and is currently in the process of implementing various new software
applications and upgrading certain of its computer hardware. The Company's
point-of-sale ("POS") technology includes scanning systems and SwipeOut(R), the
Company's electronic payment system. However, opportunities exist for
operational improvements through MIS upgrades. Crimson intends to upgrade the
Company's POS technology and other systems to, among other things, improve the
monitoring of distribution center inventory levels and labor scheduling. Crimson
believes that these upgrades should result in performance and operating
improvements. Crimson intends to lease these enhanced management information
systems, which is expected to result in increased selling, general and
administrative expenses.
Improve Store and Product Mix. Crimson intends to continue the Company's
strategy of optimizing the mix of stores across the Company's store formats
through an emphasis on opening and remodeling stores that are closely tailored
to customer needs in a specific market. Crimson will continue the strategy of
emphasizing higher margin specialty products, general merchandise and
value-added services.
After the Merger, Crimson and the new management team may decide to alter or
discontinue certain of the strategies outlined above and will continually assess
whether other strategies should be adopted to complement or replace such
strategies. In addition, there can be no assurance that the strategies outlined
in this section, if implemented, will be successful or achieve the expected
level of operating improvement, or that sufficient financial resources will be
available to implement the strategies described above. Moreover, there can be no
assurance that the successful implementation of these strategies will result in
improved operating results, and other conditions may exist, such as increased
competition or an economic downturn in the Southeast region, to offset any
improved earnings that are attributable to such strategies.
THE SPECIAL MEETING
MATTERS TO BE CONSIDERED
The primary purpose of the Special Meeting is to vote upon a proposal to
approve and adopt the Merger Agreement entered into between Crimson, as of the
date hereof a wholly owned subsidiary of the Partnership, and Bruno's, including
the Merger. If the Merger is approved by the shareholders of Bruno's, Crimson
will merge with and into Bruno's and approximately 73.3 million shares of
Bruno's Common Stock currently held by Bruno's shareholders (representing
approximately 94.7% of shares of Bruno's Common Stock presently issued and
outstanding) will be converted into cash. The remaining 4,173,682 shares of the
presently issued and outstanding shares of Bruno's Common Stock will be retained
by existing shareholders of Bruno's. These shares which are to be retained
represent approximately 5.3% of shares of Bruno's Common Stock issued and
outstanding prior to the Merger and will represent approximately 16.67%
(approximately 11.9% if the Warrants are exercised in full) of the shares of
Bruno's Common Stock expected to be issued and outstanding immediately after the
Merger. If the Merger is approved, the common stock of Crimson, all of which is
owned on the date hereof by the Partnership, will be converted into (a)
20,833,333 shares of Bruno's Common Stock, which will represent approximately
83.33% of Bruno's Common Stock expected to be issued and outstanding after
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the Merger and (b) Warrants to purchase up to an additional 10,000,000 shares of
Bruno's Common Stock at an exercise price of $12.00 per share (see "THE
MERGER--Conversion of Crimson Stock"). If the Warrants are exercised in full
immediately after the Merger, Crimson will own approximately 88.1%, and the
other shareholders of Bruno's will own approximately 11.9%, of the issued and
outstanding shares of Bruno's Common Stock. If the Merger is approved by the
shareholders of Bruno's, the shareholders will also be asked to (i) approve the
increase of $1.1 billion in bonded indebtedness by Bruno's to finance the
conversion to cash of approximately 94.7% of the presently issued and
outstanding shares of Bruno's Common Stock upon consummation of the Merger, to
refinance Bruno's outstanding indebtedness and to provide for working capital
requirements (the "Bonded Indebtedness"); (ii) approve and adopt the Amended and
Restated Articles of Incorporation, which amend the Company's articles of
incorporation, among other things, to reduce the authorized shares of Bruno's
Common Stock from 200,000,000 to 60,000,000; and (iii) transact such other
business as properly may come before the meeting. The Board of Directors of the
Company is not presently aware of any such other business.
Immediately after the Effective Time of the Merger, there will be 25,007,015
shares of Bruno's Common Stock issued and outstanding. If the Warrants are
exercised in full immediately after the Merger, 10,000,000 additional shares of
Bruno's Common Stock will be issued, resulting in a total of 35,007,015 shares
of Bruno's Stock being issued and outstanding at such time. The Merger Agreement
(including the principal exhibits thereto) is attached to this Proxy Statement
as ANNEX I. See "THE MERGER" and "CERTAIN PROVISIONS OF THE MERGER AGREEMENT."
The Board of Directors of Bruno's has, by unanimous vote, approved the Merger
Agreement, as amended, and recommends a vote FOR approval of the Merger
Agreement, the Merger and the other proposals.
REQUIRED VOTES
The affirmative vote of the holders of at least 66 2/3% of the shares of
Bruno's Common Stock entitled to vote thereon is required to adopt and approve
the Merger Agreement and the actions contemplated thereby. In addition, the
affirmative vote of a majority of Bruno's Common Stock entitled to vote thereon
is required to consent to the increase in the Bonded Indebtedness and to approve
and adopt the Amended and Restated Articles of Incorporation. The consent to the
increase in Bonded Indebtedness and the approval of the Amended and Restated
Articles of Incorporation will be sought at the Special Meeting only if the
shareholders first approve the Merger.
Pursuant to the Stockholders Agreement, certain shareholders of the Company,
who own, or through fiduciary capacities have the right to vote, an aggregate of
19,195,009 shares of Bruno's Common Stock, constituting approximately 24% of the
Bruno's Common Stock outstanding as of the date hereof, have agreed to vote all
shares of Bruno's Common Stock held by them in favor of the Merger Agreement and
the other matters to be voted upon at the Special Meeting. The shareholders who
are parties to the Stockholders Agreement consist of three of the members of the
Board of Directors of the Company (Ronald G. Bruno and Kenneth J. Bruno, who are
brothers, and Joseph S. Bruno, who is their uncle) along with both immediate and
non-immediate members of their respective families and certain trusts and
foundations that are controlled by those persons. A conformed copy of the
Stockholders Agreement appears as ANNEX II to this Proxy Statement. See "CERTAIN
RELATED AGREEMENTS--Stockholders Agreement."
As of July 11, 1995, Directors and Executive Officers of the Company and
their affiliates were beneficial owners of an aggregate of 13,937,992 shares
(approximately 17.8%) of the outstanding shares of Bruno's Common Stock. The
Directors and Executive Officers of the Company who have not executed the
Stockholders Agreement, who own an aggregate of 720,842 shares (approximately
1%) of the outstanding Bruno's Common Stock, have indicated that they intend to
vote their shares of Bruno's Common Stock in favor of the Merger Agreement and
the other proposals.
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VOTING AND REVOCATION OF PROXIES
Shares of Bruno's Common Stock that are entitled to vote and are represented
by a Proxy properly signed and received at or prior to the Special Meeting,
unless subsequently properly revoked, will be voted in accordance with the
instructions indicated thereon. If a Proxy is signed and returned without
indicating any voting instructions, shares of Bruno's Common Stock represented
by such Proxy will be voted FOR the proposal to approve and adopt the Merger
Agreement and the transactions contemplated thereby, FOR the proposal to approve
the increase in the Bonded Indebtedness and FOR the proposal to approve and
adopt the Amended and Restated Articles of Incorporation. The Board of Directors
of Bruno's is not currently aware of any business to be acted upon at the
Special Meeting other than as described herein. If, however, other matters are
properly brought before the Special Meeting or any adjournments or postponements
thereof, the persons appointed as proxies will have the discretion to vote or
act thereon in accordance with their best judgment, unless authority to do so is
withheld in the Proxy. The persons appointed as proxies may not exercise their
discretionary voting authority to vote any such Proxy in favor of any
adjournments or postponements of the Special Meeting if instruction is given to
vote against the approval of the Merger and the other proposals.
Any Proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before the shares represented by such Proxy are voted at
the Special Meeting by (i) by attending and voting in person at the Special
Meeting, (ii) by giving notice of revocation of the Proxy at the Special
Meeting, or (iii) delivering to the Secretary of Bruno's (a) a written notice of
revocation or (b) a duly executed Proxy relating to the same shares and matters
to be considered at the Special Meeting, bearing a date later than the Proxy,
previously executed. Attendance at the Special Meeting will not in and of itself
constitute a revocation of a Proxy. All written notices of revocation and other
communications with respect to revocation of proxies should be addressed as
follows: 800 Lakeshore Parkway Birmingham, Alabama 35211 Attention: Secretary,
and must be received before the taking of the votes at the Special Meeting.
RECORD DATE; STOCK ENTITLED TO VOTE; QUORUM
Only holders of Bruno's Common Stock at the close of business on July 7,
1995 will be entitled to receive notice of and to vote at the Special Meeting.
At the close of business on the Record Date, the Company had outstanding and
entitled to vote 77,503,341 shares of Bruno's Common Stock. Shares of Bruno's
Common Stock represented by Proxies which are marked "abstain" or which are not
marked as to any particular matter or matters will be counted as shares present
for purposes of determining the presence of a quorum on all matters. Proxies
relating to "street name" shares that are voted by brokers will be counted as
shares present for purposes of determining the presence of a quorum on all
matters, but will not be treated as shares having voted at the Special Meeting
as to any proposal as to which authority to vote is withheld by the broker.
The presence, in person or by proxy, at the Special Meeting of the holders
of at least a majority of the votes entitled to be cast at the Special Meeting
is necessary to constitute a quorum for the transaction of business. Abstentions
will be counted as present for the purposes of determining whether a quorum is
present but will not be counted as votes cast in favor of the Merger Agreement
or the increase in the Bonded Indebtedness and the Amended and Restated Articles
of Incorporation. Because the vote on the Merger Agreement requires the approval
of 66 2/3%, and the votes on the Bonded Indebtedness and the Amended and
Restated Articles of Incorporation require the approval of a majority,
respectively, of the votes entitled to be cast by the shareholders of the
outstanding shares of Bruno's Common Stock, abstentions will have the same
effect as a negative vote on these proposals.
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DISSENTERS' RIGHTS
Each shareholder of Bruno's Common Stock has a right to dissent from the
Merger, and, if the Merger is consummated, to receive "fair value" for his
shares in cash by complying with the provisions of Alabama law, including
Sections 10-2B-13.02, 13.28 and 13.30 of the ABCA. The dissenting shareholder
must deliver to the Company, prior to the vote being taken on the Merger at the
Special Meeting, written notice of his or her intent to demand payment for his
or her shares if the Merger is effected and must not vote in favor of the
Merger. The full text of Article 13 of the ABCA is attached as ANNEX V hereto.
See "DISSENTING SHAREHOLDERS' RIGHTS" for a further discussion of such rights
and the legal consequences of voting shares of Bruno's Common Stock in favor of
the Merger.
SOLICITATION OF PROXIES
The Company will bear the cost of the solicitation of Proxies and the cost
of printing and mailing this Proxy Statement. In addition to solicitation by
mail, the directors, officers and employees of the Company may solicit Proxies
from shareholders of the Company by telephone, telegram or in person. Such
directors, officers and employees will not be additionally compensated for any
such solicitation but may be reimbursed for outstanding out-of-pocket expenses
in connection therewith. Arrangements will also be made with brokerage houses
and other custodians, nominees and fiduciaries for the forwarding of
solicitation material to the beneficial owners of shares held of record by such
persons and the Company will reimburse such custodians, nominees and fiduciaries
for their reasonable out-of-pocket expenses in connection therewith.
MacKenzie Partners, Inc. will assist in the solicitation of Proxies by the
Company for a fee of $7,000, plus reasonable out-of-pocket expenses.
ONLY HOLDERS OF BRUNO'S COMMON STOCK WHO WISH TO MAKE A NON-CASH ELECTION
ARE REQUIRED TO SEND STOCK CERTIFICATES WITH THEIR FORM OF ELECTION (AS DEFINED
BELOW). HOLDERS OF BRUNO'S COMMON STOCK SHOULD NOT SEND STOCK CERTIFICATES WITH
THEIR PROXY CARDS. SEE "THE MERGER--NON-CASH ELECTION" AND "--NON-CASH ELECTION
PROCEDURE."
--PROPOSAL ONE--
THE MERGER
BACKGROUND OF THE MERGER
The decision by the Company's Board of Directors to enter into the Merger
Agreement reflected, in part, an assessment of the risks and potential benefits
of strategic alternatives available to the Company against the risks and
benefits of a transaction that would offer all shareholders of the Company the
opportunity to receive a premium for their Bruno's Common Stock.
A significant factor in the Board's deliberation was an analysis performed
for senior management of the Company ("Management") by Robinson-Humphrey of the
strategic alternatives available to the Company. Management requested this
analysis for the purpose of assisting it in determining the best future course
of conduct for the Company in light of recent declining trends in the food
retailing industry, the competitive environment in the Company's market, and the
Company's projected needs for additional capital for future expansion. In recent
years, Management has attempted to improve the Company's profitability primarily
by focusing on maintaining its market share in its existing markets through the
remodeling of existing stores and the construction of a limited number of new
stores in those markets. Management believed that it could best improve its
profitability through that strategy, as
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opposed to entering new markets in the Southeast. Generally, new stores opened
by the Company operate at a loss for varying periods of time, depending on such
factors as prevailing competitive conditions and the Company's market position
in the surrounding community. Management believed that entering new markets
would be a risky strategy for the Company in view of the highly competitive
conditions existing in many of the markets which the Company would potentially
enter and in view of the Company's expectation that stores in new markets would
take longer to achieve profitability than new stores in existing markets.
However, by November of 1994, Management felt that, for the Company to
continue to grow and to remain profitable in the future, the Company would need
to undertake a more aggressive expansion program which would include entering
into new markets and increasing the rate at which it opened new stores and
remodeled existing stores in existing markets. Such a program would require
substantial capital to fund the renovations and expansion and to support the
operations of new stores until they became profitable. Management concluded that
pursuing a strategy of limited or no growth would ultimately be disadvantageous
to the Company and its shareholders. Pursuing a strategy of growth and expansion
in light of the current highly competitive industry conditions, however, could
lead to a decline in earnings as a result of having to open and operate a
substantial number of new stores, particularly with respect to stores in new
markets where the Company does not have an established presence. Management was
concerned that such decline in earnings would certainly lead to reduction in the
market price of the Company's Common Stock for the foreseeable future.
Management concluded that a sale of the Company was the most appropriate course
of action in order to maximize the return to the Company's shareholders.
Under these circumstances, Management engaged Robinson-Humphrey to analyze
the food retailing industry in general and the Company's strategic alternatives
in particular. Based on an analysis of financial and statistical information for
19 publicly-traded food retailers, Robinson-Humphrey offered the following
observations on the status of the industry as of November 1994:
. DIFFICULT AND COMPETITIVE ENVIRONMENT. Food retailers had experienced a
difficult operating environment and competitive pressure during the
previous three to five years as evidenced by (i) flat to negative
same-store sales growth for most companies, (ii) weak and/or declining
operating margins, and (iii) a slow down in square footage growth among
many of the major food retailing chains.
. UNDERPERFORMANCE OF SOUTHEASTERN OPERATORS. Significantly,
Robinson-Humphrey indicated that the negative operating trends appeared to
be more pronounced in those companies with significant operations in the
Southeast than for companies with greater exposure in other regions of the
country.
. POOR STOCK PERFORMANCE. Companies in the food retailing industry had
experienced poor stock price performance during the previous three to five
years. Only 5 of 18 companies analyzed by Robinson-Humphrey had achieved
compounded annual stock appreciation greater than 10% since November 1989,
and 10 of the 19 companies analyzed had experienced stock price declines
during the 1991 to 1994 period.
The information provided by Robinson-Humphrey with respect to conditions in
the industry was consistent with Management's observations of the competitive
conditions in the food retailing industry existing in the southeastern region.
The Company faces increased competitive pressure in all of its markets,
including Alabama, where it has historically been the single largest operator,
from existing competitors, as well as the threat of one or more major new
competitors entering the market. Furthermore, the Company's stock price
decreased at a compounded annual rate of 7.7% during the five-year period from
November 15, 1989 through November 15, 1994 and at a compounded annual rate of
15.1% during the three-year period from November 15, 1991 through November 15,
1994.
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Robinson-Humphrey evaluated the following strategic alternatives: (i)
maintain the status quo and continue to operate in substantially the same way
for the next five years, (ii) maintain the status quo for operations and
implement an aggressive program of repurchasing Bruno's Common Stock, (iii) sell
the Company to a financial buyer, (iv) consolidate with a larger food retailer
or with a food retailer of similar size, (v) sell underperforming stores and
(vi) grow by acquisition.
After thoroughly analyzing the various strategic alternatives presented by
Robinson-Humphrey, Management concluded that a sale of the Company was the
alternative most likely to maximize the return to the Company's shareholders.
Robinson-Humphrey's analysis indicated that the status quo, share repurchase and
sale of the underperforming stores alternatives likely would lead to modest
increases in stock value without substantially improving the Company's
competitive position. Similarly, the lack of suitable acquisition candidates in
the Southeast decreased the attractiveness of the growth by acquisition
strategy. Although a number of potential acquisition candidates exist, few offer
sufficient quality and scale to improve materially the Company's competitive
position.
After considering and rejecting the status quo, share repurchase and sale of
the underperforming stores alternatives, the two most viable strategic
alternatives considered by Management were a sale of the Company to a financial
buyer or a consolidation with a strategic partner in the industry. Management
believed that the availability of potential consolidation candidates would be
severely limited by three factors: (i) the unionization of the Company's work
force in light of the fact that certain prospective consolidation partners are
not unionized, (ii) the negative impact of the poor economic conditions in the
industry, and (iii) the lack of sufficient financial resources for certain
prospective consolidation partners.
While the Company was considering its alternatives, representatives of KKR
contacted the Company in December 1994. KKR, as a result of its interest in the
grocery business in general and the knowledge acquired from significant
investments by its affiliates in particular food retailers, including Safeway
and Stop & Shop, routinely evaluates potential investments in the industry and
monitors food retailers it considers to be attractive investment opportunities.
On December 19, 1994, representatives of KKR met with the Company to discuss the
prospects of a possible business combination with the Company. On December 20,
1994, KKR signed a confidentiality agreement (the "Confidentiality Agreement")
and began to receive from the Company certain nonpublic information about the
Company. After reviewing such nonpublic information, KKR proposed exploring
further a merger transaction. On March 20, 1995, Management and representatives
of Robinson-Humphrey met with KKR and representatives of Salomon Brothers Inc,
KKR's investment bankers, in New York to discuss the terms of a possible
transaction. At that meeting, KKR proposed a transaction with the Company in the
form of a merger, pursuant to which each share of Bruno's Common Stock in the
Merger would be converted into either cash and subordinated notes in an
aggregate amount of $12.00 or the right to retain that share of Bruno's Common
Stock.
Over the next two weeks, Management negotiated with representatives of KKR,
particularly with respect to the consideration to be received by the
shareholders of the Company in the proposed merger transaction.
Robinson-Humphrey advised the Company directly as to these points and also
participated in discussions with representatives of KKR's investment bankers. As
described below, however, the terms of the Merger were determined through direct
negotiations between Management and representatives of KKR.
On April 5, 1995, in light of Management's insistence in conversations with
representatives of KKR that the existing terms of KKR's offer were unlikely to
be approved by the Board, KKR revised its offer to provide that each share would
be converted into either $12.50 in cash or the right to retain that share, with
approximately 3% of the outstanding shares of Bruno's Common Stock being
retained in the Merger (which would represent approximately 10% of the
outstanding shares after the Merger). After discussing KKR's revised offer with
Robinson-Humphrey, Management felt that the merger terms proposed by KKR were
sufficient to be submitted to the Board of Directors of Bruno's for its
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consideration. On April 13, 1995, the Board met to consider the KKR proposal and
to discuss the other strategic alternatives previously discussed with management
by Robinson-Humphrey in November of 1994, including maintaining the status quo,
implementing an aggressive program of repurchasing Bruno's Common Stock,
consolidating with a larger food retailer or with a food retailer of similar
size, selling underperforming stores and growing by acquisition. A draft of the
KKR proposal was presented to the Board and was discussed at length. During the
meeting, Management explained its concerns about the future of the Company in
view of the competitive environment and the condition of the food retailing
industry in general and in the southeast in particular. The Board was advised
that KKR did not intend to retain the senior executive officers of the Company
for more than an interim period. Representatives of Robinson-Humphrey attended
the meeting and discussed their analysis of the food retailing industry and the
strategic alternatives available to the Company.
KKR's proposal contemplated the payment of (i) a fee of $30 million if the
Merger Agreement is terminated under certain circumstances generally related to
the presence of a third party transaction proposal or the acquisition by a third
party of Bruno's Common Stock, or a fee of $15 million payable if the Merger is
consummated in accordance with the Merger Agreement and (ii) and the
reimbursement of all of KKR's out-of-pocket expenses and fees to be incurred in
connection with the Merger and the transactions contemplated thereby, which
reimbursement was not subject to any limit or estimate. The proposal also
included a stock option agreement (the "Option Agreement"), pursuant to which
the Company would grant to KKR an option to purchase up to 19.9% of the
outstanding shares of Bruno's Common Stock, and a stockholders agreement (the
"Stockholders Agreement") under which certain shareholders of the Company
(members of the Bruno family holding approximately 24% of the Bruno's Common
Stock) would, among other things, agree to vote in favor of the Merger Agreement
at the Special Meeting. The KKR proposal was further contingent on completion of
a due diligence investigation by KKR, upon KKR obtaining financing for the
transaction, and other customary conditions present in transactions of this
type, including obtaining approval of the shareholders of the Company, the
continuing accuracy of the representations and warranties of the Company,
obtaining any necessary consents, and the absence of litigation seeking to
prohibit the consummation of the Merger. While the Board expressed concerns
about the proposal because of the contingencies, it recognized KKR's long
history of completing transactions successfully and received a letter from
Salomon Brothers Inc, KKR's investment bankers, in which Salomon Brothers Inc
expressed its belief that the capital structure in KKR's proposal could be
financed. The financing was expected to be accomplished through a combination of
equity capital to be contributed by affiliates of KKR, borrowings under a senior
secured credit facility and the issuance of debt securities in either the public
or private markets.
The Board was advised that under Alabama law the Merger would require the
affirmative vote of 66 2/3% of the Company's outstanding shares, and that a
special shareholders meeting would be needed to obtain the requisite approval.
The Board adjourned the meeting without approving the KKR proposal to allow the
Company's representatives to continue negotiating with respect to certain of the
non-financial terms of the proposal. In particular, the parties discussed the
reimbursement of KKR's out-of-pocket expenses and the imposition of a cap in
respect thereof, certain covenants required to be satisfied by the Company
between the time of a formal merger agreement with Crimson and the time the
merger closed and those terms which limited the right of the Company to engage
in discussions or negotiations with third parties making competing proposals for
a business combination with the Company. These items were addressed to the
satisfaction of the Company on the terms described in this Proxy Statement. As
of the date of this Proxy Statement, the Company has not received any competing
proposals. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Certain Pre-
Closing Covenants", "--No Solicitation of Transactions" and "--Expenses and
Certain Required Payments."
The Board reconvened on April 18, 1995, to consider further the proposal
from KKR. After reviewing and discussing the proposal, the Board instructed
Management to proceed to complete
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negotiation of a definitive merger agreement upon the terms and conditions
outlined in the meeting by the Company's representatives.
At the special meeting of the Board held on April 20, 1995, the Board
reviewed and discussed in detail the terms of the KKR proposal. In connection
with the Board's evaluation of the KKR proposal at such meeting,
Robinson-Humphrey made a presentation to the Board and rendered its oral opinion
to the Board (which it subsequently confirmed in writing) to the effect that,
based upon the facts and circumstances as they existed at April 20, 1995 and
subject to the various assumptions and considerations set forth in such opinion,
as of April 20, 1995, the consideration to be received in the Merger by the
Company's shareholders was fair from a financial point of view. With all members
present, the Board of Directors unanimously approved the proposal, the Merger
Agreement and the Option Agreement, and authorized Management to sign the
agreements. On April 20, 1995, the Company and Crimson entered into the Merger
Agreement and the Option Agreement and Crimson and the shareholders party
thereto entered into the Stockholders Agreement. The terms of the transaction
were announced in a joint press release on April 20, 1995. For a description of
the Merger Agreement, the Option Agreement and the Stockholders Agreement, see
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT" and "CERTAIN RELATED AGREEMENTS."
On May 11, 1995, the Company and Crimson issued a joint press release
announcing the extension of the period of time during which Crimson would have
to complete its due diligence review of the Company. The period, which was to
have ended on May 11, 1995, was extended in order to allow Crimson to assess the
materiality to the Merger of certain information which had been provided by
Bruno's concerning the levels of future cash flow of the Company. In particular,
Crimson was concerned about (i) the level of cash payments which would be
required in the future to satisfy the Company's obligations under its
self-insurance programs, in addition to the impact of such programs on the
Company's projected results of operations, and (ii) the impact of cash payments
received in fiscal 1995 related to certain multi-year vendor arrangements on
reported earnings and on projected cash flows. See "--Accounting Adjustments."
On May 16, 1995, representatives of the Company and KKR met to discuss
revisions to the Merger Agreement which KKR felt were necessary as a result of
its assessment of the information provided to it by the Company concerning
levels of future cash flow of the Company. After further negotiations, Crimson
proposed consideration to Bruno's shareholders of $12.00 per share, payable in
cash or in Bruno's Common Stock, at the election of each shareholder, provided
that the number of shares of Bruno's Common Stock to be retained by existing
shareholders of the Company would be 4,173,682, which would represent
approximately 16.67% of the shares of Bruno's Common Stock estimated to be
outstanding after the Merger (as compared to 10% in the originally agreed
transaction). In addition, the Partnership would receive 20,833,333 shares of
Bruno's Common Stock (which would represent approximately 83.33% of the
outstanding shares after the Merger) and the Warrants, which would entitle the
holder to purchase up to an additional 10,000,000 shares of Bruno's Common Stock
at a purchase price of $12.00 per share at any time or from time to time in
whole or in part during the ten year period following the Effective Time of the
Merger. The terms of the originally agreed transaction did not include Warrants.
See "THE MERGER--Conversion of Crimson Stock." In addition, the exercise price
pursuant to the Option Agreement was proposed to be adjusted from $12.50 per
share to $12.00 per share. The Board of Directors of the Company met on May 18,
1995 to consider the proposed amendments to the Merger Agreement and Option
Agreement. At that meeting, Robinson-Humphrey delivered a second fairness
opinion, which is included herein as Annex IV, and which concludes that the
consideration to be received by the shareholders of the Company in the Merger,
as amended, is fair to such shareholders from a financial point of view. After a
lengthy and thorough discussion of the proposed amendments, the Board of
Directors of the Company, with all members in attendance, unanimously approved
the Merger Agreement, as amended, the Option Agreement, as amended, and the
Merger. On May 19, 1995, the Company and Crimson issued a joint press release
announcing the terms of the Merger Agreement, as amended.
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Crimson's right to terminate the Merger Agreement in connection with its due
diligence investigation expired on May 18, 1995.
ACCOUNTING ADJUSTMENTS
On May 18, 1995, the Company announced that it had reviewed the methodology
it used to estimate required balance sheet reserves for self-insured workers'
compensation and general liability claims. The Company has historically followed
the guidance in SFAS No. 5 and SFAS No. 112 to account for exposures under its
workers' compensation, general liability and medical self-insurance programs.
This guidance requires accrual of the best estimate of probable liabilities
within a range of loss estimates. In applying this accounting principle, the
Company has consistently utilized case estimates of probable liabilities
prepared by experienced parties (independent third party administrators for most
claims) using all available claims data as to the extent of losses and related
costs. The Company believes this practice to be consistent with the method used
by many other companies. Because (a) the number of stores and employees had
remained flat from fiscal 1992 through fiscal 1995, (b) annual cash payments
under these plans had only increased approximately 6% during fiscal 1993 through
fiscal 1995 (an average of 3% per year) and (c) the number of outstanding claims
had also remained relatively flat, the Company did not believe a complete
actuarial study was either necessary or cost beneficial. Consequently,
actuarially-based computations were previously not performed.
During May 1995, as part of its due diligence procedures in connection with
the Merger, KKR independently obtained actuarially-based estimates of the
Company's liabilities for workers' compensation and general liability
self-insurance exposures which were substantially higher than the Company's case
estimates. After review of these estimates and consultation with its advisors,
the Company determined that these actuarial techniques provided better estimates
than those which had previously been used by the Company. The Company then
computed new estimated reserve requirements using actuarial techniques, and, in
accordance with its policy and SFAS No. 5 and SFAS No. 112, recorded an
adjustment to increase these self-insurance reserves by approximately $22.2
million (approximately $13.8 million net of income taxes) as a change in
accounting estimate in the third fiscal quarter ended April 8, 1995. The Company
will use actuarial techniques consistent with those used in making the third
quarter adjustment in the valuation of self-insurance reserves in future
periods. In addition, the Company determined that a $5 million vendor rebate
received and recorded as a reduction of cost of sales in the third quarter
should have been deferred and amortized to income over the multi-year term of
the vendor agreement. Thus, the previously announced third quarter cost of sales
was adjusted to account more appropriately for this item. The Company's third
quarter financial results were previously announced on May 1, 1995. The effect
of these adjustments in the third quarter was to reduce, from previously
announced results, the Company's net income for the quarter from $12.3 million
(or $.16 per share) to a net loss of $4.6 million (or $.06 per share) and for
the year to date from $37.9 million (or $.49 per share) to $21.0 million (or
$.27 per share).
RECOMMENDATION OF THE BOARD OF DIRECTORS; REASONS FOR THE MERGER
At its meeting on May 18, 1995, the Board of Directors determined that the
Merger Agreement, as amended and the Option Agreement, as amended, taken
together, are fair to the shareholders of the Company and recommended that
holders of Bruno's Common Stock accept the terms of the Merger and approve the
Merger Agreement, as amended. This determination was made by the entire Board at
such meeting. As described under "--Background of the Merger," the Board was
confronted with difficult decisions about the future of the Company in light of
the competitive environment in the food retailing industry generally and in the
Southeast in particular. The Board heard reports from Management and
Robinson-Humphrey about the condition of the food retailing industry, the
Company's position in that industry and the Company's prospects for the future.
The Board's decision to enter into the Merger Agreement, as amended, and the
Option Agreement, as amended, was based, in large part, upon balancing the risks
and benefits of the Merger against the risks and benefits of the other strategic
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alternatives available to the Company. Of the strategic alternatives available
to the Company, the Merger was deemed by the Board to be the alternative which
would yield the best results to the shareholders of the Company from a financial
point of view. See "--Background of the Merger."
The recommendation by the Board that the Company's shareholders approve and
adopt the Merger Agreement, as amended, is not, and should not be considered to
be, a recommendation that the shareholders elect to retain or, alternatively,
that the shareholders sell shares of Bruno's Common Stock held by them in the
Merger.
In its deliberations, the Board considered a number of factors including,
without limitation, the following:
1. The Board's knowledge of the business, operations, properties,
assets, financial condition, operating results and prospects of the Company
(see "--Background of the Merger");
2. The Board's judgment as to the future prospects of the Company in
light of Management's and Robinson-Humphrey's analysis of the food retailing
industry and the competitive environment in the Company's markets, which the
Board viewed as posing significant risks for the future equity value of the
Company;
3. The potential negative impact on the market price of Bruno's Common
Stock that would likely occur from an aggressive store expansion program
that Management estimated would be required to maintain market share and
compete more effectively in the Company's markets. In Management's opinion,
such a program would require the Company to operate a significant number of
new stores at an extended loss for a period of time, which would decrease
earnings;
4. The oral and written presentations of Robinson-Humphrey and the
opinion of Robinson-Humphrey that, as of May 18, 1995, the consideration to
be received by the shareholders of the Company in the Merger is fair to such
shareholders from a financial point of view. See "--Opinion of Financial
Advisor" for a discussion of the factors considered in rendering the
opinion. Such opinion, which is subject to limitations, qualifications and
assumptions, is included as ANNEX IV hereto, and should be read in its
entirety;
5. The terms and conditions of the Merger Agreement, as amended, the
Option Agreement, as amended, and the Stockholders Agreement. The Board
considered in particular the "no-solicitation" provision of the Merger
Agreement, as amended, the fees and expense reimbursements payable to KKR
(which could require payments of up to $42.5 million in the aggregate and
which provisions were negotiated at arm's length between the parties) and
the termination provisions of the Merger Agreement, as amended, the Option
Agreement, as amended, and the Stockholders Agreement. The Board analyzed
each of the foregoing provisions carefully in seeking to fulfill its
fiduciary duties to the shareholders of the Company. The Board considered
the impact of the "no-solicitation" provision of the Merger Agreement, as
amended, on the Company's ability to negotiate with third parties interested
in acquiring the Company. The Board sought to balance the interests of KKR,
which the Board believed had made an attractive acquisition offer for the
Company, in limiting the Company's right to consider other offers, against
the interests of Bruno's shareholders in obtaining the best price for their
Bruno's Common Stock. The Board was careful to negotiate provisions in the
Merger Agreement that would allow it to fulfill its fiduciary duties in the
event an unsolicited offer from a third party was received. While the Merger
Agreement prohibited the Company from soliciting third-party offers, it did
not prohibit the Company from considering unsolicited third-party offers.
Also, the Board negotiated provisions in the Merger Agreement that would
result in the termination thereof in the event an offer more favorable than
the KKR offer is received from a third-party. In such event, the Company
would be required to pay KKR a termination fee of $30,000,000 and to
reimburse KKR for its expenses up to $12,500,000. The Board concluded that
the aggregate amount of such fees and expense reimbursements would not
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preclude a third-party from making an offer that was materially more
favorable to the Company's shareholders. The Board also considered the
effect of the issuance of the Warrants to KKR and determined that the
consideration payable to the Company's shareholders was fair. The Board
determined that the issuance of the Warrants by the Company would not
materially affect the value of the consideration to be received by the
Company's shareholders because approximately 94.7% of that consideration
would be in cash.
6. The Board considered the conditions included in the Merger Agreement,
including the financing contingency, and concluded that KKR has a long
history of closing similar transactions, which mitigates the risk that the
financing contingency clause will be exercised;
7. Possible alternatives to the Merger, including continuing to operate
the Company as an independent public company, merging with a strategic
partner in the food retailing industry, acquiring shares of Bruno's Common
Stock in the open market or selling underperforming stores, as well as the
impact, short term and long term, of such alternatives on the value of the
Company;
8. The historical market price of Bruno's Common Stock, which had ranged
from $6.94 per share to $10.19 per share during the year ended April 20,
1995, the last trading day prior to the announcement of the signing of the
Merger Agreement, and from $6.94 per share to $16.00 per share during the
three years ended April 20, 1995;
9. The fact that the consideration to be received by the Company's
shareholders in the Merger represents an approximately 30% premium over the
closing price of Bruno's Common Stock of $9 1/4 per share on April 20, 1995,
the last trading day prior to the announcement of the signing of the Merger
Agreement;
10. The fact that the consideration to be received by the shareholders
of the Company in the Merger will consist, in the aggregate, of
approximately 94.7% cash;
11. The fact that the shareholders of the Company will have the right to
elect to receive cash or retain Bruno's Common Stock (up to 4,173,682 shares
in the aggregate), subject to proration, which right the Board believed
would provide the possibility of some flexibility to any of the Company's
shareholders who might desire to retain more Bruno's Common Stock after the
Merger than would automatically be retained under a non-election based
formula (subject to proration if the Company's shareholders elected to
retain more than 4,173,682 shares). This election would also provide the
possibility that the Company's shareholders who desire to receive more cash
for their shares than would be provided under a non-election based formula
would receive such additional cash if shareholders ultimately elect to
retain more than 4,173,682 shares of Bruno's Common Stock in the aggregate.
The Board considered these benefits to outweigh any detriment resulting from
the uncertainty of the precise nature of the consideration to be received by
each individual shareholder in the Merger; and
12. The taxable nature of the transaction with respect to the cash
received in the Merger (as opposed to a transaction that would be tax-free).
The Board evaluated the potential tax consequences of the transaction and
concluded that the transaction was attractive to the Company's shareholders
even though they would be taxed on the cash received. This was because the
total consideration to be received represented a substantial premium over $9
1/4, the closing price of the Bruno's Common Stock on April 20, 1995, and
was payable primarily in cash at the time the Merger is consummated.
The foregoing discussion of the information and factors considered and given
weight by the Board is not intended to be exhaustive. In view of the variety of
factors considered in connection with its evaluation of the Merger, the Board
did not find it practicable to, and did not, quantify or otherwise assign
relative weights to the specific factors considered in reaching its
determination. In addition, individual members of the Board may have given
different weights to different factors.
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OPINION OF FINANCIAL ADVISOR
The Company retained Robinson-Humphrey to act, among other things as its
financial advisor in the Merger. On May 18, 1995, Robinson-Humphrey delivered
its written opinion to the Company's Board of Directors that, as of such date,
the consideration to be received by the shareholders of the Company in the
Merger was fair to such shareholders from a financial point of view. No
limitations were imposed by the Company's Board of Directors upon
Robinson-Humphrey with respect to the investigations made or the procedures
followed by it in rendering its opinion, except that Robinson-Humphrey was not
authorized to, and did not, solicit any indications of interest from any third
party to acquire all or any part of the Company.
In rendering its opinion, Robinson-Humphrey reviewed, among other things,
(i) the Merger Agreement, (ii) publicly available information concerning the
Company, which Robinson-Humphrey believed to be relevant to its inquiry; (iii)
financial and operating information with respect to the business, operations and
prospects of the Company furnished to Robinson-Humphrey by the Company; (iv) a
trading history of Bruno's Common Stock from April 13, 1992 through May 17, 1995
and a comparison of that trading history with those of other companies which
Robinson-Humphrey deemed relevant, (v) a comparison of the historical financial
results and present financial condition of the Company with those of other
companies which Robinson-Humphrey deemed relevant, (vi) a comparison of the
financial terms of the Merger, as amended, with the financial terms of certain
other recent transactions which Robinson-Humphrey deemed relevant, and (vii)
certain historical data relating to percentage premiums paid in acquisitions of
publicly traded companies. In addition, Robinson-Humphrey held discussions with
Management concerning its business and operations, assets, present condition and
future prospects and undertook such other studies, analyses and investigations
as Robinson-Humphrey deemed appropriate. The foregoing factors represent all of
the material factors considered by Robinson-Humphrey.
In rendering its opinion, Robinson-Humphrey assumed and relied upon the
accuracy and completeness of the financial and other information used by it
without independent verification. Robinson-Humphrey further relied upon the
assurances of Management that they were not aware of any facts that would make
such information inaccurate or misleading. With respect to the financial
forecasts provided to and discussed with Robinson-Humphrey by Management,
Robinson-Humphrey assumed, with the Company's approval, that (i) such forecasts
and projections were reasonably prepared on bases reflecting the best currently
available estimates and judgments of Management as to the future financial
performance of the Company, and (ii) the Company would perform in accordance
with such projections. Robinson-Humphrey did not conduct a physical inspection
of the properties and facilities of the Company, and did not make or obtain any
evaluations or appraisals of the assets or liabilities of the Company.
Robinson-Humphrey's opinion was necessarily based upon market, economic and
other conditions as they existed and could be evaluated as of the date of the
opinion.
THE FULL TEXT OF THE WRITTEN OPINION OF ROBINSON-HUMPHREY, DATED MAY 18,
1995, WHICH SETS FORTH ASSUMPTIONS MADE AND MATTERS CONSIDERED, APPEARS AS ANNEX
IV TO THIS PROXY STATEMENT. THE COMPANY'S SHAREHOLDERS ARE URGED TO READ THIS
OPINION IN ITS ENTIRETY. ROBINSON-HUMPHREY'S OPINION WAS DIRECTED ONLY TO THE
FAIRNESS, FROM A FINANCIAL POINT OF VIEW, OF THE CONSIDERATION TO BE RECEIVED BY
THE SHAREHOLDERS OF THE COMPANY. ROBINSON-HUMPHREY'S OPINION WAS DELIVERED FOR
THE INFORMATION OF THE COMPANY'S BOARD AND DOES NOT CONSTITUTE A RECOMMENDATION
AS TO HOW ANY SHAREHOLDER SHOULD VOTE AT THE SPECIAL MEETING OR ANY OTHER
MEETING OF THE COMPANY'S SHAREHOLDERS CALLED TO CONSIDER THE MERGER. THIS
SUMMARY OF THE OPINION OF ROBINSON-HUMPHREY IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In connection with the preparation of its fairness opinions,
Robinson-Humphrey performed certain financial and comparative analyses,
including those described below. The summary set forth below includes all of the
financial analyses used by Robinson-Humphrey and deemed to be material but does
not purport to be a complete description of the analyses performed by
Robinson-Humphrey in arriving at its opinion. The preparation of a fairness
opinion involves various determinations as to the most
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appropriate and relevant methods of financial analysis and the application of
those methods to the particular circumstances, and therefore, such an opinion is
not readily susceptible to summary description. Furthermore, in arriving at its
fairness opinion, Robinson-Humphrey did not attribute any particular weight to
any analysis or factor considered by it, but rather made qualitative judgments
as to the significance and relevance of each analysis and factor. Accordingly,
Robinson-Humphrey believes its analyses must be considered as a whole and that
considering any portions of such analyses and of the factors considered, without
considering all analyses and factors, could create a misleading or incomplete
view of the process underlying the opinion. In its analyses, Robinson-Humphrey
made numerous assumptions with respect to the food retailing industry's
performance, general business and economic conditions and other matters, many of
which are beyond the control of the Company. Any estimates contained in these
analyses are not necessarily indicative of future results or values, which may
be significantly more or less favorable than as set forth therein. In addition,
analyses relating to the value of businesses do not purport to be appraisals or
to reflect the price at which businesses may actually be sold. No public company
utilized as a comparison is identical to the Company. An analysis of the results
of such a comparison is not mathematical; rather it involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the comparable companies and other factors that could affect
the public trading value of the companies to which the Company is being
compared.
The generally accepted financial analyses Robinson-Humphrey used in reaching
its opinion included (i) comparison with selected companies, which consisted of
reviewing market statistics and financial and operating information in respect
of selected publicly traded companies considered to have businesses similar to
that of the Company's business; (ii) analysis of selected merger transactions,
which consisted of reviewing operating statistics and purchase price information
with respect to selected acquisitions of assets or businesses similar to those
of the Company; (iii) acquisition premiums analysis, which consisted of
reviewing purchase price premiums paid for recent acquisitions of similar size;
(iv) strategic merger analysis, which consisted of analyzing the feasibility and
financial effects of a merger with another major food retailer; (v) discounted
cash flow analysis, which consisted of estimating the present value of Bruno's
Common Stock, under various forecast assumptions provided by Management, based
upon projected future cash flows; and (vi) leveraged recapitalization analysis,
which consisted of analyzing the financial effects and investor returns, under
various forecast assumptions provided by Management, based upon a leveraged
recapitalization transaction such as the one proposed by KKR. The material
portions of these analyses (which are all of the material valuation
methodologies performed by Robinson-Humphrey) are summarized below.
. COMPARISON WITH SELECTED COMPANIES. Robinson-Humphrey compared selected
financial data and market information for the Company to the corresponding
financial data and market information for two groups of selected public
companies in the food retailing industry: (i) those with significant
operations in the southeast portion of the United States and (ii) other
major U.S. food retailers. Robinson-Humphrey used this analysis to derive
implied equity values (i.e. the value per common share of Bruno's implied
by multiplying certain ratios derived from selected food retailing
companies other than Bruno's by Bruno's own financial data) for the
Company. This comparison showed, among other things, that (i) the mean
ratio of market price per share to earnings per share for the last 12
months was 15.5x for the southeastern food retailers and 15.5x for the
major food retailers; (ii) the mean ratio of enterprise value (market
capitalization plus total debt and preferred stock less cash and
marketable securities) to revenues was 0.31x for comparable southeastern
food retailers and 0.43x for other comparable major food retailers; (iii)
the mean ratio of enterprise value to earnings before interest, taxes,
depreciation and amortization ("EBITDA") was 7.3x for comparable
southeastern food retailers and 6.3x for other comparable major food
retailers; and (iv) the mean ratio of market price per share to book value
per share was 2.0x for comparable southeastern food retailers and 2.5x for
other comparable major food retailers. Based upon these and other
multiples, Robinson-Humphrey calculated a range of implied equity values
for Bruno's based on comparable southeastern food retailers of
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$8.62 to $10.81 and a range of implied equity values for Bruno's based on
other comparable major food retailers of $8.36 to $13.87.
. ANALYSIS OF SELECTED MERGER TRANSACTIONS. Robinson-Humphrey analyzed 38
mergers and acquisitions occurring since January 1, 1991 involving food
retailers. In each such acquisition, Robinson-Humphrey calculated
enterprise value as a multiple of revenues and as a multiple of EBITDA,
with resulting average multiples of 0.36x and 7.0x, respectively.
Robinson-Humphrey then identified six of these 38 transactions that had
occurred since August 3, 1994 and which were over $250 million in
transaction value. The average multiples of revenues and EBITDA for this
group of transactions were 0.40x and 7.0x, respectively. Based upon the
multiples for these six transactions, Robinson-Humphrey calculated an
average implied equity value of $11.00 per share and a median implied
equity value of $11.11 per share for the Company.
. PREMIUM ANALYSIS. Robinson-Humphrey reviewed certain purchase price
premiums paid for the stock of selected publicly-held companies in
transactions involving total consideration of between $500 million and
$1.5 billion from January 1, 1994 to May 17, 1995. This analysis measured
the average purchase price premium paid by acquirors over the prevailing
open market stock prices of acquirees one day prior to the announcement of
an offer, one week prior to the announcement of an offer, and four weeks
prior to the announcement of an offer, resulting in average premiums of
31.3%, 32.2% and 37.7%, respectively. In addition, Robinson-Humphrey
reviewed average and median purchase price premiums paid for corporate
acquisitions occurring from 1990 through 1994. From the annual averages,
Robinson-Humphrey calculated a median premium of 32.8% from a range of
29.4% to 35.0% and an average premium of 39.7% from a range of 35.1% to
42.0%. These calculations resulted in a range of implied equity values of
$11.97 per share to $12.92 per share for the Company.
. STRATEGIC MERGER ANALYSIS. Robinson-Humphrey analyzed the feasibility of a
merger with selected publicly-traded food retailers which Management
believed were among the more likely potential strategic merger partners
for the Company, based on several factors including financial strength,
geographic location and potential synergies. Utilizing several alternative
transaction structures and assuming a purchase price at or above the offer
price from KKR, each scenario produced dilution to the acquiror's earnings
per share in the near term. However, it was not unreasonable that under
certain assumptions and additional synergies, the purchase price could be
justifiable to a strategic merger partner. Robinson-Humphrey did not give
an opinion as to the likelihood of this occurrence.
In analyzing the discounted present value of the Company's Common Stock
and the feasibility of a leveraged recapitalization, Robinson-Humphrey
utilized three sets of alternative operating forecast scenarios--base
case, growth case and aggressive case--to value the Company's equity and
evaluate the proposed offer. The base case scenario assumed slow sales
growth and modest margin improvement over the five-year forecast period;
the growth case assumed modest sales growth and slightly more margin
improvement; and the aggressive case assumed aggressive sales growth and
margin improvement.
. DISCOUNTED CASH FLOW ANALYSIS. Using a discounted cash flow analysis,
Robinson-Humphrey estimated the present value of the Company's Common
Stock based upon projected cash flows through the year 2000. Terminal
values were calculated by applying a range of multiples to projected
EBITDA in the year 2000 (6.5x, 7.0x, 7.5x). The terminal values were
discounted to present value using a range of discount rates (from 12% to
16%). These values were combined with the present value of the interim
free cash flows (also discounted using a range of discount rates from 12%
to 16%) and then adjusted for the estimated net value of existing cash and
total debt as of July 1, 1995, resulting in a range of implied equity
values based on each operating scenario. The base case resulted in a range
of implied equity values of $10.52 per share to $11.95 per share and a
median value of $11.24 per share for the Company. The growth case resulted
in a range of implied equity values of $11.62 per share to $13.21 per
share and a median value of
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$12.41 per share for the Company. The aggressive case resulted in a range
of implied equity values of $13.60 per share to $15.55 per share and a
median value of $14.58 for the Company. The historical market price of
Bruno's Common Stock ranged from $6.94 per share to $10.19 per share
during the year ended April 20, 1995, the last trading day prior to the
announcement of the signing of the Merger Agreement, and from $6.94 per
share to $16.00 per share during the three year period ended April 20,
1995.
. LEVERAGED RECAPITALIZATION ANALYSIS. Robinson-Humphrey analyzed the
financial effects of the proposed recapitalization of the Company and the
implied returns on investment which could be achieved by investors in the
transaction. Like the discounted cash flow analysis, this analysis
entailed an evaluation of the three alternative operating forecast
scenarios. Although this analysis did not yield implied equity values, the
analysis indicated that, based on financial parameters (such as, among
other things, the Company's leveraged capital structure and its ability to
service its debt obligations) as well as anticipated equity returns to
shareholders, the offer price was reasonable.
INFORMATION CONCERNING THE COMPANY'S FINANCIAL ADVISOR
Robinson-Humphrey is a recognized investment banking firm and, as a
customary part of its investment banking activities, is regularly engaged in the
valuation of businesses and their securities in connection with mergers and
acquisitions, negotiated underwritings, private placements, and valuations for
corporate and other purposes. Management selected Robinson-Humphrey because of
its expertise, reputation and familiarity with the Company and the food
retailing industry.
In the ordinary course of Robinson-Humphrey's business, Robinson-Humphrey
actively trades in Bruno's Common Stock for its own account and for the account
of its customers and, accordingly, may at any time hold a long or short position
in such securities. In addition, Robinson-Humphrey was a managing underwriter
for three public offerings of the Company's securities and has provided other
investment banking services for the Company in the past. No fees were paid by
the Company to Robinson-Humphrey during the past two years.
Pursuant to a letter agreement dated March 27, 1995 (the "Robinson-Humphrey
Engagement Letter"), the Company engaged Robinson-Humphrey to provide investment
banking advice and services to the Company in connection with the Company's
review and analysis of potential business combinations. The Company agreed to
pay Robinson-Humphrey a fee of $400,000 (the "Advisory Fee") upon rendering an
opinion as to whether or not the consideration payable to the Company's public
shareholders in the Merger is fair from a financial point of view. In addition,
if the Merger is consummated, the Company has agreed to pay Robinson-Humphrey
additional compensation, based on a percentage of the total consideration for
Bruno's Common Stock, less the amount of the Advisory Fee. If the Merger is
consummated, this additional compensation will be approximately $1.9 million.
Due to its contingent nature, this compensation arrangement could be viewed as
creating a conflict of interest for Robinson-Humphrey. Pursuant to the
Robinson-Humphrey Engagement Letter, the Company has agreed to reimburse
Robinson-Humphrey for reasonable expenses incurred by Robinson-Humphrey, subject
to certain limitations, including fees and disbursements of counsel, and to
indemnify Robinson-Humphrey against certain liabilities in connection with its
engagement.
MERGER CONSIDERATION
Subject to certain provisions as described herein with respect to shares of
Bruno's Common Stock owned by the Company, any subsidiary of the Company or by
the Partnership or Crimson, and with respect to fractional shares and Dissenting
Shares, (i) each issued and outstanding share of Bruno's Common Stock (other
than Electing Shares as defined below) will be converted into the right to
receive in cash from the Company following the Merger an amount equal to $12.00
(the "Cash Election Price") and (ii) each issued and outstanding share of
Bruno's Common Stock with respect to which an election to retain Bruno's Common
Stock has been made and not withdrawn in accordance with the Merger
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Agreement (an "Electing Share") will be converted into the right to retain one
fully paid and nonassessable share of Bruno's Common Stock (a "Non-Cash Election
Share"); provided, that the aggregate number of shares of Bruno's Common Stock
to be converted into the right to retain Bruno's Common Stock at the Effective
Time of the Merger (as defined below) shall be equal to 4,173,682 (the "Non-Cash
Election Number"). With respect to certain risks related to continuing to hold
Bruno's Common Stock, see "RISK FACTORS" above.
The Merger contemplates that approximately 94.7% of the presently issued and
outstanding shares of Bruno's Common Stock will be converted into cash and that
approximately 5.3% of such shares will be retained by existing shareholders.
Because 5.3% (or 4,173,682) of the shares must be retained by shareholders in
the Merger, shareholders who do not elect to retain any shares may, due to
proration, be required to retain some shares of Bruno's Common Stock. In
addition, shareholders who elect to retain shares may be prorated into shares of
Bruno's Common Stock and cash which vary from the amounts such holders elected
to retain.
The following examples illustrate the potential effects of proration. All
fractional shares are subject to payment of cash instead of issuing fractional
shares.
A. HOLDER A OWNS 100 SHARES AND DOES NOT ELECT TO RETAIN ANY SHARES.
1. If other shareholders elect to retain 4,173,682 or more shares in the
aggregate, then Holder A will receive $1,200 in cash (100 shares at $12 per
share). This is because other shareholders have satisfied the 5.3%
requirement.
2. If other shareholders elect to retain fewer than 4,173,682 shares in
the aggregate, then Holder A will not be able to receive all cash for its
100 shares and will be required to retain some shares. This is because the
5.3% requirement has not been met and thus each shareholder must retain a
small number of shares in order to increase the number of retained shares to
4,173,682 and thus meet the 5.3% requirement. However, even in the case of
maximum proration (i.e. no shareholders elect to retain shares), Holder A
will still be assured of receiving at least $1,136.40 in cash (94.7 shares
at $12 per share) and will retain 5.3 shares of Bruno's Common Stock.
B. HOLDER B OWNS 100 SHARES AND ELECTS TO RETAIN ALL ITS SHARES.
1. If the shareholders (including Holder B) elect to retain 4,173,682 or
fewer shares in the aggregate, then Holder B will be able to retain all 100
of its shares. This is because in this situation Bruno's will accept all
shares elected to be retained in order to reach the 5.3% threshold. As
described in example A.2. above, if fewer than 4,173,682 shares are elected
to be retained, non-electing shareholders will then be prorated into shares
in order to reach the 5.3% threshold.
2. If the shareholders (including Holder B) elect to retain more than
4,173,682 shares, then Holder B will not be able to retain all its shares
and will be required to receive some cash. This is because the 5.3%
threshold has been exceeded and thus the number of shares which have been
elected to be retained must be reduced in order to meet exactly the 5.3%
requirement. For example, if shareholders elected to retain 10,000,000
shares in the aggregate, then each holder, including Holder B, would be able
to retain only 41.73% of his shares in order to reduce the number of
retained shares to 4,173,682 and thus meet the 5.3% requirement. Therefore,
Holder B would be able to retain only 41.73 shares (or 41.73% of his 100
shares) and would receive $699.24 in cash (58.27 shares at $12 per share).
In the case of maximum proration (i.e. all shareholders elect to retain
their shares), Holder B would be able to retain only 5.3 shares (or 5.3%)
and would receive $1,136.40 in cash (or 94.7%).
C. HOLDER C OWNS 100 SHARES AND ELECTS TO RETAIN SOME BUT NOT ALL ITS SHARES
(THIS EXAMPLE HAS ASSUMED AN ELECTION TO RETAIN 50 SHARES AND CONVERT 50 SHARES
TO CASH).
1. In the unlikely event that shareholders (including Holder C) elect to
retain exactly 4,173,682 shares in the aggregate, then Holder C will be able
to retain its 50 shares and will receive
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$600 in cash (50 shares at $12 per share). This is because the 5.3%
requirement has been met exactly.
2. If the shareholders (including Holder C) elect to retain more than
4,173,682 shares in the aggregate, then Holder C will not be able to retain
all of its 50 shares. Again, this is because the 5.3% threshold has been
exceeded and thus the number of shares which have been elected to be
retained must be reduced in order to meet exactly the 5.3% requirement. For
example, if shareholders elected to retain 10,000,000 shares in the
aggregate, then each holder, including Holder C, would be able to retain
only 41.73% of its shares in order to reduce the number of retained shares
to 4,173,682 and thus meet the 5.3% requirement. Therefore, Holder C would
be able to retain only 20.86 shares (or 41.73% of its 50 shares) and would
receive $949.68 in cash (79.14 shares at $12 per share). If the shareholders
elected to retain more than 10,000,000 shares in the aggregate, Holder C
would receive fewer shares than in the example above, but would receive a
commensurately greater amount of cash.
3. If the shareholders (including Holder C) elect to retain fewer than
4,173,682 shares in the aggregate, then Holder C would be required to retain
more than 50 shares. Again, this is because the 5.3% threshold has not been
reached and thus each shareholder must retain a small number of shares (in
the case of Holder C, a small number of additional shares) in order to
increase the aggregate number of retained shares to 4,173,682 and thus meet
the 5.3% requirement. For example, if shareholders elected to retain
1,000,000 shares in the aggregate, then all shareholders must collectively
retain an additional 3,173,682 shares in order to reach the 5.3% threshold.
In this example, Holder C would be required to retain an additional 2.06
shares (for a total of 52.06 shares) and would receive $575.28 in cash
(47.94 shares at $12 per share). The additional 2.06 shares is calculated by
multiplying the 50 shares Holder C wants to convert to cash by a fraction
the numerator of which is 3,173,682 and the denominator of which is the
total number of outstanding shares less the 1,000,000 electing shares. If
the shareholders elected to retain fewer than 1,000,000 shares in the
aggregate, Holder C would receive more shares than in the example above, but
would receive commensurately less cash.
Fractional shares of Bruno's Common Stock will not be issued in the Merger.
Holders of Bruno's Common Stock otherwise entitled to a fractional share of
Bruno's Common Stock following the Merger will be paid cash in lieu of such
fractional share determined and paid as described under "--Fractional Shares"
below.
Any shares of Bruno's Common Stock owned by the Company, by any subsidiary
of the Company, or by the Partnership or Crimson, will automatically be
cancelled at the Effective Time of the Merger and will cease to exist.
NON-CASH ELECTION
Subject to the Non-Cash Election Number, record holders of shares of Bruno's
Common Stock will be entitled to make an unconditional election (a "Non-Cash
Election") on or prior to the Election Date (as defined below) to retain
Non-Cash Election Shares. If the number of Electing Shares exceeds the Non-Cash
Election Number, then (i) the number of Electing Shares covered by each Non-Cash
Election to be converted into the right to retain Non-Cash Election Shares will
be determined by multiplying the total number of Electing Shares covered by such
Non-Cash Election by a proration factor (the "Non-Cash Proration Factor")
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares and (ii) such number of Electing Shares will be so converted.
All Electing Shares, other than those shares converted into the right to retain
Non-Cash Election Shares as described in the immediately preceding sentence,
will be converted into cash (on a consistent basis among shareholders who made
the election to retain Non-Cash Election Shares, pro rata to the number of
shares as to which they made such election) as if such shares were not Electing
Shares.
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If a shareholder elects to make a Non-Cash Election and receives cash as a
result of the proration procedures described above, such shareholder may receive
dividend treatment (rather than capital gain treatment) for any cash received in
the Merger as a result of such proration procedures. See "RISK FACTORS--Non-Cash
Election and Proration into Cash--Possible Dividend Treatment." See also "THE
MERGER--Federal Income Tax Consequences--Shareholders Receiving Cash."
If the number of Electing Shares is less than the Non-Cash Election Number,
then (i) all Electing Shares will be converted into the right to retain Non-Cash
Election Shares in accordance with the Merger Agreement, (ii) additional shares
of Bruno's Common Stock, other than Electing Shares, will be converted into the
right to retain Non-Cash Election Shares, which number of additional shares
shall be determined by multiplying the total number of shares, other than
Electing Shares, by a proration factor (the "Cash Proration Factor") determined
by dividing (x) the difference between the Non-Cash Election Number and the
number of Electing Shares by (y) the total number of shares of Bruno's Common
Stock, other than Electing Shares, and (iii) such additional shares of Bruno's
Common Stock shall be converted into the right to retain Non-Cash Election
Shares in accordance with the Merger Agreement (on a consistent basis among
shareholders who held shares of Bruno's Common Stock as to which they did not
make the Non-Cash Election, pro rata to the number of shares as to which they
did not make such election).
With respect to certain risks related to continuing to hold Bruno's Common
Stock, see "RISK FACTORS" above.
NON-CASH ELECTION PROCEDURE
The form for making a Non-Cash Election (the "Form of Election") is being
mailed to holders of record of Bruno's Common Stock together with this Proxy
Statement. FOR A FORM OF ELECTION TO BE EFFECTIVE, HOLDERS OF BRUNO'S COMMON
STOCK MUST PROPERLY COMPLETE SUCH FORM OF ELECTION, AND SUCH FORM OF ELECTION,
TOGETHER WITH ALL CERTIFICATES FOR SHARES OF BRUNO'S COMMON STOCK HELD BY SUCH
HOLDER, DULY ENDORSED IN BLANK OR OTHERWISE IN FORM ACCEPTABLE FOR TRANSFER ON
THE BOOKS OF THE COMPANY (OR BY APPROPRIATE GUARANTEE OF DELIVERY AS SET FORTH
IN SUCH FORM OF ELECTION), MUST BE RECEIVED BY CHEMICAL MELLON SHAREHOLDER
SERVICES (THE "EXCHANGE AGENT") AT ONE OF THE ADDRESSES LISTED ON THE FORM OF
ELECTION AND NOT WITHDRAWN, BY 5:00 P.M., EASTERN TIME, ON THE BUSINESS DAY NEXT
PRECEDING THE DATE OF THE SPECIAL MEETING (THE "ELECTION DATE").
The determinations of the Exchange Agent as to whether or not Non-Cash
Elections have been properly made or revoked, and when such election or
revocations were received, will be binding.
EFFECTIVE TIME OF THE MERGER
The Merger will become effective upon the filing of Articles of Merger with
the Secretary of State of the State of Alabama or such later date as is
specified in such Articles of the Merger (the "Effective Time of the Merger").
The filing of the Articles of Merger will occur as soon as practicable on or
after the closing of the Merger unless another date is agreed to in writing by
the Company and Crimson. Subject to certain limitations, the Merger Agreement
may be terminated by either party if, among other reasons, the Merger has not
been consummated on or before October 31, 1995. See "CERTAIN PROVISIONS OF THE
MERGER AGREEMENT--Conditions to the Consummation of the Merger" and
"--Termination."
CONVERSION/RETENTION OF SHARES; PROCEDURES FOR EXCHANGE OF CERTIFICATES
The conversion of shares of Bruno's Common Stock (other than shares as to
which dissenters' rights are properly exercised) into the right to receive cash
or the right to retain shares of Bruno's Common Stock following the Merger will
occur at the Effective Time of the Merger.
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As soon as practicable as of or after the Effective Time of the Merger, the
Exchange Agent will send a letter of transmittal to each holder of Bruno's
Common Stock (other than holders of Bruno's Common Stock making a Non-Cash
Election who have properly submitted Forms of Election and share certificates to
the Exchange Agent). The letter of transmittal will contain instructions with
respect to the surrender of certificates representing shares of Bruno's Common
Stock in exchange for cash and, under certain circumstances, certificates
representing shares of Bruno's Common Stock to be retained in the Merger, or the
amount of cash in lieu of any fractional interest in a share of Bruno's Common
Stock for which the shares represented by the certificates so surrendered are
exchangeable pursuant to the Merger Agreement.
EXCEPT FOR BRUNO'S COMMON STOCK CERTIFICATES SURRENDERED WITH A FORM OF
ELECTION AS DESCRIBED ABOVE UNDER "--NON-CASH ELECTION PROCEDURE," SHAREHOLDERS
OF THE COMPANY SHOULD NOT FORWARD STOCK CERTIFICATES TO THE EXCHANGE AGENT UNTIL
THEY HAVE RECEIVED THE LETTER OF TRANSMITTAL.
As soon as practicable after the Effective Time of the Merger, each holder
of an outstanding certificate or certificates at such time which prior thereto
represented shares of Bruno's Common Stock shall, upon surrender to the Exchange
Agent of such certificate or certificates and acceptance thereof by the Exchange
Agent, be entitled to the amount of cash, if any, into which the number of
shares of Bruno's Common Stock previously represented by such certificate or
certificates surrendered shall have been converted pursuant to the Merger
Agreement and a certificate or certificates representing the number of full
shares of Bruno's Common Stock, if any, to be retained by the holder thereof
pursuant to the Merger Agreement. The Exchange Agent will accept such
certificates upon compliance with such reasonable terms and conditions as the
Exchange Agent may impose to effect an orderly exchange thereof in accordance
with normal exchange practices. After the Effective Time of the Merger, there
will be no further transfer on the records of the Company or its transfer agent
of certificates representing shares of Bruno's Common Stock which have been
converted, in whole or in part, pursuant to the Merger Agreement into the right
to receive cash, and if such certificates are presented to the Company for
transfer, they will be cancelled against delivery of cash and, if appropriate,
certificates for retained Bruno's Common Stock. Until surrendered as
contemplated by the Merger Agreement, each certificate for shares of Bruno's
Common Stock will be deemed at any time after the Effective Time of the Merger
to represent only the right to receive upon such surrender the consideration
contemplated by the Merger Agreement. No interest will be paid or will accrue on
any cash payable as consideration in the Merger or in lieu of any fractional
shares of retained Bruno's Common Stock.
No dividends or other distributions with respect to retained Bruno's Common
Stock with a record date after the Effective Time of the Merger will be paid to
the holder of any unsurrendered certificate for shares of Bruno's Common Stock
with respect to the shares of retained Bruno's Common Stock represented thereby
and no cash payment in lieu of fractional shares shall be paid to any such
holder pursuant to the Merger Agreement until the surrender of such certificate
in accordance with the Merger Agreement. Subject to the effect of applicable
laws, following surrender of any such certificate, there shall be paid to the
holder of the certificate representing whole shares of retained Bruno's Common
Stock issued in connection therewith, without interest, (i) at the time of such
surrender or as promptly after the sale of the Excess Shares (as defined below)
as practicable, the amount of any cash payable in lieu of a fractional share of
retained Bruno's Common Stock to which such holder is entitled pursuant to the
Merger Agreement and the proportionate amount of dividends or other
distributions, if any, with a record date after the Effective Time of the Merger
theretofore paid with respect to such whole shares of retained Bruno's Common
Stock, and (ii) at the appropriate payment date, the proportionate amount of
dividends or other distributions, if any, with a record date after the Effective
Time of the Merger but prior to such surrender and a payment date subsequent to
such surrender payable with respect to such whole shares of retained Bruno's
Common Stock.
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FRACTIONAL SHARES
No certificates or scrip representing fractional shares of retained Bruno's
Common Stock will be issued in connection with the Merger, and such fractional
share interests will not entitle the owner thereof to vote or to any rights of a
shareholder of the Company after the Merger. Each holder of shares of Bruno's
Common Stock exchanged pursuant to the Merger who would otherwise have been
entitled to receive a fraction of a share of retained Bruno's Common Stock
(after taking into account all shares of Bruno's Common Stock delivered by such
holder) will receive, in lieu thereof, a cash payment (without interest)
representing such holder's proportionate interest in the net proceeds from the
sale by the Exchange Agent (following the deduction of applicable transaction
costs), on behalf of all such holders, of the shares (the "Excess Shares") of
retained Bruno's Common Stock representing such fractions. Such sale shall be
made as soon as practicable after the Effective Time of the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER
Pursuant to the Merger Agreement, the Company has agreed to carry on its
business and that of its subsidiaries prior to the Effective Time of the Merger
in the usual, regular and ordinary course of business consistent with past
practice. See "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Certain Pre-Closing
Covenants."
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The obligations of the Company and Crimson to consummate the Merger are
subject to various conditions, including, without limitation, obtaining
requisite shareholder approval, the termination or expiration of the relevant
waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976,
as amended (the "HSR Act") and the absence of any injunction or other legal
restraint or prohibition preventing the consummation of the Merger. See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--Conditions to the Consummation of the
Merger" and "REGULATORY APPROVALS."
FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Simpson Thacher & Bartlett, the following are, under
currently applicable law, the material United States federal income tax
considerations generally applicable to the Merger. The tax treatment described
herein may vary depending upon each shareholder's particular circumstances and
tax position. Certain shareholders (including insurance companies, tax-exempt
organizations, financial institutions or broker-dealers, foreign corporations,
persons who are not citizens or residents of the United States ("U.S."),
shareholders who do not hold their shares as capital assets and shareholders who
have acquired their existing stock upon the exercise of options or otherwise as
compensation) may be subject to special rules not discussed below. No ruling
from the Internal Revenue Service ("IRS") will be applied for with respect to
the federal income tax consequences discussed herein and, accordingly, there can
be no assurance that the IRS will agree with the conclusions stated herein. In
addition, this discussion does not consider the effect of any applicable
foreign, state, local or other tax laws. Each shareholder should consult his or
her own tax advisor as to the particular tax consequences to him or her of the
Merger, including the applicability and effect of any foreign, state, local or
other tax laws, any recent changes in applicable tax laws and any proposed
legislation.
Characterization of the Merger for U.S. Federal Income Tax Purposes. For
U.S. federal income tax purposes, Crimson will be disregarded as a transitory
entity, and the Merger of Crimson with and into the Company will be treated as a
sale of a portion of a tendering shareholder's Bruno's Common Stock ("Stock") to
the Partnership and as a redemption of a portion of the shareholder's Stock by
the Company. Additionally, the Partnership should be deemed to have paid to the
Company some portion of the amount it is contributing to Crimson in exchange for
the Warrants that the Partnership will receive
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in the Merger. It is unclear how the allocation of proceeds between the sale and
redemption should be determined, or how the Partnership's contribution of cash
to Crimson should be allocated to the Warrants. The Company intends to take the
position that the percentage of a Shareholder's Stock disposed of by the
shareholder pursuant to the Merger which will be treated as sold to the
Partnership will be a percentage of such Stock equal to (a) the difference
between (i) the amount contributed to Crimson by the Partnership in exchange for
Crimson stock and (ii) the amount of such contribution that is properly
allocable to the Warrants divided by (b) the aggregate amount of cash paid to
shareholders pursuant to the Merger. The remainder of the shareholder's Stock
disposed of in the Merger will be treated as redeemed by the Company. The IRS
could, however, adopt a different approach in determining the portion, if any,
of a shareholder's Stock which is treated as redeemed by the Company. See
"--Shareholders Receiving Cash" below for a discussion of the consequences of
cash being deemed paid in redemption of Stock.
Shareholders Receiving Cash. As described more fully below, the U.S. federal
income tax consequences of the Merger with respect to a particular shareholder
will depend upon, among other things, (i) whether the shareholder received any
cash proceeds pursuant to the Merger, (ii) the extent to which a shareholder is
deemed to have sold its Stock to the Partnership or is deemed to have had its
Stock redeemed by the Company and (iii) whether the redemption of a holder's
Stock by the Company will qualify as a sale or exchange under Section 302 of the
Internal Revenue Code of 1986, as amended (the "Code"). First, to the extent
that a shareholder is considered to have sold Stock to the Partnership, such
shareholder will recognize either capital gain or loss (assuming the Stock is
held by such shareholder as a capital asset) equal to the difference between the
amount realized on its deemed sale of Stock to the Partnership (i.e., the cash
proceeds properly allocated to such sale) and the shareholder's adjusted tax
basis in such Stock. Second, a shareholder also will recognize either capital
gain or loss equal to the difference between the cash proceeds allocable to the
redemption of such shareholder's Stock by the Company and the shareholder's
adjusted tax basis in such Stock, to the extent such redemption is treated as a
sale or exchange under Section 302 of the Code with respect to such shareholder.
Such gain or loss generally will be long-term capital gain or loss if the Stock
is held as a capital asset by the shareholder for more than one year. Under
Section 302 of the Code, a redemption of Stock pursuant to the Merger will, as a
general rule, be treated as a sale or exchange if such redemption (a) is
"substantially disproportionate" with respect to the shareholder, (b) results in
a "complete redemption" of the shareholder's interest in the Company or (c) is
"not essentially equivalent to a dividend" with respect to the shareholder.
In determining whether any of these Section 302 tests is satisfied,
shareholders must take into account not only the Stock that they actually own,
but also any Stock they are deemed to own under the constructive ownership rules
set forth in Section 318 of the Code. Pursuant to these constructive ownership
rules, a shareholder is deemed to constructively own any Stock that is owned by
certain related individuals or entities and any Stock that the shareholder has
the right to acquire by exercise of an option or by conversion or exchange of a
security.
The redemption of a shareholder's Stock will be "substantially
disproportionate" with respect to such shareholder if the percentage of Stock
actually and constructively owned by such shareholder immediately following the
Merger is less than 80% of the percentage of Stock actually and constructively
owned by such shareholder immediately prior to the Merger. Shareholders should
consult their own tax advisors with respect to the application of the
"substantially disproportionate" test to their particular facts and
circumstances.
The redemption of a shareholder's Stock will result in a "complete
redemption" of a shareholder's interest in the Company if either (a) all the
Stock actually and constructively owned by the shareholder is redeemed pursuant
to the Merger or (b) all the Stock actually owned by the shareholder is redeemed
pursuant to the Merger and the shareholder is eligible to waive, and does
effectively waive in accordance
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with Section 302(c) of the Code, attribution of all Stock which otherwise would
be considered to be constructively owned by such shareholder.
Even if the redemption of a shareholder's Stock fails to satisfy the
"substantially disproportionate" test or the "complete redemption" test
described above, the redemption of a shareholder's Stock may nevertheless
satisfy the "not essentially equivalent to a dividend" test if the shareholder's
redemption of Stock pursuant to the Merger results in a "meaningful reduction"
in such shareholder's proportionate Stock interest in the Company. Whether the
receipt of cash by a shareholder will be considered "not essentially equivalent
to a dividend" will depend upon such shareholder's facts and circumstances. In
certain circumstances, even a small reduction in a shareholder's proportionate
equity interest may satisfy this test. For example, the IRS has indicated in a
published ruling that a 3.3% reduction in the proportionate equity interest of a
small (substantially less than 1%) shareholder in a publicly held corporation
who exercises no control over corporate affairs constitutes such a "meaningful
reduction." Shareholders should consult with their own tax advisors as to the
application of this test in their particular situation.
A tendering shareholder may not be able to satisfy one of the above three
tests because of contemporaneous acquisitions of Stock by such shareholder or a
related party whose Stock would be attributed to such shareholder under Section
318 of the Code. Shareholders should consult their own tax advisors regarding
the tax consequences of such acquisitions in their particular circumstances.
If a shareholder cannot satisfy any of the three tests described above and
to the extent the Company has sufficient current and/or accumulated earnings and
profits, such shareholder will be treated as having received a dividend which
will be includible in gross income (and treated as ordinary income) in an amount
equal to the cash received (without regard to gain or loss, if any).
In the case of a corporate shareholder, if the cash paid is treated as a
dividend, such dividend income may be eligible for the 70% dividends-received
deduction. The dividends-received deduction is subject to certain limitations,
and may not be available if the corporate shareholder does not satisfy certain
holding period requirements with respect to the Stock or if the Stock is treated
as "debt financed portfolio Stock" within the meaning of Code Section 246A(c).
Additionally, if a dividends-received deduction is available, the dividend may
be treated as an "extraordinary dividend" under Section 1059(a) of the Code, in
which case a corporate shareholder's adjusted tax basis in the Stock retained by
such shareholder would be reduced, but not below zero, by the amount of the
nontaxed portion of such dividend. Any amount of the nontaxed portion of the
dividend in excess of the corporate shareholder's adjusted tax basis generally
will be subject to tax upon a sale or other taxable disposition of the Stock.
Corporate shareholders are urged to consult their own tax advisors as to the
effect of Section 1059 of the Code on the adjusted tax basis of their Stock.
Proposals have recently been introduced and passed in the House of
Representatives and introduced in the Senate to reduce the effective tax rates
applicable to net long-term capital gains. Additionally, the proposals would
further limit the deduction for long-term capital losses. If enacted, these
proposals generally would apply to transactions effected after December 31,
1994. Therefore, if the proposals were enacted into law, gains from the sale or
redemption of Stock pursuant to the Merger which constituted long-term capital
gains generally would be taxed at lower effective tax rates than would apply
under current law. There can be no assurance, however, that these proposals or
the particular type of transactions or assets to which the proposals apply could
be modified. If the proposals were enacted with an effective date subsequent to
the Effective Time of the Merger, sales or redemptions of the Stock pursuant to
the Merger which constituted long-term capital gains would be taxed at the
higher rates currently in effect. Shareholders should consult their own tax
advisors about the impact, if any, of this proposed legislation.
48
<PAGE>
Shareholders Retaining Stock and Receiving No Cash. The Merger will have no
U.S. federal income tax consequences for shareholders who retain their Stock and
receive no cash. Accordingly, a shareholder will not recognize any gain or loss
on any Stock retained by such shareholder.
Shareholders Retaining a Portion of Their Stock and Receiving Cash. To the
extent that a shareholder elects to retain a portion of its Stock and exchange a
portion of its Stock for cash, or to the extent a shareholder is prorated into
receiving cash in exchange for some portion of its Stock, the tax treatment of
the shareholder's receipt of such cash will be the same as set forth above under
"--Shareholders Receiving Cash."
As described above under "--Shareholders Retaining Stock and Receiving No
Cash," the Merger will have no tax consequences to a shareholder (and, thus, a
shareholder will not recognize any gain or loss as a result of the Merger), to
the extent such shareholder retains, or is prorated into Stock. However, as
described more fully above under "--Shareholders Receiving Cash," a
shareholder's retention of Stock may, under certain circumstances, cause the
cash received by such shareholder pursuant to the Merger to be treated as a
dividend for U.S. federal income tax purposes.
Foreign Shareholders--Withholding. The following is a general discussion of
certain United States federal income tax consequences of the Merger to foreign
shareholders. For this purpose, a foreign shareholder is any person who is, for
United States federal income tax purposes, a foreign corporation, a non-resident
alien individual, a foreign partnership or a foreign estate or trust.
In the case of any foreign shareholder, the Exchange Agent will withhold 30%
of the amount paid to redeem the Stock of such shareholder in order to satisfy
certain U.S. withholding requirements, unless such foreign shareholder proves in
a manner satisfactory to the Company and the Exchange Agent that either (i) the
redemption of its Stock pursuant to the Merger will qualify as a sale or
exchange under Section 302 of the Code, rather than as a dividend for U.S.
federal income U.S. tax purposes, in which case no withholding will be required,
(ii) the foreign shareholder is eligible for a reduced tax treaty rate with
respect to dividend income, in which case the Exchange Agent will withhold at
the reduced treaty rate or (iii) no U.S. withholding is otherwise required.
In addition, the Company can give no assurances that it is not a "United
States Real Property Holding Corporation" within the meaning of Section
897(c)(2) of the Code. Consequently, the Exchange Agent will withhold 10% of the
amount paid to purchase or redeem a foreign shareholder's Stock if the foreign
shareholder cannot prove, in a manner satisfactory to the Company and the
Exchange Agent, that it did not own 5% or more of the Stock of the Company at
any time during the previous five years and such purchase or redemption
qualifies as a sale or exchange for U.S. federal income tax purposes.
Foreign shareholders should consult their own tax advisors regarding the
application of these withholding rules.
Information Reporting and Backup Withholding. The Company must report
annually to the IRS and to each shareholder the amount of dividends paid to such
shareholder and the backup withholding, if any, tax withheld with respect to
such dividends. Copies of these information returns also may be made available
to the tax authorities in the country in which a foreign shareholder resides
under the provisions of an applicable income tax treaty.
Backup withholding (which generally is a withholding tax imposed at the rate
of 31% on certain payments to persons that fail to furnish certain information
under the United States information reporting requirements) generally will not
apply to dividends paid to a foreign shareholder at an address outside the
United States (unless the payor has knowledge that the payee is a U.S. person).
Payment of the proceeds of a sale of Stock by or through a United States
office of a broker is subject to both backup withholding and information
reporting unless the beneficial owner certifies under
49
<PAGE>
penalties of perjury that it is a foreign shareholder, or otherwise establishes
an exemption. In general, backup withholding and information reporting will not
apply to a payment of the proceeds of a sale of Stock by or through a foreign
office of a broker. If, however, such broker is, for United States federal
income tax purposes, a U.S. person, a controlled foreign corporation, or a
foreign person that derives 50% or more of its gross income for certain periods
from the conduct of a trade or business in the United States, such payments will
be subject to information reporting, but not backup withholding, unless (1) such
broker has documentary evidence in its records that the beneficial owner is a
foreign holder and certain other conditions are met, or (2) the beneficial owner
otherwise establishes an exemption.
Any amounts withheld under the backup withholding rules may be allowed as a
refund or a credit against the holder's U.S. federal income tax liability
provided the required information is furnished to the IRS.
The backup withholding and information reporting rules are currently under
review by the Treasury Department and their application to the Stock could be
changed by future regulations.
THOUGH THE FOREGOING ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSIDERATIONS
GENERALLY APPLICABLE TO THE MERGER, THE DISCUSSION DOES NOT ADDRESS EVERY
FEDERAL INCOME TAX CONCERN WHICH MAY BE APPLICABLE TO A PARTICULAR SHAREHOLDER.
EACH SHAREHOLDER IS URGED TO CONSULT SUCH SHAREHOLDER'S OWN TAX ADVISOR TO
DETERMINE THE TAX CONSEQUENCES TO SUCH SHAREHOLDER, IN THE LIGHT OF ITS
PARTICULAR CIRCUMSTANCES, OF THE DISPOSITION OF STOCK PURSUANT TO THE MERGER.
ANTICIPATED ACCOUNTING TREATMENT
The Merger will be accounted for as a recapitalization. Accordingly, the
historical basis of the Company's assets and liabilities will not be impacted by
the transaction.
EFFECT ON STOCK AND EMPLOYEE BENEFIT MATTERS
No holder of a Company Stock Option (as defined below) may exercise such
Company Stock Option after August 17, 1995 (the "Exercise Period"). With respect
to any person, unless exercised within the Exercise Period (or cancelled in
exchange for a cash payment pursuant to clause (y) of the next succeeding
paragraph) each Company Stock Option will become non-exercisable at the end of
the Exercise Period. With respect to any person subject to Section 16(a) of the
Exchange Act (generally directors, certain executive officers and beneficial
owners of 10% or more of a class of capital stock), no such person will be
entitled to a cash payment in the manner described in clause (y) of the next
succeeding paragraph.
At the Effective Time of the Merger (x) each employee or director stock
option to purchase shares of Bruno's Common Stock ("Company Stock Options")
granted under any stock option or stock purchase plan, program or arrangement of
the Company, including the Employee Incentive Stock Option Plan, the Second
Amended and Restated Employee Stock Option Plan and the Non-Employee Director
Stock Option Plan (collectively, the "Stock Plans") outstanding immediately
prior to the Effective Time of the Merger will vest as a consequence of the
Merger and (y) with respect to any person not subject to Section 16(a) of the
Exchange Act, each Company Stock Option having an exercise price of less than
$12.00, will be cancelled in exchange for a payment from the Company after the
Merger (subject to any applicable withholding taxes) equal to the product of (1)
the total number of shares of Bruno's Common Stock subject to such Company Stock
Option and (2) the excess of $12.00 over the exercise price per share of Bruno's
Common Stock subject to such Company Stock Option, payable in cash immediately
following the Effective Time of the Merger, representing approximately
$5,332,114 in the aggregate.
50
<PAGE>
The Stock Plans will terminate as of the Effective Time of the Merger, and
following the Effective Time of the Merger no holder of a Company Stock Option
nor any participant in any Stock Plan will have any right thereunder to acquire
equity securities of the Company following the Merger.
Ronald G. Bruno, Paul F. Garrison, Glenn J. Griffin, Kenneth James Bruno and
R. Michael Conley will continue in the employ of the Company following the
Merger in order to accomplish in an orderly fashion the transition of ownership
of the Company contemplated by the Merger Agreement. In general, if any such
employee remains in the employ of the Company for at least one year following
the Effective Time of the Merger (or such shorter period as may be determined by
the Board of Directors of the Company following the Merger), such employee will
be entitled to receive, on the earlier of (i) the thirtieth day after such
employee's replacement has commenced employment and (ii) one year following the
Effective Time of the Merger (the "Date of Payment"), any amounts that would
have been payable to him under the terms of his Employment Continuity Agreement
as of the end of the fiscal year ending on July 1, 1995 if he had been
terminated by the Company without Good Cause (as defined in the Employment
Continuity Agreement) together with the retirement benefit that would have been
payable to him under the terms of the 1994 Employment and Deferred Compensation
Agreement (after giving effect to such amendments to such agreement as are
necessary to change the basis for determining compensation under such agreement
from the calendar year to the Company's fiscal year) (the "1994 Agreement");
provided that commencing on the later of the date of the closing of the Merger
and July 2, 1995 and continuing during the post-Merger employment period with
respect to each such five employees, each such five employees shall receive from
the Company a monthly salary based on 13 pay periods equal to the total base
salary and bonus to which such employee was entitled for the fiscal year ended
July 1, 1995, divided by 13 (provided that no further bonus or incentive
compensation shall be payable for such periods); and provided, further, that if
such employee shall so request, the aforementioned retirement benefit shall be
paid in a single lump sum in an amount equal to the present value of the payment
stream set forth under the 1994 Agreement. See "--Interests of Certain Persons
in the Merger."
INTERESTS OF CERTAIN PERSONS IN THE MERGER
Certain Directors and officers of the Company have interests, described
below, that may present them with potential conflicts of interest in connection
with the Merger. The Board of Directors is aware of the conflicts described
below and considered them in addition to the other matters described under
"--Background of the Merger" and "--Recommendation of the Board of Directors;
Reasons for the Merger."
The five executive officers of the Company, Ronald G. Bruno, Paul F.
Garrison, Glenn J. Griffin, Kenneth J. Bruno, and R. Michael Conley (the
"Executive Officers"), along with 14 other employees of the Company, are parties
to Employment Continuity Agreements (the "Employment Continuity Agreements")
with the Company which provide for lump sum cash payments equal to three times,
in the case of Ronald G. Bruno, two times, in the case of the other Executive
Officers, and one time, in the case of the other employees, the sum of his
annual base salary at the time of termination, plus his incentive compensation
bonus for the year preceding termination. Benefits under the Employment
Continuity Agreements are payable if a covered employee's employment is
terminated by the employee for "good reason" or by the Company without "cause"
within one year following a "change of control." Ronald G. Bruno, Paul F.
Garrison, Glenn J. Griffin and Kenneth J. Bruno are also Directors of the
Company.
The Executive Officers are also parties to Employment and Deferred
Compensation Agreements (the "Deferred Compensation Agreements") with the
Company. The Deferred Compensation Agreements provide for monthly payments of
retirement benefits to such persons equal to 5% of the average annual
compensation for the three fiscal years ended immediately prior to the initial
payment date for a period of 180 months upon the earlier of retirement after age
65, retirement after 25 years of service,
51
<PAGE>
disability, death or the occurrence of an event which would entitle the employee
to receive benefits under his Employment Continuity Agreement.
The Company also maintains an Employee Incentive Stock Option Plan for its
employees. Certain of the options issued to employees under that Plan, which
have not as yet vested, will vest as a result of the Merger transaction,
including options issued to the Executive Officers. See "--Effect on Stock and
Employee Benefit Matters."
It is anticipated that the five Executive Officers will not remain employed
by the Company for more than one year after the Effective Time of the Merger. As
a result of the Merger, the Executive Officers will be entitled to any amounts
to which they would have been entitled under the terms of their respective
Employment Continuity Agreements, together with the retirements benefits that
would have been payable to them under the terms of their respective Deferred
Compensation Agreements as of the end of the Company's fiscal year ended July 1,
1995, if such Executive Officers remain in the employ of the Company until one
year following the Effective Time of the Merger or for such shorter period as
may be determined by the Board of Directors of the Company following the Merger.
In connection with its approval of the Merger and as agreed by Crimson, the
Board of Directors of the Company has approved the payment to the Executive
Officers of a lump sum payment, on termination of employment, of the benefits
payable under the Deferred Compensation Agreements based on a discount rate of
8% per annum.
The following table reflects the estimated value of the payments, based upon
certain assumptions with respect to annual compensation, to which the Executive
Officers will be entitled under the Employment Continuity Agreements, the
Deferred Compensation Agreements and the stock options which will vest, subject
to the terms of such agreements and the Merger Agreement, as of the end of the
fiscal year ended July 1, 1995.
<TABLE>
<CAPTION>
NAME EMPLOYMENT CONTINUITY DEFERRED COMPENSATION (1) VALUE OF OPTIONS TO VEST
- ------------------------------ --------------------- ------------------------- ------------------------
<S> <C> <C> <C>
Ronald G. Bruno............... $ 895,000 $ 2,077,000 $152,000
Paul F. Garrison.............. 818,000 1,813,000 70,000
Glenn J. Griffin.............. 722,000 1,628,000 70,000
Kenneth J. Bruno.............. 257,000 1,102,000 70,000
R. Michael Conley............. 405,000 759,000 50,000
</TABLE>
- ------------
(1) Present value of 180 month payout based on a discount rate of 8% per annum.
The estimated total amount of all such payments to Executive Officers is
$10,888,000.
The definitive amounts to be payable to the Executive Officers under their
Employment Continuity Agreements and their Deferred Compensation Agreements will
depend upon the total compensation paid by the Company to these individuals for
the Company's fiscal year ending July 1, 1995, which will include bonuses to be
paid based on the Company's 1995 earnings. The Company's 1995 earnings are not
yet known. Although the amounts shown above are based on the assumption that the
maximum bonuses will be paid for fiscal 1995, only amounts based on actual
bonuses earned will be paid.
Shares of Bruno's Common Stock held by officers and Directors of the Company
will be converted into the right to receive the same consideration as shares of
Bruno's Common Stock held by other shareholders. Company Stock Options held by
officers and Directors of the Company will be treated in the same manner as
Company Stock Options held by other shareholders, except that no such officers
or Directors will be entitled to a cash payment of the excess of $12.00 over the
exercise price per share subject to such Company Stock Option as described under
"--Effect on Stock and Employee Benefit Matters."
52
<PAGE>
Company Stock Options held by the five Directors of the Company who are not
employed by the Company (Benny M. LaRussa, Jr., Richard Cohn, Judy M. Merritt,
J. Mason Davis, Jr. and Bart Starr), which have not as yet vested, will vest as
a result of the Merger, providing a benefit above the exercise price of those
options of approximately $77,500 to each of such non-employee Directors for an
aggregate gain of approximately $387,500.
Pursuant to the Merger Agreement, the Company has agreed for six years after
the Effective Time of the Merger to indemnify all present and former Directors
and officers of the Company and its subsidiaries and will, subject to certain
limitations, maintain for six years its current directors' and officers'
insurance and indemnification policy. See "CERTAIN PROVISIONS OF THE MERGER
AGREEMENT--Indemnification and Insurance."
Additional information relating to executive compensation and various
benefit arrangements of the Company is set forth and incorporated herein by
reference to the Company's proxy statement for its annual meeting of
shareholders held on October 21, 1994. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
NASDAQ DE-LISTING
Following the consummation of the Merger, the Company anticipates that it
will seek to have the Bruno's Common Stock, which is currently traded on Nasdaq,
delisted. See "RISK FACTORS-- Delisting; Loss of Liquidity."
RESALE OF BRUNO'S COMMON STOCK FOLLOWING THE MERGER
The Bruno's Common Stock to be retained in connection with the Merger will
be freely transferable, except that shares retained by any shareholder who may
be deemed to be an "affiliate" (as defined under the Securities Act and
generally including, without limitation, directors, certain executive officers
and beneficial owners of 10% or more of a class of capital stock) of the Company
for purposes of Rule 145 under the Securities Act will not be transferable
except in compliance with the Securities Act. This proxy statement does not
cover sales of Bruno's Common Stock retained by any person who may be deemed to
be an affiliate of the Company.
MERGER FINANCINGS
Bruno's is expected to issue debt securities for approximately $350 million
of gross proceeds in either the public or private markets and enter into a
syndicated, senior secured term loan facility for approximately $550 million in
order to finance the conversion into cash of approximately 94.7% of the shares
of Bruno's Common Stock currently outstanding and to refinance the outstanding
indebtedness of Bruno's. Since it is anticipated that a portion of such debt
securities will be issued at a substantial discount from their face value, the
face amount of such debt securities may be in excess of $350 million. Bruno's
also expects to enter into a $100 million senior secured revolving credit
facility to provide for working capital requirements. On June 22, 1995, Bruno's
received an executed commitment from Chemical Bank to provide the $650 million
of senior secured credit facilities, which will be syndicated by Chemical
Securities, Inc. The commitment is subject to customary conditions, including
the negotiation, execution and delivery of definitive documentation with respect
to the commitment.
The Partnership also expects to make an equity contribution of approximately
$250 million to the Company. This $250 million will become an asset of the
Company as a result of the Merger in which the Partnership will receive
20,833,333 shares of Bruno's Common Stock.
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<PAGE>
CONVERSION OF CRIMSON STOCK
In the Merger, each share of stock of Crimson issued and outstanding
immediately prior to the Effective Time of the Merger will be converted into (i)
a number of shares of Bruno's Common Stock equal to the quotient of (A)
20,833,333 divided by (B) the number of shares of common stock of Crimson
outstanding immediately prior to the Effective Time of the Merger and (ii) a
number of Warrants equal to the quotient of (A) 10,000,000 divided by (B) the
number of shares of common stock of Crimson outstanding immediately prior to the
Effective Time of the Merger. Each Warrant will entitle the holder thereof to
purchase one share of Bruno's Common Stock at an exercise price of $12.00 per
share, subject to certain anti-dilution adjustments. Each Warrant (i) will be
exercisable at any time or from time to time in whole or in part in the sole
discretion of the holder for a period of ten years after the Effective Time of
the Merger, (ii) will be entitled to the anti-dilution adjustments described
below, (iii) provides for the issuance by the Company, at the election of the
holder in its sole discretion and in lieu of the payment of the aggregate
exercise price by such holder upon exercise thereof, of newly issued shares of
Bruno's Common Stock having an aggregate value equal to the difference between
(x) the aggregate Fair Market Value (as defined below) at the time of such
exercise of such number of shares of Bruno's Common Stock (or fraction thereof)
for which such Warrant is then exercisable and (y) the exercise price multiplied
by the number of shares (or fraction thereof) for which such Warrant is then
exercisable, (iv) will be transferable, subject to certain restrictions, and
will be entitled to the demand and incidental registration rights described
below in respect of such Bruno's Common Stock, (v) provides for the payment of
documentary, stamp and other similar taxes by the Company and (vi) will
otherwise be issued pursuant to one or more agreements, certificates or
documents containing terms satisfactory to Crimson. As a result of the Merger,
the Partnership will hold 20,833,333 shares, or approximately 83.3%, of the
shares of Bruno's Common Stock expected to be outstanding after the Merger. If
the Warrants were exercised in full, the Partnership would hold approximately
88% of such Bruno's Common Stock.
"Fair Market Value" shall mean, as of any exercise date, the average for the
second Trading Day (as defined below) preceding such exercise date of the high
and low reported sales prices regular way of one share of Bruno's Common Stock
on such Trading Day or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked prices regular
way of a share of Bruno's Common Stock on such Trading Day, in either case on
the principal national securities exchange on such Trading Day, on the National
Association of Securities Dealers Automated Quotations National Market System,
or if the shares of Bruno's Common Stock are not listed or admitted to trading
on any national securities exchange or quoted on such National Market System on
such Trading Day, the average of the closing bid and asked price of a share of
Bruno's Common Stock in the over-the-counter market on such Trading Day as
furnished by any New York Stock Exchange member firm selected from time to time
by the Company. If the Bruno's Common Stock is not quoted or listed by any such
organization, exchange or market, the Fair Market Value of the Bruno's Common
Stock shall be determined in good faith by the Board of Directors of the
Company. "Trading Day" shall mean each weekday other than any day on which any
Bruno's Common Stock is not traded on any national securities exchange or the
National Association of Securities Dealers Automated Quotations National Market
System or in the over-the-counter market.
The exercise price and the number of shares of Bruno's Common Stock for
which the Warrants are exercisable will be subject to adjustment in certain
events including (i) the payment by Bruno's of dividends or distributions on
Bruno's Common Stock payable in shares of Bruno's Common Stock, (ii)
subdivisions, combinations and reclassifications of Bruno's Common Stock, (iii)
the payment by Bruno's of dividends or distributions of any evidences of
indebtedness, shares of capital stock (other than Bruno's Common Stock), shares
of stock of any subsidiary, warrants or other rights to subscribe for
convertible securities or purchase any evidences of indebtedness, or any other
securities or property (other than regular quarterly cash dividends payable from
earnings or earned surplus), (iv) the repurchase by Bruno's or a subsidiary of
shares of Bruno's Common Stock for per share consideration
54
<PAGE>
greater than the Fair Market Value of one share of Bruno's Common Stock, (v) the
issuance of additional shares of Bruno's Common Stock, other than certain
permitted issuances, for per share consideration less than the exercise price
and (vi) the issuance of warrants or other rights to purchase additional shares
of Bruno's Common Stock or any convertible securities where the price per share
for which Bruno's Common Stock is issuable upon the exercise or conversion
thereof is less than the exercise price. In addition, in case of certain
reorganizations or reclassifications of Bruno's capital stock, or consolidations
or mergers of Bruno's, or the sale of all or substantially all its assets where
securities or other property are to be received by holders of Bruno's Common
Stock, then the holder will receive upon exercise of the Warrants the securities
or property which such holder would have received had the Warrants been
exercised immediately prior to any such event.
Bruno's will authorize and reserve for issuance such number of shares of
Bruno's Common Stock as may be issuable upon the exercise of the Warrants.
The holder of the Warrants will also be entitled to registration rights with
regard to the Warrants and the Bruno's Common Stock issuable upon exercise of
the Warrants (the "Registrable Securities"). The holder will have the right,
under certain circumstances and subject to certain conditions, to include the
Registrable Securities in registration statements filed by Bruno's under the
Securities Act. In the case of an underwritten public offering, the holder must
sell its Registrable Securities to the underwriters on the same terms and
conditions as Bruno's, with such differences as may be customary in combined
primary and secondary offerings. The holder also has the right at any time,
subject to certain conditions, to require Bruno's to register all or a portion
of the Registrable Securities. Bruno's will pay certain expenses (other than
underwriting discounts and commissions) in connection with each incidental
registration and in connection with the first six demand registrations.
The Warrants will initially be issued at the Effective Time of the Merger
pursuant to a Warrant document to be executed by Bruno's in favor of the
Partnership. The above summary of certain provisions of such Warrant document
does not purport to be complete and is qualified in its entirety by reference to
the Form of Warrant, which has been filed as an exhibit to the Registration
Statement of which this Proxy Statement is a part.
55
<PAGE>
PRO FORMA CONSOLIDATED CONDENSED FINANCIAL STATEMENTS
The following unaudited pro forma consolidated condensed financial
statements (the "Pro Forma Financial Statements") have been derived by the
application of pro forma adjustments to the Company's historical financial
statements incorporated by reference in this Proxy Statement. The pro forma
income statements for the periods presented give effect to the Merger and
related transactions as if such transactions were consummated as of July 4, 1993
for the year ended July 2, 1994, and as of July 3, 1994 for the forty week
period ended April 8, 1995. The pro forma balance sheet gives effect to the
Merger and related transactions as if such transactions had occurred as of April
8, 1995. The adjustments are described in the accompanying notes. The Pro Forma
Financial Statements should not be considered indicative of actual results that
would have been achieved had the Merger and related transactions been
consummated on the date or for the periods indicated and do not purport to
indicate balance sheet data or results of operations as of any future date or
for any future period. The Pro Forma Financial Statements should be read in
conjunction with the Company's historical financial statements and the notes
thereto incorporated herein by reference. See "AVAILABLE INFORMATION" and
"INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE."
The pro forma adjustments were applied to the respective historical
financial statements to reflect and account for the Merger as a
recapitalization. Accordingly, the historical basis of the Company's assets and
liabilities has not been impacted by the transaction.
56
<PAGE>
PRO FORMA CONSOLIDATED BALANCE SHEET
(UNAUDITED)
(DOLLARS IN MILLIONS)
<TABLE>
<CAPTION>
AS OF APRIL 8, 1995
-----------------------------------------
PRO FORMA PRO
HISTORICAL ADJUSTMENTS FORMA
---------- ----------- --------
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents............................ $ 20.8 $ 0.0(a) $ 20.8
Receivables.......................................... 40.3 40.3
Inventories.......................................... 250.3 250.3
Prepaid expenses..................................... 14.5 14.5
Deferred income taxes................................ 1.4 1.4
---------- --------
327.3 327.3
Property and equipment, net............................ 515.4 515.4
Intangibles and other, net............................. 55.7 55.7
---------- ----------- --------
TOTAL ASSETS........................................... $898.4 $ 0.0 $ 898.4
---------- ----------- --------
---------- ----------- --------
LIABILITIES AND SHAREHOLDERS' INVESTMENT
CURRENT LIABILITIES:
Current maturities of debt and short-term
borrowings............................................. $ 26.9(b) $ 0.0 $ 26.9(b)
Accounts payable..................................... 107.0 107.0
Accrued income taxes................................. 0.9 0.9
Other accrued expenses............................... 61.2 61.2
---------- ----------- --------
196.0 0.0 196.0
---------- --------
NONCURRENT LIABILITIES:
Long-term debt....................................... 200.8 700.0(c) 900.8
Revolving credit facility............................ 0.0 5.1(d) 5.1(d)
Capitalized lease obligations........................ 19.3 19.3
Deferred income taxes................................ 47.1 47.1
Other noncurrent liabilities......................... 12.7 12.7
---------- ----------- --------
279.9 705.1 985.0
---------- ----------- --------
SHAREHOLDERS' INVESTMENT (DEFICIT):
Common stock (78.1 million shares outstanding, $.01
par value, historical basis; 25.0 million shares
outstanding, $.01 par value, pro forma basis)...... 0.8 (0.5)(e) 0.3
Paid-in capital (deficit)............................ 42.0 (634.3)(f) (592.3)
Retained earnings.................................... 384.4 (75.0)(g) 309.4
Treasury stock....................................... (4.7) 4.7(h) 0.0
---------- ----------- --------
422.5 (705.1) (282.6)
---------- ----------- --------
TOTAL LIABILITIES AND SHAREHOLDERS' INVESTMENT......... $898.4 $ 0.0 $ 898.4
---------- ----------- --------
---------- ----------- --------
</TABLE>
See notes to pro forma consolidated balance sheet.
57
<PAGE>
NOTES TO PRO FORMA
CONSOLIDATED BALANCE SHEET
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) The net effect of $0.0 reflects the following:
(Millions)
--------
Total Sources:
Term loan proceeds.............................................. $ 550.0
Debt securities proceeds........................................ 350.0
Revolver proceeds............................................... 5.1
Crimson equity contribution..................................... 250.0
--------
$1,155.1
--------
Total Uses:
Cash merger consideration....................................... $ 880.1
Historical debt repayment....................................... 200.0
Fees and expenses............................................... 75.0
--------
$1,155.1
--------
Net............................................................. $ 0.0
--------
--------
(b) This amount consists primarily of a $25.0 million note payable which was
repaid by the Company on April 14, 1995.
(c) The pro forma adjustment to long term debt reflects the following:
(Millions)
----------
Repayment of historical debt outstanding....................... $ (200.0)
New term loan facility......................................... 550.0
Debt securities................................................ 350.0
----------
Total adjustment............................................... $ 700.0
----------
----------
While no decisions have been made regarding the terms of the Debt securities, it
is anticipated that a portion of the Debt securities will be issued at a
substantial discount from their face value. In such event, the face amount of
the Debt securities may be in excess of $350 million. This presentation is
indicative of the Company's best current estimate of the types of financing
which may be used in connection with the Merger.
(d) The Company expects that a $100 million Revolving Credit Facility will be
available for working capital and general corporate purposes. It is
anticipated that $5.1 million will be drawn in connection with the Merger.
(e) The adjustment reflects the effect of the Merger on the 78.1 million shares
outstanding at $.01 par value per share. There will be 25,007,015 shares
outstanding subsequent to the Merger.
(f) The adjustment reflects amounts distributed to convert to cash 73.3 million
shares of Bruno's Common Stock for total consideration of $880.1 million,
plus the $4.7 million impact of cancelled treasury stock, net of the receipt
of 20.8 million shares by the Partnership for total consideration of $250.0
million, and net of the $0.5 million allocated to par value of the Bruno's
Common Stock as a result of the Merger. It is anticipated that all 73.3
million shares will be cancelled.
(g) The adjustment reflects the fees and expenses anticipated to be paid to
effect the Merger. Such estimated fees and expenses are anticipated to
consist of (i) fees and expenses related to the Merger Financings, including
bank commitment fees and underwriting discounts and commissions, (ii) fees
and expenses in connection with the prepayment of historical debt and an
interest rate swap, (iii) professional, advisory and investment banking fees
and expenses and (iv) miscellaneous fees and expenses such as printing and
filing fees. Included in the $75.0 million of estimated fees and expenses is
the $15 million fee payable by the Company to KKR in the event the Merger
closes in accordance with the Merger Agreement. It is expected that the most
substantial portion of the remaining estimated fees and expenses will relate
to the Merger Financings.
(h) The adjustment reflects the cancellation of the 0.6 million shares of
treasury stock.
58
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FORTY WEEKS ENDED APRIL 8, 1995
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................................ $ 2,201.0 $2,201.0
Cost of products sold.................................... 1,684.8 1,684.8
---------- ---------
Gross profit............................................. 516.2 516.2
Store operating, selling and administrative expenses..... 424.8 424.8
Depreciation and amortization............................ 41.5 41.5
Interest expense......................................... 20.7 $ 48.4(a) 69.1
Interest income.......................................... (4.7) 3.7(b) (1.0 )
---------- ----------- ---------
Income (loss) before income taxes........................ 33.9 (52.1) (18.2 )
Income taxes............................................. 12.9 (19.8)(c) (6.9 )
---------- ----------- ---------
Net income (loss)........................................ $ 21.0 $ (32.3) $ (11.3 )
---------- ----------- ---------
---------- ----------- ---------
Weighted average shares outstanding...................... 77.6 25.0
---------- ---------
---------- ---------
Primary earnings (loss) per share........................ $ 0.27 $ (0.45 )
---------- ---------
---------- ---------
</TABLE>
- ------------
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(Millions)
----------
<S> <C>
Interest expense on historical debt........................................... $(18.9)
Interest expense on the term loans and revolving credit facility
(assumed 9.0% average rate)................................................... 38.4
Interest expense on the Debt securities (assumed 10.75% average rate)......... 28.9
----------
Total adjustment.............................................................. $ 48.4
----------
----------
</TABLE>
Because interest rates in connection with the Merger Financings have not been
determined as of the date of this Proxy Statement, this presentation is
indicative of the Company's best current estimate of interest expense.
A 0.125% increase or decrease in the assumed average interest rate on the
term loans and revolving credit facility would change the pro forma interest
expense by $0.6 million. The pro forma net income (loss) would change by $0.3
million and the pro forma primary earnings (loss) per share would change by
$0.01.
A 0.125% increase or decrease in the assumed average interest rate on the
Debt securities would change the pro forma interest expense by $0.4 million.
The pro forma net income (loss) would change by $0.2 million and the pro
forma primary earnings (loss) per share would change by $0.01.
(b) The adjustment reverses historical income recognized on the Company's
interst rate swap (assumed to be settled upon consummation of the Merger).
(c) The adjustment reflects the tax effect of the pro forma adjustments at a 38%
effective rate.
59
<PAGE>
PRO FORMA CONSOLIDATED INCOME STATEMENT
(UNAUDITED)
(DOLLARS IN MILLIONS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED JULY 2, 1994
-----------------------------------------
PRO FORMA
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales.............................................. $ 2,834.7 $2,834.7
Cost of products sold.................................. 2,185.6 2,185.6
---------- ---------
Gross profit........................................... 649.1 649.1
Store operating, selling and administrative expenses... 512.1 512.1
Depreciation and amortization.......................... 52.3 52.3
Interest expense....................................... 20.5 $ 69.1(a) 89.6
Interest income........................................ (4.6) 4.0(b) (0.6)
---------- ----------- ---------
Income (loss) before income taxes...................... 68.8 (73.1) (4.3)
Income taxes........................................... 28.2 (27.8)(c) 0.4
---------- ----------- ---------
Net income (loss)...................................... $ 40.6 $ (45.3) $ (4.7)
---------- ----------- ---------
---------- ----------- ---------
Weighted average shares outstanding.................... 78.1 25.0
---------- ---------
---------- ---------
Primary earnings (loss) per share...................... $ 0.52 $ (0.19)
---------- ---------
---------- ---------
</TABLE>
- ------------
The pro forma financial data have been derived by the application of pro
forma adjustments to the Company's historical financial statements for the
period noted. The Merger has been accounted for as a recapitalization which will
have no impact on the historical basis of assets and liabilities. The pro forma
financial data assumes that there are no dissenting shareholders to the Merger.
(a) The pro forma adjustment to interest expense reflects the following:
<TABLE>
<CAPTION>
(Millions)
----------
<S> <C>
Interest expense on historical debt.......................................... $(18.5)
Interest expense on the term loans and revolving credit facility
(assumed 9.0% average rate).................................................. 50.0
Interest expense on the Debt securities (assumed 10.75% average rate)........ 37.6
----------
Total adjustment............................................................. $ 69.1
----------
----------
</TABLE>
Because interest rates in connection with the Merger Financings have not been
determined as of the date of this Proxy Statement, this presentation is
indicative of the Company's best current estimate of interest expense.
A 0.125% increase or decrease in the assumed average interest rate on the
term loans and revolving credit facility would change the pro forma interest
expense by $0.7 million. The pro forma net income (loss) would change by $0.4
million and the pro forma primary earnings (loss) per share would change by
$0.02.
A 0.125% increase or decrease in the assumed average interest rate on the
Debt securities would change the pro forma interest expense by $0.5 million.
The pro forma net income (loss) would change by $0.3 million and the pro
forma primary earnings (loss) per share would change by $0.01.
(b) The adjustment reverses historical income recognized on the Company's
interst rate swap (assumed to be settled upon consummation of the Merger).
(c) The adjustment reflects the tax effect of the pro forma adjustments at a 38%
effective rate. The historical effective tax rate of 41% includes the impact
of a $2.2 million retroactive adjustment due to a change in federal tax
rates.
60
<PAGE>
DESCRIPTION OF BRUNO'S CAPITAL STOCK
GENERAL
Bruno's is authorized by its Articles of Incorporation, as amended, to issue
an aggregate of 200,000,000 shares of Common Stock, par value $.01 per share.
Bruno's is not authorized to issue preferred stock. The following is a summary
of certain of the rights and privileges pertaining to Bruno's Common Stock. For
a full description of Bruno's Common Stock, reference is made to the Company's
Articles of Incorporation, as amended, a copy of which is on file with the
Commission.
VOTING RIGHTS
The holders of Bruno's Common Stock are entitled to one vote per share on
all matters submitted for action by the shareholders. Shareholders holding more
than 66 2/3% of the shares of Bruno's Common Stock can, if they elect to do so,
approve the Merger. There is no provision for cumulative voting with respect to
the election of directors. Accordingly, the holders of more than 50% of the
shares of Bruno's Common Stock can, if they choose to do so, elect all of the
directors. In such event, the holders of the remaining shares will not be able
to elect any directors.
DIVIDEND RIGHTS
All shares of Bruno's Common Stock are entitled to share in such dividends
as the Board of Directors may from time to time declare from sources legally
available therefor.
LIQUIDATION RIGHTS
Upon liquidation or dissolution of the Company, whether voluntary or
involuntary, all shares of Bruno's Common Stock are entitled to share equally in
the assets available for distribution to shareholders after payment of all prior
obligations of the Company.
BRUNO'S COMMON STOCK FOLLOWING THE MERGER
If the Merger is approved by the requisite vote of the shareholders of
Bruno's Common Stock at the Special Meeting, at the Effective Time of the Merger
the Articles of Incorporation of the Company, as amended, will be amended and
restated so as to read in its entirety in the form set forth as Exhibit A to the
Merger Agreement, as amended, which is attached hereto as ANNEX I, and, as so
amended, until thereafter further amended as provided therein and under the
ABCA, will be the articles of incorporation of the Company following the Merger.
The Amended and Restated Articles of Incorporation will amend the total number
of shares of capital stock that the Company is authorized to issue from
200,000,000 to 60,000,000 shares of Bruno's Common Stock.
In addition, the Bylaws of Crimson as in effect at the Effective Time of the
Merger will be the Bylaws of the Company following the Merger until thereafter
changed or amended as provided therein or by applicable law.
CERTAIN PROVISIONS OF THE MERGER AGREEMENT
The following is a brief summary of certain provisions of the Merger
Agreement, as amended, which appears as ANNEX I to this Proxy Statement and is
incorporated herein by reference. Such summary is qualified in its entirety by
reference to the Merger Agreement, as amended. All references to the Merger
Agreement in this section shall be deemed to refer to the Merger Agreement, as
amended.
THE MERGER
The Merger Agreement provides that, following the approval of the Merger and
the adoption of the Merger Agreement by the vote of two-thirds of the shares of
Bruno's Common Stock entitled to vote
61
<PAGE>
thereon and the satisfaction or waiver of the other conditions to the Merger,
Crimson will be merged with and into the Company, and the Company will continue
as the surviving corporation in the Merger.
If the conditions to the Merger are satisfied or waived, the parties will
file with the Secretary of State of the State of Alabama duly executed Articles
of Merger, and the Merger will become effective upon the filing and acceptance
thereof or at such date thereafter as is provided in the Articles of Merger.
Each share of Bruno's Common Stock outstanding at the Effective Time of the
Merger (other than Dissenting Shares) will be converted into either (i) the Cash
Election Price or (ii) a Non-Cash Election Share, as more fully described under
"THE MERGER--Merger Consideration" and "--Non-Cash Election." With regard to the
treatment of fractional share interests, see "--Fractional Shares."
REPRESENTATIONS AND WARRANTIES
The Merger Agreement contains customary representations and warranties of
the Company relating, with respect to the Company and its subsidiaries, to,
among other things, (a) organization, standing and similar corporate matters;
(b) subsidiaries; (c) the Company's capital structure; (d) the authorization,
execution, delivery, performance and enforceability of the Merger Agreement, the
Option Agreement and related matters; (e) documents filed by the Company with
the Commission, the accuracy of information contained therein and the absence of
undisclosed liabilities; (f) the accuracy of information supplied by the Company
in connection with this Proxy Statement; (g) the absence of certain changes or
events since the date of the most recent audited financial statements filed with
the Commission, including material adverse changes with respect to the Company;
(h) the absence of pending or threatened material litigation, certain labor
matters and compliance with applicable laws; (i) benefit plans and other matters
relating to the Employee Retirement Income Security Act of 1974, as amended
("ERISA") and employment matters; (j) filing of tax returns and payment of
taxes; (k) good title to owned real property, free of liens, valid leasehold and
subleasehold interests in leased real property, enforceable third party leases,
possession of required permits, and other real-estate related matters; (l)
environmental matters; (m) the absence of defaults under material contracts; (n)
brokers' fees and expenses; (o) the receipt of an opinion of the Company's
financial advisor; (p) the recommendation of the Board of Directors of the
Company with respect to the Merger Agreement, the Merger, the Option Agreement,
the Stockholders Agreement and related transactions; (q) the required vote of
the Company's shareholders; (r) the lack of any provisions in the Company's
organizational documents restricting, and the inapplicability of any state
takeover or similar statutes to, the Merger Agreement, the Merger, the Option
Agreement, the Stockholders Agreement or related agreements and transactions;
(r) the ownership of Company trade names; and (s) the lack of premiums
associated with prepayment of certain indebtedness of the Company.
The Merger Agreement also contains customary representations and warranties
of Crimson relating to, among other things, (a) organization, standing and
similar corporate matters; (b) subsidiaries; (c) Crimson's capital structure;
(d) the authorization, execution, delivery, performance and enforceability of
the Merger Agreement, the Option Agreement and related matters; (e) broker's
fees and expenses; and (f) interim operations of Crimson.
CERTAIN PRE-CLOSING COVENANTS
Pursuant to the Merger Agreement, the Company has agreed, until the
Effective Time of the Merger (except as otherwise specifically required by the
terms of the Merger Agreement), that it will, and it will cause its subsidiaries
to, act and carry on their respective business in the usual, regular and
ordinary course of business consistent with past practice and use its and their
respective best efforts to preserve intact their current business organizations,
keep available the services of their current officers and employees and preserve
their relationships with customers, suppliers, licensors, licensees,
advertisers, distributors and others having business dealings with them to the
end that their goodwill and ongoing businesses shall be unimpaired at the
Effective Time of the Merger. Without limiting the
62
<PAGE>
generality of the foregoing, until the Effective Time of the Merger, the Company
will not, and will not permit any of its subsidiaries to, without the prior
consent of Crimson, (i) (x) declare, set aside or pay any dividends on, or make
any other distributions in respect of, any of its capital stock, other than
dividends and distributions by a direct or indirect wholly owned subsidiary of
the Company to its parent, and except that the Company may declare and pay one
regular quarterly cash dividend in May 1995 not in excess of $.065 per share of
Bruno's Common Stock (with usual record and payment dates and in accordance with
its past dividend policy), (y) split, combine or reclassify any of its capital
stock or issue or authorize the issuance of any other securities in respect of,
in lieu of or in substitution for shares of its capital stock, or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except, in the case of
clause (z), for the acquisition of shares of Bruno's Common Stock from holders
of Company Stock Options in full or partial payment of the exercise price
payable by such holder upon exercise of Company Stock Options outstanding on the
date of the Merger Agreement; (ii) subject to certain exceptions, including the
issuance of shares to Crimson pursuant to the Option Agreement, authorize for
issuance, issue, deliver, sell, pledge or otherwise encumber any shares of its
capital stock or the capital stock of any of its subsidiaries, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or any other securities or equity equivalents; (iii) amend its articles of
incorporation, by-laws or other comparable charter or organizational documents;
(iv) acquire or agree to acquire any business or any corporation, partnership,
joint venture, association or other business organization or division thereof;
(v) subject to certain exceptions, sell, encumber or otherwise dispose of any of
its properties or assets other than properties or assets that meet certain
specified criteria, except sales of inventory and entering into leases for new
store sites, in each case in the ordinary course of business consistent with
past practice; (vi) (y) incur any indebtedness for borrowed money or guarantee
any such indebtedness of another person, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of another person, enter into
any "keep well" or other agreement to maintain any financial condition of
another person or enter into any arrangement having the economic effect of any
of the foregoing, except for short-term borrowings and for lease obligations, in
each case incurred in the ordinary course of business consistent with past
practice, or (z) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any direct or
indirect wholly owned subsidiary of the Company; (vii) acquire or agree to
acquire any assets that are material, individually or in the aggregate, to the
Company and its subsidiaries taken as a whole, or, subject to certain
exceptions, make or agree to make any capital expenditures; (viii) subject to
certain exceptions, pay, discharge or satisfy any claims (including claims of
shareholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise); (ix) adopt a plan of complete or partial
liquidation or resolutions providing for or authorizing such a liquidation or a
dissolution, merger, consolidation, restructuring, recapitalization or
reorganization; (x) except for certain successor agreements which shall be
subject to the mutual agreement of the Company and Crimson, enter into any new
collective bargaining agreement or any successor collective bargaining agreement
to any collective bargaining agreement; (xi) change any material accounting
principle; (xii) settle or compromise any litigation, other than settlements or
compromises that meet certain specified criteria; or (xiii) authorize any of, or
commit or agree to take any of, the foregoing actions.
Under the Merger Agreement, the Company has also agreed, subject to certain
exceptions, that neither it nor any of its subsidiaries will adopt or amend
(except as required by law) any employee benefit plan, agreement, trust, fund or
other arrangement for the benefit or welfare of any employee, director or former
director or employee or, other than increases for individuals (other than
officers and directors) in the ordinary course of business consistent with past
practice, increase the compensation or fringe benefits of any director, employee
or former director or employee or pay any benefit not required by an existing
plan, arrangement or agreement.
63
<PAGE>
Pursuant to the Merger Agreement, the Company has also agreed that neither
it nor any of its subsidiaries will (i) grant any new or modified severance or
termination arrangement or increase or accelerate any benefits payable under its
severance or termination pay policies in effect on the date of the Merger
Agreement, (ii) effectuate a "plant closing" or "mass layoff," as defined in the
Worker Adjustment and Retraining Notification Act of 1988, affecting in whole or
in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying Crimson or its affiliates in
advance and without complying with the notice requirements and other provisions
of such Act or (iii) except in the ordinary course of business and consistent
with past practice, make any tax election or settle or compromise any federal,
state, local or foreign tax liability.
NO SOLICITATION OF TRANSACTIONS
The Merger Agreement provides that neither Bruno's nor any of its
subsidiaries will (whether directly or indirectly through advisors, agents or
other intermediaries), authorize or permit any of its or their officers,
directors, agents, representatives, advisors or subsidiaries to (a) solicit,
initiate or take any action knowingly to facilitate the submission of inquiries,
proposals or offers from any person relating to any acquisition or purchase of a
substantial amount of assets of the Company or any of its Significant
Subsidiaries (within the meaning of Rule 1-02 of Regulation S-X of the
Commission) or of over 20% of any class of equity securities of the Company or
any of its subsidiaries or any tender offer (including a self tender offer) or
exchange offer that if consummated would result in any Person beneficially
owning 20% or more of any class of equity securities of the Company or any of
its subsidiaries, or any merger, consolidation, business combination, sale of
substantially all assets, recapitalization, liquidation, dissolution or similar
transaction involving the Company or any of its subsidiaries other than the
transactions contemplated by the Merger Agreement, the Option Agreement and the
Stockholders Agreement or any other transaction the consummation of which would
or could reasonably be expected to impede, interfere with, prevent or materially
delay the Merger or which would or could reasonably be expected to materially
dilute the benefits to Crimson of the transactions contemplated by the Merger
Agreement (collectively, "Transaction Proposals") or agree to or endorse any
Transaction Proposal, or (b) enter into or participate in any discussions or
negotiations regarding any of the foregoing, or furnish to any other person any
information with respect to its business, properties or assets or any of the
foregoing, or otherwise cooperate in any way with, or assist or participate in,
facilitate or encourage, any effort or attempt by any other person to do or seek
any of the foregoing. By the terms of the Merger Agreement, the foregoing
provision will not prohibit the Company from (i) furnishing information pursuant
to an appropriate confidentiality letter (provided for informational purposes
only to Crimson) concerning the Company and its businesses, properties or assets
to a third party who has made a Transaction Proposal, (ii) engaging in
discussions or negotiations with such a third party who has made a Transaction
Proposal, (iii) following receipt of a Transaction Proposal, taking and
disclosing to its shareholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its shareholders, (iv)
following receipt of a Transaction Proposal, failing to make or withdrawing or
modifying its recommendation that the holders of Bruno's Common Stock approve
the Merger Agreement, the Merger and the transactions contemplated thereby
and/or (v) taking any non-appealable, final action ordered to be taken by the
Company by any court of competent jurisdiction, but in each case referred to in
the foregoing clauses (i) through (v) only to the extent that the Board of
Directors of the Company shall have concluded in good faith on the basis of
advice from outside counsel that such action is required to prevent the Board of
Directors of the Company from breaching its fiduciary duties to the shareholders
of the Company under Alabama law; provided, that the Board of Directors of the
Company is not permitted to take any of the foregoing actions referred to in
clauses (i) through (iv) until after reasonable notice to Crimson with respect
to such action. The Company's Board of Directors is further required, to the
extent it may do so without breaching such fiduciary duties, to continue to
advise Crimson after taking such action and, in addition, if the Board of
Directors of the Company receives a Transaction Proposal, then the Company is
obligated to inform promptly Crimson of the terms and conditions of such
proposal and the identity of the person making it. The Company will
64
<PAGE>
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. For a description of the effects that a Transaction
Proposal prior to the Effective Time of the Merger could have under the Merger
Agreement, the Option Agreement and the Stockholders Agreement, see
"--Termination" below and "CERTAIN RELATED AGREEMENTS--Stock Option Agreement"
and "CERTAIN RELATED AGREEMENTS--Stockholders Agreement."
Under the Merger Agreement, neither the Company nor any of its subsidiaries
will waive or fail to enforce any provision of any confidentiality or standstill
or similar agreement to which it is a party without the prior written consent of
Crimson.
BOARD OF DIRECTORS AND OFFICERS OF THE COMPANY FOLLOWING THE MERGER
The Merger Agreement provides that the directors of Crimson at the Effective
Time of the Merger will be the directors of the Company following the Merger.
The present directors of Crimson are Paul E. Raether, James H. Greene, Jr. and
Nils P. Brous. See Schedule I for more information on the Crimson directors. It
is also contemplated that Ronald G. Bruno will continue to serve as a Director
of the Company for three years following the Effective Time of the Merger,
subject to the customary right of a Director to resign. The Board of Directors
will be subject to change from time to time.
Although the Merger Agreement also provides that the officers of Crimson
(Messrs. Raether, Greene and Brous) at the Effective Time of the Merger will be
officers of the Company following the Merger, it is not expected that the
officers of Crimson will continue as ongoing officers of the Company following
the Merger. The five current Executive Officers of the Company, Messrs. Bruno,
Garrison, Griffin, K. Bruno, and Conley, will remain, in general, as officers of
the Company until one year following the Effective Time of the Merger or for
such shorter time as may be determined by the Board of Directors following the
Merger.
STOCK AND EMPLOYEE BENEFIT PLANS
The treatment in the Merger of outstanding Company Stock Options and of the
Company's employee benefit plans will be as described in "THE MERGER--Effect on
Stock and Employee Benefit Matters."
ACCESS TO INFORMATION AND CONFIDENTIALITY
Subject to applicable provisions regarding confidentiality, the Company has
agreed in the Merger Agreement to, and to cause each of its subsidiaries,
officers, employees, counsel, financial advisors and other representatives to,
afford to Crimson and its representatives and to potential financing sources,
reasonable access, in a coordinated manner, during normal business hours during
the period prior to the Effective Time of the Merger to all its properties,
books, contracts, commitments, personnel and records and, during such period,
to, and to cause each of its subsidiaries to, furnish promptly to Crimson such
information concerning its business, properties, financial condition, operations
and personnel as Crimson may from time to time reasonably request.
COOPERATION AND BEST EFFORTS
Pursuant to the Merger Agreement and subject to certain conditions and
limitations described therein, the parties have agreed to cooperate with each
other and to use their respective best efforts to take certain specified and
other actions, including cooperation in the arrangement of financing, so that
the transactions contemplated by the Merger Agreement, the Option Agreement and
the Stockholders Agreement may be consummated. Under the Merger Agreement, the
Company and Crimson will take all actions necessary to delist the Company's
Common Stock from Nasdaq, effective after the Effective Time of the Merger.
65
<PAGE>
INDEMNIFICATION AND INSURANCE
Under the Merger Agreement, for six years after the Effective Time of the
Merger, the Company will indemnify all present and former directors and officers
of the Company and its subsidiaries for acts or omissions occurring prior to the
Effective Time of the Merger to the fullest extent currently provided in their
respective articles of incorporation or by-laws consistent with applicable law,
to the extent that such acts or omissions are uninsured, and will reimburse such
officers and directors for any reasonable costs and expenses reasonably incurred
by such officers and directors to the extent permitted by applicable law.
The Company will, for six years following the Effective Time of the Merger,
maintain its current directors' and officers' insurance and indemnification
policy to the extent that it provides coverage for events occurring prior to the
Effective Time of the Merger for all persons who are directors and officers of
the Company on the date of the Merger; provided, that the Company will not be
required to spend in excess of (i) a $500,000 annual premium therefor, in the
event the Company in its sole discretion elects not to continue any arrangement
which, in exchange for an increased premium, reduces the Company's co-payment
obligation ("Allocation Form") or (ii) a $600,000 annual premium therefor, in
the event the Company in its sole discretion elects to continue the Allocation
Form; provided further that if the Company would be required to spend per annum
in excess of a $500,000 premium, in the case of clause (i) above, or a $600,000
premium, in the case of clause (ii) above, to obtain insurance having the
maximum available coverage under the current policy, the Company will be
required to spend either $500,000 or $600,000, as the case may be, to maintain
or procure insurance coverage, subject to availability of such (or similar)
coverage.
In furtherance of and not in limitation of the preceding paragraphs, the
Company and Crimson have agreed that the officers and directors of the Company
that are defendants in all litigation commenced by shareholders of the Company
with respect to the Merger and the other transactions contemplated thereby (the
"Subject Litigation") will be entitled to be represented, at the reasonable
expense of the Company (to the extent that insurance does not fully indemnify
such person against such expense), in the Subject Litigation by one counsel,
which such counsel shall be selected by a plurality of such director defendants;
provided that the Company shall not be liable for any settlement effected
without its prior written consent or, prior to Closing, the consent of Crimson,
and that a condition to the indemnification payments provided as described above
will be that such officer/director defendant not have settled any Subject
Litigation without the consent of the Company, and prior to Closing, Crimson;
and provided further that the Company and Crimson will have no obligation to any
officer/director defendant when and if a court of competent jurisdiction shall
ultimately determine that indemnification of such officer/director defendant in
the manner contemplated by the Merger Agreement is prohibited by applicable law.
CONDITIONS TO THE CONSUMMATION OF THE MERGER
The respective obligations of the Company and Crimson to effect the Merger
are subject to various conditions which include, in addition to certain other
customary closing conditions, the following:
(a) the Merger Agreement shall have been approved by the requisite vote
of holders of outstanding shares of Bruno's Common Stock;
(b) the waiting period (and any extension thereof) applicable to the
Merger under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended ("HSR Act") shall have been terminated or shall have expired;
(c) no temporary restraining order, preliminary or permanent injunction
or other order issued by any court of competent jurisdiction or other legal
restraint or prohibition preventing the consummation of the Merger shall be
in effect; provided that the Company and Crimson are required to use their
best efforts to have any such injunction, order, restraint or prohibition
vacated; and
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(d) any registration statement used in connection with the Merger on
Form S-4 shall have become effective under the Securities Act and shall not
be the subject of any stop order or proceeding seeking a stop order, and any
material "blue sky" and other state securities laws applicable to the
registration and qualification of Common Stock of the Company following the
Merger shall have been complied with.
Crimson's obligations to effect the Merger are further subject, in addition
to certain other customary conditions, to the following additional conditions:
(a) Crimson shall have received evidence, in form and substance
reasonably satisfactory to it, that such licenses (including, without
limitation, the continued availability of all beer, wine and/or liquor
licenses), permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties as are necessary
in connection with the transactions contemplated by the Merger Agreement
have been obtained, except such licenses, permits, consents, approvals,
authorizations, qualifications and orders which are not, individually or in
the aggregate, material to Crimson or the Company or the failure of which to
have received would not (as compared to the situation in which such license,
permit, consent, approval, authorization, qualification or order had been
obtained) materially dilute the aggregate benefits to Crimson of the
transactions reasonably contemplated by the Merger Agreement.
(b) there shall not be pending or threatened by any governmental entity
any suit, action or proceeding (or by any other person any suit, action or
proceeding which has a reasonable likelihood of success), (i) challenging or
seeking to restrain or prohibit the consummation of the Merger or any of the
other transactions contemplated by the Merger Agreement or the Stockholders
Agreement or seeking to obtain from the Partnership, Crimson or any of their
affiliates any damages that are material to such party, (ii) seeking to
prohibit or limit the ownership or operation by the Company, the Partnership
or any of their respective subsidiaries of any material portion of the
business or assets of the Company or any of its subsidiaries, to dispose of
or hold separate any material portion of the business or assets of the
Company or any of its subsidiaries, as a result of the Merger or any of the
other transactions contemplated by the Merger Agreement or the Stockholders
Agreement, (iii) seeking to impose limitations on the ability of the
Partnership or Crimson (or any designee of Crimson pursuant to the Option
Agreement) to acquire or hold, or exercise full rights of ownership of, any
shares of Bruno's Common Stock, including, without limitation, the right to
vote the Bruno's Common Stock on all matters properly presented to the
shareholders of the Company or (iv) seeking to prohibit the Partnership or
any of its subsidiaries from effectively controlling in any material respect
the business or operations of the Company or its subsidiaries;
(c) Crimson shall have received certain agreements from each person
identified by the Company to be an "affiliate" of the Company for purposes
of Rule 145 under the Securities Act; and
(d) the Company shall have received the proceeds of financing on terms
satisfactory to Crimson in an amount sufficient to consummate the
transactions contemplated by the Merger Agreement, including, without
limitation, (i) to pay the Cash Election Price, (ii) to refinance the
outstanding indebtedness of the Company, (iii) to pay transaction fees
associated with the Merger Agreement or the financing thereof and (iv) to
provide for the working capital needs of the Company following the Merger.
It is anticipated that financing proceeds and an equity contribution
aggregating approximately $1.15 billion will be required to consummate such
transactions. The equity contribution to be made by the Partnership to the
Company will constitute $250 million of such $1.15 billion.
The obligations of the Company to effect the Merger are further subject
to customary closing conditions.
See "REGULATORY APPROVALS."
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TERMINATION
The Merger Agreement may be terminated at any time prior to the Effective
Time of the Merger, whether before or after approval of the Merger by the
shareholders of the Company:
(a) by mutual written consent of Crimson and the Company;
(b) by either Crimson or the Company if:
(i) any federal, state or local government or any court,
administrative agency or commission or other governmental authority or
agency, domestic or foreign, shall have issued a final and nonappealable
order, decree or ruling or taken any other final and nonappealable action
permanently enjoining or otherwise prohibiting the Merger; or
(ii) if the Merger shall not have been consummated on or before
October 31, 1995 (other than due to the failure of the party seeking to
terminate the Merger Agreement to perform its obligations under the
Merger Agreement required to be performed at or prior to the Effective
Time of the Merger);
(c) by Crimson if:
(i) the required approval of the shareholders of the Company shall
not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of shareholders or at any
adjournment thereof, provided, that unless Crimson shall otherwise notify
the Company within two weeks after such failure to obtain the required
vote, the Merger Agreement will automatically terminate without any
further action by any of the parties thereto;
(ii) the Company shall have (1) withdrawn, modified or amended in any
respect adverse to Crimson its approval or recommendation of the Merger
Agreement or any of the transactions contemplated therein, (2) failed as
soon as practicable to mail the Proxy Statement to its shareholders or
failed to include in such statement such recommendation, (3) recommended
any Transaction Proposal from a person other than Crimson or any of its
affiliates or (4) resolved to do any of the foregoing; or
(iii) (1) the Company shall have (A) furnished information pursuant
to an appropriate confidentiality letter (provided for informational
purposes only to Crimson) concerning the Company and its businesses,
properties or assets to a third party who has made a Transaction
Proposal, (B) engaged in discussions or negotiations with such a third
party who has made a Transaction Proposal, (C) following receipt of a
Transaction Proposal, taken and disclosed to its shareholders a position
contemplated by Rule 14e-2(a) under the Exchange Act or otherwise made
disclosure to its shareholders, (D) following receipt of a Transaction
Proposal, failed to make or withdrawn or modified its recommendation to
shareholders and/or (E) taken any non-appealable, final action ordered to
be taken by the Company by any court of competent jurisdiction, and, in
the case of (A) through (D), shall, directly or through agents or
representatives, continue discussions with any third party concerning
such Transaction Proposal for more than 10 business days after the date
of receipt of such Transaction Proposal;
(2) the Company shall have taken any non-appealable, final action
ordered to be taken by the Company by any court of competent
jurisdiction; or
(3)(A) a Transaction Proposal that is publicly disclosed shall have
been commenced, publicly proposed or communicated to the Company which
contains a proposal as to price (without regard to the specificity of
such price proposal) and (B) the Company shall not have rejected such
proposal within 10 business days of its receipt or the date its existence
first becomes publicly disclosed, if sooner; or.
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<PAGE>
(d) by the Company, if the Company, following the receipt of a
Transaction Proposal, fails to make or withdraws or modifies its
recommendation to the shareholders of the Company of the Merger Agreement or
any of the transactions contemplated thereby.
In the event of termination of the Merger Agreement by either the Company or
Crimson, the Merger Agreement will become void and will have no effect, without
any liability or obligation on the part of the Company or Crimson, other than
under certain specified provisions of the Merger Agreement relating to brokers'
fees, payment of fees and expenses, confidentiality agreements, actions by the
Company necessary so that Crimson may exercise voting rights in connection with
shares of Bruno's Common Stock acquired pursuant to the Option Agreement, the
effect of termination of the Merger Agreement and third party beneficiaries.
See "--Expenses and Certain Required Payments."
AMENDMENT AND WAIVER
The Merger Agreement may be amended by the parties at any time before or
after any required approval of matters presented in connection with the Merger
by the shareholders of the Company; provided, that after any such approval,
there shall be made no amendment that by law requires further approval by such
shareholders without the further approval by such shareholders. At any time
prior to the Effective Time of the Merger, the parties may (a) extend the time
for the performance of any of the obligations or other acts of the parties, (b)
waive any inaccuracies in the representations and warranties in the Merger
Agreement or any document delivered pursuant thereto, and (c) subject to the
approval of shareholders required by law, waive compliance with any of the
agreements or conditions contained in the Merger Agreement. The failure of the
Company or Crimson to assert any of its rights under the Merger Agreement will
not constitute a waiver of such rights.
EXPENSES AND CERTAIN REQUIRED PAYMENTS
In addition to any other amounts which may be payable or become payable
pursuant to the provisions described in the next succeeding paragraph, the
Company has agreed (provided that Crimson is not then in material breach of the
Merger Agreement) promptly, but in no event later than one business day after
the termination of the Merger Agreement (or from time to time after Closing) to
reimburse KKR for all its Expenses (as defined below) in connection with the
Merger and the consummation of all transactions contemplated by the Merger
Agreement, the Option Agreement, the Stockholders Agreement and the financing
thereof, provided that, except as set forth in the next succeeding proviso or
with respect to any reimbursement following the Closing, in no event will the
Company be required to pay in excess of an aggregate of $3 million pursuant to
such provision; and provided further, that in the event a fee is payable to KKR
pursuant to the provisions described in the next succeeding paragraph, the
Company will be required to pay Expenses up to a maximum of $12.5 million. The
term "Expenses" means all out-of-pocket expenses and fees, including, without
limitation, fees payable to all banks, investment banking firms and other
financial institutions, and their respective agents and counsel, and all fees of
counsel, accountants, financial printers, experts and consultants to Crimson and
its affiliates.
Under the Merger Agreement, (i) if the Merger Agreement shall have been
terminated in accordance with its terms and either of the following shall have
occurred prior to such termination: (A) any corporation (including the Company
or any of its subsidiaries or affiliates), partnership, person, other entity or
"group" (as referred to in Section 13(d)(3) of the Exchange Act) other than
Crimson or any of its affiliates (collectively, "Persons") shall have become the
beneficial owner of more than 20% of the outstanding shares of Bruno's Common
Stock; or (B)(x) any Person (other than Crimson or any of its affiliates) shall
have made, or proposed, communicated or disclosed in a manner which is or
otherwise becomes public (including being known by shareholders of the Company
owning of record or beneficially in the aggregate 5% or more of the outstanding
shares of Bruno's Common Stock) a bona fide intention to make a Transaction
Proposal (including by making such a Transaction Proposal) and (y) on
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or prior to October 31, 1996, the Company either consummates with a Person a
transaction the proposal of which would otherwise qualify as a Transaction
Proposal under the Merger Agreement or enters into an agreement with a Person
with respect to a transaction the proposal of which would otherwise qualify as a
Transaction Proposal under the Merger Agreement (whether or not such Person is
the Person referred to in clause (x) above); or (ii) if the Merger Agreement is
terminated pursuant to the provisions described in clauses (c)(ii), (c)(iii) or
(d) under "--Termination" above, then the Company will, (1) in the case of
clause (i)(A) and (ii) above, promptly, but in no event later than one business
day after the termination of the Merger Agreement and (2) in the case of clause
(i)(B) above, promptly, but in no event later than one business day after an
event specified in subclause (y) thereof shall have occurred, pay KKR a fee of
$30 million in cash, which amount shall be payable in same day funds. No
termination of the Merger Agreement at a time when a fee is reasonably expected
to be payable pursuant to such provision following termination of the Merger
Agreement will be effective until such fee is paid. Only one fee in the
aggregate of $30 million will be payable pursuant to such provision. No amount
payable pursuant to any of the other provisions of the Merger Agreement will
reduce the amount of the fee payable pursuant to such provision.
If the Merger is consummated in accordance with the Merger Agreement, then
Company following the Merger will pay to KKR, on the Closing Date, a fee of $15
million in cash, which amount shall be payable in same day funds. No amount
payable pursuant to any of the other provisions of the Merger Agreement will
reduce the amount of such fee.
In addition to the foregoing, in the event a fee is or becomes payable
pursuant to the provisions described in the two immediately preceding
paragraphs, the Company has agreed promptly, but in no event later than two
business days following written notice thereof, together with related bills or
receipts, to reimburse KKR and Crimson for all reasonable out-of-pocket costs,
fees and expenses, including, without limitation, the reasonable fees and
disbursements of counsel and the expenses of litigation, incurred in connection
with collecting the Expenses described above and the fees described in the two
immediately preceding paragraphs as a result of any breach by the Company of its
obligations described above.
Except as otherwise provided above, all costs and expenses incurred in
connection with the Merger Agreement, the Option Agreement and the Stockholders
Agreement and the transactions contemplated thereby shall be paid by the party
incurring such expenses, except that the Company will pay all costs and expenses
(x) in connection with printing and mailing the Proxy Statement and any
registration statement on Form S-4, as well as all SEC filing fees relating to
the transactions contemplated therein and (y) of obtaining any consents of any
third party.
CERTAIN RELATED AGREEMENTS
The following is a brief summary of certain provisions of the Stockholders
Agreement and the Option Agreement, copies of which appear as ANNEXES II and
III, respectively, to this Proxy Statement and are incorporated herein by
reference. Such summaries are qualified in their entirety by reference to the
Stockholders Agreement and the Option Agreement, as the case may be. All
references to the Option Agreement in this section shall be deemed to refer to
the Option Agreement, as amended.
STOCKHOLDERS AGREEMENT
Voting. The shareholders (each a "Shareholder") party to the Stockholders
Agreement have severally agreed that, during the time the Stockholders Agreement
is in effect, at any meeting of the shareholders of the Company, however called,
or in connection with any written consent of the shareholders of the Company,
such Shareholder shall vote (or cause to be voted) the shares subject to the
Stockholders Agreement (the "Shares") held of record or beneficially by such
Shareholder (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement, the
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Option Agreement and the Stockholders Agreement and any actions required in
furtherance thereof; (ii) against any action or agreement that would result in a
breach of any covenant, representation or warranty or any other obligation or
agreement of the Company under the Merger Agreement, the Option Agreement or the
Stockholders Agreement; and (iii) except as specifically requested in writing by
Crimson in advance, against the following actions (other than the Merger and the
transactions contemplated by the Merger Agreement and the Option Agreement): (1)
any extraordinary corporate transaction, such as a merger, consolidation or
other business combination involving the Company or its subsidiaries; (2) a
sale, lease or transfer of a material amount of assets of the Company or its
subsidiaries or a reorganization, recapitalization, dissolution or liquidation
of the Company or its subsidiaries; (3) (a) any change in the majority of the
Board of Directors of the Company; (b) any material change in the present
capitalization of the Company or any amendment of the Company's articles of
incorporation; (c) any other material change in the Company's corporate
structure or business; or (d) any other action which is intended or could
reasonably be expected to impede, interfere with, delay, postpone, discourage or
materially adversely affect the Merger or the transactions contemplated by the
Merger Agreement, the Option Agreement or the Stockholders Agreement or the
contemplated economic benefits of any of the foregoing. Such Shareholders have
agreed that they will not enter into any agreement or understanding with any
person or entity prior to the Termination Date (as defined below) to vote or
give instructions after the Termination Date in any manner inconsistent with the
foregoing. Under the Stockholders Agreement, each Shareholder has granted
Crimson and certain Crimson officers, such Shareholder's irrevocable proxy and
attorney-in-fact (with full power of substitution) to vote the Shares in a
manner consistent with the foregoing.
No Solicitation. Under the Stockholders Agreement, the Shareholders are
prohibited from, directly or indirectly (including through advisors, agents or
other intermediaries) soliciting or responding to any inquiries or the making of
any proposal by any person or entity (other than the Partnership, Crimson or any
affiliate of Crimson) with respect to the Company that constitutes or could
reasonably be expected to lead to a Transaction Proposal. (See "CERTAIN
PROVISIONS OF THE MERGER AGREEMENT--No Solicitation of Transactions"). Any
Shareholder who receives any such inquiry or proposal is required to inform
promptly Crimson of the terms and conditions, if any, of such inquiry or
proposal and the identity of the person making it. Each Shareholder has agreed
to immediately cease and cause to be terminated any then-existing activities,
discussions or negotiations with any parties then being conducted with respect
to any of the foregoing.
Transfer Restrictions. Subject to certain exceptions, the Stockholders
Agreement provides that the Shareholders are not permitted to (i) dispose of,
enter into any contract, option or other arrangement or understanding with
respect to, or consent to the offer for sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Shareholder's Shares or any interest therein or (ii) except as contemplated in
the Stockholders Agreement, grant any proxies or powers of attorney, deposit any
Shares into a voting trust or enter into a voting agreement with respect to any
Shares.
Waiver of Appraisal Rights. Each Shareholder under the Stockholders
Agreement has waived any rights of appraisal or rights to dissent from the
Merger that such Shareholder may have. Furthermore, each Shareholder who is a
trustee, executor and foundation director has warranted in the Stockholder
Agreement to Crimson that no beneficial owner of Shares under any trust, estate
or foundation for which such person acts as trustee, executor of foundation
director, respectively, has any right of appraisal or right to dissent from the
Merger which has not been so waived.
No Termination or Closure of Trusts, Foundations and Estates. Unless, in
connection therewith, the Shares held by any trust, estate or foundation which
are presently subject to the terms of the Stockholders Agreement are transferred
upon termination to one or more Shareholders and remain subject in all respects
to the terms of the Stockholders Agreement, or to other persons or entities who
upon receipt of such Shares become signatories to this Agreement, the
Shareholders who are trustees, executors or foundation directors have agreed
that they will not take any action to terminate, close or
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liquidate any such trust, estate or foundation and have agreed to take all steps
necessary to maintain the existence thereof at least until the first to occur of
(i) the Effective Time of the Merger and (ii) the Termination Date.
Continued Service as Director. Under the Stockholders Agreement, Ronald G.
Bruno has agreed to continue to serve as a Director of the Company for three
years following the Effective Time of the Merger, subject to the customary right
of a Director to resign from the Board of Directors.
Stock Redemption Agreements. The Shareholders have agreed in the
Stockholders Agreement that, following the Effective Time of the Merger, each
will terminate any agreements with the Company pursuant to which the Company may
be obligated to repurchase their Shares, and that pending such termination no
such agreement will be enforced.
Covenant Not to Compete. The Stockholders Agreement provides that for the
period ending five years after the Closing Date of the Merger Agreement, each
Shareholder will not, directly or indirectly, own, manage, operate, control or
participate in the ownership, management, operation or control of, or be
connected in any manner with, any business which shall be engaged in the retail
selling of food or other products under the names Bruno's, Food World, Food Max,
Food Fair or Piggly Wiggly (or any confusingly similar name), in Alabama,
Arkansas, Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina,
South Carolina or Tennessee. In addition, each of Ronald G. Bruno, Kenneth J.
Bruno and Joe Bruno has agreed that he will not directly or indirectly, own,
manage, operate, control or participate in the ownership, management, operation
or control of, or be connected in any manner with, any business which shall be
engaged in the retail selling of food, beverages or other related products under
any name, including, without limitation, such trade names, in any of the
aforementioned states for the same period.
Termination. The covenants and agreements in the Stockholders Agreement
terminate on the first to occur of (a) the Effective Time of the Merger and (b)
the date the Merger Agreement is terminated in accordance with its terms;
provided that covenants and agreements described above under "--Continued
Service as Director," "--Stock Redemption Agreements" and "--Covenant Not to
Compete" shall survive the Effective Time of the Merger.
STOCK OPTION AGREEMENT
Option; Exercise. Pursuant to the Option Agreement, the Company has granted
to Crimson an irrevocable option (the "Option") to purchase up to 15,541,570
newly issued shares of Bruno's Common Stock (the "Option Shares").
The Option may be exercised by Crimson, or its designee (which may be an
affiliate or a third party), in whole or in part, at any time, or from time to
time, during the period beginning on the date of the Merger Agreement and ending
on the Expiration Date. "Expiration Date" means the first to occur of (i) the
Effective Time of the Merger and (ii) April 30, 1996. In the event Crimson
exercises the Option prior to the Effective Time of the Merger, upon payment of
$186,498,840 to the Company, it would be entitled to receive 15,541,570 shares
of Bruno's Common Stock, which would represent approximately 16.6% of the
outstanding Bruno's Common Stock after giving effect to the issuance of such
shares. Such shares would be cancelled and would not be entitled to be converted
into any merger consideration in the Merger. With respect to the potentially
dilutive effects of any exercise of the Option, see "RISK FACTORS--Potential
Dilution of Bruno's Shareholders."
In the event that the Option is exercised prior to the termination of the
Merger Agreement, the Company is required to take such actions as may be
reasonably necessary so that Crimson (or its designee) shall, subject to
applicable law, be entitled at the shareholders meeting convened to vote on the
Merger and the Merger Agreement to vote the shares of Bruno's Common Stock
issued upon exercise of such Option (including, with respect to such
shareholders meeting, adjourning such meeting, resetting the record date of such
meeting and/or resetting the date of such meeting).
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In the event Crimson (or its designee) exercises the Option, Crimson (or its
designee) shall, at any closing under the Option Agreement, deliver to the
Company an amount in cash equal to $12.00 (the "Exercise Price") multiplied by
the number of Option Shares purchased, which will be paid by wire transfer of
same day funds. Crimson sought to enter into the Option Agreement in order to
obtain both the right to acquire a minority investment in the Company as well as
the related strategic advantage of such investment in the face of any third
party bidder. The Company was unwilling to grant the Option unless Crimson
agreed to forego any economic benefit of the Option in the event such a third
party bidder succeeded in acquiring the Company. Crimson has no present
intention to exercise the Option.
Adjustments to Exercise Price. In the event that a fee is paid to KKR under
the Merger Agreement as a result of a third party transaction as described under
"CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Expenses and Certain Required
Payments"), the Exercise Price will be adjusted upward (retroactively if
necessary and net of any taxes or brokerage fees paid or payable in connection
with the sale, tender or exchange of shares by Crimson or its designee) to
reflect (i) with respect to any Option Shares actually sold, tendered, or
exchanged in any third party transaction that triggered payment of a fee to KKR
as described under "CERTAIN PROVISIONS OF THE MERGER AGREEMENT--Expenses and
Certain Required Payments," the price per share (subject to the calculation
principles set forth in the next succeeding sentence) actually paid to holders
of Bruno's Common Stock as a result of any such third party transaction and (ii)
with respect to any Option Shares sold, tendered or exchanged to another party
or parties by Crimson (or its designee) other than pursuant to such third party
transaction, the price per share (subject to the calculation principles set
forth in the next succeeding sentence) actually paid to Crimson (or its
designee) by such other party or parties in consideration for such Option Shares
(the "Exercise Price Adjustment"). To the extent the "price per share" referred
to in the preceding sentence consists in whole or in part of non-cash
consideration, it shall be based on the trading market value thereof or if there
is no trading market for such consideration, the fair market value as determined
by an independent investment banker jointly selected by Crimson and the Company.
The Exercise Price Adjustment shall be payable with respect to shares actually
sold, tendered or exchanged promptly following receipt of the consideration
therefor (and, if necessary, the valuation thereof and the good faith estimation
by Crimson of any taxes which it expects to be payable).
Under the Option Agreement, the number and kind of Option Shares or other
securities subject to the Option and the Exercise Price are required to be
appropriately adjusted in the event of certain changes in the number of issued
and outstanding shares of Bruno's Common Stock.
Listing of Shares; Distribution. In the event that Crimson exercises the
Option, the Option Agreement provides that the Company will use its best efforts
to take, or cause to be taken, all actions necessary to list the Option Shares
on Nasdaq.
Registration Rights. Under the Option Agreement, Crimson will have the
right, with respect to Option Shares acquired upon exercise of the Option, to
require the Company to use its best efforts to register Option Shares under the
Securities Act or any successor statute then in effect, and any applicable state
law (a "Demand Registration"), on specified terms and conditions. In lieu of
effecting a Demand Registration of Option Shares, the Company may use its best
efforts to effect a "shelf" registration with respect to such number of Shares
owned by Crimson (or its designee) as Crimson (or its designee) shall request
and to keep such registration continuously effective, on specified terms and
conditions. Under the Option Agreement, the Company will use its best efforts to
cause Option Shares registered pursuant to a registration to be designated for
listing on Nasdaq or any national securities exchange on which the Bruno's
Common Stock is then listed.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The security ownership of certain beneficial owners of five percent or more
of Bruno's Common Stock and officers and directors of the Company as of July 11,
1995, is set forth in the table below.
<TABLE>
<CAPTION>
AMOUNT & NATURE OF
NAME AND ADDRESS OF BENEFICIAL PERCENTAGE OF
BENEFICIAL OWNER OWNERSHIP CLASS
- ------------------------------------------------------- ------------------- ------------------
<S> <C> <C>
KKR Associates......................................... 34,736,579(1) 37.1%
9 West 57th Street
New York, New York 10019
Estate of Lee J. Bruno................................. 6,085,595(2) 7.8%
P.O. Box 2486
Birmingham, AL 35201
Joseph S. Bruno........................................ 4,233,926(3) 5.4%
P.O. Box 2486
Birmingham, AL 35201
Ronald G. Bruno........................................ 6,111,125(4) 7.8%
P.O. Box 2486
Birmingham, AL 35201
Paul F. Garrison....................................... 141,750(5) *
P.O. Box 2486
Birmingham, AL 35201
Glenn J. Griffin....................................... 163,231(6) *
P.O. Box 2486
Birmingham, AL 35201
Kenneth Bruno.......................................... 2,783,409(7) 3.6%
P.O. Box 2486
Birmingham, AL 35201
R. Michael Conley...................................... 55,853(8) *
P.O. Box 2486
Birmingham, AL 35201
Benny M. LaRussa, Jr................................... 358,683(9) *
924 Surrey Road
Birmingham, AL 35223
Richard Cohn........................................... 29,015(10) *
P.O. Box 55727
Birmingham, AL 35255
Judy M. Merritt........................................ 20,200(11) *
440 Sun Valley Road
Birmingham, AL 35215
J. Mason Davis, Jr..................................... 20,700(12) *
P.O. Box 55727
Birmingham, AL 35255
Bart Starr............................................. 20,100(13) *
One Chase Corporate Drive
Suite 450
Birmingham, AL 35244
All officers and directors as a group (11 persons)..... 13,937,992(14) 17.8%
</TABLE>
- ------------
* Owns less than 1% of the total outstanding Common Stock of the Company.
(1) Pursuant to Rule 13d-3 of the Exchange Act, Crimson may be deemed to own
beneficially (i) 15,541,570 shares of Bruno's Common Stock underlying the
Option and (ii) 19,195,009 shares of
(Footnotes continued on following page)
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<PAGE>
(Footnotes continued from preceding page)
Bruno's Common Stock subject to the Stockholders Agreement. Crimson is
controlled by the Partnership, of which KKR Associates is the sole general
partner and as to which KKR Associates possesses sole voting and investment
power. KKR Associates is a limited partnership, the general partners of
which are listed on Schedule I hereto. Such individuals may be deemed to
share beneficial ownership of the shares shown as beneficially owned by KKR
Associates. Such individuals disclaim beneficial ownership of any such
shares.
(2) Includes 3,594,338 shares owned directly by the Estate; and in addition,
2,491,257 shares owned in the aggregate by the Executors of the Estate, as
to which they individually have sole or shared voting or investment power.
(3) Includes (i) 2,975,276 shares owned directly by Joseph S. Bruno, (ii)
143,850 shares owned by the Joseph Bruno Foundation and 530,000 shares
owned by the Joseph S. Bruno Charitable Foundation, private charitable
foundations of which he is president and a director, with respect to which
he disclaims any beneficial interest but as to which he shares voting and
investment power, and (iii) 584,800 shares held in the name of his wife, as
to which he may be deemed to share voting and investment power.
(4) Includes (i) 1,140,950 shares owned directly by Ronald G. Bruno (of which
150,000 are represented by options exercisable within sixty days), (ii)
10,000 shares held jointly with his wife, as to which he shares voting and
investment power; (iii) 6,192 shares held in the name of his wife, as to
which he may be deemed to share voting and investment power; (iv) 7,242
shares held in his name as trustee for his minor child as to which he has
sole voting and investment power; (v) 2,634,018 shares owned by family
members as to which he has sole voting power through proxies held by him,
but as to which he has no investment power; (vi) 200,000 shares held as co-
executor of the Estate of Angelo J. Bruno; 1,775,196 shares held as
co-trustee of trusts for family members (1,175,096 of which are held as
co-trustee with Kenneth J. Bruno), as to which he shares voting and
investment power, (vii) 337,527 shares owned by the Ann and Angelo Bruno
Foundation, a private charitable foundation of which he is a Director (with
Kenneth J. Bruno), with respect to which he disclaims any beneficial
interest but as to which he has sole voting power and shares investment
power.
(5) Includes (i) 108,000 shares owned directly by Paul F. Garrison (of which
75,000 are represented by options exercisable within sixty days); (ii)
4,050 shares held as trustee as to which he has sole voting and investment
power; (iii) 2,100 shares held jointly with his wife as to which he shares
voting and investment power; and (iv) 27,600 shares held in the name of his
wife, as to which he may be deemed to share voting and investment power.
(6) Includes (i) 160,831 shares owned directly by Glenn J. Griffin (of which
75,000 are represented by options exercisable within sixty days), (ii) 800
shares held in his name as custodian for minor children as to which he has
sole voting and investment power; and (iii) 1,600 shares held in the name
of his wife, as to which he may be deemed to share voting and investment
power.
(7) Includes (i) 1,207,269 shares owned directly by Kenneth J. Bruno (of which
75,000 are represented by options exercisable within sixty days); (ii)
1,050 shares held in the name of his wife, as to which he may be deemed to
share voting and investment power; (iii) 39,467 shares held as co-trustee
of a trust for a family member as to which he shares voting and investment
power; (iv) 1,175,096 shares held as co-trustee (with Ronald G. Bruno) of
trusts for family members, as to which he shares voting and investment
power, (v) 337,527 shares owned by the Ann and Angelo Bruno Foundation, a
private charitable foundation of which he is a Director (with Ronald G.
Bruno), with respect to which he disclaims any beneficial interest but as
to which he shares investment power; and (vi) 23,000 shares owned by the
Kenneth J. Bruno Foundation, a private charitable foundation of which he is
president and a director, with respect to which he disclaims any beneficial
interest but as to which he shares voting and investment power.
(8) Includes 55,853 shares owned directly by R. Michael Conley (of which 52,500
are represented by options exercisable within sixty days).
(9) Includes (i) 91,869 shares owned directly by Benny M. LaRussa, Jr. (of
which 20,000 are represented by options exercisable within sixty days);
(ii) 10,100 shares held as trustee of trusts for his minor children as to
which he has sole voting and investment power; (iii) 256,744 shares
(Footnotes continued on following page)
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<PAGE>
(Footnotes continued from preceding page)
held jointly with his wife as to which he shares voting and investment
power; and (iv) 150 shares held in the name of his wife, as to which he may
be deemed to share voting and investment power.
(10) Includes (i) 22,515 shares owned directly by Richard Cohn (of which 20,000
are represented by options exercisable within sixty days), and (ii) 6,500
shares held by the Cohn Family Partnership, as to which he has sole voting
power. He also serves as co-trustee of certain trusts of which neither he
nor any member of his family is a beneficiary, which own in the aggregate
1,235,996 shares, as to which he may be deemed to share voting and
investment power and as to which he disclaims any beneficial ownership and
which are not included in the number shown as owned in the above chart.
(11) Includes 20,200 shares owned directly by Judy M. Merritt (of which 20,000
are represented by options exercisable within sixty days).
(12) Includes 20,700 shares owned directly by J. Mason Davis, Jr. (of which
20,000 are represented by options exercisable within sixty days).
(13) Includes 20,100 shares owned directly by Bart Starr (of which 20,000 are
represented by options exercisable within sixty days).
(14) Shares owned beneficially by the group include 527,500 which are
represented by options exercisable within sixty days.
Ronald G. Bruno and Kenneth J. Bruno are brothers and are nephews of Joseph
S. Bruno. Benny M. LaRussa, Jr. is the grandson of Joseph S. Bruno. As shown
above, Joseph S. Bruno owns 5.4% of the total outstanding Common Stock. Ronald
G. Bruno beneficially owns approximately 7.8%. Kenneth J. Bruno owns 3.6%, and
Benny M. LaRussa, Jr. owns .5%, for an aggregate of 13,487,143 shares,
constituting 17.3% of the total outstanding Common Stock.
BUSINESS
All references to fiscal years in this section refer to the fiscal year
ending on the Saturday nearest June 30 of each year. All references to market
share and demographic data are based on industry publications and Company data
and, unless otherwise indicated, all references to numbers of stores are as of
July 1, 1995. The information contained herein concerning the plans of Crimson
for the Company after the Merger are based on information provided to the
Company by Crimson.
The Company is a leading supermarket operator in the Southeastern United
States and is the largest supermarket operator in the state of Alabama. The
Company operates 252 supermarkets of which 124 are located in Alabama, 86 in
Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and 5 in South
Carolina. Seventy-nine of the store sites are owned directly by the Company or
through joint ventures. The Company also operates two primary distribution
facilities, one in Birmingham, Alabama and one in Vidalia, Georgia, which total
2.1 million square feet. The Company operates stores under three principal
formats, each addressed to a different market segment: every day low price
("EDLP") stores aimed at the value conscious shopper, upscale stores targeted to
customers seeking service and selection, and neighborhood stores stressing
convenience in a community setting. Under the EDLP and upscale formats, the
Company also operates 16 Supercenter stores that offer an expanded mix of higher
margin perishables and general merchandise products as well as various one-stop
shopping conveniences, such as in-store pharmacies, banks, photo development
services and optical centers. Through its 60 years of operations, the Company
has developed a valuable and strategically located store base, strong name
recognition, customer loyalty and a reputation as a quality and service leader
among supermarket competitors. The Company believes that these factors have
enabled it to establish a leading market share in most of its principal markets,
including market shares of approximately 50% in Birmingham and 30% throughout
Alabama, its leading market.
As discussed herein, the Company has entered into the Merger Agreement with
Crimson, a subsidiary of the Partnership, a partnership organized by KKR. KKR is
a private investment firm with extensive experience in the acquisition of
supermarket operators. Affiliates of KKR have organized partnerships which
currently own significant positions in supermarket chains with approximately
1,650
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stores and combined sales of $27.5 billion in their latest fiscal years,
including controlling positions in Safeway, Inc. ("Safeway") and The Stop & Shop
Companies, Inc. ("Stop & Shop"). Safeway is a West Coast-based supermarket chain
of 1,062 stores which was acquired by an affiliate of KKR in 1986. From 1986 to
1994, Safeway increased its EBITDA margin (operating income plus depreciation
and amortization as a percentage of sales) from 4.2% to 6.0%. Stop & Shop, a
chain of 128 stores operating in the New England market, was acquired by a KKR
affiliate in 1988 and its supermarket division realized an improvement in EBITDA
margin from 4.9% in 1988 to 8.3% in 1994. No assurance can be given that the
Company will experience similar margin improvements after the Merger.
STORE FORMATS
EVERY DAY LOW PRICE ("EDLP") FORMATS. The Company's two EDLP formats, Food
World and FoodMax, on a combined basis account for 125 of the Company's 252
stores and, for the 40 weeks ended April 8, 1995, contributed sales of $1.3
billion, or 57% of total sales. Both Food World (82 stores) and FoodMax (43
stores) are widely regarded as low price leaders, and both formats are
recognized for the breadth and high quality of their product offerings. Eight of
the EDLP stores are Supercenters. EDLP stores generated average weekly sales of
$248,000 for the 40 weeks ended April 8, 1995.
Food World. Food World stores are typically high volume stores designed
to appeal to a broad spectrum of customers. With a primary emphasis on
value, these stores offer every day low pricing along with an extensive
variety of name-brand merchandise and specialty departments. Food World
stores are promoted through television, newspaper, and radio advertising.
The Company's Food World stores average approximately 44,000 total square
feet. Since June 30, 1990, the number of Food World stores has increased
from 74 to 82 stores.
FoodMax. FoodMax stores are large stores with an open design,
warehouse-style ceilings, and expanded perishables departments. These stores
emphasize low prices and an extensive product selection while achieving low
overhead through reduced staffing. These stores enhance their EDLP image
through unadvertised in-store specials. The Company's FoodMax stores average
approximately 51,000 total square feet. Since June 30, 1990, the number of
FoodMax stores has increased from 28 to 43 stores.
UPSCALE FORMATS. The Company's upscale formats, which operate primarily
under the Bruno's name, account for 39 of the Company's 252 stores and, for the
40 weeks ended April 8, 1995, contributed sales of $456 million, or 21% of total
sales. Bruno's stores are widely regarded as quality, service, and perishables
leaders in the markets the Company serves, and generally have a substantial
breadth and depth of product offerings. These stores typically contain expanded
produce, bakery, delicatessen, and gourmet foods not generally found in
conventional supermarkets, a variety of health and beauty care products normally
found in large drug stores, and a wide range of general merchandise items.
Bruno's stores are generally located in suburban markets. Eight of the upscale
stores are Supercenters. The upscale stores average approximately 51,000 total
square feet. Since June 30, 1990, the number of upscale stores has increased
from 18 to 39 stores. Upscale stores generated average weekly sales of $305,000
for the 40 weeks ended April 8, 1995.
NEIGHBORHOOD FORMATS. The Company has two principal neighborhood formats,
Piggly Wiggly and Food Fair. The neighborhood format, on a combined basis,
accounts for 88 of the Company's 252 stores, and, for the 40 weeks ended April
8, 1995, contributed sales of $477 million, or 22% of total sales. Piggly Wiggly
(54 stores) and Food Fair (31 stores) are generally smaller than the Company's
other supermarkets and emphasize friendly service and promotional pricing. For
its neighborhood stores, which are generally located in small to medium-sized
towns and suburban neighborhoods, the Company advertises primarily through
direct mail. Neighborhood stores generated average weekly sales of $131,000 for
the 40 weeks ended April 8, 1995.
Piggly Wiggly. Piggly Wiggly stores are located in medium to small towns
in central and southern Georgia. Piggly Wiggly stores are promoted primarily
through weekly advertised specials.
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Piggly Wiggly stores average approximately 30,000 total square feet. Since
June 30, 1990, the number of Piggly Wiggly stores has decreased from 76 to
54 stores.
Food Fair. Food Fair stores, like Piggly Wiggly, are designed to operate
with lower overhead and competitive pricing in suburban neighborhoods and
towns in Alabama that will not support the volume necessary for a larger
supermarket. Food Fair stores average approximately 29,000 total square
feet. Since June 30, 1990, the number of Food Fair stores has increased from
28 to 31 stores.
STORE DEVELOPMENT
The Company's 60 year history in Birmingham and the Southeast has allowed
the Company to build its store locations selectively, and the Company believes
that many of its current store locations are in prime sites that offer
significant competitive advantages. In addition, the Company has been a leader
in introducing innovative marketing concepts to its store formats. In 1971, the
Company introduced its first EDLP format store into a market that had previously
competed on the basis of price promotions or loss leaders. As the EDLP format
expanded marketwide during the 1980s, the Company introduced the first Bruno's
Food and Pharmacy to provide customers with "one-stop shopping," and in 1992,
the Company opened the first of its Supercenters, which feature an expanded mix
of higher margin perishables and general merchandise products as well as various
one-stop shopping conveniences. The Company attempts to optimize operating
results by selecting a store format that is best suited to each store site's
demographics, local preferences and competition. Over the past five years, the
Company has focused on remodeling its existing store base, opening new stores,
and optimizing its mix of store formats. The result of these changes is a store
mix which emphasizes higher volume stores offering higher margin products to
position the Company for continued growth and enhanced profitability.
The Company has developed a modern, well-maintained store base. During the
five years ended July 1, 1995, the Company invested approximately $425 million
in capital expenditures, which will have been primarily directed to building new
stores and expanding and remodeling existing stores. During such period, a
portion of the Company's capital expenditures were also invested in improvements
to the Company's distribution centers, corporate headquarters and certain MIS
functions. In the five fiscal years ended July 1, 1995, the Company opened 77
new stores, closed or sold 55 stores and, over the last four fiscal years,
expanded or remodeled 81 existing stores. In addition, the Company has opened
all of its Supercenter stores since 1992. During fiscal 1992 and fiscal 1993,
the Company opened 44 new stores and expanded or remodeled 27 stores. Starting
in 1994, the Company shifted its strategy to focus on remodels as a lower cost
strategy to increase sales and profitability since new stores generally require
a start-up period prior to achieving profitability. In fiscal 1994 and 1995, the
Company remodeled a total of 54 stores and opened 14 stores. These investments
have resulted in an increase in total square footage of 15% since fiscal 1991
and an increase in average store size from 38,300 square feet to 41,200 square
feet over the same period. The following table sets forth additional information
concerning changes in the Company's store base for fiscal 1991 through fiscal
1995.
<TABLE>
<CAPTION>
FISCAL
----------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Beginning of period........................ 230 240 253 257 257
Opened..................................... 19 21 23 8 6
Closed / Sold.............................. 9 8 19 8 11
---- ---- ---- ---- ----
End of Period.............................. 240 253 257 257 252
---- ---- ---- ---- ----
---- ---- ---- ---- ----
Remodels................................... * 14 13 39 15
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
AS OF JUNE 30, 1990 AS OF JULY 1, 1995
----------------------- -----------------------
NUMBER OF PERCENTAGE NUMBER OF PERCENTAGE
STORES OF TOTAL STORES OF TOTAL
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
EDLP Formats:
Food World............................. 74 32.2% 82 32.5%
FoodMax................................ 28 12.2 43 17.1
--------- ---------- --------- ----------
Subtotal............................... 102 44.4 125 49.6
Upscale Formats:
Bruno's................................ 17 7.4 38 15.1
Other.................................. 1 0.4 1 0.4
--------- ---------- --------- ----------
Subtotal............................... 18 7.8 39 15.5
Neighborhood Formats
Piggly Wiggly.......................... 76 33.0 54 21.4
Food Fair.............................. 28 12.2 31 12.3
Other.................................. 6 2.6 3 1.2
--------- ---------- --------- ----------
Subtotal............................. 110 47.8 88 34.9
--------- ---------- --------- ----------
Total.............................. 230 100.0% 252 100.0%
--------- ---------- --------- ----------
--------- ---------- --------- ----------
</TABLE>
- ------------
* Remodeling data for fiscal 1991 is not presented because the Company changed
its method of characterizing stores as "remodels" after such date.
The Company continuously evaluates its existing markets and potential new
markets for their ability to support new or expanded stores. The Company
combines market research and its in-depth knowledge of the Southeast region in
evaluating market opportunities. In conducting market research for store sites,
the Company evaluates population shifts, zoning changes, traffic patterns, new
construction and the proximity of competitors' stores in an effort to determine
a site's sales potential. The Company has identified numerous sites which are
suitable for new stores and has either acquired such sites or is currently
negotiating to acquire or obtain rights to develop or lease such sites. The
Company also continuously evaluates its store base and has identified certain
stores to be remodeled.
MARKET AREA
The Southeast region is one of the fastest growing areas of the United
States in terms of population, income and employment, and the region, due to its
favorable business environment, has attracted significant additions to its
manufacturing base in recent years. In particular, the automobile industry has
increased its presence in the region and complementary businesses have followed.
According to the Bureau of the Census, the population of the Southeast region
has increased at an annual rate of 1.5% since 1990, compared to the national
average of 1.1% over the same period. Growth in retail sales of food in the
Southeast is outpacing national levels, with growth in the years 1993 and 1994
of 3.8% and 4.1% compared to national gains of 2.6% and 3.4%, respectively.
However, individual markets or regions within the Southeast where the Company
operates may experience economic and demographic trends which differ from those
of the region as a whole.
BUSINESS STRATEGY
Crimson has initiated a search for a new chief executive officer who is
expected to be appointed shortly after the Merger. Ronald G. Bruno, the chief
executive officer of the Company, and the other four senior executive officers
will remain with the Company for up to one year following the Merger to
accomplish the transition of ownership in an orderly fashion. Mr. Bruno has
agreed to remain on the Board of Directors of the Company for three years after
the Merger, subject to his customary right to resign. Crimson expects that the
new chief executive officer will select key executives to replace the departing
executives.
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Crimson has developed a business strategy based on its review of the
Company's operations and the experience of its affiliates in the supermarket
industry. In concert with the new senior management team, Crimson intends to
continue certain strategies that have been successfully employed by the Company
and, additionally, to: (i) expand the Company's franchise in the Southeast
region, (ii) improve working capital management, (iii) grow the Company's
private label business, (iv) continue development of the Company's management
information systems and (v) continue improvement of the Company's store and
product mix.
Expand Company Franchise. Through its 60 years of operations in the
Southeast region, the Company has developed a valuable franchise which Crimson
believes can be expanded and enhanced through opening new stores both in
existing and potential new markets while continuing to upgrade the quality of
the Company's existing store base. Crimson intends to implement this strategy
while maintaining the Company's high level of product quality and customer
service.
Improve Working Capital Management. Crimson believes that the Company can
improve its working capital management. For example, the Company's ratio of
accounts payable to inventories, typically used as a measure of the level of
vendor financing for a supermarket or retail chain, is currently approximately
43% and the Company's ratio of cost of goods sold to inventory is currently 8.4
to 1. Both of these ratios are below the industry average. Under the control of
Crimson affiliates, Safeway and Stop & Shop have achieved improvements in
working capital management, and Crimson believes that opportunities are
available to improve the Company's working capital ratios.
Grow Private Label Business. Private label products provide a substantially
higher gross margin to the Company and provide consumers with quality products
at lower prices than national brands. Recently, the Company has been focusing on
expanding and enhancing its private label program to provide additional products
and is evaluating the addition of a premium line of private label goods.
According to an industry analyst's survey, the industry average for private
label products as a percentage of total grocery sales is approximately 18.6%,
which is greater than the percentage of total grocery sales that is currently
contributed by the Company's private label program. Crimson intends to continue
the Company's increased emphasis on the higher margin private label business to
increase its contribution to overall Company sales and profitability.
Continue Development of Management Information Systems. In recent years, the
Company has increased its investment in MIS and is currently in the process of
implementing various new software applications and upgrading certain of its
computer hardware. The Company's POS technology includes scanning systems and
SwipeOut(R), the Company's electronic payment system. However, opportunities
exist for operational improvements through MIS upgrades. Crimson intends to
upgrade the Company's POS technology and other systems to, among other things,
improve the monitoring of distribution center inventory levels and labor
scheduling. Crimson believes that these upgrades should result in performance
and operating improvements. Crimson intends to lease these enhanced management
information systems, which is expected to result in increased selling, general
and administrative expenses.
Improve Store and Product Mix. Crimson intends to continue the Company's
strategy of optimizing the mix of stores across the Company's store formats
through an emphasis on opening and remodeling stores that are closely tailored
to customer needs in a specific market. Crimson will continue the strategy of
emphasizing higher margin specialty products, general merchandise and
value-added services.
After the Merger, Crimson and the new management team may decide to alter or
discontinue certain of the strategies outlined above and will continually assess
whether other strategies should be adopted to complement or replace such
strategies. In addition, there can be no assurance that the strategies outlined
in this section, if implemented, will be successful or achieve the expected
level of operating improvement, or that sufficient financial resources will be
available to implement the
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strategies described above. Moreover, there can be no assurance that the
successful implementation of these strategies will result in improved operating
results, and other conditions may exist, such as increased competition or an
economic downturn in the Southeast region, to offset any improved earnings that
are attributable to such strategies.
COMPETITION
The Company's competitors include national and regional supermarket chains,
independent and specialty grocers, drug and convenience stores, and the newer
"alternative format" food stores, including warehouse club stores and
supercenters. In addition to food retailers, nontraditional retailers such as
discount stores, drug stores and department stores are increasing their
selection of food products. The supermarket industry is highly competitive and
characterized by narrow profit margins and, accordingly, the Company's earnings
depend primarily on the efficiency of its operations and on its ability to
maintain a large sales volume. Supermarket chains compete based upon convenient
store locations, price, service, cleanliness, store condition, product variety
and product quality. The Company believes that its policies of pricing its
merchandise competitively and providing superior quality and customer service
are important competitive factors. The Company actively monitors its
competitors' prices and adjusts its pricing and marketing strategy as management
deems appropriate in light of existing market conditions.
The Company's principal competitors include Winn-Dixie, Kroger, Publix,
WalMart, Delchamps and Bi-Lo. The Company has the leading market share in both
Birmingham and Alabama with market shares of 52% and approximately 30%,
respectively. The Company's closest competitor in Birmingham has a 13% market
share. Throughout the other major markets in Alabama, the Company is generally
ranked either first or second in terms of market share. In recent years,
supermarket competition in the Southeast region has intensified as new entrants
have opened stores in certain principal markets of the Company. The Company's
traditional competitors in these markets have enhanced their capabilities in
response to the entry of these new chains. Certain of the Company's competitors
have significantly greater financial resources than the Company.
ADVERTISING AND PROMOTION
The Company's advertising and promotions are specifically tailored to each
of its store formats. For EDLP stores, the Company's promotions emphasize
consistently low prices, and this image is reinforced through television and
radio advertising. The upscale format is typically advertised through newspapers
and newspaper inserts, with an emphasis placed on quality produce and
perishables and superior service at competitive prices. Upscale stores also
promote new products through in-store demonstrations and samplings. For its
neighborhood stores, which are often located in small to medium-sized towns and
suburban neighborhoods, the Company advertises primarily through direct mail. In
addition, to enhance its name recognition and image, the Company sponsors a
number of regional and local events, including the Bruno's Memorial Classic, a
Senior PGA Tour event. The Company spends approximately 68% of its marketing
budget on newsprint advertisements, including newspaper inserts, circulars
designed to promote the Company's various formats, and various coupon
promotions. The remainder of the Company's advertising budget is used for
television and radio advertising, as well as direct mail for special promotions.
PRIVATE LABEL PROGRAM
Through its private label program, the Company offers approximately 1,200
items under the Staff (dry groceries), Four Winds Farm (dairy and perishables),
Pharm (health and beauty care products) and Bay Harbor (frozen seafood) brand
names. These products provide quality comparable to that of national brands at
prices generally 20% to 30% lower. Gross margins on private label goods are
higher than on national brands. Private label products are available at each of
the Company's different
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formats, with a higher concentration in the EDLP and neighborhood stores.
Recently, the Company has been focusing on expanding and enhancing its private
label program to provide additional products and is evaluating the addition of a
premium line of private label goods.
PURCHASING, WAREHOUSING AND DISTRIBUTION
The Company has traditionally purchased merchandise from a large number of
third party suppliers. Approximately 37% of the Company's purchases, including
beverages, tobacco products, milk, bread and snack foods, are supplied directly
to the Company's stores by local distributors. The Company has utilized many
category management techniques, including contract buying and most recently, a
continuous replenishment system, which provides for automatic daily product
replenishment for certain products in its distribution centers based on
inventory level changes.
The Company currently operates two primary distribution facilities totaling
2.1 million square feet, located in Birmingham, Alabama and Vidalia, Georgia,
each of which has integrated warehousing and distribution capacity. The Company
owns these facilities subject to arrangements with local industrial development
agencies.
Each store submits orders to the distribution facilities through a
centralized processing system, and merchandise is normally received by the
stores on the next day. Merchandise is delivered from the distribution
facilities through a leased fleet of 140 tractors, 158 refrigerated trailers and
184 dry trailers. Stores are located within a 300-mile radius of each of the
distribution centers. The Company believes that its existing distribution
capacity will be sufficient to support its store growth strategy over the next
several years.
EMPLOYEES AND LABOR RELATIONS
The Company is one of the leading private employers in Alabama and, as of
June 14, 1995, the Company employed approximately 25,600 persons, of whom
approximately 44% were full-time and 56% were part-time employees. Of this
number, approximately 23,900 were employed in supermarkets, 1,350 were employed
in the warehousing operations and 350 were employed in the Company's business
office. The Company currently employs, on average, approximately 95 employees in
each store.
<TABLE>
<CAPTION>
EMPLOYEE TYPE UNION NON-UNION TOTAL
- ------------------------------------------------------------------ ------ --------- ------
<S> <C> <C> <C>
Salaried.......................................................... -- 1,500 1,500
Hourly:
Full-time........................................................ 8,400 1,500 9,900
------ --------- ------
Part-time........................................................ 11,300 2,900 14,200
------ --------- ------
------ --------- ------
Total.......................................................... 19,700 5,900 25,600
</TABLE>
The Company is currently a party to 19 separate collective bargaining
agreements with 6 locals that are affiliates of either the United Food and
Commercial Workers Union or the Retail, Wholesale and Department Store
International Union. The contracts are generally negotiated in three- or four-
year cycles. The Company is currently negotiating with the union representing
the employees of its 62 Food World stores in Alabama. This contract expires on
September 30, 1995. There are three additional collective bargaining agreements
due to be renegotiated by the end of fiscal 1996, none of which affect more than
two stores. The remaining contracts expire after fiscal 1996. The Company
believes that the union-based hourly rates paid to employees are comparable to
those paid by the Company's non-union competitors. Pursuant to the collective
bargaining agreements, the Company contributes to various union-sponsored
multi-employer pension plans. In general, the Company believes its relationship
with its employees is good.
The Company has an incentive compensation plan covering its key management
staff. Incentive compensation for store operations managers is based upon the
profitability of the operations within the scope of their management
responsibility.
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PROPERTIES
The Company operates a total of 252 supermarkets, of which 124 are located
in Alabama, 86 in Georgia, 19 in Florida, 11 in Tennessee, 7 in Mississippi and
5 in South Carolina. In addition, the Company operates nine liquor stores
located adjacent to Food World stores in Florida.
<TABLE>
<CAPTION>
NUMBER OF AVERAGE TOTAL
STORES OWNED/LEASED SQUARE FOOTAGE
--------- ------------ --------------
<S> <C> <C> <C>
EDLP FORMATS:
Food World............................................ 82 26/56 44,000
FoodMax............................................... 43 15/28 51,000
Subtotal............................................ 125 41/84 --
Upscale Formats:
Bruno's............................................... 38 10/28 52,000
Other................................................. 1 0/1 32,000
Subtotal............................................ 39 10/29 --
NEIGHBORHOOD FORMATS:
Food Fair............................................. 31 9/22 29,000
Piggly Wiggly......................................... 54 18/36 30,000
Other................................................. 3 1/2 37,000
Subtotal............................................ 88 28/60 --
Total............................................. 252% 79/173 --
</TABLE>
The Company owns 79 of its 252 food stores. Of these 79 stores, 39 are
situated on tracts of land owned by the Company, 10 are located on leased land
and 30 are located in Company-owned shopping centers, with the remaining
shopping center space leased to commercial tenants. Eleven of the stores are
owned by a joint venture between the Company and Metropolitan Life Insurance
Company, which leases such stores back to the Company. The Company also owns
several sites that can be used for future store and warehouse development, as
well as certain non-operating real estate assets. The Company believes that the
fair market value of its owned real estate assets exceeds the book value of such
assets.
The Company leases 173 of its 252 stores under standard commercial leases
which generally obligate the Company to pay its proportionate share of real
estate taxes, common area maintenance charges and insurance costs. In addition,
such leases generally provide for percentage of sales rent when sales from the
store exceed a certain dollar amount. Generally, these leases are long-term,
with one or more renewal options.
The approximately 1,375,000 square foot Birmingham warehouse, distribution
center and office complex is located on a 200-acre site in the Oxmoor West
Industrial Park in Birmingham, Alabama. Approximately 100 acres of the site are
currently undeveloped land. The Company owns the Birmingham facility subject to
certain arrangements with The Industrial Development Board of the City of
Birmingham. The approximately 686,000 square foot Vidalia warehouse and
distribution center is located on a 90-acre site in Vidalia, Georgia and is
owned by the Company subject to a similar industrial development authority
arrangement with respect to a portion of the facility.
TRADE NAMES, SERVICE MARKS, TRADEMARKS AND FRANCHISES
The Company uses a variety of trade names, service marks and trademarks.
Except for "Bruno's," "Food World," "FoodMax," "Piggly Wiggly," and "Food Fair,"
the Company does not believe any of such trade names, service marks or
trademarks are material to its business. The Company licenses the "Piggly
Wiggly" trade name and trademark.
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The Company's Piggly Wiggly stores are operated pursuant to a franchise
agreement that is restricted to certain areas of central and southern Georgia.
ENVIRONMENTAL MATTERS
The Company is subject to federal, state and local laws, regulations and
ordinances that (i) govern activities or operations that may have adverse
environmental effects, such as discharges to air and water, as well as handling
and disposal practices for solid and hazardous wastes, and (ii) impose liability
for the costs of cleaning up, and certain damages resulting from, sites of past
spills, disposal or other releases of hazardous materials. The Company believes
that it currently conducts its operations, and in the past has operated its
business, in substantial compliance with applicable environmental laws and
regulations. From time to time, operations of the Company have resulted or may
result in noncompliance with or liability for cleanup pursuant to environmental
laws and regulations. However, the Company believes that any such noncompliance
or liability under current environmental laws and regulations would not have a
material adverse effect on its results of operations and financial condition.
The Company has not incurred material capital expenditures for environmental
controls during the previous three years, nor does the Company anticipate
incurring such expenditures during the current fiscal or the succeeding fiscal
year.
GOVERNMENT REGULATION
The Company is subject to regulation by a variety of governmental agencies,
including, but not limited to, the United States Food & Drug Administration, the
United States Department of Agriculture, and other federal, state and local
agencies.
LEGAL PROCEEDINGS
In 1991, the Company received a favorable termination letter with respect to
the termination of the employee pension plan of a supermarket chain acquired by
the Company in 1989. Pursuant to that termination, distributions were made to
all participants of that employee pension plan. After all of the benefit
liabilities were paid, there remained a balance of $2,716,795, which was
transferred to the Company as a reversion of excess pension assets. On June 15,
1992, the Company received a letter from the Pension Benefit Guaranty
Corporation ("PBGC") contending that inappropriate actuarial assumptions were
used to determine the value of the employee's benefits distributed and that
additional distributions must be made to numerous former participants of said
plan. In August 1994 the Company filed suit in the U.S. District Court for the
Northern District of Alabama challenging the PBGC's determination. In April
1995, the District Court entered summary judgment against the Company and in
favor of the PBGC. The Company has appealed the District Court's ruling to the
U.S. Court of Appeals for the Eleventh Circuit. The Company believes its
liability in connection with this matter, if any, will not exceed $2,716,795,
plus accrued interest.
Except for this matter, the Company is not a party to any material pending
legal proceedings, other than ordinary litigation incidental to the conduct of
its business and the ownership of its property.
REGULATORY APPROVALS
The Merger is subject to the expiration or termination of the applicable
waiting period under the HSR Act. Certain aspects of the Merger will require
notification to, and filings with, certain securities and other authorities in
certain states, including jurisdictions where the Company currently operates.
Antitrust. Under the HSR Act and the rules promulgated thereunder by the
Federal Trade Commission (the "FTC"), the Merger may not be consummated until
notifications have been given and certain information has been furnished to the
FTC and the Antitrust Division of the Department of
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Justice (the "Antitrust Division") and the applicable waiting period has expired
or been terminated. On May 24, 1995, the Company and Crimson filed Notification
and Report Forms under the HSR Act with the FTC and the Antitrust Division. On
June 20, 1995, the FTC and the Antitrust Division granted early termination of
the waiting period under the HSR Act with respect to the Merger effective
immediately. At any time before or after consummation of the Merger,
notwithstanding that early termination of the waiting period under the HSR Act
has been granted, the Antitrust Division or the FTC could take such action under
the antitrust laws as it deems necessary or desirable in the public interest,
including seeking to enjoin the consummation of the Merger or seeking
divestiture of substantial assets of the Company. At any time before or after
the Effective Time of the Merger, and notwithstanding that early termination of
the waiting period under the HSR Act has been granted, any state could take such
action under the antitrust laws as it deems necessary or desirable in the public
interest. Such action could include seeking to enjoin the consummation of the
Merger or seeking divestiture of substantial assets of the Company. Private
parties may also seek to take legal action under the antitrust laws under
certain circumstances.
Based on information available to them, the Company and Crimson believe that
the Merger can be effected in compliance with federal and state antitrust laws.
However, there can be no assurance that a challenge to the consummation of the
Merger on antitrust grounds will not be made or that, if such a challenge were
made, the Company and Crimson would prevail or would not be required to accept
certain adverse conditions in order to consummate the Merger.
Other. The obligations of Crimson under the Merger Agreement are also
subject to the receipt of all necessary licenses (including the continued
availability of all beer, wine and/or liquor licenses), permits, consents,
approvals, authorizations, qualifications and orders of governmental authorities
and other third parties as are necessary in connection with the transactions
contemplated by the Merger.
CRIMSON AND THE PARTNERSHIP
Crimson, an Alabama corporation and as of the date hereof a wholly owned
subsidiary of the Partnership, was organized in connection with the Merger and
has not carried on any activities to date other than those incident to its
formation and the transactions contemplated by the Merger Agreement. As of the
date hereof, the Partnership owns 100% of the outstanding shares of common stock
of Crimson. The Partnership is a Delaware limited partnership, the general
partner of which is KKR Associates, an affiliate of KKR. The principal assets of
the Partnership consist of the shares of common stock it owns of Crimson. The
name, business, address, principal occupation or employment, and five year
employment history of each of the directors and executive officers of Crimson
and of KKR Associates, the general partner of the Partnership, and certain other
information, are set forth in SCHEDULE I to this Proxy Statement.
DISSENTING SHAREHOLDERS' RIGHTS
In accordance with Article 13 of the ABCA (the "Alabama Dissent
Provisions"), a shareholder of the Company may dissent from the Merger and
obtain payment for the fair value of his or her shares of Bruno's Common Stock.
Such fair value is exclusive of any appreciation or depreciation in anticipation
of the Merger, unless such exclusion would be inequitable. The appraised value
of shares of Bruno's Common Stock of a dissenting shareholder may differ from
the consideration that a shareholder of the Company is entitled to receive in
the Merger. The following is a summary of the Alabama Dissent Provisions, the
full text of which is set forth as ANNEX V to this Proxy Statement.
Under the Alabama Dissent Provisions, a shareholder of the Company may
dissent from the Merger by following the following procedures: (i) the
dissenting shareholder must deliver to the Company, prior to the vote being
taken on the Merger at the Special Meeting, written notice of his or her intent
to demand payment for his or her shares of Bruno's Common Stock if the Merger is
effected
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(the "Notice Requirement"); and (ii) the dissenting shareholder must not vote in
favor of the Merger (or submit a Proxy which results in a vote in favor of the
Merger). A shareholder who does not satisfy these requirements waives his or her
right to demand payment. For example, a shareholder who merely votes against the
Merger without satisfying the Notice Requirement described in (i) above is not
entitled to demand payment for his or her shares of Bruno's Common Stock under
the Alabama Dissent Provisions. However, a shareholder's mere failure to vote on
the Merger will not constitute a waiver of his or her right to demand payment as
long as he or she fulfills the Notice Requirement described in (i) above.
In addition, if the Merger is approved by a vote of the shareholders of the
Company, the Company must deliver written notice of such approval to each such
dissenting shareholder (the "Written Dissenters' Notice"), which must be sent
not later than 10 days after the Merger is effected, and the dissenting
shareholder must make a demand for payment of the fair value of his or her
shares of Bruno's Common Stock in accordance with the terms of the Written
Dissenters' Notice, which demand must be received by the Company by a date to be
specified by the Company in the Written Dissenters' Notice, which date shall be
not fewer than 30 nor more than 60 days after the date on which the Written
Dissenters' Notice is mailed.
Within twenty (20) days after making a formal payment demand, each
shareholder demanding payment shall submit the certificate or certificates
representing his or her shares of Bruno's Common Stock to the Company for
notation thereon by the Company that such demand has been made. The failure to
submit his or her shares of Bruno's Common Stock for such notation shall, at the
option of the Company, terminate the shareholder's rights under the Alabama
Dissent provisions unless a court of competent jurisdiction, for good and
sufficient cause, shall otherwise direct.
A record shareholder may dissent as to fewer than all of the shares of
Bruno's Common Stock registered in his or her name only if he or she dissents
with respect to all shares of Bruno's Common Stock beneficially owned by any one
person and notifies the Company of the name and address of each person on whose
behalf he or she asserts dissenters' rights. The rights of a partial dissenter
are determined as if the shares of Bruno's Common Stock to which he or she
dissents and his or her other shares of Bruno's Common Stock were registered in
the name of a different shareholder. Once a formal demand for payment is made,
such demand cannot be withdrawn by the shareholder except with the consent of
the Company.
Upon the Effective Time of the Merger, or upon receipt by the Company of a
demand for payment, the Company must offer to pay each dissenting shareholder
who has properly complied with the Alabama Dissent Provisions the amount
estimated by the Company to be the fair value of the shares of Bruno's Common
Stock held by each such dissenting shareholder, plus accrued interest. Such
offer must be accompanied by, among other information, the Company's balance
sheet as of the end of a fiscal year ending not more than 16 months before the
date of the offer, an income statement for that year, the latest available
interim financial statements, if any, a statement of the Company's estimate of
the fair value of the shares, and an explanation of how the interest was
calculated. If, within thirty (30) days after the making of such offer of
payment, any dissenting shareholder accepts the same, then such dissenting
shareholder must surrender to the Company the certificate or certificates
representing his or her shares of Bruno's Common Stock and such dissenting
shareholder will cease to have any interest in the shares. If, however, a
dissenting shareholder does not accept the Company's offer of payment, then such
dissenting shareholder must, within thirty (30) days after the Company offered
payment for his or her shares of Bruno's Common Stock, notify the Company in
writing of his or her own estimate of the fair value of his or her shares of
Bruno's Common Stock and amount of interest due, and demand payment of such
estimate, or reject the Company's offer and demand the fair value of his or her
shares of Bruno's Common Stock and interest due. If this demand by a dissenting
shareholder remains unsettled for sixty (60) days, then the Company must
commence a proceeding in the Circuit Court of Jefferson County, Alabama to
determine the fair value of the shares of Bruno's Common Stock and accrued
interest. If the Company does not commence this proceeding within the 60-day
period, then the
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<PAGE>
Company must pay each dissenting shareholder whose demand remains unsettled the
amount demanded. The Company must make all dissenting shareholders whose demands
remain unsettled parties to this proceeding. In such proceeding, the court may,
if it so elects, appoint one or more persons as appraisers to receive evidence
and recommend a decision on the question of fair value. The Company must pay
each dissenting shareholder the amount found to be due after final determination
of the proceedings. Upon payment of such judgment, the dissenting shareholder
will cease to have any interest in the shares of Bruno's Common Stock.
The costs and expenses of any such dissent proceeding will be determined by
the court and will be assessed against the Company, but costs and expenses may
be apportioned and assessed against all or some of the dissenting shareholders,
in such amounts as the court deems equitable, to the extent the court finds such
dissenting shareholders acted arbitrarily, vexatiously, or not in good faith in
demanding payment after receiving an offer of payment from the Company. The
court may also assess the reasonable fees and expenses of counsel and experts
for the respective parties, in amounts the court finds equitable (a) against the
Company and in favor of any or all dissenting shareholders if the court find
that the Company did not substantially comply with the requirements of the
Alabama Dissent Provisions, or (b) against either of the Company or a dissenting
shareholder, 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 the Alabama Dissent
Provisions. If the court finds that the services of counsel for any dissenting
shareholder were of substantial benefit to the other dissenting shareholders
similarly situated, and that the fees for the services should not be assessed
against the Company, the court may award such counsel reasonable fees to be paid
out of the amounts awarded to dissenting shareholders who were benefitted.
The foregoing is only a summary of the Alabama Dissent Provisions, and is
qualified in its entirety by reference to the provisions thereof, the full text
of which is set forth as ANNEX V to this Proxy Statement. Each shareholder of
the Company is urged to carefully read the full text of the Alabama Dissent
Provisions.
EXPERTS
FINANCIAL STATEMENTS
The consolidated financial statements of the Company as of July 2, 1994 and
July 3, 1993 and for each of the three years in the period ended July 2, 1994,
incorporated by reference in the Company's Annual Report on Form 10-K for the
year ended July 2, 1994 have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their report with respect thereto and
incorporated herein by reference. Such consolidated financial statements are
incorporated herein by reference in reliance upon the authority of said firm as
experts in giving said reports.
Representatives of Arthur Andersen LLP are expected to be present at the
Special Meeting, where they will have the opportunity to make a statement if
they desire to do so and will be available to respond to appropriate questions.
LEGAL OPINIONS
The legality of Bruno's Common Stock being retained in the Merger is being
passed on by Sirote & Permutt, P.C., Birmingham, Alabama. As of July 11, 1995,
lawyers of Sirote & Permutt, P.C. who have participated in the preparation of
this Proxy Statement and/or serve as members of the Board of Directors of the
Company beneficially owned an aggregate of 49,915 shares individually or in
various fiduciary capacities. Although other members of the firm may also own
securities of the Company, no inquiry as to this has been made.
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<PAGE>
Simpson Thacher & Bartlett (a partnership which includes professional
corporations), counsel for Crimson and the Partnership, has delivered an opinion
concerning certain Federal income tax consequences of the Merger. See "THE
MERGER--Federal Income Tax Consequences."
--PROPOSAL TWO--
APPROVAL OF INCREASE IN BONDED INDEBTEDNESS OF BRUNO'S
Section 234 of the Alabama Constitution requires that the shareholders of
Bruno's owning a majority of shares entitled to vote "consent" to any increase
in the bonded indebtedness of Bruno's. Provided that the Merger is first
approved by the shareholders, the Board of Directors proposes an increase in the
bonded indebtedness of the Company of $1.1 billion. The approval of this
proposal by the shareholders will constitute a "consent" to the increase in
bonded indebtedness for purposes of Alabama law. The increase in bonded
indebtedness is sought in order (i) to finance the cost of converting to cash
approximately 94.7% of the shares of Bruno's Common Stock currently outstanding,
(ii) to refinance the Bruno's currently outstanding indebtedness, (iii) to pay
fees and expenses in connection with the Merger and (iv) to provide for working
capital requirements. Under Alabama law, certain of the anticipated borrowings
may not be treated as "bonded indebtedness."
--PROPOSAL THREE--
APPROVAL OF AMENDED AND RESTATED ARTICLES OF INCORPORATION
Bruno's current Articles of Incorporation, as amended, authorize the
issuance of up to 200,000,000 shares of Bruno's Common Stock. Provided that the
Merger is first approved by the shareholders, the Board of Directors of Bruno's
proposes to adopt the Amended and Restated Articles of Incorporation, which,
among other things, reduces the authorized shares of Bruno's Common Stock from
200,000,000 to 60,000,000. The amendment, which requires the approval of a
majority of shares entitled to vote, has been proposed because the number of
outstanding shares will be reduced from approximately 78,000,000 to 25,007,015
(35,007,015 if the Warrants are exercised in full) upon consummation of the
Merger. The proposed Amended and Restated Articles of Incorporation are attached
in ANNEX I to this Proxy Statement as Exhibit A to the Merger Agreement.
OTHER INFORMATION AND SHAREHOLDER PROPOSALS
Management of the Company knows of no other matters that may properly be, or
which are likely to be, brought before the Special Meeting. However, if any
other matters are properly brought before such Special Meeting, the persons
named in the enclosed Proxy or their substitutes will vote the Proxies in
accordance with their judgment with respect to such matters, unless authority to
do so is withheld in the Proxy.
If the Merger is not consummated, shareholder proposals intended to be
presented at the fiscal 1996 Annual Meeting of Shareholders must have been
received by the Company not later than September 1, 1995 for inclusion in the
proxy materials for such meeting.
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SCHEDULE I
CERTAIN INFORMATION REGARDING CRIMSON ACQUISITION CORP.,
THE PARTNERSHIP AND KKR ASSOCIATES
The following table sets forth the name, business address, age, principal
occupation or employment at the present time and during the last five years, the
name, principal business and address of any corporation or other organization in
which such occupation or employment is or was conducted and current
directorships of the executive officers and directors of Crimson and the general
partners of KKR Associates, all of whom are citizens of the United States. KKR
Associates is the general partner of the Partnership. Except as otherwise noted,
the address of each such corporation or organization listed and the business
addresses of such persons is the address of KKR Associates, 9 West 57th Street,
New York, New York 10019. Each person has had the principal occupation or
employment listed for more than the past five years except as otherwise noted.
EXECUTIVE OFFICERS AND DIRECTORS OF CRIMSON
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Paul E. Raether........................... 48 Director and Chief Executive Officer of
Crimson and General Partner, Kohlberg
Kravis Roberts & Co., a private investment
firm ("KKR"). Member of the Board of
Directors of Duracell International Inc.,
Flagstar Companies, Inc., Flagstar
Corporation, Fred Meyer, Inc., IDEX
Corporation, and The Stop & Shop
Companies, Inc.
James H. Greene, Jr....................... 44 Director and President of Crimson and
2800 Sand Hill Road General Partner, KKR. Member of the Board
Suite 200 of Directors of Owens-Illinois, Inc.,
Menlo Park, CA 94025 Owens-Illinois Group, Inc., Safeway Inc.,
The Stop & Shop Companies, Inc., Union
Texas Petroleum Holdings, Inc. and The
Vons Companies, Inc.
Nils P. Brous............................. 30 Director and Vice-President of Crimson
and, since 1992, executive of KKR. Prior
thereto, associate, Goldman, Sachs & Co.
Member of the Board of Directors of
Canadian General Insurance Group Limited
and Granum Communications, Inc.
</TABLE>
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GENERAL PARTNERS OF KKR ASSOCIATES
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Henry R. Kravis........................... 50 General Partner, KKR. Member of the Board
of Directors of American Re Corporation,
AutoZone, Inc., Borden, Inc., Duracell
International Inc., Flagstar Companies,
Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corp.,
Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Safeway Inc., The Stop & Shop
Companies, Inc., Union Texas Petroleum
Holdings, Inc., Walter Industries, Inc.
and World Color Press, Inc.
George R. Roberts......................... 51 General Partner, KKR. Member of the Board
2800 Sand Hill Road of Directors of American Re Corporation,
Suite 200 AutoZone, Inc., Borden, Inc., Duracell
Menlo Park, CA 94025 International Inc., Flagstar Companies,
Inc., Flagstar Corporation, IDEX
Corporation, K-III Communications Corp.,
Owens-Illinois, Inc., Owens-Illinois
Group, Inc., Red Lion Properties, Inc.,
Safeway Inc., The Stop & Shop Companies,
Inc., Union Texas Petroleum Holdings,
Inc., Walter Industries, Inc. and World
Color Press, Inc.
Robert I. MacDonnell...................... 56 General Partner, KKR. Member of the Board
2800 Sand Hill Road of Directors of AutoZone, Inc.,
Suite 200 Owens-Illinois, Inc., Owens-Illinois
Menlo Park, CA 94025 Group, Inc., Safeway Inc. and The Vons
Companies, Inc.
Michael W. Michelson...................... 43 General Partner, KKR. Member of the Board
2800 Sand Hill Road of Directors of AutoZone, Inc., Fred
Suite 200 Meyer, Inc., Owens-Illinois, Inc., Owens-
Menlo Park, CA 94025 Illinois Group, Inc., Red Lion Properties,
Inc. and Union Texas Petroleum Holdings,
Inc.
Saul A. Fox............................... 41 General Partner, KKR. Member of the Board
2800 Sand Hill Road of Directors of American Re Corporation,
Suite 200 Fred Meyer, Inc., Layne, Inc. and Union
Menlo Park, CA 94025 Texas Petroleum Holdings, Inc.
Michael T. Tokarz......................... 45 General Partner, KKR. Member of the Board
of Directors of Flagstar Companies, Inc.,
Flagstar Corporation, Homes Holdings
Corporation, IDEX Corporation, K-III
Communications Corp., Safeway Inc. and
Walter Industries, Inc.
Perry Golkin.............................. 41 General Partner, KKR. Executive of KKR
1986-1994. Member of the Board of
Directors of American Re Corporation and
K-III Communications Corp.
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT
NAME AND BUSINESS ADDRESS AGE AND FIVE YEAR EMPLOYMENT HISTORY
- ------------------------------------------ --- ------------------------------------------
<S> <C> <C>
Clifton S. Robbins........................ 36 General Partner, KKR. Executive of KKR,
1987-1994. Member of the Board of
Directors of Borden, Inc., Flagstar
Companies, Inc., Flagstar Corporation,
IDEX Corporation and The Stop & Shop
Companies, Inc.
Scott M. Stuart........................... 35 General Partner, KKR. Executive of KKR,
1986-1994. Member of the Board of
Directors of Borden, Inc., Duracell
International Inc. and World Color Press,
Inc.
Edward A. Gilhuly......................... 35 General Partner, KKR. Executive of KKR,
2800 Sand Hill Road 1986-1994. Member of the Board of
Suite 200 Directors of Layne, Inc. Owens-Illinois,
Menlo Park, CA 94025 Inc., Owens-Illinois Group, Inc., Red Lion
Properties, Inc. and Union Texas Petroleum
Holdings, Inc.
</TABLE>
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ANNEX I
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 20, 1995,*
BETWEEN
CRIMSON ACQUISITION CORP.
AND
BRUNO'S, INC.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
* Restated to reflect the First Amendment dated as of May 18, 1995.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
ARTICLE I
THE MERGER
SECTION 1.01. The Merger............................................................ I-2
SECTION 1.02. Closing............................................................... I-2
SECTION 1.03. Effective Time of the Merger.......................................... I-2
SECTION 1.04. Effects of the Merger................................................. I-2
SECTION 1.05. Articles of Incorporation; By-Laws; Purposes.......................... I-2
SECTION 1.06. Directors............................................................. I-2
SECTION 1.07. Officers.............................................................. I-2
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS
SECTION 2.01. Effect on Capital Stock............................................... I-3
SECTION 2.02. Company Common Stock Elections........................................ I-4
SECTION 2.03. Proration............................................................. I-5
SECTION 2.04. Stock Plans........................................................... I-6
SECTION 2.05. Exchange of Certificates.............................................. I-7
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company......................... I-9
SECTION 3.02. Representations and Warranties of Newco............................... I-21
SECTION 3.03. Agreement to Deliver Article III Disclosure Schedules................. I-22
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 4.01. Conduct of Business of the Company.................................... I-22
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of Form S-4 and Proxy Statement; Stockholder Meeting...... I-25
SECTION 5.02. Access to Information; Confidentiality................................ I-25
SECTION 5.03. Best Efforts.......................................................... I-26
SECTION 5.04. Benefit Matters....................................................... I-27
SECTION 5.05. Indemnification....................................................... I-28
SECTION 5.06. Public Announcements.................................................. I-29
SECTION 5.07. Affiliates............................................................ I-29
SECTION 5.08. No Solicitation....................................................... I-29
SECTION 5.09. Resignation of Directors.............................................. I-30
SECTION 5.10. Certain Agreements.................................................... I-30
SECTION 5.11. Stop Transfer......................................................... I-30
SECTION 5.12. Golf Tournament....................................................... I-30
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
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<S> <C> <C>
ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the Merger............ I-31
SECTION 6.02. Conditions to Obligations of Newco.................................... I-31
SECTION 6.03. Conditions to Obligation of the Company............................... I-32
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination........................................................... I-33
SECTION 7.02. Effect of Termination................................................. I-34
SECTION 7.03. Amendment............................................................. I-34
SECTION 7.04. Extension; Waiver..................................................... I-34
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver............. I-34
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties......................... I-34
SECTION 8.02. Fees and Expenses..................................................... I-34
SECTION 8.03. Notices............................................................... I-36
SECTION 8.04. Definitions........................................................... I-36
SECTION 8.05. Interpretation........................................................ I-37
SECTION 8.06. Counterparts.......................................................... I-37
SECTION 8.07. Entire Agreement; No Third-Party Beneficiaries........................ I-37
SECTION 8.08. GOVERNING LAW......................................................... I-37
SECTION 8.09. Assignment............................................................ I-37
SECTION 8.10. Enforcement........................................................... I-37
</TABLE>
SCHEDULES (NOT FILED)
DISCLOSURE SCHEDULE
EXHIBIT
EXHIBIT A AMENDMENTS TO ARTICLES OF INCORPORATION OF THE COMPANY
EXHIBIT B FORM OF AFFILIATE LETTER
ii
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AGREEMENT AND PLAN OF MERGER
DATED AS OF APRIL 20, 1995*
BETWEEN
CRIMSON ACQUISITION CORP.,
AN ALABAMA CORPORATION ("NEWCO"),
AND
BRUNO'S, INC.,
AN ALABAMA CORPORATION (THE "COMPANY").
WHEREAS, the respective Boards of Directors of the Company and Newco have
determined that the merger of Newco with and into the Company (the "Merger"),
upon the terms and subject to the conditions set forth in this Agreement, would
be fair and in the best interests of their respective stockholders, and such
Boards of Directors have approved such Merger, pursuant to which each share of
common stock, par value $.01 per share, of the Company ("Company Common Stock")
issued and outstanding immediately prior to the Effective Time of the Merger (as
defined in Section 1.03) will be converted into either (A) the right to retain
at the election of the holder thereof and subject to the terms hereof, common
stock, par value $.01 per share, of the Company or (B) the right to receive
cash, other than (a) shares of Company Common Stock owned, directly or
indirectly, by the Company or any subsidiary (as defined in Section 8.04) of the
Company or by Parent, Newco or any subsidiary of Parent and (b) Dissenting
Shares (as defined in Section 2.01(e));
WHEREAS, the Merger and this Agreement require the vote of two-thirds of the
shares of the Company Common Stock for the approval thereof (the "Company
Stockholder Approval");
WHEREAS, Newco is a wholly owned subsidiary of BI Associates L.P.
("Parent");
WHEREAS, Newco is unwilling to enter into this Agreement unless,
contemporaneously with the execution and delivery of this Agreement, (i) the
Company grants to Newco (or its designee) an option (the "Option") to purchase
up to 15,541,570 shares of Company Common Stock (subject to adjustment) pursuant
to the Stock Option Agreement, dated as of the date hereof (the "Option
Agreement"), between Newco and the Company and (ii) certain beneficial and
record stockholders of the Company enter into agreements (collectively, the
"Stockholders Agreement") providing for certain actions relating to the
transactions contemplated by this Agreement; and in order to induce Newco to
enter into this Agreement, the Company has (a) agreed to grant Newco (or its
designee) the Option and to enter into, execute and deliver the Option Agreement
and (b) approved the entering into by Newco and such stockholders of the
Stockholders Agreement, and such stockholders have agreed to enter into, execute
and deliver the Stockholders Agreement;
WHEREAS, Newco and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger and also to
prescribe various conditions to the Merger; and
WHEREAS, it is intended that the Merger be recorded as a recapitalization
for financial reporting purposes.
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* Restated to reflect the First Amendment dated as of May 18, 1995.
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NOW, THEREFORE, in consideration of the representations, warranties,
covenants and agreements contained in this Agreement, the parties agree as
follows:
ARTICLE I
THE MERGER
SECTION 1.01. The Merger. Upon the terms and subject to the conditions set
forth in this Agreement, and in accordance with the Alabama Business Corporation
Act (the "ABCA"), Newco shall be merged with and into the Company at the
Effective Time of the Merger. Upon the Effective Time of the Merger, the
separate existence of Newco shall cease, and the Company shall continue as the
surviving corporation and shall continue under the name "Bruno's, Inc."
SECTION 1.02. Closing. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.01 and subject to the satisfaction or waiver of the conditions set
forth in Article VI, the closing of the Merger (the "Closing") will take place
at 10:00 a.m. on the second business day after satisfaction of the conditions
set forth in Section 6.01 (or as soon as practicable thereafter following
satisfaction or waiver of the conditions set forth in Sections 6.02 and 6.03)
(the "Closing Date"), at the offices of Simpson Thacher & Bartlett, 425
Lexington Avenue, New York, New York 10017, unless another date, time or place
is agreed to in writing by the parties hereto.
SECTION 1.03. Effective Time of the Merger. As soon as practicable following
the satisfaction or waiver of the conditions set forth in Article VI, the
parties shall file articles of merger or other appropriate documents (in any
such case, the "Articles of Merger") executed in accordance with the relevant
provisions of the ABCA and shall make all other filings or recordings required
under the ABCA. The Merger shall become effective at such time as the Articles
of Merger are duly filed with the Secretary of State of the State of Alabama, or
at such other time as is permissible in accordance with the ABCA and as Newco
and the Company shall agree should be specified in the Articles of Merger (the
time the Merger becomes effective being the "Effective Time of the Merger").
SECTION 1.04. Effects of the Merger. The Merger shall have the effects set
forth in Section 10-2B-11.06 of the ABCA (or any successor provision).
SECTION 1.05. Articles of Incorporation; By-Laws; Purposes. (a) The Articles
of Incorporation of the Company, as in effect immediately prior to the Effective
Time of the Merger, shall be amended so as to read in its entirety in the form
set forth as Exhibit A hereto, and, as so amended, until thereafter further
amended as provided therein and under the ABCA, it shall be the articles of
incorporation of the Company following the Merger.
(b) The By-laws of Newco as in effect at the Effective Time of the Merger
shall be the By-laws of the Company following the Merger until thereafter
changed or amended as provided therein or by applicable law.
SECTION 1.06. Directors. The directors of Newco at the Effective Time of the
Merger shall be the directors of the Company following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
SECTION 1.07. Officers. The officers of Newco at the Effective Time of the
Merger shall be the officers of the Company following the Merger, until the
earlier of their resignation or removal or until their respective successors are
duly elected and qualified, as the case may be.
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ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE CONSTITUENT CORPORATIONS
SECTION 2.01. Effect on Capital Stock. As of the Effective Time of the
Merger, by virtue of the Merger and without any action on the part of the holder
of any shares of Company Common Stock or any shares of capital stock of Newco:
(a) Common Stock of Newco. Each share of common stock of Newco issued and
outstanding immediately prior to the Effective Time of the Merger shall be
converted into (i) a number of shares of the common stock, par value $.01 per
share, of the Company following the Merger equal to the quotient of (A)
20,833,333 divided by (B) the number of shares of common stock of Newco
outstanding immediately prior to the Effective Time of the Merger, and (ii) a
number of warrants (as further described below, each a "Warrant") equal to the
quotient of (A) 10,000,000 divided by (B) the number of shares of common stock
of Newco outstanding immediately prior to the Effective Time of the Merger. Each
Warrant shall entitle the holder to purchase one share of Company Common Stock
at a price of $12.00 per share, subject to the anti-dilution adjustments
referred to in the next sentence. Each Warrant (i) shall be exercisable at any
time or from time to time in whole or in part in the sole discretion of the
holder from the Effective Time of the Merger through the tenth anniversary of
the Effective Time of the Merger, (ii) shall be entitled to full anti-dilution
protection, (iii) shall provide (without limiting the ability of the holder to
elect a cash exercise) for the issuance by the Company, at the election of the
holder in its sole discretion and in lieu of any payment of the exercise price
by such holder upon the exercise thereof, of newly issued shares of Company
Common Stock having a value equal to the difference between (x) the Fair Market
Value (as defined below) at the time of such exercise of such number of shares
of Company Common Stock (or such fraction of a share) for which such Warrant is
then exercisable and (y) $12.00 per share multiplied by the number of shares (or
fraction of a share) for which such Warrant is then exercisable, (iv) shall be
freely transferable and upon exercise shall entitle the holder of Company Common
Stock acquired upon exercise thereof to customary demand and incidental
registration rights in respect of such Company Common Stock, (v) shall provide
for the payment of documentary, stamp and other similar taxes by the Company and
(vi) shall otherwise be issued pursuant to one or more agreements, certificates
or documents containing terms satisfactory to Newco. "Fair Market Value" shall
mean, as of any day on which the election by the holder is made under clause
(iii) of the preceding sentence (the "Exercise Date"), the average for the
second Trading Day (as defined below) preceding such Exercise Date of the high
and low reported sales prices regular way of one share of Company Common Stock
on such Trading Day or, in case no such reported sale takes place on such
Trading Day, the average of the reported closing bid and asked prices regular
way of a share of Company Common Stock on such Trading Day, in either case on
the principal national securities exchange in the United States on which the
shares of Company Common Stock are listed or admitted to trading, or if not
listed or admitted to trading on any national securities exchange on such
Trading Day, on the National Association of Securities Dealers Automated
Quotations National Market System, or if the shares of Company Common Stock are
not listed or admitted to trading on any national securities exchange or quoted
on such National Market System on such Trading Day, the average of the closing
bid and asked prices of a share of Company Common Stock in the over-the-counter
market on such Trading Day as furnished by any New York Stock Exchange member
firm selected from time to time by the Company. If the Company Common Stock is
not quoted or listed by any such organization, exchange or market, the Fair
Market Value of the Company Common Stock as of such Exercise Date shall be
determined in good faith by the Board of Directors of the Company. "Trading Day"
shall mean each weekday other than any day on which any Company Common Stock is
not traded on any national securities exchange or the National Association of
Securities Dealers Automated Quotations National Market System or in the
over-the-counter market.
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(b) Cancellation of Treasury Stock and Parent-Owned Company Common
Stock. Each share of Company Common Stock that is owned by the Company or by any
subsidiary of the Company, and each share of Company Common Stock that is owned
by Parent, Newco or any subsidiary of Parent shall automatically be cancelled
and retired and shall cease to exist, and no cash, Company Common Stock or other
consideration shall be delivered or deliverable in exchange therefor.
(c) Conversion (or Retention) of Company Common Stock. Except as otherwise
provided herein and subject to Section 2.03, each issued and outstanding share
of Company Common Stock shall be converted into the following (the "Merger
Consideration"):
(i) for each such share of Company Common Stock with respect to which an
election to retain Company Common Stock has been effectively made and not
revoked or lost, pursuant to Sections 2.02(c), (d) and (e) ("Electing
Shares"), the right to retain one fully paid and nonassessable share of
Company Common Stock (a "Non-Cash Election Share"); and
(ii) for each such share of Company Common Stock (other than Electing
Shares), the right to receive in cash from the Company following the Merger
an amount equal to $12.00 (the "Cash Election Price").
(d) Dissenting Shares. Notwithstanding anything in this Agreement to the
contrary, shares of Company Common Stock issued and outstanding immediately
prior to the Effective Time of the Merger held by a holder (if any) who has the
right to demand payment for and an appraisal of such shares in accordance with
Article 13 of the ABCA (or any successor provision) ("Dissenting Shares") shall
not be converted into a right to receive Merger Consideration or any cash in
lieu of fractional shares of Common Stock unless such holder fails to perfect or
otherwise loses such holder's right to such payment or appraisal, if any. If,
after the Effective Time of the Merger, such holder fails to perfect or loses
any such right to appraisal, each such share of such holder shall be treated as
a share (other than an Electing Share) that had been converted as of the
Effective Time of the Merger into the right to receive Merger Consideration in
accordance with this Section 2.01. The Company shall give prompt notice to Newco
of any demands received by the Company for appraisal of shares of Company Common
Stock, and Newco shall have the right to participate in and direct all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Newco, make any payment with
respect to, or settle or offer to settle, any such demands.
(e) Cancellation and Retirement of Company Common Stock. As of the Effective
Time of the Merger, all shares of Company Common Stock (other than shares
referred to in Section 2.01(b) and 2.01(c)(i)) issued and outstanding
immediately prior to the Effective Time of the Merger, shall no longer be
outstanding and shall automatically be cancelled and retired and shall cease to
exist, and each holder of a certificate representing any such shares of Company
Common Stock shall, to the extent such certificate represents such shares, cease
to have any rights with respect thereto, except the right to receive cash,
including cash in lieu of fractional shares of Company Common Stock to be issued
or paid in consideration therefor upon surrender of such certificate in
accordance with Section 2.05.
SECTION 2.02. Company Common Stock Elections. (a) Each person who, on or
prior to the Election Date referred to in (c) below, is a record holder of
shares of Company Common Stock will be entitled, with respect to all or any
portion of his shares, to make an unconditional election (a "Non-Cash Election")
on or prior to such Election Date to retain Non-Cash Election Shares, on the
basis hereinafter set forth.
(b) Prior to the mailing of the Proxy Statement (as defined in Section
3.01(d)), Newco shall appoint a bank or trust company to act as exchange agent
(the "Exchange Agent") for the payment of the Merger Consideration.
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(c) Newco shall prepare and mail a form of election, which form shall be
subject to the reasonable approval of the Company (the "Form of Election"), with
the Proxy Statement to the record holders of Company Common Stock as of the
record date for the Stockholders Meeting (as defined in Section 5.01(c)), which
Form of Election shall be used by each record holder of shares of Company Common
Stock who wishes to elect to retain Non-Cash Election Shares for any or all
shares of Company Common Stock held, subject to the provisions of Section 2.03
hereof, by such holder. The Company will use its best efforts to make the Form
of Election and the Proxy Statement available to all persons who become holders
of Company Common Stock during the period between such record date and the
Election Date referred to below. Any such holder's election to retain Non-Cash
Election Shares shall have been properly made only if the Exchange Agent shall
have received at its designated office, by 5:00 p.m., New York City time on the
business day (the "Election Date") next preceding the date of the Stockholders
Meeting, a Form of Election properly completed and signed and accompanied by
certificates for the shares of Company Common Stock to which such Form of
Election relates, duly endorsed in blank or otherwise in form acceptable for
transfer on the books of the Company (or by an appropriate guarantee of delivery
of such certificates as set forth in such Form of Election from a firm which is
a member of a registered national securities exchange or of the National
Association of Securities Dealers, Inc. or a commercial bank or trust company
having an office or correspondent in the United States, provided such
certificates are in fact delivered to the Exchange Agent within five NASDAQ
trading days after the date of execution of such guarantee of delivery).
(d) Any Form of Election may be revoked by the stockholder submitting it to
the Exchange Agent only by written notice received by the Exchange Agent (i)
prior to 5:00 p.m, New York City time on the Election Date or (ii) after the
date of the Proxy Statement, if (and to the extent that) the Exchange Agent is
legally required to permit revocations and the Effective Time of the Merger
shall not have occurred prior to such date. In addition, all Forms of Election
shall automatically be revoked if the Exchange Agent is notified in writing by
Newco and the Company that the Merger has been abandoned. If a Form of Election
is revoked, the certificate or certificates (or guarantees of delivery, as
appropriate) for the shares of Company Common Stock to which such Form of
Election relates shall be promptly returned to the stockholder submitting the
same to the Exchange Agent.
(e) The determination of the Exchange Agent shall be binding whether or not
elections to retain Non-Cash Election Shares have been properly made or revoked
pursuant to this Section 2.02 with respect to shares of Company Common Stock and
when elections and revocations were received by it. If the Exchange Agent
determines that any election to retain Non-Cash Election Shares was not properly
made with respect to shares of Company Common Stock, such shares shall be
treated by the Exchange Agent as shares which were not Electing Shares at the
Effective Time of the Merger, and such shares shall be exchanged in the Merger
for cash pursuant to Section 2.01(c)(ii). The Exchange Agent shall also make all
computations as to the allocation and the proration contemplated by Section
2.03, and any such computation shall be conclusive and binding on the holders of
shares of Company Common Stock. The Exchange Agent may, with the mutual
agreement of Newco and the Company, make such rules as are consistent with this
Section 2.02 for the implementation of the elections provided for herein as
shall be necessary or desirable fully to effect such elections.
SECTION 2.03. Proration.
(a) Notwithstanding anything in this Agreement to the contrary, the
aggregate number of shares of Company Common Stock to be converted into the
right to retain Company Common Stock at the Effective Time of the Merger (the
"Non-Cash Election Number") shall be equal to (i) 4,166,667 (excluding for this
purpose any shares of Company Common Stock to be cancelled pursuant to Section
2.01(b)) plus (ii) a number of shares equal to the number of record holders of
Company Common Stock immediately prior to the Effective Time of the Merger.
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(b) If the number of Electing Shares exceeds the Non-Cash Election Number,
then each Electing Share shall be converted into the right to retain Non-Cash
Election Shares or receive cash in accordance with the terms of Section 2.01(c)
in the following manner:
(i) A proration factor (the "Non-Cash Proration Factor") shall be
determined by dividing the Non-Cash Election Number by the total number of
Electing Shares.
(ii) The number of Electing Shares covered by each Non-Cash Election to
be converted into the right to retain Non-Cash Election Shares shall be
determined by multiplying the Non-Cash Proration Factor by the total number
of Electing Shares covered by such Non-Cash Election.
(iii) All Electing Shares, other than those shares converted into the
right to receive Non-Cash Election Shares in accordance with Section
2.03(b)(ii), shall be converted into cash (on a consistent basis among
shareholders who made the election referred to in Section 2.01(c)(i), pro
rata to the number of shares as to which they made such election) as if such
shares were not Electing Shares in accordance with the terms of Section
2.01(c)(ii).
(c) If the number of Electing Shares is less than the Non-Cash Election
Number, then:
(i) all Electing Shares shall be converted into the right to retain
Company Common Stock in accordance with the terms of Section 2.01(c)(i);
(ii) additional shares of Company Common Stock other than Electing
Shares shall be converted into the right to retain Non-Cash Election Shares
in accordance with the terms of 2.01(c) in the following manner:
(1) a proration factor (the "Cash Proration Factor") shall be
determined by dividing (x) the difference between the Non-Cash Election
Number and the number of Electing Shares, by (y) the total number of
shares of Company Common Stock other than Electing Shares; and
(2) the number of shares of Company Common Stock in addition to
Electing Shares to be converted into the right to retain Non-Cash
Election Shares shall be determined by multiplying the Cash Proration
Factor by the total number of shares other than Electing Shares; and
(iii) subject to Section 2.01(d), shares of Company Common Stock subject
to clause (ii) of this paragraph (c) shall be converted into the right to
retain Non-Cash Election Shares in accordance with Section 2.01(c)(i) (on a
consistent basis among shareholders who held shares of Company Common Stock
as to which they did not make the election referred to in Section
2.01(c)(i), pro rata to the number of shares as to which they did not make
such election).
SECTION 2.04. Stock Plans. (a) As soon as practicable following the date of
this Agreement, the Board of Directors of the Company (or, if appropriate, any
committee administering the Stock Plans (as defined below)) shall adopt such
resolutions or take such other actions as may be required to effect the
following:
(i) cause written notification of the Merger to be given to each holder
of a Company Stock Option (as defined below) by the Board of Directors as
provided in the Stock Plans (as defined below) to the effect that each such
holder of a Company Stock Option (as defined below) may exercise such
Company Stock Option no later than thirty days from the date of such
notification (the "Exercise Period"), it being understood that (x) with
respect to any person, unless exercised within the Exercise Period (or
cancelled in exchange for a cash payment pursuant to clause (y) of paragraph
(ii) below) each Company Stock Option shall expire at the end of the
Exercise Period and (y) with respect to any person subject to Section 16(a)
of the Securities Exchange Act of 1934
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("Exchange Act"), no such person shall be entitled to a cash payment in the
manner described in clause (y) of paragraph (ii) below; and
(ii) adjust the terms of all outstanding employee or director stock
options to purchase shares of Company Common Stock ("Company Stock Options")
granted under any stock option or stock purchase plan, program or
arrangement of the Company, including without limitation, the Employee
Incentive Stock Option Plan, the Second Amended and Restated Employee Stock
Option Plan and the Non-Employee Director Stock Option Plan (collectively,
the "Stock Plans"), to provide that, at the Effective Time of the Merger (x)
each Company Stock Option outstanding immediately prior to the Effective
Time of the Merger shall vest as a consequence of the Merger and (y) with
respect to any person not subject to Section 16(a) of the Securities
Exchange Act of 1934 ("Exchange Act"), each Company Stock Option having an
exercise price of less than $12.00, shall be cancelled in exchange for a
payment from the Company after the Merger (subject to any applicable
withholding taxes) equal to the product of (1) the total number of shares of
Company Common Stock subject to such Company Stock Option and (2) the excess
of $12.00 over the exercise price per share of Company Common Stock subject
to such Company Stock Option, payable in cash immediately following the
Effective Time of the Merger;
(iii) except as provided herein or as otherwise agreed to by the
parties, the Stock Plans and any other plan, program or arrangement
providing for the issuance or grant of any other interest in respect of the
capital stock of the Company or any subsidiary shall terminate as of the
Effective Time of the Merger, and the Company shall ensure that following
the Effective Time of the Merger no holder of a Company Stock Option nor any
participant in any Stock Plan shall have any right thereunder to acquire
equity securities of the Company following the Merger.
(b) The Company hereby represents and warrants that upon taking of the
actions specified above, immediately following the Effective Time of the Merger
no holder of a Company Stock Option nor any participant in any Stock Plan shall
have the right thereunder to acquire equity securities of the Company after the
Merger.
SECTION 2.05. Exchange of Certificates. (a) Exchange Agent. As soon as
reasonably practicable as of or after the Effective Time of the Merger, the
Company shall deposit with the Exchange Agent, for the benefit of the holders of
shares of Company Common Stock, for exchange in accordance with this Article II,
the cash portion of Merger Consideration.
(b) Exchange Procedures. As soon as practicable after the Effective Time of
the Merger, each holder of an outstanding certificate or certificates which
prior thereto represented shares of Company Common Stock shall, upon surrender
to the Exchange Agent of such certificate or certificates and acceptance thereof
by the Exchange Agent, be entitled to a certificate or certificates representing
the number of full shares of Company Common Stock, if any, to be retained by the
holder thereof pursuant to this Agreement and the amount of cash, if any, into
which the number of shares of Company Common Stock previously represented by
such certificate or certificates surrendered shall have been converted pursuant
to this Agreement. The Exchange Agent shall accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices. After the Effective Time of the Merger, there shall be no further
transfer on the records of the Company or its transfer agent of certificates
representing shares of Company Common Stock which have been converted, in whole
or in part, pursuant to this Agreement into the right to receive cash, and if
such certificates are presented to the Company for transfer, they shall be
cancelled against delivery of cash and, if appropriate, certificates for
retained Company Common Stock. If any certificate for such retained Company
Common Stock is to be issued in, or if cash is to be remitted to, a name other
than that in which the certificate for Company Common Stock surrendered for
exchange is registered, it shall be a condition of such exchange that the
certificate so surrendered shall be properly endorsed, with signature
guaranteed,
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or otherwise in proper form for transfer and that the person requesting such
exchange shall pay to the Company or its transfer agent any transfer or other
taxes required by reason of the issuance of certificates for such retained
Company Common Stock in a name other than that of the registered holder of the
certificate surrendered, or establish to the satisfaction of the Company or its
transfer agent that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.05(b), each certificate for shares
of Company Common Stock shall be deemed at any time after the Effective Time of
the Merger to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by Section 2.01. No interest will be paid or will
accrue on any cash payable as Merger Consideration or in lieu of any fractional
shares of retained Company Common Stock.
(c) Distributions with Respect to Unexchanged Shares. No dividends or other
distributions with respect to retained Company Common Stock with a record date
after the Effective Time of the Merger shall be paid to the holder of any
unsurrendered certificate for shares of Company Common Stock with respect to the
shares of retained Company Common Stock represented thereby and no cash payment
in lieu of fractional shares shall be paid to any such holder pursuant to
Section 2.05(e) until the surrender of such certificate in accordance with this
Article II. Subject to the effect of applicable laws, following surrender of any
such certificate, there shall be paid to the holder of the certificate
representing whole shares of retained Company Common Stock issued in connection
therewith, without interest, (i) at the time of such surrender or as promptly
after the sale of the Excess Shares (as defined in Section 2.05(e)) as
practicable, the amount of any cash payable in lieu of a fractional share of
retained Company Common Stock to which such holder is entitled pursuant to
Section 2.05(e) and the proportionate amount of dividends or other distributions
with a record date after the Effective Time of the Merger theretofore paid with
respect to such whole shares of retained Company Common Stock, and (ii) at the
appropriate payment date, the proportionate amount of dividends or other
distributions with a record date after the Effective Time of the Merger but
prior to such surrender and a payment date subsequent to such surrender payable
with respect to such whole shares of retained Company Common Stock.
(d) No Further Ownership Rights in Company Common Stock Exchanged For
Cash. All cash paid upon the surrender for exchange of certificates representing
shares of Company Common Stock in accordance with the terms of this Article II
(including any cash paid pursuant to Section 2.05(e)) shall be deemed to have
been issued (and paid) in full satisfaction of all rights pertaining to the
shares of Company Common Stock exchanged for cash theretofore represented by
such certificates.
(e) No Fractional Shares. (i) No certificates or scrip representing
fractional shares of retained Company Common Stock shall be issued in connection
with the Merger, and such fractional share interests will not entitle the owner
thereof to vote or to any rights of a stockholder of the Company after the
Merger; and
(ii) Notwithstanding any other provision of this Agreement, each holder of
shares of Company Common Stock exchanged pursuant to the Merger who would
otherwise have been entitled to receive a fraction of a share of retained
Company Common Stock (after taking into account all shares of Company Common
Stock delivered by such holder) shall receive, in lieu thereof, a cash payment
(without interest) representing such holder's proportionate interest in the net
proceeds from the sale by the Exchange Agent (following the deduction of
applicable transaction costs), on behalf of all such holders, of the shares (the
"Excess Shares") of retained Company Common Stock representing such fractions.
Such sale shall be made as soon as practicable after the Effective Time of the
Merger.
(f) Termination of Exchange Fund. Any portion of the Merger Consideration
deposited with the Exchange Agent pursuant to this Section 2.05 (the "Exchange
Fund") which remains undistributed to the holders of the certificates
representing shares of Company Common Stock for six months after the Effective
Time of the Merger shall be delivered to the Company, upon demand, and any
holders of shares of Company Common Stock prior to the Merger who have not
theretofore complied with this
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Article II shall thereafter look only to the Company and only as general
creditors thereof for payment of their claim for cash, if any, retained Company
Common Stock, if any, any cash in lieu of fractional shares of retained Company
Common Stock and any dividends or distributions with respect to retained Company
Common Stock to which such holders may be entitled.
(g) No Liability. None of Newco or the Company or the Exchange Agent shall
be liable to any person in respect of any shares of retained Company Common
Stock (or dividends or distributions with respect thereto) or cash from the
Exchange Fund delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law. If any certificates representing
shares of Company Common Stock shall not have been surrendered prior to one year
after the Effective Time of the Merger (or immediately prior to such earlier
date on which any cash, if any, any cash in lieu of fractional shares of
retained Company Common Stock or any dividends or distributions with respect to
retained Company Common Stock in respect of such certificate would otherwise
escheat to or become the property of any Governmental Entity (as defined in
Section 3.01(d))), any such cash, dividends or distributions in respect of such
certificate shall, to the extent permitted by applicable law, become the
property of the Company, free and clear of all claims or interest of any person
previously entitled thereto.
(h) Investment of Exchange Fund. The Exchange Agent shall invest any cash
included in the Exchange Fund, as directed by the Company, on a daily basis. Any
interest and other income resulting from such investments shall be paid to the
Company.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
SECTION 3.01. Representations and Warranties of the Company. The Company
represents and warrants to Newco as follows:
(a) Organization, Standing and Corporate Power. Each of the Company and each
of its Subsidiaries (as defined in Section 3.01(b)) is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated and has the requisite corporate power and authority to carry on its
business as now being conducted. Each of the Company and each of its
Subsidiaries is duly qualified or licensed to do business and is in good
standing in each jurisdiction in which the nature of its business or the
ownership or leasing of its properties makes such qualification or licensing
necessary, other than in such jurisdictions where the failure to be so qualified
or licensed (individually or in the aggregate) would not have a Material Adverse
Effect (as defined in Section 8.04) with respect to the Company. Attached as
Section 3.01(a) of the disclosure schedule ("Disclosure Schedule") delivered to
Newco by the Company at the time of execution of this Agreement are complete and
correct copies of the Articles of Incorporation, as amended, and By-laws, as
amended, of the Company. The Company has delivered to Newco complete and correct
copies of the articles of incorporation (or other organizational documents) and
by-laws of each of its Subsidiaries, in each case as amended to the date of this
Agreement.
(b) Subsidiaries. The only direct or indirect subsidiaries of the Company
(other than subsidiaries of the Company that would not constitute in the
aggregate a "Significant Subsidiary" within the meaning of Rule 1-02 of
Regulation S-X of the Securities and Exchange Commission (the "SEC")) are those
listed in Section 3.01(b) of the Disclosure Schedule (the "Subsidiaries"). All
the outstanding shares of capital stock of each such Subsidiary have been
validly issued and are fully paid and nonassessable and are owned (of record and
beneficially) by the Company, by another Subsidiary (wholly owned) of the
Company or by the Company and another such Subsidiary (wholly owned), free and
clear of all pledges, claims, liens, charges, encumbrances and security
interests of any kind or
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nature whatsoever (collectively, "Liens"). Except for the ownership interests
set forth in Section 3.01(b) of the Disclosure Schedule, the Company does not
own, directly or indirectly, any capital stock or other ownership interest in
any corporation, partnership, business association, joint venture or other
entity.
(c) Capital Structure. The authorized capital stock of the Company consists
of (i) 200,000,000 shares of Company Common Stock, par value $.01 per share, and
(ii) no shares of preferred stock. Subject to any Permitted Changes (as defined
in Section 4.01(a)(ii)) there are: (i) 78,098,341 shares of Company Common Stock
issued and outstanding (including shares held in the treasury of the Company);
(ii) 595,000 shares of Company Common Stock held in the treasury of the Company;
(iii) 3,689,817 shares of Company Common Stock reserved for issuance upon
exercise of authorized but unissued Company Stock Options pursuant to the Stock
Plans; (iv) 1,242,917 shares of Company Common Stock issuable upon exercise of
outstanding Company Stock Options (with an average exercise price of $8.36); and
(v) 15,541,570 shares of Company Common Stock reserved for issuance upon
exercise of the Option. Except as set forth above, no shares of capital stock or
other equity securities of the Company are issued, reserved for issuance or
outstanding. All outstanding shares of capital stock of the Company are, and all
shares which may be issued pursuant to the Stock Plans will be, when issued,
duly authorized, validly issued, fully paid and nonassessable and not subject to
preemptive rights. There are no outstanding bonds, debentures, notes or other
indebtedness or other securities of the Company having the right to vote (or
convertible into, or exchangeable for, securities having the right to vote) on
any matters on which stockholders of the Company may vote. Except as set forth
above and except for the Option, there are no outstanding securities, options,
warrants, calls, rights, commitments, agreements, arrangements or undertakings
of any kind to which the Company or any of its subsidiaries is a party or by
which any of them is bound obligating the Company or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, additional
shares of capital stock or other equity or voting securities of the Company or
of any of its subsidiaries or obligating the Company or any of its subsidiaries
to issue, grant, extend or enter into any such security, option, warrant, call,
right, commitment, agreement, arrangement or undertaking. The only outstanding
indebtedness for borrowed money of the Company and its subsidiaries is (i) $100
million in principal amount of 6.62% Series A Senior Notes Due September 15,
2003 (the "Series A Senior Notes") issued pursuant to the Note Purchase
Agreement, dated as of September 1, 1993 (the "Note Purchase Agreement"), (ii)
$100 million in aggregate principal amount of 7.09% of Series B Senior Notes Due
September 15, 2008 (the "Series B Senior Notes," and together with the Series A
Senior Notes, the "Senior Notes") issued pursuant to the Note Purchase
Agreement, (iii) $19.7 million of capitalized leases as of December 31, 1994
disclosed in Section 3.01(c) of the Disclosure Schedule and (iv) other
indebtedness not exceeding $2 million. Other than the Senior Notes and any loans
and other extensions of credit under the Credit Agreement dated as of August 28,
1992 among the Company, Wachovia Bank of Georgia, N.A. and the banks parties
thereto (the "Credit Agreement"), each of which is prepayable in full in
accordance with its terms, no indebtedness for borrowed money of the Company or
its subsidiaries contains any restriction upon the incurrence of indebtedness
for borrowed money by the Company or any of its subsidiaries or restricts the
ability of the Company or any of its subsidiaries to grant any Liens on its
properties or assets. Other than the Company Stock Options, the Option and the
Stockholders Agreement and other than as disclosed in Section 3.01(c) of the
Disclosure Schedule, (i) there are no outstanding contractual obligations,
commitments, understandings or arrangements of the Company or any of its
subsidiaries to repurchase, redeem or otherwise acquire or make any payment in
respect of any shares of capital stock of the Company or any of its subsidiaries
and (ii) to the knowledge of the Company, there are no irrevocable proxies with
respect to shares of capital stock of the Company or any subsidiary of the
Company except for proxies granted in favor of Ronald G. Bruno by Ann Bruno,
Alan Bruno, David Bruno and Suzanne Bowness. Sections 1 and 2 of the
Stockholders Agreement Disclosure Schedule (as defined in the Stockholders
Agreement), which set forth the record and, to the knowledge of the Company,
beneficial ownership of, and voting power in respect of, the capital stock of
the Company with respect to the signatories to the Stockholders Agreement, are
accurate in all material respects. Except as set forth above, there are no
agreements or arrangements
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pursuant to which the Company is or could be required to register shares of
Company Common Stock or other securities under the Securities Act of 1933, as
amended (the "Securities Act") or other agreements or arrangements with or among
any securityholders of the Company with respect to securities of the Company.
(d) Authority; Noncontravention. The Company has the requisite corporate and
other power and authority to enter into this Agreement and the Option Agreement
and, subject to the Company Stockholder Approval with respect to the
consummation of the Merger, to consummate the transactions contemplated hereby
and thereby. The execution and delivery of this Agreement and the Option
Agreement by the Company and the consummation by the Company of the transactions
contemplated hereby and thereby have been duly authorized by all necessary
corporate action on the part of the Company, subject, in the case of the Merger,
to the Company Stockholder Approval. Each of this Agreement and the Option
Agreement has been duly executed and delivered by the Company and constitutes a
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms. Except for the Senior Notes, the Credit Agreement and
except as disclosed in Section 3.01(d) of the Disclosure Schedule, the execution
and delivery of each of this Agreement and the Option Agreement do not, and the
consummation of the transactions contemplated by this Agreement and the Option
Agreement and compliance with the provisions hereof and thereof will not,
conflict with, or result in any breach or violation of, or default (with or
without notice or lapse of time, or both) under, or give rise to a right of
termination, cancellation or acceleration of or "put" right with respect to any
obligation or to loss of a material benefit under, or result in the creation of
any Lien upon any of the properties or assets of the Company or any of its
subsidiaries under, (i) the Articles of Incorporation, as amended, or By-laws,
as amended, of the Company or the comparable charter or organizational documents
of any of its subsidiaries, (ii) any loan or credit agreement, note, note
purchase agreement, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its subsidiaries or their respective properties or assets or (iii)
subject to the governmental filings and other matters referred to in the
following sentence, any judgment, order, decree, statute, law, ordinance, rule,
regulation or arbitration award applicable to the Company or any of its
subsidiaries or their respective properties or assets, other than, in the case
of clauses (ii) and (iii), any such conflicts, breaches, violations, defaults,
rights, losses or Liens that individually or in the aggregate could not have a
Material Adverse Effect with respect to the Company or could not prevent, hinder
or materially delay the ability of the Company to consummate the transactions
contemplated by this Agreement or the Option Agreement. No consent, approval,
order or authorization of, or registration, declaration or filing with, or
notice to, any Federal, state or local government or any court, administrative
agency or commission or other governmental authority or agency, domestic or
foreign (a "Governmental Entity"), is required by or with respect to the Company
or any of its subsidiaries in connection with the execution and delivery of this
Agreement or the Option Agreement by the Company or the consummation by the
Company of the transactions contemplated hereby or thereby, except, with respect
to this Agreement, for (i) the filing of a premerger notification and report
form by the Company under the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), (ii) the filing with the SEC of (x) a proxy
statement relating to the Company Stockholder Approval (such proxy statement as
amended or supplemented from time to time, the "Proxy Statement"), (y) the
registration statement on Form S-4 to be filed with the SEC by the Company in
connection with the issuance of the Common Stock of the Company following the
Merger (the "Form S-4") and (z) such reports under the Exchange Act as may be
required in connection with this Agreement and the transactions contemplated by
this Agreement, (iii) the filing of the Articles of Merger with the Secretary of
State of the State of Alabama and appropriate documents with the relevant
authorities of other states in which the Company is qualified to do business and
(iv) such other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as are set forth in Section 3.01(d) of the
Disclosure Schedule.
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(e) SEC Documents; Undisclosed Liabilities. The Company has filed all
required reports, schedules, forms, statements and other documents with the SEC
since June 30, 1991 (collectively, and in each case including all exhibits and
schedules thereto and documents incorporated by reference therein, the "SEC
Documents"). As of their respective dates, the SEC Documents complied in all
material respects with the requirements of the Securities Act, or the Exchange
Act, as the case may be, and the rules and regulations of the SEC promulgated
thereunder applicable to such SEC Documents, and none of the SEC Documents
(including any and all financial statements included therein) as of such dates
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. Except to the extent revised or superseded by a subsequent filing
with the SEC (a copy of which has been provided to Newco prior to the date of
this Agreement), none of the SEC Documents filed by the Company since June 30,
1994 and prior to the date of this Agreement (the "Recent SEC Documents")
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they were made, not
misleading. The consolidated financial statements of the Company included in all
SEC Documents filed since June 30, 1994 (the "SEC Financial Statements") comply
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, have been
prepared in accordance with generally accepted accounting principles (except, in
the case of unaudited consolidated quarterly statements, as permitted by Form
10-Q of the SEC) applied on a consistent basis during the periods involved
(except as may be indicated in the notes thereto) and fairly present the
consolidated financial position of the Company and its consolidated subsidiaries
as of the dates thereof and the consolidated results of their operations and
cash flows for the periods then ended (subject, in the case of unaudited
quarterly statements, to normal year-end audit adjustments). Except as set forth
in the Recent SEC Documents and except as disclosed in Section 3.01(e) of the
Disclosure Schedule, at the date of the most recent audited financial statements
of the Company included in the Recent SEC Documents, neither the Company nor any
of its subsidiaries had, and since such date neither the Company nor any of such
subsidiaries has incurred, any liabilities or obligations of any nature (whether
accrued, absolute, contingent or otherwise) which, individually or in the
aggregate, could reasonably be expected to have a Material Adverse Effect with
respect to the Company.
(f) Information Supplied. None of the information supplied or to be supplied
by the Company for inclusion or incorporation by reference in (i) the Form S-4
will, at the time the Form S-4 is filed with the SEC, and at any time it is
amended or supplemented or at the time it becomes effective under the Securities
Act, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading, and (ii) the Proxy Statement will, at the date it is
first mailed to the Company's stockholders or at the time of the Stockholders
Meeting, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they are made,
not misleading. The Form S-4 will, as of its effective date, and the prospectus
contained therein will, as of its date, comply as to form in all material
respects with the requirements of the Securities Act and the rules and
regulations promulgated thereunder. The Proxy Statement will comply as to form
in all material respects with the requirements of the Exchange Act and the rules
and regulations promulgated thereunder, except that no representation is made by
the Company with respect to statements made or incorporated by reference therein
based on information supplied in writing by Newco specifically for inclusion in
the Proxy Statement. For purposes of this Agreement, the parties agree that
statements made and information in the Form S-4 and the Proxy Statement relating
to the Federal income tax consequences of the transactions herein contemplated
to holders of Company Common Stock shall be deemed to be supplied by the Company
and not by Newco.
(g) Absence of Certain Changes or Events. Except as disclosed in the Recent
SEC Documents, since the date of the most recent audited financial statements
included in such Recent SEC Documents,
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the Company has conducted its business only in the ordinary course consistent
with past practice, and there is not and has not been: (i) any Material Adverse
Change with respect to the Company; (ii) any condition, event or occurrence
which, individually or in the aggregate, could reasonably be expected to have a
Material Adverse Effect or give rise to a Material Adverse Change with respect
to the Company; (iii) any event which, if it had taken place following the
execution of this Agreement, would not have been permitted by Section 4.01
without the prior consent of Newco; or (iv) any condition, event or occurrence
which could reasonably be expected to prevent, hinder or materially delay the
ability of the Company to consummate the transactions contemplated by this
Agreement or the Option Agreement.
(h) Litigation; Labor Matters; Compliance with Laws.
(x) Except as disclosed in the Recent SEC Documents, there is (1) no
suit, action or proceeding or investigation pending, (2) to the knowledge of
the Company, no suit, action or proceeding or investigation threatened
against or affecting the Company or any of its subsidiaries and (3) to the
knowledge of the Company, no basis for any such suit, action, proceeding or
investigation that, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect with respect to the Company or
prevent, hinder or materially delay the ability of the Company to consummate
the transactions contemplated by this Agreement or the Option Agreement, nor
is there any judgment, decree, injunction, rule or order of any Governmental
Entity or arbitrator outstanding against the Company or any of its
subsidiaries having, or which in the future could have, any such effect.
(y) Except as disclosed in Section 3.01(h)(ii) of the Disclosure
Schedule, (1) neither the Company nor any of its subsidiaries is a party to,
or bound by, any collective bargaining agreement, contract or other
agreement or understanding with a labor union or labor organization; (2) to
the best knowledge of the Company, neither the Company nor any of its
subsidiaries is the subject of any proceeding asserting that it or any
subsidiary has committed an unfair labor practice or seeking to compel it to
bargain with any labor organization as to wages or conditions of employment;
(3) there is no strike, work stoppage or other labor dispute involving it or
any of its subsidiaries pending or, to its knowledge, threatened; (4) no
action, suit, complaint, charge, arbitration, inquiry, proceeding or
investigation by or before any court, governmental agency, administrative
agency or commission brought by or on behalf of any employee, prospective
employee, former employee, retiree, labor organization or other
representative of the Company's employees is pending or, to the best
knowledge of the Company, threatened against the Company or any of its
subsidiaries which could have a Material Adverse Effect with respect to the
Company; (5) no grievance is pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries which
could have a Material Adverse Effect with respect to the Company; (6)
neither the Company nor any of its subsidiaries is a party to, or otherwise
bound by, any consent decree with, or citation by, any government agency
relating to employees or employment practices; (7) to the best knowledge of
the Company, the Company and each subsidiary is in compliance with all
applicable laws, agreements, contracts, and policies relating to employment,
employment practices, wages, hours, and terms and conditions of employment
except for failures so to comply, if any, that individually or in the
aggregate could not reasonably be expected to have a Material Adverse Effect
with respect to the Company; (8) the Company has paid in full to all
employees of the Company and its subsidiaries all wages, salaries,
commissions, bonuses, benefits and other compensation due to such employees
or otherwise arising under any policy, practice, agreement, plan, program,
statute or other law; and (9) the Company is not liable for any severance
pay or other payments to any employee or former employee arising from the
termination of employment under any benefit or severance policy, practice,
agreement, plan, or program of the Company, nor to the best of its knowledge
will the Company have any liability which exists or arises, or may be deemed
to exist or arise, under any applicable law or otherwise, as a result of or
in connection with the transactions contemplated hereunder or as a result of
the termination by the
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Company of any persons employed by the Company or any of its subsidiaries on
or prior to the Effective Time of the Merger.
(z) The conduct of the business of each of the Company and each of its
subsidiaries complies with all statutes, laws, regulations, ordinances,
rules, judgments, orders, decrees or arbitration awards applicable thereto,
except for violations or failures so to comply, if any, that, individually
or in the aggregate, could not reasonably be expected to have a Material
Adverse Effect with respect to the Company.
(i) Employee Benefit Plans. (1) Section 3.01(i) of the Disclosure Schedule
contains a true and complete list of each "employee benefit plan" (within the
meaning of section 3(3) of the Employee Retirement Income Security Act of 1974,
as amended ("ERISA"), (including, without limitation, multiemployer plans within
the meaning of ERISA section 3(37)), stock purchase, stock option, severance,
employment, change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements relating to employment,
benefits or entitlements, whether or not subject to ERISA (including any funding
mechanism therefor now in effect or required in the future as a result of the
transaction contemplated by this Agreement or otherwise), whether formal or
informal, oral or written, legally binding or not under which any employee or
former employee of the Company has any present or future right to benefits or
under which the Company has any present or future liability. All such plans,
agreements, programs, policies and arrangements shall be collectively referred
to as the "Company Plans".
(2) With respect to each Company Plan, the Company will deliver to Newco on
the terms set forth in Section 3.03 hereof a current, accurate and complete copy
(or, to the extent no such copy exists, an accurate description) thereof and, to
the extent applicable, (i) any related trust agreement, annuity contract or
other funding instrument; (ii) the most recent determination letter; (iii) any
summary plan description and other written communications (or a description of
any oral communications) by the Company to its employees concerning the extent
of the benefits provided under a Company Plan; and (iv) for the three most
recent years (I) the Form 5500 and attached schedules; (II) audited financial
statements; (III) actuarial valuation reports; and (IV) attorney's response to
an auditor's request for information.
(3) (i) Each Company Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable laws, rules and regulations, in each case
in all material respects; (ii) each Company Plan which is intended to be
qualified within the meaning of Code section 401(a) is so qualified and has
received a favorable determination letter as to its qualification and nothing
has occurred, whether by action or failure to act, which would cause the loss of
such qualification; (iii) with respect to any Company Plan, no actions, suits or
claims (other than routine claims for benefits in the ordinary course) are
pending or, to the best knowledge of the Company, threatened, no facts or
circumstances exist which could give rise to any such actions, suits or claims
and the Company will promptly notify Buyer in writing of any pending claims or,
to the knowledge of the Company, any threatened claims arising between the date
hereof and the Effective Time of the Merger; (iv) neither the Company nor any
other party has engaged in a prohibited transaction, as such term is defined
under Code section 4975 or ERISA section 406, which would subject the Company or
the Buyer to any taxes, penalties or other liabilities under Code section 4975
or ERISA sections 409 or 502(i); (v) no event has occurred and no condition
exists that would subject the Company, either directly or by reason of its
affiliation with any member of its Controlled Group (defined as any organization
which is a member of a controlled group of organizations within the meaning of
Code sections 414(b), (c), (m) or (o)), to any tax, fine or penalty imposed by
ERISA, the Code or other applicable laws, rules and regulations including, but
not limited to the taxes imposed by Code sections 4971, 4972, 4977, 4979, 4980B,
4976(a) or the fine imposed by ERISA section 502(c); (vi) all insurance premiums
required to be paid with respect to Company Plans as of the Effective Time
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of the Merger have been or will be paid prior thereto and adequate reserves have
been provided for on the Company's balance sheet for any premiums (or portions
thereof) attributable to service on or prior to the Effective Time of the
Merger; (vii) for each Company Plan with respect to which a Form 5500 has been
filed, no material change has occurred with respect to the matters covered by
the most recent Form since the date thereof; (viii) except as disclosed in
Section 3.01(i) of the Disclosure Schedule, all contributions required to be
made prior to the Effective Time of the Merger under the terms of any Company
Plan, the Code, ERISA or other applicable laws, rules and regulations have been
or will be timely made and adequate reserves have been provided for on the
Company's balance sheet for all benefits attributable to service on or prior to
the Effective Time of the Merger; (ix) no Company Plan provides for an increase
in benefits on or after the Effective Time of the Merger; and (x) each Company
Plan may be amended or terminated without obligation or liability (other than
those obligations and liabilities for which specific assets have been set aside
in a trust or other funding vehicle or reserved for on the Company's balance
sheet or obligations under plans required by contracts with labor unions).
(4) Except as disclosed in Section 3.01(i)(4) of the Disclosure Schedule and
except to the extent each of the following, individually or in the aggregate,
would not result in a material liability to the Company, (i) no Company Plan has
incurred any "accumulated funding deficiency" as such term is defined in ERISA
section 302 and Code section 412 (whether or not waived); (ii) no event or
condition exists which could be deemed a reportable event within the meaning of
ERISA section 4043 which could result in a liability to the Company or any
member of its Controlled Group and no condition exists which could subject the
Company or any member of its Controlled Group to a fine under ERISA section
4071; (iii) as of the Effective Time of the Merger, the Company and each member
of its Controlled Group have made all required premium payments when due to the
PBGC; (iv) neither the Company nor any member of its Controlled Group is subject
to any liability to the PBGC for any plan termination occurring on or prior to
the Effective Time of the Merger; (v) no amendment has occurred which has
required or could require the Company or any member of its Controlled Group to
provide security pursuant to Code section 401(a)(29); and (vi) neither the
Company nor any member of its Controlled Group has engaged in a transaction
which could subject it to liability under ERISA section 4069.
(5) With respect to each of the Company Plans which is not a multiemployer
plan within the meaning of section 4001(a)(3) of ERISA but is subject to Title
IV of ERISA, as of the Effective Time of the Merger, except as disclosed in
Section 3.01(i) of the Disclosure Schedule, the assets of each such Company Plan
are at least equal in value to the present value of the accrued benefits (vested
and unvested) of the participants in such Company Plan on a termination and
projected basis, based on the actuarial methods and assumptions indicated in the
most recent actuarial valuation reports.
(6) Except as disclosed in Section 3.01(i)(6) of the Disclosure Schedule,
with respect to any multiemployer plan (within the meaning of section 4001(a)(3)
of ERISA) to which the Company or any member of its Controlled Group has any
liability or contributes (or has at any time contributed or had an obligation to
contribute): (i) the Company and each member of its Controlled Group has or will
have, as of the Effective Time of the Merger, made all contributions to each
such multiemployer plan required by the terms of such multiemployer plan or any
collective bargaining agreement; (ii) neither the Company nor any member of its
Controlled Group has incurred any withdrawal liability under Title IV of ERISA
or would be subject to such liability if, as of the Effective Time of the
Merger, the Company or any member of its Controlled Group were to engage in a
complete withdrawal (as defined in ERISA section 4203) or partial withdrawal (as
defined in ERISA section 4205) from any such multiemployer plan; (iii) no such
multiemployer plan is in reorganization or insolvent (as those terms are defined
in ERISA sections 4241 and 4245, respectively); and (iv) neither the Company nor
any member of its Controlled Group has engaged in a transaction which could
subject it to liability under ERISA section 4212(c).
(7) (i) Each Company Plan which is intended to meet the requirements for
tax-favored treatment under Subchapter B of Chapter 1 of Subtitle A of the Code
meets such requirements; and (ii) the
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Company has received a favorable determination from the Internal Revenue Service
with respect to any trust intended to be qualified within the meaning of Code
section 501(c)(9).
(8) Section 3.01(i)(8) of the Disclosure Schedule sets forth, on a plan by
plan basis, the present value of benefits payable presently or in the future to
present or former employees of the Company under each unfunded Company Plan.
(9) Except as set forth in Section 3.01(i)(9) of the Disclosure Schedule, no
Company Plan exists which could result in the payment to any Company employee of
any money or other property or rights or accelerate or provide any other rights
or benefits to any Company employee as a result of the transaction contemplated
by this Agreement, whether or not such payment would constitute a parachute
payment within the meaning of Code section 280G.
(j) Tax Returns and Tax Payments. Except as disclosed in Section 3.01(j) of
the Disclosure Schedule, the Company and each of its subsidiaries, and any
consolidated, combined, unitary or aggregate group for Tax purposes of which the
Company or any of its subsidiaries is or has been a member (a "Consolidated
Group") has timely filed all Tax Returns required to be filed by it, has paid
all Taxes shown thereon to be due and has provided adequate reserves in its
financial statements for any Taxes that have not been paid, whether or not shown
as being due on any returns. Except as disclosed in Section 3.01(j) of the
Disclosure Schedule, (i) no material claim for unpaid Taxes has become a lien
against the property of the Company or any of its subsidiaries or is being
asserted against the Company or any of its subsidiaries; (ii) to the best
knowledge of the Company, no audit of any Tax Return of the Company or any of
its subsidiaries is being conducted by a Tax authority; (iii) no extension of
the statute of limitations on the assessment of any Taxes has been granted by
the Company or any of its subsidiaries and is currently in effect; (iv) no
consent under Section 341(f) of the Code has been filed with respect to the
Company or any of its subsidiaries; (v) neither the Company nor any of its
subsidiaries is a party to any agreement or arrangement that would result,
separately or in the aggregate, in the actual or deemed payment by the Company
or a subsidiary of any "excess parachute payments" within the meaning of Section
280G of the Code; (vi) no acceleration of the vesting schedule for any property
that is substantially unvested within the meaning of the regulations under
Section 83 of the Code will occur in connection with the transactions
contemplated by this Agreement; (vii) none of the Company or its subsidiaries
has been at any time a member of any partnership or joint venture or the holder
of a beneficial interest in any trust for any period for which the statute of
limitations for any Tax has not expired; (viii) none of the Company or its
subsidiaries has been a United States real property holding corporation within
the meaning of Section 897(c)(2) of the Code during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Code; (ix) none of the Company or
its subsidiaries is doing business in or engaged in a trade or business in any
jurisdiction in which it has not filed all required income or franchise tax
returns; (x) the Company and each of its subsidiaries have made all payments of
estimated Taxes required to be made under Section 6655 of the Code and any
comparable state, local or foreign Tax provision; (xi) to the best knowledge of
the Company, all Taxes required to be withheld, collected or deposited by or
with respect to the Company and each of its subsidiaries have been timely
withheld, collected or deposited, as the case may be, and, to the extent
required, have been paid to the relevant taxing authority; (xii) neither the
Company nor any of its subsidiaries has issued or assumed (A) any obligations
described in Section 279(a) of the Code, (B) any applicable high yield discount
obligations, as defined in Section 163(i) of the Code, or (C) any
registration-required obligations, within the meaning of Section 163(f)(2) of
the Code, that is not in registered form; (xiii) there are no requests for
information currently outstanding that could affect the Taxes of the Company or
any of its subsidiaries; (xiv) to the best knowledge of the Company, there are
no proposed reassessments of any property owned by the Company or any of its
subsidiaries or other proposals that could increase the amount of any Tax to
which the Company or any such subsidiary would be subject; and (xv) no power of
attorney that is currently in force has been granted with respect to any matter
relating to Taxes that could materially affect the Tax liability of the Company
or one of its subsidiaries. As used herein, "Taxes" shall mean all taxes of any
kind, including, without limitation, those on or
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measured by or referred to as income, gross receipts, sales, use, ad valorem,
franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority, domestic or foreign.
As used herein, "Tax Return" shall mean any return, report or statement required
to be filed with any governmental authority with respect to Taxes.
(k) Properties. (i) Owned Real Property. Section 3.01(k)(i) of the
Disclosure Schedule sets forth, by address, owner and usage, all of the real
property owned by the Company, any of its subsidiaries or any partnerships,
joint ventures or other business organizations (collectively the "Ventures") of
which the Company or its subsidiaries are party (collectively, the "Owned Real
Property"). Except as disclosed in Section 3.01(k)(ii) of the Disclosure
Schedule, each of the Company, its subsidiaries and the Ventures have good and
sufficient, valid and marketable title to the Owned Real Property free and clear
of all Liens and other encumbrances that, individually or in the aggregate could
reasonably be expected to have a Material Adverse Effect with respect to the
Company. Except as set forth in Section 3.01(k)(ii) of the Disclosure Schedule,
there are (a) no outstanding contracts for any improvements to the Owned Real
Property which have not been fully paid that, individually or in the aggregate
could reasonably be expected to have a Material Adverse Effect with respect to
the Company, (b) no expenses of any kind (including brokerage and leasing
commissions) pertaining to the Owned Real Property which have not been fully
paid and (c) no outstanding contracts for the sale of any of the Owned Real
Property, except those contracts the property in respect of which is not in
excess of $100,000 individually.
(ii) Leased Real Property. Section 3.01(k)(iii) of the Disclosure Schedule
sets forth, by address, owner and usage, a true and complete list of all real
property agreements (including any amendments thereto) pursuant to which the
Company, its subsidiaries or any Venture lease, sublease or otherwise occupy any
real property (the "Real Property Leases"). Pursuant to the Real Property
Leases, the Company, its subsidiaries or a Venture, as the case may be, have
validly existing and enforceable leasehold, subleasehold or occupancy interests
in the property leased thereunder in each case free from defaults and events
which with the passage of time would constitute a default except in either
instance for defaults which individually or in the aggregate, would not be
material and adverse to the financial condition, business or operations of the
Company, its subsidiaries or the Venture, as the case may be.
(iii) Third Party Leases. Section 3.01(k)(iv) of the Disclosure Schedule
sets forth, by address, owner and usage, a true and complete list of all real
property agreements (including any amendments thereto) pursuant to which the
Company, any of its subsidiaries or any Venture leases, subleases or otherwise
permits any third party to occupy any Owned Real Property or Leased Real
Property (collectively, the "Third Party Leases"). Each of the Third Party
Leases is in full force and effect and in each case free from defaults and
events which with the passage of time would constitute a default (by landlord or
tenant thereunder) except in either instance for defaults which individually or
in the aggregate, would not have a Material Adverse Effect with respect to the
Company. Except as set forth in Section 3.01(k)(iv) of the Disclosure Schedule,
none of the Third Party Leases grant any options or other rights to the tenant
thereunder to purchase any of the Owned Real Property or Leased Real Property.
(iv) Development Agreements. Section 3.01(k)(v) of the Disclosure Schedule
sets forth a true and complete list of all agreements (including any amendments
thereto; as amended, the "Development Agreements") pursuant to which (i) any
third party has been given the right (exclusive or otherwise) to develop any
real property for the Company, any of its subsidiaries or any Venture or (ii)
the Company, any of its subsidiaries or any Venture has agreed to develop,
construct or occupy in the future (whether by lease or other occupancy
agreement) any real property. Except as set forth in Section 3.01(k)(v) of
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the Disclosure Schedule, each of the Development Agreements is in full force and
effect and in each case free from defaults and events which with the passage of
time would constitute a default thereunder.
(v) Permits. Each of the Company, its subsidiaries and the Ventures has all
permits (including, without limitation, any and all beer, wine and/or liquor
licenses) necessary to own or operate its Owned Real Property and Leased Real
Property, and no such permits will be required, as a result of the Merger or the
other transactions contemplated hereby, to be issued after the Closing in order
to permit the Company following the Merger to continue to own or operate such
Properties, other than any such permits which are ministerial in nature or the
absence of which would not have a Material Adverse Effect with respect to the
Company.
(vi) Violations/Condemnation. Except as set forth in Section 3.01(k)(vi) of
the Disclosure Schedule, neither the Company, its subsidiaries nor any Venture
has received, with respect to any Owned Real Property or Leased Real Property,
any written notice of default or any written notice of noncompliance with
respect to applicable state, federal and local laws and regulations relating to
zoning, building, fire, use restriction or safety or health codes which have not
been remedied in all respects which could have a Material Adverse Effect. There
is no pending or to the knowledge of the Company, its subsidiaries or any
Venture, threatened condemnation or other governmental taking of any of the
Owned Real Property or Leased Real Property.
(l) Environmental Matters. Except as disclosed in Section 3.01(l) of the
Disclosure Schedule, which disclosed items of non-compliance could not,
individually or in the aggregate, reasonably be expected to have a Material
Adverse Effect with respect to the Company, (i) the Company and its subsidiaries
hold and formerly held, and, to the best knowledge of the Company, are, and have
been, in compliance with, all Environmental Permits, and the Company and its
subsidiaries are, and have been, otherwise in compliance with all applicable
Environmental Laws and there are no circumstances that might prevent or
interfere with such compliance in the future;
(ii) None of the Company or its subsidiaries has received any Environmental
Claim, and none of the Company or its subsidiaries is aware after reasonable
inquiry, of any threatened material Environmental Claim or of any circumstances,
conditions or events that could reasonably be expected to give rise to a
material Environmental Claim, against the Company or any of its subsidiaries;
(iii) None of the Company or its subsidiaries has entered into or agreed to
any consent decree, order or agreement under any Environmental Law, and none of
the Company or its subsidiaries is subject to any material judgment, decree,
order or other material requirement relating to compliance with any
Environmental Law or to investigation, cleanup, remediation or removal of
regulated substances under any Environmental Law;
(iv) To the best knowledge of the Company, there are no (A) underground
storage tanks, (B) polychlorinated biphenyls, (C) asbestos or
asbestos-containing materials, (D) urea-formaldehyde insulation, (E) sumps, (F)
surface impoundments, (G) landfills, (H) sewers or septic systems or (I)
Hazardous Materials present at any facility currently or formerly owned, leased,
operated or otherwise used by the Company or any of its subsidiaries that could
reasonably be expected to give rise to liability of the Company or any of its
subsidiaries under any Environmental Laws;
(v) There are no past (including, without limitation, with respect to assets
or businesses formerly owned, leased or operated by the Company or any of its
subsidiaries) or present actions, activities, events, conditions or
circumstances, including without limitation the release, threatened release,
emission, discharge, generation, treatment, storage or disposal of Hazardous
Materials, that could reasonably be expected to give rise to liability of the
Company or any of its subsidiaries under any Environmental Laws or any contract
or agreement;
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(vi) No modification, revocation, reissuance, alteration, transfer, or
amendment of the Environmental Permits, or any review by, or approval of, any
third party of the Environmental Permits is required in connection with the
execution or delivery of this Agreement or the consummation of the transactions
contemplated hereby or the continuation of the business of the Company or its
subsidiaries following such consummation;
(vii) Hazardous Materials have not been generated, transported, treated,
stored, disposed of, released or threatened to be released at, on, from or under
any of the properties or facilities currently or formerly owned, leased or
otherwise used by the Company or any of its subsidiaries, in violation of or in
a manner or to a location that could give rise to liability under any
Environmental Laws;
(viii) to the best knowledge of the Company, the Company and its
subsidiaries have not assumed, contractually or by operation of law, any
liabilities or obligations under any Environmental Laws;
(ix) the Company and its subsidiaries have accrued or otherwise provided, in
accordance with generally accepted accounting principles, for all damages,
liabilities, penalties or costs that they may incur in connection with any claim
pending or threatened against them, or any requirement that is or may be
applicable to them, under any Environmental Laws, and such accrual or other
provision is reflected in the Company's most recent consolidated financial
statements.
(x) For purposes of this Agreement, the following terms shall have the
following meanings:
"Environmental Claim" means any written or oral notice, claim, demand,
action, suit, complaint, proceeding or other communication by any person
alleging liability or potential liability (including without limitation
liability or potential liability for investigatory costs, cleanup costs,
governmental response costs, natural resource damages, property damage,
personal injury, fines or penalties) arising out of, relating to, based on
or resulting from (i) the presence, discharge, emission, release or
threatened release of any Hazardous Materials at any location, whether or
not owned, leased or operated by the Company or any of its subsidiaries or
(ii) circumstances forming the basis of any violation or alleged violation
of any Environmental Law or Environmental Permit or (iii) otherwise relating
to obligations or liabilities under any Environmental Laws.
"Environmental Permits" means all permits, licenses, registrations and
other governmental authorizations required for the Company and the
operations of the Company's and its subsidiaries' facilities and otherwise
to conduct its business under Environmental Laws. "Environmental Laws" means
all applicable federal, state and local statutes, rules, regulations,
ordinances, orders, decrees and common law relating in any manner to
contamination, pollution or protection of human health or the environment,
including without limitation the Comprehensive Environmental Response,
Compensation and Liability Act, the Solid Waste Disposal Act, the Clean Air
Act, the Clean Water Act, the Toxic Substances Control Act, the Occupational
Safety and Health Act, the Emergency Planning and Community-Right-to-Know
Act, the Safe Drinking Water Act, all as amended, and similar state laws.
"Environmental Laws" means all applicable federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common law
relating in any manner to contamination, pollution or protection of human
health or the environment, including without limitation the Comprehensive
Environmental Response, Compensation and Liability Act, the Solid Waste
Disposal Act, the Clean Air Act, the Clean Water Act, the Toxic Substances
Control Act, the Occupational Safety and Health Act, the Emergency Planning
and Community-Right-to-Know Act, the Safe Drinking Water Act, all as
amended, and similar state laws.
"Hazardous Materials" means all hazardous or toxic substances, wastes,
materials or chemicals, petroleum (including crude oil or any fraction
thereof) and petroleum products, asbestos and asbestos-containing materials,
pollutants, contaminants and all other materials, substances and
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forces, including but not limited to electromagnetic fields, regulated
pursuant to, or that could form the basis of liability under, any
Environmental Law.
(m) Material Contract Defaults. Neither the Company nor any of its
subsidiaries is, or has received any notice or has any knowledge that any other
party is, in default in any respect under any material contract, agreement,
commitment, arrangement, lease, policy or other instrument to which it or any of
its subsidiaries is a party or by which it or any such subsidiary is bound
("Material Contracts"), except for those defaults which could not reasonably be
expected, either individually or in the aggregate, to have a Material Adverse
Effect with respect to the Company; and there has not occurred any event that
with the lapse of time or the giving of notice or both would constitute such a
material default.
(n) Brokers. No broker, investment banker, financial advisor or other
person, other than The Robinson-Humphrey Company, Inc., the fees and expenses of
which will be paid by the Company (pursuant to a fee agreement, a copy of which
has been provided to Newco), is entitled to any broker's, finder's, financial
advisor's or other similar fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by or on behalf of
the Company.
(o) Opinion of Financial Advisor. The Company has received the opinion of
The Robinson-Humphrey Company, Inc. dated the date of this Agreement, to the
effect that the consideration to be received in the Merger by the Company's
stockholders is fair to the holders of the Company Common Stock from a financial
point of view, a signed copy of which opinion has been delivered to Newco.
(p) Board Recommendation. The Board of Directors of the Company, at a
meeting duly called and held, has by unanimous vote of those directors present
(who constituted 100% of the directors then in office) (i) determined that this
Agreement and the transactions contemplated hereby, including the Merger, and
the Option Agreement and the Stockholders Agreement and the transactions
contemplated thereby, taken together, are fair to and in the best interests of
the stockholders of the Company, (ii) determined, in accordance with Section
10-2B-6.40 of the ABCA, that the transactions contemplated by this Agreement are
in compliance with Section 10-2B-6.40 of the ABCA and (iii) resolved to
recommend that the holders of the shares of Company Common Stock approve this
Agreement and the transactions contemplated herein, including the Merger.
(q) Required Company Vote. The Company Stockholder Approval, being the
affirmative vote of two-thirds of the shares of the Company Common Stock, is the
only vote of the holders of any class or series of the Company's securities
necessary to approve this Agreement, the Merger and the other transactions
contemplated hereby. There is no vote of the holders of any class or series of
the Company's securities necessary to approve the Option Agreement or the
Stockholders Agreement.
(r) State Takeover Statutes. No state takeover statute or similar statute or
regulation of the State of Alabama (and, to the knowledge of the Company after
due inquiry, of any other state or jurisdiction) applies or purports to apply to
this Agreement, the Merger, the Option Agreement, the Stockholders Agreement or
any of the other transactions contemplated hereby or thereby. No provision of
the articles of organization, by-laws or other governing instruments of the
Company or any of its subsidiaries would, directly or indirectly, restrict or
impair the ability of Newco or its affiliates to vote, or otherwise to exercise
the rights of a stockholder with respect to, securities of the Company and its
subsidiaries that may be acquired or controlled by Newco or its affiliates or
permit any stockholder to acquire securities of the Company on a basis not
available to Newco in the event that Newco were to acquire securities of the
Company, and neither the Company nor any of its subsidiaries has any rights
plan, preferred stock or similar arrangement which have any of the
aforementioned consequences.
(s) Trade names. (i) The Company or its subsidiaries (A) except as set forth
in Section 3.01(s) of the Disclosure Schedule, owns (in each case, free and
clear of any Liens) all rights to all trade names
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(other than "Piggly Wiggly" used by the Company and each of its subsidiaries,
including, without limitation, the exclusive right to use the names "Bruno's",
"Food World", "Food Max", and "Food Fair" and any variations thereof used by the
Company or its subsidiaries, in each case in the states in which the stores to
which such names relate are located, (B) the Company possesses a valid,
subsisting and enforceable exclusive license to use the name "Piggly Wiggly" in
the states in which the stores to which such name relates are located and (C)
the Company owns (free and clear of any Liens) all rights to the name "Food Max"
in the United States irrespective of store location. Except as disclosed in
Section 3.01(s) of the Disclosure Schedule, no other person has a United States
trademark registration in effect, or to the best knowledge of the Company, a
United States trademark application pending, in respect of any of such trade
names. To the best knowledge of the Company, except as disclosed in Section
3.01(s) of the Disclosure Schedule, no other person has the right to use any
such trade names in any of the following states: Alabama, Arkansas, Florida,
Georgia, Louisiana, Mississippi, North Carolina, South Carolina and Tennessee.
To the best knowledge of the Company, except as disclosed in Section 3.01(s) of
the Disclosure Schedule, (i) the use of trade names by the Company and its
subsidiaries does not infringe on the rights of any person, (ii) no person is
infringing on any right of the Company or any of its subsidiaries with respect
to any of the Company's trade names, (iii) there is no decree, undertaking or
agreement limiting the scope of the Company's right to use any of its trade
names and (iv) the Company has not granted any license to any person for the use
of the Company's trade names.
(t) Senior Notes Make-Whole Amount. The Make-Whole Amount (as defined in the
Note Purchase Agreement) in respect of the Senior Notes to be paid in connection
with any offer to prepay the Senior Notes upon a Change in Control (as defined
in the Note Purchase Agreement) equals zero.
SECTION 3.02. Representations and Warranties of Newco. Newco represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Newco is duly organized,
validly existing and in good standing under the laws of the jurisdiction in
which it is incorporated and has the requisite corporate power and authority to
carry on its business as now being conducted. Newco is duly qualified or
licensed to do business and is in good standing in each jurisdiction in which
the nature of its business or the ownership or leasing of its properties makes
such qualification or licensing necessary, other than in such jurisdictions
where the failure to be so qualified or licensed (individually or in the
aggregate) would not have a material adverse effect with respect to Newco. Newco
has delivered to the Company complete and correct copies of its certificate of
incorporation (or other organizational documents) and by-laws.
(b) Subsidiaries. Newco has no direct or indirect subsidiaries.
(c) Capital Structure. The authorized capital stock of Newco consists of
1,000 shares of common stock, par value $.01 per share, all of which have been
validly issued, are fully paid and nonassessable and are owned by Parent, free
and clear of any Lien.
(d) Authority; Noncontravention. Newco has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated by this Agreement. The execution and delivery of this Agreement by
Newco and the consummation by Newco of the transactions contemplated by this
Agreement have been duly authorized by all necessary corporate action on the
part of Newco. This Agreement has been duly executed and delivered by and
constitutes a valid and binding obligation of Newco, enforceable against Newco
in accordance with its terms. The execution and delivery of this Agreement do
not, and the consummation of the transactions contemplated by this Agreement and
compliance with the provisions of this Agreement will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of or "put" right with respect to any obligation or
to
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loss of a material benefit under, or result in the creation of any Lien upon any
of the properties or assets of Newco under, (i) the certificate of incorporation
or by-laws of Newco, (ii) any loan or credit agreement, note, bond, mortgage,
indenture, lease or other agreement, instrument, permit, concession, franchise
or license applicable to Newco or its properties or assets or (iii) subject to
the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule, regulation
or arbitration award applicable to Newco or its properties or assets, other
than, in the case of clauses (ii) and (iii), any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually or in the
aggregate could not have a material adverse effect with respect to Newco or
could not prevent, hinder or materially delay the ability of Newco to consummate
the transactions contemplated by this Agreement. No consent, approval, order or
authorization of, or registration, declaration or filing with, or notice to, any
Governmental Entity is required by or with respect to Newco in connection with
the execution and delivery of this Agreement by Newco or the consummation by
Newco of any of the transactions contemplated by this Agreement, except for (i)
the filing of a premerger notification and report form under the HSR Act, (ii)
the filing with the SEC of (y) the Proxy Statement and the Form S-4 and (z) such
reports under the Exchange Act as may be required in connection with this
Agreement, the Option Agreement, the Stockholders Agreement and the transactions
contemplated hereby and thereby, (iii) the filing of the Articles of Merger with
the Secretary of State of the State of Alabama and appropriate documents with
the relevant authorities of other states in which the Company is qualified to do
business and (iv) such other consents, approvals, orders, authorizations,
registrations, declarations, filings or notices as may be required under the
"takeover" or "blue sky" laws of various states.
(e) Brokers. No broker, investment banker, financial advisor or other
person, other than Salomon Brothers Inc, the fees and expenses of which will be
paid by Newco or its affiliates, is entitled to any broker's, finder's,
financial advisor's or other similar fee or commission in connection with the
transactions contemplated by this Agreement based upon arrangements made by or
on behalf of Newco to its affiliates.
(f) Interim Operations of Newco. Newco was formed on April 14, 1995 solely
for the purpose of engaging in the transactions contemplated hereby, has engaged
in no other business activities and has conducted its operations only as
contemplated hereby.
SECTION 3.03. Agreement to Deliver Article III Disclosure Schedules. The
Company hereby agrees to deliver to Newco those sections of the Disclosure
Schedule specifically referenced in this Article III, and the information
described in Section 3.01(i)(2), no later than May 1, 1995, provided that
information to be included in Sections 3.01(a), 3.01(b), 3.01(c) (other than the
list of capitalized leases referenced in clause (iii) of the seventh sentence of
Section 3.01(c)), 3.01(d) and 3.01(e) of the Disclosure Schedule shall be
delivered at or prior to the time of the signing of this Agreement. Any section
of the Disclosure Schedule other than in respect of matters referenced in this
Article III shall be delivered to Newco at or prior to the time of the signing
of this Agreement.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS PRIOR TO MERGER
SECTION 4.01. Conduct of Business of the Company. (a) Conduct of Business by
the Company. During the period from the date of this Agreement to the Effective
Time of the Merger (except as otherwise specifically required by the terms of
this Agreement), the Company shall, and shall cause its subsidiaries to, act and
carry on their respective businesses in the usual, regular and ordinary course
of business consistent with past practice and use its and their respective best
efforts to preserve intact their current business organizations, keep available
the services of their current officers and employees and preserve their
relationships with customers, suppliers, licensors, licensees, advertisers,
distributors and others having business dealings with them to the end that their
goodwill and ongoing businesses shall be
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unimpaired at the Effective Time of the Merger. Without limiting the generality
of the foregoing, during the period from the date of this Agreement to the
Effective Time of the Merger, the Company shall not, and shall not permit any of
its subsidiaries to, without the prior consent of Newco:
(i) (x) declare, set aside or pay any dividends on, or make any other
distributions in respect of, any of its capital stock, other than dividends and
distributions by a direct or indirect wholly owned subsidiary of the Company to
its parent, and except that the Company may declare and pay one regular
quarterly cash dividend in May, 1995 not in excess of $.065 per share of Company
Common Stock (with usual record and payment dates and in accordance with its
past dividend policy), (y) split, combine or reclassify any of its capital stock
or issue or authorize the issuance of any other securities in respect of, in
lieu of or in substitution for shares of its capital stock, or (z) purchase,
redeem or otherwise acquire any shares of capital stock of the Company or any of
its subsidiaries or any other securities thereof or any rights, warrants or
options to acquire any such shares or other securities, except, in the case of
clause (z), for the acquisition of shares of Company Common Stock from holders
of Company Stock Options in full or partial payment of the exercise price
payable by such holder upon exercise of Company Stock Options outstanding on the
date of this Agreement;
(ii) authorize for issuance, issue, deliver, sell, pledge or otherwise
encumber any shares of its capital stock or the capital stock of any of its
subsidiaries, any other voting securities or any securities convertible into, or
any rights, warrants or options to acquire, any such shares, voting securities
or convertible securities or any other securities or equity equivalents
(including without limitation stock appreciation rights) (other than (x) the
issuance of Company Common Stock upon the exercise of Company Stock Options
outstanding on the date of this Agreement and in accordance with their present
terms and (y) pursuant to the Option (such issuances pursuant to clauses (x) and
(y), together with the acquisitions of shares of Company Common Stock permitted
under clause (i)(z) above, being referred to herein as "Permitted Changes");
(iii) amend its articles of organization, by-laws or other comparable
charter or organizational documents;
(iv) acquire or agree to acquire by merging or consolidating with, or by
purchasing a substantial portion of the stock or assets of, or by any other
manner, any business or any corporation, partnership, joint venture, association
or other business organization or division thereof;
(v) other than as specifically permitted by Section 4.01(a)(v) of the
Disclosure Schedule, sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or assets
other than any such properties or assets the value of which do not exceed
$200,000 individually and $2,000,000 in the aggregate, except sales of inventory
and entering into leases for new store sites, in each case in the ordinary
course of business consistent with past practice;
(vi) (x) enter into any arrangements providing for vendor allowances which
involve or contemplate payments in excess of $100,000 in the aggregate, (y)
incur any indebtedness for borrowed money or guarantee any such indebtedness of
another person, issue or sell any debt securities or warrants or other rights to
acquire any debt securities of the Company or any of its subsidiaries, guarantee
any debt securities of another person, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person or
enter into any arrangement having the economic effect of any of the foregoing,
except for short-term borrowings and for lease obligations, in each case
incurred in the ordinary course of business consistent with past practice, or
(z) make any loans, advances or capital contributions to, or investments in, any
other person, other than to the Company or any direct or indirect wholly owned
subsidiary of the Company;
(vii) acquire or agree to acquire any assets that are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a whole, or
make or agree to make any capital expenditures except capital expenditures
which, individually or in the aggregate, do not exceed the amount budgeted
therefor in the Company's annual capital expenditures budget for 1995 previously
provided to Newco;
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(viii) pay, discharge or satisfy any claims (including claims of
stockholders), liabilities or obligations (absolute, accrued, asserted or
unasserted, contingent or otherwise), except for the payment, discharge or
satisfaction, (x) of liabilities or obligations in the ordinary course of
business consistent with past practice or in accordance with their terms as in
effect on the date hereof or (y) claims settled or compromised to the extent
permitted by Section 4.01(a)(xii), or waive, release, grant, or transfer any
rights of material value or modify or change in any material respect any
existing license, lease, contract or other document, other than in the ordinary
course of business consistent with past practice;
(ix) adopt a plan of complete or partial liquidation or resolutions
providing for or authorizing such a liquidation or a dissolution, merger,
consolidation, restructuring, recapitalization or reorganization;
(x) enter into any new collective bargaining agreement or any successor
collective bargaining agreement to any collective bargaining agreement disclosed
in Section 3.01(h)(ii) of the Disclosure Schedule; provided that with respect to
the successor agreement to the collective bargaining agreement set forth in
Section 4.01(a)(x) of the Disclosure Schedule, the parties shall consult with
each other on an ongoing basis with respect to the negotiation thereof and shall
mutually agree upon the terms thereof (unless such successor agreement shall not
have been entered into on or before September 30, 1995, in which event the
Company shall be entitled to enter into a successor agreement thereto without
the consent of Newco);
(xi) change any material accounting principle used by it;
(xii) settle or compromise any litigation (whether or not commenced prior to
the date of this Agreement) other than settlements or compromises of litigation
where the amount paid (after giving effect to insurance proceeds actually
received) in settlement or compromise does not exceed $300,000, provided that
the aggregate amount paid in connection with the settlement or compromise of all
such litigation matters shall not exceed $1,000,000; or
(xiii) authorize any of, or commit or agree to take any of, the foregoing
actions.
(b) Changes in Employment Arrangements. Neither the Company nor any of its
subsidiaries shall (except as may be required in order to give effect to the
requirements of Section 2.04) adopt or amend (except as may be required by law)
any bonus, profit sharing, compensation, stock option, pension, retirement,
deferred compensation, employment or other employee benefit plan, agreement,
trust, fund or other arrangement (including any Company Plan) for the benefit or
welfare of any employee, director or former director or employee or, other than
increases for individuals (other than officers and directors) in the ordinary
course of business consistent with past practice, increase the compensation or
fringe benefits of any director, employee or former director or employee or pay
any benefit not required by any existing plan, arrangement or agreement;
provided that the Executive Compensation Plan for the fiscal year ending July 1,
1995 may be adjusted to the extent described in Section 4.01(b) of the
Disclosure Schedule or as provided in Section 5.04.
(c) Severance. Neither the Company nor any of its subsidiaries shall grant
any new or modified severance or termination arrangement or increase or
accelerate any benefits payable under its severance or termination pay policies
in effect on the date hereof.
(d) WARN. Neither the Company nor any of its subsidiaries shall effectuate a
"plant closing" or "mass layoff", as those terms are defined in the Worker
Adjustment and Retraining Notification Act of 1988 ("WARN"), affecting in whole
or in part any site of employment, facility, operating unit or employee of the
Company or any subsidiary, without notifying Newco or its affiliates in advance
and without complying with the notice requirements and other provisions of WARN.
(e) Tax Elections. Except in the ordinary course of business and consistent
with past practice, neither the Company nor any of its subsidiaries shall make
any tax election or settle or compromise any federal, state, local or foreign
Tax liability.
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ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.01. Preparation of Form S-4 and Proxy Statement; Stockholder
Meeting.
(a) Promptly following the date of this Agreement, the Company shall prepare
the Proxy Statement, and the Company shall prepare and file with the SEC the
Form S-4, in which the Proxy Statement will be included. The Company shall use
its best efforts as promptly as practicable to have the Form S-4 declared
effective under the Securities Act as promptly as practicable after such filing.
The Company will use its best efforts to cause the Proxy Statement to be mailed
to the Company's stockholders as promptly as practicable after the Form S-4 is
declared effective under the Securities Act. The Company shall also take any
action required to be taken under any applicable state securities laws in
connection with the registration and qualification in connection with the Merger
of Common Stock of the Company following the Merger. The information provided
and to be provided by Newco and the Company, respectively, for use in the Form
S-4 shall, at the time the Form S-4 becomes effective and on the date of the
Stockholders Meeting referred to below, be true and correct in all material
respects and shall not omit to state any material fact required to be stated
therein or necessary in order to make such information not misleading, and the
Company and Newco each agree to correct any information provided by it for use
in the Form S-4 which shall have become false or misleading.
(b) The Company will immediately notify Newco and its affiliates of (i) the
effectiveness of the Form S-4, (ii) the receipt of any comments from the SEC and
(iii) any request by the SEC for any amendment to the Form S-4 or for additional
information. All filings with the SEC, including the Form S-4 and any amendment
thereto, and all mailings to the Company's stockholders in connection with the
Merger, including the Proxy Statement, shall be subject to the prior review,
comment and approval of Newco. No such filing or mailing shall be made without
the prior consent of Newco.
(c) The Company will, as promptly as practicable following the date of this
Agreement and in consultation with Newco, duly call, give notice of, convene and
hold a meeting of its stockholders (the "Stockholders Meeting") for the purpose
of approving this Agreement and the transactions contemplated by this Agreement,
including, without limitation, the incurrence of any indebtedness to be funded
contemporaneous with or after the Closing, to the extent required by Alabama
law. The Company will, through its Board of Directors, recommend to its
stockholders approval of the foregoing matters, as set forth in Section 3.01(p).
Such recommendation, together with a copy of the opinion referred to in Section
3.01(o) shall be included in the Proxy Statement. The Company will use its best
efforts to hold such meetings as soon as practicable after the date hereof.
(d) The Company will cause its transfer agent to make stock transfer records
relating to the Company available to the extent reasonably necessary to
effectuate the intent of this Agreement.
SECTION 5.02. Access to Information; Confidentiality. (a) The Company shall,
and shall cause its subsidiaries, officers, employees, counsel, financial
advisors and other representatives to, afford to Newco and its representatives
and to potential financing sources reasonable access during normal business
hours, in a manner initially coordinated with the chief executive officer of the
Company, and thereafter coordinated with those persons designated by the chief
executive officer, during the period prior to the Effective Time of the Merger
to its properties, books, contracts, commitments, personnel and records and,
during such period, the Company shall, and shall cause its subsidiaries,
officers, employees and representatives to, furnish promptly to Newco (i) a copy
of each report, schedule, registration statement and other document filed by it
during such period pursuant to the requirements of Federal or state securities
laws and (ii) all other information concerning its business, properties,
financial condition, operations and personnel as Newco may from time to time
reasonably request. Newco shall use reasonable efforts to conduct its initial
interviews with personnel of the Company and
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its subsidiaries prior to the Section 7.01(h) Date (as defined herein). Except
as required by law, each of the Company and Newco will hold, and will cause its
respective directors, officers, employees, accountants, counsel, financial
advisors and other representatives and affiliates to hold, any nonpublic
information in confidence to the extent required by, and in accordance with, the
provisions of the letter dated December 20, 1994, between Kohlberg Kravis
Roberts & Co. ("KKR & Co.") and the Company (the "Confidentiality Agreement").
(b) No investigation pursuant to this Section 5.02 shall affect any
representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
SECTION 5.03. Best Efforts. (a) Upon the terms and subject to the conditions
set forth in this Agreement, each of the parties agrees to use its best efforts
to take, or cause to be taken, all actions, and to do, or cause to be done, and
to assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger and the other transactions contemplated by this
Agreement. Newco and the Company will use their best efforts and cooperate with
one another (i) in promptly determining whether any filings are required to be
made or consents, approvals, waivers, licenses (including, without limitation,
all beer, wine and/or liquor licenses), permits or authorizations are required
to be obtained (or, which if not obtained, would result in an event of default,
termination or acceleration of any agreement or any put right under any
agreement) under any applicable law or regulation or from any governmental
authorities or third parties, including parties to loan agreements or other debt
instruments, in connection with the transactions contemplated by this Agreement,
including the Merger, the Option Agreement, and the Stockholders Agreement and
(ii) in promptly making any such filings, in furnishing information required in
connection therewith and in timely seeking to obtain any such consents,
approvals, permits or authorizations.
Newco and the Company shall mutually cooperate in order to facilitate the
achievement of the benefits reasonably anticipated from the Merger.
(b) The Company shall make, subject to the condition that the transactions
contemplated herein and therein actually occur, any undertakings (including
undertakings to make divestitures, provided that such divestitures need not
themselves be made until after the transactions contemplated hereby actually
occur) required in order to comply with the antitrust requirements or laws of
any governmental entity, including the HSR Act, in connection with the
transactions contemplated by this Agreement, the Stockholders Agreement and the
Option Agreement; provided that no such divestiture or undertaking shall be made
unless acceptable to Newco.
(c) The Company shall cooperate with any reasonable requests of Newco or the
SEC related to the recording of the Merger as a recapitalization for financial
reporting purposes, including, without limitation, to assist Newco and its
affiliates with any presentation to the SEC with regard to such recording and to
include appropriate disclosure with regard to such recording in all filings with
the SEC and all mailings to stockholders made in connection with the Merger. In
furtherance of the foregoing, the Company shall provide to Newco for the prior
review of Newco's advisors any description of the transactions contemplated by
this Agreement which is meant to be disseminated.
(d) Each of the parties agrees to cooperate with each other in taking, or
causing to be taken, all actions necessary to delist the Company Common Stock
from NASDAQ, provided that such delisting shall not be effective until after the
Effective Time of the Merger. The parties also acknowledge that it is Newco's
intent that the Common Stock following the Merger will not be quoted on NASDAQ
or listed on any national securities exchange.
(e) The Company agrees to provide, and will cause its subsidiaries and its
and their respective officers and employees to provide, all necessary
cooperation in connection with the arrangement of any financing to be
consummated contemporaneous with or at or after the Closing in respect of the
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transactions contemplated by this Agreement, including without limitation, the
execution and delivery of any commitment letters, underwriting or placement
agreements, pledge and security documents, other definitive financing documents,
or other requested certificates or documents, including a certificate of the
chief financial officer of the Company with respect to solvency matters, as may
be requested by Newco. The parties acknowledge that the payment of any fees by
the Company in connection with any committment letters shall either be subject
to the occurrence of the Closing or shall be applied against (and therefore
shall not exceed) the applicable expense reimbursement limitations set forth in
Section 8.02(a) hereof. In addition, in conjunction with the obtaining of any
such financing, the Company agrees, at the request of Newco, to call for
prepayment or redemption, or to prepay, redeem and/or renegotiate, as the case
may be, any then existing indebtedness of the Company; provided that no such
prepayment or redemption shall themselves actually be made until
contemporaneously with or after the Effective Time of the Merger.
(f) (i) Newco has received the letter set forth in Section 5.03(f) of the
Disclosure Schedule. Newco hereby agrees to use its reasonable best efforts,
subject to normal conditions, to arrange the financing in respect of the
transactions contemplated by this Agreement described in Section 6.02(f) hereof,
including, subject to normal conditions, using its reasonable best efforts (A)
to assist the Company in the negotiation of definitive agreements with respect
thereto and (B) to satisfy all conditions applicable to Newco in such definitive
agreements. Newco will keep the Company informed of the status of its efforts to
arrange such financing, including making reports with respect to significant
developments. In the event Newco is unable to arrange any portion of such
financing in the manner or from the sources originally contemplated, Newco will
use its reasonable best efforts, subject to normal conditions, to arrange any
such portion from alternative sources. Newco will inform the Company within 24
hours of any determination made by Newco that it is unable to arrange such
financing on terms satisfactory to it.
(ii) Subject to the Company having received the proceeds of the financing
described in Section 6.02(f) on terms satisfactory to Newco, Newco at Closing
will be capitalized with an equity contribution of $250 million. Newco will be
under no obligation pursuant to the preceding sentence unless and until the
Company receives the proceeds of the financing described in Section 6.02(f) on
terms satisfactory to Newco. In addition, Newco will be under no obligation
under any circumstances to be capitalized with equity of more than $250 million.
(g) In the event Newco shall so request, the Company hereby agrees to take,
prior to Closing, the actions set forth in Section 5.03(g) of the Disclosure
Schedule.
SECTION 5.04. Benefit Matters. Newco and the Company agree, with the
concurrence of the five executive Employees listed in Section 5.04 of the
Disclosure Schedule, that while it is not anticipated that such listed employees
will be long term employees of the Company following the Merger, such listed
employees shall continue in the employ of the Company following the Merger
during the periods described in this Section 5.04 in order to accomplish in an
orderly fashion the transition of ownership of the Company contemplated by this
Agreement. In connection therewith, if an employee so listed remains in the
employ of the Company until one year following the Effective Time of the Merger
(or such shorter period as may be determined by the board of directors of the
Company following the Merger), such employee shall be entitled to receive, on
the earlier of (i) the thirtieth day after such employee's replacement has
commenced employment and (ii) one year following the Effective Time of the
Merger (the "Date of Payment"), any amounts that would have been payable to him
under the terms of his Employment Continuity Agreement as of the end of the
fiscal year ending on July 1, 1995 if he had been terminated by the Company
without Good Cause (as defined in Section 4 of the Employment Continuity
Agreement) together with the retirement benefit that would have been payable to
him under the terms of Section 8 of the 1994 Employment and Deferred
Compensation Agreement (after giving effect to such amendments to such agreement
as are necessary to change the basis for determining compensation under such
agreement from the calendar year to the Company's fiscal year) (the "1994
Agreement"); provided that in the case of Paul F. Garrison, the Date of Payment
shall be
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the earlier of (i) the thirtieth day after negotiations in respect of the
collective bargaining agreement described in Section 4.01(a)(x) of the
Disclosure Schedule are completed and (ii) one year following the Effective Time
of the Merger; provided further that commencing on the later of the date of the
Closing and July 2, 1995 and continuing during the post-Merger employment period
with respect to each such five employees, each such five employees shall receive
from the Company a monthly salary based on 13 pay periods equal to the total
base salary and bonus to which such employee was entitled for the fiscal year
ended July 1, 1995, divided by 13 (provided that no further bonus or incentive
compensation shall be payable for such periods); and provided, further, that if
such employee shall so request, the aforementioned retirement benefit shall be
paid in a single lump sum in an amount equal to the present value of the payment
stream set forth under Section 2 of the 1994 Agreement. The present value
referred to in the preceding sentence shall be determined by taking the
aggregate amount of the payments that would be due under Section 2 of the 1994
Agreement and reducing such amount by applying a discount rate of 8% per annum
against such amount. The parties hereto anticipate that the one year post-Merger
employment period referenced in this Section would be the maximum duration of
any post-Merger employment period in respect of the five listed employees and
agree that the board of directors of the Company following the Merger and each
such employee may mutually agree on a shorter period.
SECTION 5.05. Indemnification. (a) For six years after the Effective Time of
the Merger, the Company shall indemnify all present and former directors or
officers of the Company and its subsidiaries for acts or omissions occurring
prior to the Effective Time of the Merger to the fullest extent now provided in
their respective articles of organization or by-laws consistent with applicable
law, to the extent such acts or omissions are uninsured (provided, that to the
extent that during any period insurance does not fully indemnify any person
contemplated to be indemnified in accordance with the terms of this Section
5.05, the Company shall indemnify such person in accordance with such terms) and
shall, in connection with defending against any action for which indemnification
is available hereunder and subject to Section 5.05(b) hereof, reimburse such
officers and directors, from time to time upon receipt of sufficient supporting
documentation, for any reasonable costs and expenses reasonably incurred by such
officers and directors; provided that such reimbursement shall be conditioned
upon such officer's or director's agreement promptly to return such amounts to
the Company if a court of competent jurisdiction shall ultimately determine that
indemnification of such officer or director is prohibited by applicable law. The
Company will maintain for a period of not less than six years from the Effective
Time of the Merger, the Company's current directors' and officers' insurance and
indemnification policy to the extent that it provides coverage for events
occurring prior to the Effective Time of the Merger (the "D&O Insurance") for
all persons who are directors and officers of the Company on the date of this
Agreement; provided that the Company shall not be required to spend in excess of
(i) a $500,000 annual premium therefor, in the event the Company in its sole
discretion elects not to continue any arrangement which, in exchange for an
increased premium, reduces the Company's co-payment obligation ("Allocation
Form") or (ii) a $600,000 annual premium therefor, in the event the Company in
its sole discretion elects to continue the Allocation Form; provided further
that if the Company would be required to spend per annum in excess of a $500,000
premium, in the case of clause (i) above, or a $600,000 premium, in the case of
clause (ii) above, to obtain insurance having the maximum available coverage
under the current policy, the Company will be required to spend either $500,000
or $600,000, as the case may be, to maintain or procure insurance coverage
pursuant hereto, subject to availability of such (or similar) coverage.
(b) In furtherance of and not in limitation of the preceding paragraph, the
officers and directors of the Company that are defendants in all litigation
commenced by shareholders of the Company with respect to the Merger and the
other transactions contemplated hereby (the "Subject Litigation"), shall be
entitled to be represented, at the reasonable expense of the Company (to the
extent that insurance does not fully indemnify such person against such
expense), in the Subject Litigation by one counsel which such counsel shall be
selected by a plurality of such director defendants; provided that the
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Company shall not be liable for any settlement effected without its prior
written consent or, prior to the Closing, the consent of Newco, and that a
condition to the indemnification payments provided in paragraph 5.05(a) shall be
that such officer/director defendant not have settled any Subject Litigation
without the consent of the Company and, prior to the Closing, Newco; and
provided further that the Company and Newco shall have no obligation hereunder
to any officer/director defendant when and if a court of competent jurisdiction
shall ultimately determine that indemnification of such officer/director
defendant in the manner contemplated hereby is prohibited by applicable law.
SECTION 5.06. Public Announcements. Neither Newco, on the one hand, nor the
Company, on the other hand, will issue any press release or public statement
with respect to the transactions contemplated by this Agreement, the Option
Agreement and the Stockholders Agreement, including the Merger, without the
other party's prior consent, except as may be required by applicable law, court
process or by obligations pursuant to any listing agreement with NASDAQ. In
addition to the foregoing, Newco and the Company will consult with each other
before issuing, and provide each other the opportunity to review and comment
upon, any such press release or other public statements with respect to such
transactions. The parties agree that the initial press release or releases to be
issued with respect to the transactions contemplated by this Agreement shall be
mutually agreed upon prior to the issuance thereof.
SECTION 5.07. Affiliates. Prior to the Closing Date, the Company shall
deliver to Newco a letter identifying all persons who are, at the time this
Agreement is submitted for approval to the stockholders of the Company,
"affiliates" of the Company for purposes of Rule 145 under the Securities Act.
The Company shall use its reasonable best efforts to cause each such person to
deliver to Newco on or prior to the Closing Date a written agreement
substantially in the form attached as Exhibit B hereto.
SECTION 5.08. No Solicitation. Neither the Company nor any of its
subsidiaries shall (whether directly or indirectly through advisors, agents or
other intermediaries), nor shall the Company or any of its subsidiaries
authorize or permit any of its or their officers, directors, agents,
representatives, advisors or subsidiaries to (a) solicit, initiate or take any
action knowingly to facilitate the submission of inquiries, proposals or offers
from any person relating to any acquisition or purchase of a substantial amount
of assets of the Company or any of its Significant Subsidiaries or of over 20%
of any class of equity securities of the Company or any of its subsidiaries or
any tender offer (including a self tender offer) or exchange offer that if
consummated would result in any Person beneficially owning 20% or more of any
class of equity securities of the Company or any of its subsidiaries, or any
merger, consolidation, business combination, sale of substantially all assets,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries other than the transactions contemplated by
this Agreement, the Option Agreement and the Stockholders Agreement or any other
transaction the consummation of which would or could reasonably be expected to
impede, interfere with, prevent or materially delay the Merger or which would or
could reasonably be expected to materially dilute the benefits to Newco of the
transactions contemplated hereby (collectively, "Transaction Proposals") or
agree to or endorse any Transaction Proposal, or (b) enter into or participate
in any discussions or negotiations regarding any of the foregoing, or furnish to
any other person any information with respect to its business, properties or
assets or any of the foregoing, or otherwise cooperate in any way with, or
assist or participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing; provided, however, that the
foregoing shall not prohibit the Company from (i) furnishing information
pursuant to an appropriate confidentiality letter (provided for informational
purposes only to Newco) concerning the Company and its businesses, properties or
assets to a third party who has made a Transaction Proposal, (ii) engaging in
discussions or negotiations with such a third party who has made a Transaction
Proposal, (iii) following receipt of a Transaction Proposal, taking and
disclosing to its stockholders a position contemplated by Rule 14e-2(a) under
the Exchange Act or otherwise making disclosure to its stockholders, (iv)
following receipt of a Transaction Proposal, failing to make or withdrawing or
modifying its recommendation referred to in
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Section 3.01(p), and/or (v) taking any non-appealable, final action ordered to
be taken by the Company by any court of competent jurisdiction but in each case
referred to in the foregoing clauses (i) through (v) only to the extent that the
Board of Directors of the Company shall have concluded in good faith on the
basis of advice from outside counsel that such action is required to prevent the
Board of Directors of the Company from breaching its fiduciary duties to the
stockholders of the Company under Alabama law; provided, further, that the Board
of Directors of the Company shall not take any of the foregoing actions referred
to in clauses (i) through (iv) until after reasonable notice to Newco with
respect to such action and that such Board of Directors shall, to the extent it
may do so without breaching such fiduciary duties, continue to advise Newco
after taking such action and, in addition, if the Board of Directors of the
Company receives a Transaction Proposal, then the Company shall promptly inform
Newco of the terms and conditions of such proposal and the identity of the
person making it. The Company will immediately cease and cause to be terminated
any existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
SECTION 5.09. Resignation of Directors. Prior to the Effective Time of the
Merger, the Company shall deliver to Newco evidence satisfactory to Newco of the
resignation of all directors of the Company (other than Ronald G. Bruno),
effective at the Effective Time of the Merger.
SECTION 5.10. Certain Agreements. Neither the Company nor any subsidiary of
the Company will waive or fail to enforce any provision of any confidentiality
or standstill or similar agreement to which it is a party without the prior
written consent of Newco.
SECTION 5.11. Stop Transfer. The Company acknowledges and agrees to be bound
by and comply with the provisions of the Stockholders Agreement as if a party
thereto with respect to transfers of record ownership of shares of Company
Common Stock, and agrees to notify the transfer agent for any shares of Company
Common Stock or voting rights certificates and provide such documentation and do
such other things as may be necessary to effectuate the provisions of such
agreement. In the event that the Option is exercised prior to any termination of
the Merger Agreement, the Company shall take such actions as may be reasonably
necessary so that Newco (or its designee) shall, subject to applicable law, be
entitled at the stockholders meeting called to vote on the Merger and the Merger
Agreement to vote the shares of Company Common Stock acquired pursuant to the
Option Agreement (including, with respect to such stockholders meeting,
adjourning such meeting, resetting the record date of such meeting and/or
resetting the date of such meeting).
SECTION 5.12. Golf Tournament. With respect to the "Bruno's Memorial
Classic" Senior PGA Golf Tournament conducted in Birmingham, Alabama by the
Bruno's Memorial Classic Foundation (the "Golf Tournament"), it is agreed and
understood that the Company shall, for the 1995 and 1996 Golf Tournaments,
continue to provide economic and organizational support, at the same aggregate
level and in the same manner, taken as a whole, to the Golf Tournament as has
been provided to the Golf Tournament by the Company over the prior three years,
including, without limitation, aid in the solicitation and recruiting of
participation of vendors and suppliers as sponsors and Pro-Am participants by
providing display space in food stores to vendors and suppliers without cost to
the Golf Tournament and by assisting the Golf Tournament in communicating with
those vendors and suppliers. The Company represents that it has fully and
accurately described to Newco the aggregate level and manner of economic and
organizational support provided to the Golf Tournaments by the Company over the
prior three years.
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ARTICLE VI
CONDITIONS PRECEDENT
SECTION 6.01. Conditions to Each Party's Obligation To Effect the
Merger. The respective obligation of each party to effect the Merger is subject
to the satisfaction or waiver on or prior to the Closing Date of the following
conditions:
(a) Company Stockholder Approval. The Company Stockholder Approval shall
have been obtained.
(b) HSR Act. The waiting period (and any extension thereof) applicable to
the Merger under the HSR Act shall have been terminated or shall have expired.
(c) No Injunctions or Restraints. No temporary restraining order,
preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal restraint or prohibition preventing the
consummation of the Merger shall be in effect; provided, however, that the
parties hereto shall use their best efforts to have any such injunction, order,
restraint or prohibition vacated.
(d) Form S-4. The Form S-4 shall have become effective under the Securities
Act and shall not be the subject of any stop order or proceedings seeking a stop
order, and any material "blue sky" and other state securities laws applicable to
the registration and qualification of the Common Stock of the Company following
the Merger shall have been complied with.
SECTION 6.02. Conditions to Obligations of Newco. The obligations of Newco
to effect the Merger are further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
the Company set forth in this Agreement shall be true and correct in all
material respects in each case as of the date of this Agreement and as of the
Closing Date as though made on and as of the Closing Date. Newco shall have
received a certificate signed on behalf of the Company by the chief executive
officer and the chief financial officer of the Company to the effect set forth
in this paragraph.
(b) Performance of Obligations of the Company. The Company shall have
performed the obligations required to be performed by it under this Agreement at
or prior to the Closing Date (except for such failures to perform as have not
had or could not reasonably be expected, either individually or in the
aggregate, to have a Material Adverse Effect with respect to the Company or
adversely affect the ability of the Company to consummate the transactions
herein contemplated or perform its obligations hereunder).
(c) Consents, etc. Newco shall have received evidence, in form and substance
reasonably satisfactory to it, that such licenses (including, without
limitation, the continued availability of all beer, wine and/or liquor
licenses), permits, consents, approvals, authorizations, qualifications and
orders of governmental authorities and other third parties as are necessary in
connection with the transactions contemplated hereby have been obtained, except
such licenses, permits, consents, approvals, authorizations, qualifications and
orders which are not, individually or in the aggregate, material to Newco or the
Company or the failure of which to have received would not (as compared to the
situation in which such license, permit, consent, approval, authorization,
qualification or order had been obtained) materially dilute the aggregate
benefits to Newco of the transactions reasonably contemplated hereby.
(d) No Litigation. There shall not be pending or threatened by any
Governmental Entity any suit, action or proceeding (or by any other person any
suit, action or proceeding which has a reasonable
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likelihood of success), (i) challenging or seeking to restrain or prohibit the
consummation of the Merger or any of the other transactions contemplated by this
Agreement or the Stockholders Agreement or seeking to obtain from Parent, Newco
or any of their affiliates any damages that are material to any such party, (ii)
seeking to prohibit or limit the ownership or operation by the Company, Parent
or any of their respective subsidiaries of any material portion of the business
or assets of the Company or any of its subsidiaries, to dispose of or hold
separate any material portion of the business or assets of the Company or any of
its subsidiaries, as a result of the Merger or any of the other transactions
contemplated by this Agreement or the Stockholders Agreement, (iii) seeking to
impose limitations on the ability of Parent or Newco (or any designee of Newco
pursuant to the Option Agreement) to acquire or hold, or exercise full rights of
ownership of, any shares of Company Common Stock, including, without limitation,
the right to vote the Company Common Stock on all matters properly presented to
the stockholders of the Company or (iv) seeking to prohibit Parent or any of its
subsidiaries from effectively controlling in any material respect the business
or operations of the Company or its subsidiaries.
(e) Affiliate Letters. Newco shall have received the agreements referred to
in Section 5.07.
(f) Financing. The Company shall have received the proceeds of financing on
terms satisfactory to Newco in an amount sufficient to consummate the
transactions contemplated by this Agreement, including, without limitation (i)
to pay, with respect to all shares of Company Common Stock in the Merger, the
Cash Election Price pursuant to Section 2.01(c)(ii) (subject to Section 2.03),
(ii) to refinance the outstanding indebtedness of the Company, including,
without limitation, the Senior Notes, the Credit Agreement and any other debt to
be refinanced, (iii) to pay any fees and expenses in connection with the
transactions contemplated by this Agreement or the financing thereof and (iv) to
provide for the working capital needs of the Company following the Merger,
including, without limitation, letters of credit.
SECTION 6.03. Conditions to Obligation of the Company. The obligation of the
Company to effect the Merger is further subject to the following conditions:
(a) Representations and Warranties. The representations and warranties of
Newco set forth in this Agreement shall be true and correct in all material
respects, in each case as of the date of this Agreement and as of the Closing
Date as though made on and as of the Closing Date. The Company shall have
received a certificate signed on behalf of Newco by an authorized officer of
Newco to the effect set forth in this paragraph.
(b) Performance of Obligations of Newco. Newco shall have performed the
obligations required to be performed by them under this Agreement at or prior to
the Closing Date (except for such failures to perform as have not had or could
not reasonably be expected, either individually or in the aggregate, to have a
Material Adverse Effect with respect to Newco or adversely affect the ability of
Newco to consummate the transactions herein contemplated or perform its
obligations hereunder).
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ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.01. Termination. This Agreement may be terminated and abandoned at
any time prior to the Effective Time of the Merger, whether before or after
approval of matters presented in connection with the Merger by the stockholders
of the Company:
(a) by mutual written consent of Newco and the Company; or
(b) by either Newco or the Company if any Governmental Entity shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the Merger and such order,
decree, ruling or other action shall have become final and nonappealable; or
(c) by either Newco or the Company if the Merger shall not have been
consummated on or before October 31, 1995 (other than due to the failure of the
party seeking to terminate this Agreement to perform its obligations under this
Agreement required to be performed at or prior to the Effective Time of the
Merger); or
(d) by Newco, if any required approval of the stockholders of the Company
shall not have been obtained by reason of the failure to obtain the required
vote upon a vote held at a duly held meeting of stockholders or at any
adjournment thereof; provided, however, that unless Newco shall otherwise notify
the Company within two weeks after such failure to obtain the required vote,
this Agreement shall automtically terminate without any further action by any of
the parties hereto; or
(e) by Newco, if the Company shall have (1) withdrawn, modified or amended
in any respect adverse to Newco its approval or recommendation of this Agreement
or any of the transactions contemplated herein, (2) failed as soon as
practicable to mail the Proxy Statement to its stockholders or failed to include
in such statement such recommendation, (3) recommended any Transaction Proposal
from a person other than Newco or any of its affiliates or (4) resolved to do
any of the foregoing; or
(f) by Newco, if (i) the Company shall have exercised a right specified in
the first proviso to Section 5.08 with respect to any Transaction Proposal and
shall, directly or through agents or representatives, continue discussions with
any third party concerning such Transaction Proposal for more than 10 business
days after the date of receipt of such Transaction Proposal; (ii) taken any
action described in clause (v) of the first proviso to Section 5.08; or (iii)
(1) a Transaction Proposal that is publicly disclosed shall have been commenced,
publicly proposed or communicated to the Company which contains a proposal as to
price (without regard to the specificity of such price proposal) and (2) the
Company shall not have rejected such proposal within 10 business days of its
receipt or the date its existence first becomes publicly disclosed, if sooner;
or
(g) by the Company, if the Company exercises, pursuant to Section 5.08, the
right specified in clause (iv) of the first proviso to Section 5.08; or
(h) by Newco, on or before the close of the business on the later of (x) May
8, 1995 and (y) the tenth calendar day after all information to be included in
the Disclosure Schedule has been delivered to Newco (the later of such dates,
the "Section 7.01(h) Date"), if Newco and its affiliates shall not be satisfied
in its sole discretion with the results of its due diligence investigation of
the Company and its subsidiaries. The parties hereby agree and acknowledge that
neither any such investigation nor any failure by Newco to exercise its right of
termination pursuant to this paragraph (h) shall (i) diminish in any way or
otherwise affect the rights afforded to it pursuant to Section 5.02 or (ii)
affect in any way any representations or warranties of the Company herein
contained or the conditions to the obligations of the parties hereto.
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SECTION 7.02. Effect of Termination. In the event of termination of this
Agreement by either the Company or Newco as provided in Section 7.01, this
Agreement shall forthwith become void and have no effect, without any liability
or obligation on the part of Newco or the Company, other than the provisions of
Section 3.01(n), the last sentence of Section 5.02(a), the second sentence of
Section 5.11, this Section 7.02, Section 8.02 and Section 8.07. Nothing
contained in this Section shall relieve any party for any breach of the
representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 7.03. Amendment. This Agreement may be amended by the parties at any
time before or after any required approval of matters presented in connection
with the Merger by the stockholders of the Company; provided, however, that
after any such approval, there shall be made no amendment that by law requires
further approval by such stockholders without the further approval of such
stockholders. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties.
SECTION 7.04. Extension; Waiver. At any time prior to the Effective Time of
the Merger, the parties may (a) extend the time for the performance of any of
the obligations or other acts of the other parties, (b) waive any inaccuracies
in the representations and warranties contained in this Agreement or in any
document delivered pursuant to this Agreement or (c) subject to the proviso of
Section 7.03, waive compliance with any of the agreements or conditions
contained in this Agreement. Any agreement on the part of a party to any such
extension or waiver shall be valid only if set forth in an instrument in writing
signed on behalf of such party. The failure of any party to this Agreement to
assert any of its rights under this Agreement or otherwise shall not constitute
a waiver of such rights.
SECTION 7.05. Procedure for Termination, Amendment, Extension or Waiver. A
termination of this Agreement pursuant to Section 7.01, an amendment of this
Agreement pursuant to Section 7.03 or an extension or waiver pursuant to Section
7.04 shall, in order to be effective, require in the case of Newco or the
Company, action by its Board of Directors or the duly authorized designee of its
Board of Directors.
ARTICLE VIII
GENERAL PROVISIONS
SECTION 8.01. Nonsurvival of Representations and Warranties. None of the
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time of the Merger and
all such representations and warranties will be extinguished on consummation of
the Merger and neither the Company nor any officer, director or employee or
shareholder shall be under any liability whatsoever with respect to any such
representation or warranty after such time. This Section 8.01 shall not limit
any covenant or agreement of the parties which by its terms contemplates
performance after the Effective Time of the Merger.
SECTION 8.02. Fees and Expenses. (a) In addition to any other amounts which
may be payable or become payable pursuant to any other paragraph of this Section
8.02, the Company shall (provided that (i) Newco is not then in material breach
of its obligations under this Agreement and (ii) Newco has not exercised its
right of termination pursuant to Section 7.01(h) hereof), promptly, but in no
event later than one business day after the termination of this Agreement (or
from time to time after Closing), reimburse KKR & Co. for all out-of-pocket
expenses and fees (including, without limitation, fees payable to all banks,
investment banking firms and other financial institutions, and their respective
agents and counsel, and all fees of counsel, accountants, financial printers,
experts and consultants to Newco and its affiliates), whether incurred prior to,
on or after the date hereof, in connection with the Merger and the consummation
of all transactions contemplated by this Agreement, the Option
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Agreement and the Stockholders Agreement and the financing thereof; provided
that, except as set forth in the next succeeding proviso or with respect to any
reimbursement following the Closing, in no event shall the Company be required
to pay in excess of an aggregate of $3 million pursuant to this paragraph (a);
and provided further that in the event a fee is payable to KKR & Co. pursuant to
Section 8.02(b) hereof, the Company shall be required to pay expenses pursuant
to this paragraph (a) up to a maximum of $12.5 million.
(b) (i) If this Agreement shall have been terminated in accordance with its
terms and either of the following shall have occurred prior to such termination:
(A) any corporation (including the Company or any of its subsidiaries or
affiliates), partnership, person, other entity or "group" (as referred to in
Section 13(d)(3) of the Exchange Act) other than Newco or any of its affiliates
(collectively, "Persons") shall have become the beneficial owner of more than
20% of the outstanding shares of Company Common Stock; or (B)(x) any Person
(other than Newco or any of its affiliates) shall have made, or proposed,
communicated or disclosed in a manner which is or otherwise becomes public
(including being known by stockholders of the Company owning of record or
beneficially in the aggregate 5% or more of the outstanding shares of Company
Common Stock) a bona fide intention to make a Transaction Proposal (including by
making such a Transaction Proposal) and (y) on or prior to October 31, 1996, the
Company either consummates with a Person a transaction the proposal of which
would otherwise qualify as a Transaction Proposal under Section 5.08 or enters
into an agreement with a Person with respect to a transaction the proposal of
which would otherwise qualify as a Transaction Proposal under Section 5.08
(whether or not such Person is the Person referred to in clause (x) above); or
(ii) if this Agreement is terminated pursuant to Section 7.01(e), Section
7.01(f) or Section 7.01(g); then the Company shall, (1) in the case of clause
(b)(i)(A) and (b)(ii) above, promptly, but in no event later than one business
day after the termination of this Agreement and (2) in the case of clause
(b)(i)(B) above, promptly, but in no event later than one business day after an
event specified in subclause (y) thereof shall have occurred, pay KKR & Co. a
fee of $30 million in cash, which amount shall be payable in same day funds. No
termination of this Agreement at a time when a fee is reasonably expected to be
payable pursuant to this Section 8.02(b) following termination of this Agreement
shall be effective until such fee is paid. Only one fee in the aggregate of $30
million shall be payable pursuant to this Section 8.02(b). No amount payable
pursuant to any of the other provisions of this Section 8.02 shall reduce the
amount of the fee payable pursuant to this paragraph (b).
(c) If the Merger shall be consummated in accordance with this Agreement,
then the Company following the Merger shall pay to KKR & Co., on the Closing
Date, a fee of $15 million in cash, which amount shall be payable in same day
funds. No amount payable pursuant to any of the other provisions of this Section
8.02 shall reduce the amount of the fee payable pursuant to this paragraph (c).
(d) In addition to the other provisions of this Section 8.02, in the event a
fee is or becomes payable pursuant to Section 8.02(b) hereof, the Company agrees
promptly, but in no event later than two business days following written notice
thereof, together with related bills or receipts, to reimburse KKR & Co. and
Newco for all reasonable out-of-pocket costs, fees and expenses, including,
without limitation, the reasonable fees and disbursements of counsel and the
expenses of litigation, incurred in connection with collecting the expenses
pursuant to paragraph (a) of this Section and the fee pursuant to paragraph (b)
of this Section, as a result of any breach by the Company of its obligations
under this Section 8.02.
(e) Except as provided otherwise in paragraph (a) above, all costs and
expenses incurred in connection with this Agreement, the Option Agreement and
the Stockholders Agreement and the transactions contemplated hereby and thereby
shall be paid by the party incurring such expenses, except that the Company
shall pay all costs and expenses (i) in connection with printing and mailing the
Proxy Statement and the Form S-4, as well as all SEC filing fees relating to the
transactions contemplated herein and (ii) of obtaining any consents of any third
party.
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SECTION 8.03. Notices. All notices, requests, claims, demands and other
communications under this Agreement shall be in writing and shall be deemed
given if delivered personally or sent by overnight courier (providing proof of
delivery) to the parties at the following addresses (or at such other address
for a party as shall be specified by like notice):
(a) if to Newco, to
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Paul E. Raether
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David J. Sorkin, Esq.
(b) if to the Company, to
Bruno's, Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
Attention: Ronald G. Bruno
with copies to:
Sirote & Permutt
2222 Arlington Avenue South
Birmingham, Alabama 35205
Attention: Richard Cohn, Esq.
SECTION 8.04. Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by, or
is under common control with, such first person;
(b) "knowledge" with respect to the Company means the actual knowledge of
the following officers and employees (as well as any of their successors) of the
Company and its subsidiaries: Ronald G. Bruno, Glenn J. Griffin, Kenneth J.
Bruno, Paul F. Garrison and R. Michael Conley, and, without duplication, the
employees in charge of environmental, tax, labor, employee benefits and real
estate matters or any of the foregoing, in each case after reasonable
investigation and inquiry.
(c) "Material Adverse Change" or "Material Adverse Effect" means, when used
in connection with the Company, any change or effect that either individually or
in the aggregate with all other such changes or effects is materially adverse to
the business, assets, operations, properties, condition (financial or
otherwise), results of operations or prospects of the Company and its
subsidiaries (including the Ventures) taken as a whole;
(d) "person" means an individual, corporation, partnership, joint venture,
association, trust, unincorporated organization or other entity; and
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<PAGE>
(e) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors or
other governing body (or, if there are no such voting interests, 50% or more of
the equity interests of which) is owned directly or indirectly by such first
person.
SECTION 8.05. Interpretation. When a reference is made in this Agreement to
a Section, Exhibit or Schedule, such reference shall be to a Section of, or an
Exhibit or Schedule to, this Agreement unless otherwise indicated. The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. Whenever the words "include", "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation".
SECTION 8.06. Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties.
SECTION 8.07. Entire Agreement; No Third-Party Beneficiaries. This Agreement
and the other agreements referred to herein constitute the entire agreement, and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter of this Agreement. This
Agreement, other than Sections 5.05 and 8.02, is not intended to confer upon any
person other than the parties any rights or remedies.
SECTION 8.08. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF ALABAMA, REGARDLESS OF
THE LAWS THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF
LAWS.
SECTION 8.09. Assignment. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement shall be assigned, in whole or in
part, by operation of law or otherwise by any of the parties without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon, inure to the benefit of, and be enforceable by,
the parties and their respective successors and assigns.
SECTION 8.10. Enforcement. The parties agree that irreparable damage would
occur in the event that any of the provisions of this Agreement were not
performed in accordance with their specific terms or were otherwise breached. It
is accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
IN WITNESS WHEREOF, Newco and the Company have caused this Agreement to be
signed by their respective officers thereunto duly authorized, all as of the
date first written above.
CRIMSON ACQUISITION CORP.
By /s/ JAMES H. GREENE, JR.
...................................
Name: James H. Greene, Jr.
Title: President
Bruno's, Inc.
By /s/ RONALD G. BRUNO
...................................
Name: Ronald G. Bruno
Title: Chairman CEO
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<PAGE>
EXHIBIT A
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
BRUNO'S, INC.
STATE OF ALABAMA
COUNTY OF JEFFERSON
TO THE HONORABLE JUDGE OF PROBATE OF JEFFERSON COUNTY, ALABAMA:
Pursuant to the provisions of Article 10 of Chapter 2B of Title 10 of the
Code of Alabama of 1975 (Sec.10-2B-10.01, et seq.), the undersigned corporation
executes the following Amended and Restated Articles of Incorporation:
FIRST: The name of the corporation is Bruno's, Inc.
SECOND: The Articles of Incorporation of the corporation shall be amended
and restated as set forth below:
1. The name of the Corporation is Bruno's, Inc.
2. The duration of the Corporation is perpetual.
3. The purpose or purposes for which the Corporation is organized are the
transaction of any or all lawful business for which corporations may be
incorporated under the Alabama Business Corporation Act, including, but not
limited to, acquiring, purchasing, investing in or engaging in a business
combination or joint venture with, however any of the foregoing may be
structured, any corporation, partnership, limited liability company or other
entity engaged, in whole or in part, in the manufacturing, marketing,
distribution, provision or sale of clothing, food, pharmaceuticals, consumer
goods and services, or other goods or services; following any such transaction,
to engage in any business theretofore conducted by any business entity which was
party to any such transaction; and to engage in any financing or other
transactions necessary, appropriate or convenient to effect any of the purposes
for which the Corporation is organized.
4. The total number of shares of capital stock that the Corporation is
authorized to issue is 60,000,000 shares of Common Stock, par value $0.01 each.
5. The registered office and registered agent of the Corporation is The
Corporation Company, 60 Commerce Street, Montgomery, AL 36104.
6. (a) The names and addresses of the current individuals who are to serve
as the directors of the Corporation are as follows:
Paul E. Raether
9 West 57th Street
New York, New York 10019
James H. Greene, Jr.
9 West 57th Street
New York, New York 10019
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Nils P. Brous
9 West 57th Street
New York, New York 10019
Such persons shall serve as directors of the Corporation until the first
annual meeting of shareholders of the Corporation and until their successors are
elected and shall qualify.
(b) The number of directors of the Corporation shall consist of not less
than three nor more than fifteen persons, the exact number of persons within
such minimum and maximum limitations being fixed from time to time by the board
of directors of the Corporation pursuant to resolutions adopted by a majority of
the persons constituting the board of directors at the time such resolutions are
adopted. The board of directors shall have the power to fill all vacancies
occurring on the board of directors, including, without limitation, any
vacancies resulting from an increase in the number of directors within the
minimum and maximum limitations on the number of directors of the Corporation
set forth in this Article 6.
7. The name and address of the incorporators are as follows:
Joseph Bruno
729-10th Avenue, West
Birmingham, Alabama
Angelo J. Bruno
1229 Bush Circle
Birmingham, Alabama
Lee J. Bruno
928-5th Place, West
Birmingham, Alabama
Anthony J. Bruno
1606-27th Street, North
Birmingham, Alabama
Sam Bruno
1000-53rd Street, South
Birmingham, Alabma
8. The Board of Directors of the Corporation, acting by majority vote, may
alter, amend or repeal the By-Laws of the Corporation.
9. Every person who is or was a director or an officer of the Corporation
shall be indemnified by the Corporation to the fullest extent allowed by law,
including the indemnification permitted by Section 10-2B-8.58 of the Alabama
Business Corporation Act, against all liabilities and expenses imposed upon or
incurred by that person in connection with any proceeding in which that person
may be made, or threatened to be made, a party, or in which that person may
become involved by reason of that person being or having been a director or an
officer of or of serving or having served in any capacity with any other
enterprise at the request of the Corporation, whether or not that person is a
director or an officer or continues to serve the other enterprise at the time
the liabilities or expenses are imposed or incurred.
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During the pendency of any such proceeding, the Corporation shall, to the
fullest extent permitted by law, promptly advance expenses that are incurred,
from time to time, by a director or an officer in connection with the
proceeding, subject to the receipt by the Corporation of a written affirmation
and a written undertaking as required by law.
10. A director of the Corporation shall not be liable to the Corporation or
its shareholders for money damages for any action taken, or failure to take
action, as a director, except for (i) the amount of a financial benefit received
by such director to which such director is not entitled; (ii) an intentional
infliction of harm by such director on the Corporation or its shareholders;
(iii) a violation of Section 10-2B-8.33 of the Alabama Business Corporation Act
or any successor provision to such section; (iv) an intentional violation by
such director of criminal law; or (v) a breach of such director's duty of
loyalty to the Corporation or its shareholders. If the Alabama Business
Corporation Act, or any successor statute thereto, is hereafter amended to
authorize the further elimination or limitation of the liability of a director
of a corporation, then the liability of a director of the Corporation, in
addition to the limitations on liability provided herein, shall be limited to
the fullest extent permitted by the Alabama Business Corporation Act, as
amended, or any successor statute thereto. Any repeal or modification of this
provision by the shareholders of the Corporation shall be prospective only and
shall not adversely affect any limitation on the liability of a director of the
Corporation existing at the time of such repeal or modification.
11. No shareholder shall have a preemptive right to purchase shares of any
class of capital stock of the Corporation, including treasury shares.
THIRD: The foregoing Amended and Restated Articles of Incorporation were
adopted by the shareholders of the corporation on , 1995, in the
manner prescribed by the Alabama Business Corporation Act.
FOURTH: The Common Stock of the corporation, par value $.01 per share, was
the only voting group entitled to vote on such Amended and Restated Articles of
Incorporation. As of the record date for the meeting of shareholders at which
said amendment was adopted, there were shares of such Common Stock
outstanding, and the holders of such shares were entitled to cast one vote per
share, or an aggregate of votes. There were votes entitled to be cast by
the holders of the Common Stock of the corporation indisputably represented at
the meeting.
FIFTH: The total number of votes cast for the adoption of such Amended and
Restated Articles of Incorporation by the holders of the Common Stock of the
corporation was , and the total number of votes cast against the adoption of
such Amended and Restated Articles of Incorporation by the holders of the Common
Stock of the corporation was , and the number of votes cast for the adoption
of said Amended and Restated Articles of Incorporation was sufficient for
approval of the Amended and Restated Articles of Incorporation by the holders of
the Common Stock of the corporation.
Dated this day of , 1995.
BRUNO'S, INC.
By
___________________________________
(Name of Officer Executing
Document)
Its __________________________________
This instrument prepared by:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017-3954
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EXHIBIT B
FORM OF COMPANY AFFILIATE LETTER
GENTLEMEN:
The undersigned, a holder of shares of Common Stock, par value $.01 per
share ("Company Stock"), of Bruno's, Inc., an Alabama corporation (the
"Company"), is entitled to retain in connection with the merger (the "Merger")
of the Company with Crimson Acquisition Corp., an Alabama corporation,
securities (the "Securities") of the Company. The undersigned acknowledges that
the undersigned may be deemed an "affiliate" of the Company within the meaning
of Rule 145 ("Rule 145") promulgated under the Securities Act of 1933 (the
"Act"), although nothing contained herein should be construed as an admission of
such fact.
If in fact the undersigned were an affiliate under the Act, the
undersigned's ability to sell, assign or transfer the Securities retained by the
undersigned pursuant to the Merger may be restricted unless such transaction is
registered under the Act or an exemption from such registration is available.
The undersigned understands that such exemptions are limited and the undersigned
has obtained advice of counsel as to the nature and conditions of such
exemptions, including information with respect to the applicability to the sale
of such securities of Rules 144 and 145(d) promulgated under the Act.
The undersigned hereby represents to and covenants with the Company that the
undersigned will not sell, assign or transfer any of the Securities retained by
the undersigned pursuant to the Merger except (i) pursuant to an effective
registration statement under the Act, (ii) in conformity with the volume and
other limitations of Rule 145 or (iii) in a transaction which, in the opinion of
independent counsel reasonably satisfactory to the Company or as described in a
"no-action" or interpretive letter from the Staff of the Securities and Exchange
Commission (the "SEC"), is not required to be registered under the Act.
In the event of a sale or other disposition by the undersigned of Securities
pursuant to Rule 145, the undersigned will supply the Company with evidence of
compliance with such Rule, in the form of a letter in the form of Annex I
hereto. The undersigned understands that the Company may instruct its transfer
agent to withhold the transfer of any Securities disposed of by the undersigned,
but that upon receipt of such evidence of compliance the transfer agent shall
effectuate the transfer of the Securities sold as indicated in the letter.
The undersigned acknowledges and agrees that appropriate legends will be
placed on certificates representing Securities retained by the undersigned in
the Merger or held by a transferee thereof, which legends will be removed by
delivery of substitute certificates upon receipt of an opinion in form and
substance reasonably satisfactory to the Company from independent counsel
reasonably satisfactory to the Company to the effect that such legends are no
longer required for purposes of the Act.
The undersigned acknowledges that (i) the undersigned has carefully read
this letter and understands the requirements hereof and the limitations imposed
upon the distribution, sale, transfer or other disposition of Securities and
(ii) the receipt by Newco of this letter is an inducement and a condition to
Newco's obligations to consummate the Merger.
Very truly yours,
Dated:
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ANNEX I
TO EXHIBIT B
[NAME] [DATE]
On the undersigned sold the securities ("Securities") of the Company
(the "Company") described below in the space provided for that purpose (the
"Securities"). The Securities were retained by the undersigned in connection
with the merger of Crimson Acquisition Corp. with and into Bruno's, Inc.
Based upon the most recent report or statement filed by the Company with the
Securities and Exchange Commission, the Securities sold by the undersigned were
within the prescribed limitations set forth in paragraph (e) of Rule 144
promulgated under the Securities Act of 1933, as amended (the "Act").
The undersigned hereby represents that the Securities were sold in "brokers'
transactions" within the meaning of Section 4(4) of the Act or in transactions
directly with a "market maker" as that term is defined in Section 3(a)(38) of
the Securities Exchange Act of 1934, as amended. The undersigned further
represents that the undersigned has not solicited or arranged for the
solicitation of orders to buy the Securities, and that the undersigned has not
made any payment in connection with the offer or sale of the Securities to any
person other than to the broker who executed the order in respect of such sale.
Very truly yours,
[Space to be provided for description of securities]
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ANNEX II
STOCKHOLDERS AGREEMENT
AGREEMENT dated as of April 20, 1995 by and among CRIMSON ACQUISITION CORP.,
an Alabama corporation ("Newco"), and the other parties signatory hereto (each a
"Stockholder").
RECITALS
Concurrently herewith, Newco, a wholly-owned subsidiary of BI Associates
L.P., a Delaware limited partnership ("Parent"), and Bruno's, Inc., an Alabama
corporation (the "Company"), are entering into an Agreement and Plan of Merger
of even date herewith (as such agreement may be amended from time to time, the
"Merger Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) pursuant to which Newco will be
merged with and into the Company (the "Merger"), whereby each share of common
stock, par value $.01 per share, of the Company ("Company Common Stock") issued
and outstanding immediately prior to the Effective Time of the Merger will be
converted into either (A) the right to retain at the election of the holder
thereof and subject to the terms of the Merger Agreement, common stock, par
value $.01 per share, of the Company or (B) the right to receive cash, other
than (i) shares of Company Common Stock owned, directly or indirectly, by the
Company or any subsidiary of the Company or by Parent, Newco or any other
subsidiary of Parent and (ii) Dissenting Shares.
Pursuant to a purchase by Newco, contemporaneous with the execution of this
Agreement, of ten shares of Company Common Stock from Ronald G. Bruno at a price
equal to the Cash Election Price (as defined in the Merger Agreement), Newco is
a stockholder of the Company.
As a condition to Newco's willingness to enter into the Merger Agreement,
Newco requires that each Stockholder enter into, and each such Stockholder has
agreed to enter into, this Agreement.
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties agree as follows:
1. Representations and Warranties. Each Stockholder hereby severally
represents and warrants to Newco as follows:
(a) Ownership of Shares. (1) Such Stockholder is either (i) the record
holder and beneficial owner of, (ii) trustee of a trust that is the record
holder or beneficial owner of, and whose beneficiaries are the beneficial
owners (such trustee, a "Trustee") of, (iii) executor of an estate that is
the record holder or beneficial owner of, and whose beneficiaries are the
beneficial owners (such executor, an "Executor") of, (iv) director of a
foundation that is the record holder (such director, a "Foundation
Director") of, or (v) the beneficial owner but not the record holder of, the
number of shares of Company Common Stock as set forth opposite such
Stockholder's name on Section 1 of the disclosure schedule (the
"Stockholders Agreement Disclosure Schedule") (the "Existing Shares", and
together with any shares of Company Common Stock acquired by such
Stockholder in any such capacities after the date hereof and prior to the
termination hereof, whether upon exercise of options, conversion of
convertible securities, purchase, exchange or otherwise, the "Shares").
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(2) On the date hereof, the Existing Shares set forth opposite such
Stockholder's name on Section 1 of the Stockholders Agreement Disclosure
Schedule constitute all of the shares of Company Common Stock owned of
record or beneficially by such Stockholder.
(3) Such Stockholder has sole power of disposition with respect to all
of the Existing Shares set forth opposite such Stockholder's name on Section
1 of the Stockholders Agreement Disclosure Schedule and sole voting power
with respect to the matters set forth in Section 2 hereof and sole power to
demand dissenter's or appraisal rights, in each case with respect to all of
the Existing Shares set forth opposite such Stockholder's name on Section 2
of the Stockholders Agreement Disclosure Schedule, with no restrictions on
such rights, subject to applicable federal securities laws and the terms of
this Agreement.
(b) Power; Binding Agreement. Such Stockholder has the legal capacity,
power and authority to enter into and perform all of such Stockholder's
obligations under this Agreement. The execution, delivery and performance of
this Agreement by such Stockholder will not violate any other agreement to
which such Stockholder is a party or by which such Stockholder is bound
including, without limitation, any trust agreement, will, testamentary
document, voting agreement, stockholders agreement, voting trust or other
agreement. This Agreement has been duly and validly executed and delivered
by such Stockholder and constitutes a valid and binding agreement of such
Stockholder, enforceable against such Stockholder in accordance with its
terms. There is no beneficiary of or holder of a voting trust certificate or
other interest of any trust of which a Stockholder is Trustee, any estate in
respect of which a Stockholder is an Executor or any Foundation of which a
Stockholder is a Foundation Director whose consent is required for the
execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby. If such Stockholder is married and such
Stockholder's Shares constitute community property, this Agreement has been
duly authorized, executed and delivered by, and constitutes a valid and
binding agreement of, such Stockholder's spouse, enforceable against such
person in accordance with its terms.
(c) No Conflicts. Except for filings under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended, if applicable, (A) no filing
with, and no permit, authorization, consent or approval of, any state or
federal public body or authority is necessary for the execution of this
Agreement by such Stockholder and the consummation by such Stockholder of
the transactions contemplated hereby and (B) neither the execution and
delivery of this Agreement by such Stockholder nor the consummation by such
Stockholder of the transactions contemplated hereby nor compliance by such
Stockholder with any of the provisions hereof shall (x) conflict with or
result in any breach of any applicable trust, estate, foundation or other
organizational documents applicable to such Stockholder, (y) result in a
violation or breach of, or constitute (with or without notice or lapse of
time or both) a default (or give rise to any third party right of
termination, cancellation, material modification or acceleration) under any
of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, commitment, arrangement, understanding,
agreement or other instrument or obligation of any kind to which such
Stockholder is a party or by which such Stockholder or any of such
Stockholder's properties or assets may be bound or (z) violate any order,
writ, injunction, decree, judgment, order, statute, rule or regulation
applicable to such Stockholder or any of such Stockholder's properties or
assets.
(d) Such Stockholder's Shares and the certificates representing such
Shares are now and at all times during the term hereof will be held by such
Stockholder, or by a nominee or custodian for the benefit of such
Stockholder, free and clear of all liens, claims, security interests,
proxies, voting trusts or agreements, understandings or arrangements or any
other encumbrances whatsoever, (i) except for any such encumbrances or
proxies arising hereunder and (ii) in the case of Ann Bruno, Alan Bruno,
David Bruno and Suzanne Bowness, except for the proxy granted by each such
Stockholder to Ronald G. Bruno (it being acknowledged by Ronald G. Bruno and
each such
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Stockholder that so long as this Agreement is in effect, the agreements of
each such Stockholder hereunder shall, with respect to the subject matter of
this Agreement, override the rights granted to Ronald G. Bruno pursuant to
the proxy in respect of each such Stockholder's Shares).
(e) No broker, investment banker, financial adviser or other person is
entitled to any broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions contemplated hereby based
upon arrangements made by or on behalf of such Stockholder.
(f) Such Stockholder understands and acknowledges that Newco is entering
into the Merger Agreement in reliance upon such Stockholder's execution and
delivery of this Agreement.
2. Agreement to Vote; Proxy.
2.1 Voting. Each Stockholder set forth on Section 2 of the Stockholders
Agreement Disclosure Schedule (each, a "Schedule 2 Stockholder") hereby
severally agrees that, during the time this Agreement is in effect, at any
meeting of the stockholders of the Company, however called, or in connection
with any written consent of the stockholders of the Company, such Stockholder
shall vote (or cause to be voted) the Shares held of record or beneficially by
such Stockholder (i) in favor of the Merger, the execution and delivery by the
Company of the Merger Agreement and the approval of the terms thereof and each
of the other actions contemplated by the Merger Agreement, this Agreement and
the Option Agreement and any actions required in furtherance hereof and thereof;
(ii) against any action or agreement that would result in a breach of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement, this Agreement or the Option Agreement; and
(iii) except as specifically requested in writing by Newco in advance, against
the following actions (other than the Merger and the transactions contemplated
by the Merger Agreement and the Option Agreement): (1) any extraordinary
corporate transaction, such as a merger, consolidation or other business
combination involving the Company or its subsidiaries; (2) a sale, lease or
transfer of a material amount of assets of the Company or its subsidiaries or a
reorganization, recapitalization, dissolution or liquidation of the Company or
its subsidiaries; (3) (a) any change in the majority of the board of directors
of the Company; (b) any material change in the present capitalization of the
Company or any amendment of the Company's Articles of Incorporation; (c) any
other material change in the Company's corporate structure or business; or (d)
any other action which, is intended, or could reasonably be expected, to impede,
interfere with, delay, postpone, discourage or materially adversely affect the
Merger or the transactions contemplated by the Merger Agreement, this Agreement
or the Option Agreement or the contemplated economic benefits of any of the
foregoing. Such Stockholder shall not enter into any agreement or understanding
with any person or entity prior to the Termination Date (as defined in Section
7) to vote or give instructions after the Termination Date in any manner
inconsistent with clauses (i), (ii) or (iii) of the preceding sentence.
2.2 PROXY. EACH SCHEDULE 2 STOCKHOLDER HEREBY GRANTS TO, AND APPOINTS, NEWCO
AND JAMES H. GREENE, JR. OF NEWCO, NILS P. BROUS OF NEWCO, IN THEIR RESPECTIVE
CAPACITIES AS OFFICERS OF NEWCO, AND ANY INDIVIDUAL WHO SHALL HEREAFTER SUCCEED
TO ANY SUCH OFFICE OF NEWCO, AND ANY OTHER DESIGNEE OF NEWCO, EACH OF THEM
INDIVIDUALLY, SUCH STOCKHOLDER'S IRREVOCABLE (UNTIL THE TERMINATION DATE) PROXY
AND ATTORNEY-IN-FACT (WITH FULL POWER OF SUBSTITUTION) TO VOTE THE SHARES AS
INDICATED IN SECTION 2.1 ABOVE. EACH SCHEDULE 2 STOCKHOLDER INTENDS THIS PROXY
TO BE IRREVOCABLE (UNTIL THE TERMINATION DATE) AND COUPLED WITH AN INTEREST AND
WILL TAKE SUCH FURTHER ACTION AND EXECUTE SUCH OTHER INSTRUMENTS AS MAY BE
NECESSARY TO EFFECTUATE THE INTENT OF THIS PROXY AND HEREBY REVOKES ANY PROXY
PREVIOUSLY GRANTED BY SUCH STOCKHOLDER WITH RESPECT TO SUCH STOCKHOLDER'S SHARES
(EXCEPT FOR
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THE PROXY DESCRIBED IN CLAUSE (ii) OF SECTION 1(d) HEREOF, SUBJECT TO THE
PROVISIONS OF SUCH CLAUSE (ii) OF SECTION 1(d) HEREOF).
2.3 Stockholder Capacity. No person executing this Agreement who is, or
becomes during the term hereof, a director of the Company makes any agreement or
understanding herein in his or her capacity as such director, and the agreements
set forth herein shall in no way restrict any director in the exercise of his or
her fiduciary duties as a director of the Company. Each Stockholder signs solely
in his or her capacity as the record and beneficial owner of such Stockholder's
Shares or as the trustee of a trust, executor of an estate or director of a
foundation, whose beneficiaries are the beneficial owners of, such Stockholder's
Shares.
3. Certain Covenants of Stockholders. Except in accordance with the terms of
this Agreement, each Stockholder hereby severally covenants and agrees as
follows:
3.1 No Solicitation. No Stockholder shall, directly or indirectly (including
through advisors, agents or other intermediaries), solicit (including by way of
furnishing information) or respond to any inquiries or the making of any
proposal by any person or entity (other than Parent, Newco or any affiliate
thereof) with respect to the Company that constitutes or could reasonably be
expected to lead to a Transaction Proposal. If any Stockholder receives any such
inquiry or proposal, then such Stockholder shall promptly inform Newco of the
terms and conditions, if any, of such inquiry or proposal and the identity of
the person making it. Each Stockholder will immediately cease and cause to be
terminated any existing activities, discussions or negotiations with any parties
conducted heretofore with respect to any of the foregoing.
3.2 Restriction on Transfer, Proxies and Non-Interference; Restriction on
Withdrawal. No Stockholder shall, directly or indirectly: (i) except pursuant to
the terms of the Merger Agreement and this Agreement, and except for gifts to
family members who either are signatories to this Agreement or who, upon such
gift, become signatories to this Agreement, offer for sale, sell, transfer,
tender, pledge, encumber, assign or otherwise dispose of, enforce or permit the
execution of the provisions of any redemption agreement with the Company or
enter into any contract, option or other arrangement or understanding with
respect to or consent to the offer for sale, sale, transfer, tender, pledge,
encumbrance, assignment or other disposition of, any or all of such
Stockholder's Shares or any interest therein; (ii) except as contemplated
hereby, grant any proxies or powers of attorney, deposit any Shares into a
voting trust or enter into a voting agreement with respect to any Shares; or
(iii) take any action that would make any representation or warranty of such
Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such Stockholder from performing such Stockholder's
obligations under this Agreement.
3.3 Waiver of Appraisal and Dissenter's Rights. Each Stockholder hereby
waives any rights of appraisal or rights to dissent from the Merger that such
Stockholder may have. Each Trustee, Executor and Foundation Director represents
that no beneficiary who is a beneficial owner of Shares under any trust, estate
or foundation for which such Stockholder acts as Trustee, Executor or Foundation
Director, respectively, has any right of appraisal or right to dissent from the
Merger which has not been so waived.
3.4 No Termination or Closure of Trusts, Foundations and Estates. Unless, in
connection therewith, the Shares held by any trust, foundation or estate which
are presently subject to the terms of this Agreement are transferred upon
termination to one or more Stockholders and remain subject in all respects to
the terms of this Agreement, or other persons or entities who upon receipt of
such Shares become signatories to this Agreement, the Stockholders who are
Trustees, Executors or Foundation Directors shall not take any action to
terminate, close or liquidate any such trust, estate or foundation and shall
take all steps necessary to maintain the existence thereof at least until the
first to occur of (i) the Effective Time of the Merger and (ii) the Termination
Date.
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3.5 Continued Service as Director. Ronald G. Bruno agrees to serve as a
director of the Company for three years following the Effective Time of the
Merger, subject to the customary right of a director to resign from a board of
directors.
3.6 Stock Redemption Agreements. (a) Following the Effective Time of the
Merger, the signatories hereto agree promptly to terminate any agreements with
the Company pursuant to which the Company may be obligated to repurchase their
Shares of Company Common Stock, including without limitation, the stock
redemption agreement between the Company and Joseph S. Bruno. Pending such
termination, no such agreement shall be enforced.
(b) The signatories hereto agree to cooperate in order to transfer any
life insurance policy of the Company designed to provide funds for the
purchase of Company Common Stock pursuant to any such stock redemption
agreement to the relevant Stockholder on a basis which is mutually
satisfactory to the signatories hereto, the Company and Newco, including,
without limitation, the life insurance policy carried by the Company in
connection with the stock redemption agreement with Joseph S. Bruno.
3.7 Covenant Not to Compete. Each Stockholder agrees that for the period
ending five years after the Closing Date, such Stockholder will not, directly or
indirectly, own, manage, operate, control or participate in the ownership,
management, operation or control of, or be connected in any manner with, any
business which shall be engaged in the retail selling of food or other products
under the names Bruno's, Food World, Food Max, Food Fair or Piggly Wiggly, or
under any other name which uses any of the foregoing names as a component or
which is (or includes a component which is) confusingly similar to any such
names (the "trade names"), in any of the following states: Alabama, Arkansas,
Florida, Georgia, Kentucky, Louisiana, Mississippi, North Carolina, South
Carolina or Tennessee (the "relevant states"). In addition to the foregoing,
each of Ronald G. Bruno, Kenneth J. Bruno and Joe Bruno agrees that for the
period ending five years after the Closing Date, such Stockholder will not,
directly or indirectly, own, manage, operate, control or participate in the
ownership, management, operation or control of, or be connected in any manner
with, any business which shall be engaged in the retail selling of food,
beverages or other related products under any name, including, without
limitation, the trade names, in any of the relevant states. In the event
that this covenant not to compete is held by any court of competent
jurisdiction to be unenforceable because it is too extensive in scope or
time or territory, it shall be deemed to be and shall be amended without
any further act by the parties hereto to conform to the scope and period
of time and geographical area which would permit it to be enforced.
If this covenant is breached or threatened to be breached, each Stockholder
expressly consents that, in addition to any other remedy Newco may have, Newco
shall be entitled to apply for and receive injunctive relief in order to prevent
the continuation of any existing breach or the occurrence of any threatened
breach.
4. Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary or
desirable to consummate and make effective, in the most expeditious manner
practicable, the transactions contemplated by this Agreement.
5. Certain Events. Each Stockholder agrees that this Agreement and the
obligations hereunder shall attach to such Stockholder's Shares and shall be
binding upon any person or entity to which legal or beneficial ownership of such
Shares shall pass, whether by operation of law or otherwise, including without
limitation such Stockholder's heirs, guardians, administrators or successors or
as a result of any divorce.
6. Stop Transfer. (a) Each Stockholder agrees with, and covenants to, Newco
that such Stockholder shall not request that the Company register the transfer
(book-entry or otherwise) of any certificate or uncertificated interest
representing any of such Stockholder's Shares, unless such transfer
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is made in compliance with this Agreement. Each Stockholder agrees, with respect
to any Shares in certificated form, that such Stockholder will tender to the
Company, within ten business days after the date hereof, the certificates
representing such Shares and the Company will inscribe upon such certificates
the following legend: "The shares of Common Stock, par value $.01 per share, of
Bruno's, Inc. (the "Company") represented by this certificate are subject to a
Stockholders Agreement dated as of April 20, 1995, and may not be sold or
otherwise transferred, except in accordance therewith. Copies of such Agreement
may be obtained at the principal executive offices of the Company." Each
Stockholder agrees that within ten business days after the date hereof, such
Stockholder will no longer hold any Shares, whether certificated or
uncertificated, in "street name" or in the name of any nominee. Pursuant to the
Merger Agreement, the Company has agreed to notify the transfer agent for any
Shares in uncertificated form of the provisions set forth in this Section 6 and
has agreed to, and each Stockholder agrees to, provide such documentation and to
do such other things as may be required to give effect to such provisions with
respect to such uncertificated Shares.
(b) Each Stockholder who is an "affiliate" of the Company for purposes
of Rule 145 under the Securities Act of 1933, as amended, hereby agrees to
deliver to Newco, on or prior to the Closing Date (as defined in the Merger
Agreement) a written agreement substantially in the form attached as Exhibit
B to the Merger Agreement.
7. Termination. Other than Sections 3.5, 3.6 and 3.7 hereof, which shall
survive the Effective Time of the Merger, the covenants and agreements contained
herein with respect to the Company Common Stock shall terminate on the first to
occur of (a) the Effective Time of the Merger and (b) the date the Merger
Agreement is terminated in accordance with its terms (the "Termination Date").
8. Miscellaneous.
8.1 Entire Agreement; Assignment. This Agreement (i) constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) shall not
be assigned by operation of law or otherwise without the prior written consent
of the other party, provided that Newco may assign, in its sole discretion, its
rights and obligations hereunder to any direct or indirect wholly-owned
subsidiary of Parent, but no such assignment shall relieve Newco of its
obligations hereunder if such assignee does not perform such obligations.
8.2 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto; provided that Section 1 of the Stockholders
Agreement Disclosure Schedule may be supplemented by Newco by adding the name
and other relevant information concerning any stockholder of the Company who
agrees to be bound by the terms of this Agreement without the agreement of any
other party hereto, and thereafter such added stockholder shall be treated as a
"Stockholder" for all purposes of this Agreement.
8.3 Notices. All notices, requests, claims, demands and other communications
hereunder shall be in writing and shall be given (and shall be deemed to have
been duly received if so given) by hand delivery, telegram, telex or telecopy,
or by mail (registered or certified mail, postage prepaid, return
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<PAGE>
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to Stockholder: c/o Bruno's, Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
Attn: Ronald G. Bruno
copy to: Sirote & Permutt
2222 Arlington Avenue South
Birmingham, Alabama 35205
Attn: Richard Cohn, Esq.
If to Newco: c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attn: Paul E. Raether
copy to: Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attn: David J. Sorkin, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
8.5 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
8.6 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original, but both of which
shall constitute one and the same Agreement.
8.7 Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
8.8 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
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8.9 Definitions; Construction. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same
holder, securities Beneficially Owned by a Person shall include securities
Beneficially Owned by all other Persons with whom such Person would
constitute a "group" as described in Section 13(d)(3) of the Exchange Act.
(b) "Person" shall mean an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity.
(c) In the event of a stock dividend or distribution, or any change in
the Company Common Stock by reason of any stock dividend, split-up,
recapitalization, combination, exchange of shares or the like, the term
"Shares" shall be deemed to refer to and include the Shares as well as all
such stock dividends and distributions and any shares into which or for
which any or all of the Shares may be changed or exchanged.
IN WITNESS WHEREOF, Newco and each Stockholder have caused this Agreement to
be duly executed as of the day and year first above written.
CRIMSON ACQUISITION CORP.
BY: /S/ JAMES H. GREENE, JR.
..................................
Name: James H. Greene, Jr.
Title: President
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ANNEX III
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT dated as of April 20, 1995* by and between Crimson
Acquisition Corp., an Alabama corporation ("Newco"), and Bruno's, Inc., an
Alabama corporation (the "Company").
RECITALS
Concurrently herewith, Newco, a wholly owned subsidiary of BI Associates
L.P., a Delaware limited partnership ("Parent"), and the Company are entering
into an Agreement and Plan of Merger of even date herewith (the "Merger
Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement) pursuant to which Newco will be
merged with and into the Company (the "Merger"), whereby each share of common
stock, par value $.01 per share, of the Company ("Company Common Stock") issued
and outstanding immediately prior to the Effective Time of the Merger will be
converted into either (A) the right to retain, at the election of the holder
thereof and subject to the terms of the Merger Agreement, common stock, par
value $.01 per share, of the Company or (B) the right to receive cash, other
than (i) shares of Company Common Stock owned, directly or indirectly, by the
Company or any subsidiary of the Company or by Parent, Newco or any other
subsidiary of Parent and (ii) Dissenting Shares.
As a condition to Newco's willingness to enter into the Merger Agreement,
Newco requires that the Company agree, and believing it to be in the best
interests of the Company, the Company has agreed, among other things, to grant
to Newco the Option (as hereinafter defined).
AGREEMENT
To implement the foregoing and in consideration of the mutual agreements
contained herein, the parties agree as follows:
1. Option to Purchase Shares.
1.1 Grant of Option. In consideration for the payment of $100 and other good
and valuable consideration the receipt and sufficiency of which are hereby
acknowledged, the Company hereby grants to Newco (or its designee) an
irrevocable option to purchase up to 15,541,570 newly issued shares of Company
Common Stock (the "Shares"), on the terms and subject to the conditions set
forth herein (the "Option"). At the time that the Option is exercised, Newco
shall be entitled to designate whether any or all of the Shares shall be newly
issued Shares or, if the Company then holds shares of Company Common Stock in
treasury, Shares of treasury stock of the Company.
1.2 Exercise of Option.
(a) The Option may be exercised by Newco (or its designee), in whole or
in part, at any time, or from time to time, during the period beginning on
the date hereof and ending on the Expiration Date. As used herein, the term
"Expiration Date" means the first to occur of (i) the Effective Time of the
Merger and (ii) April 30, 1996. In the event that the Option is exercised
prior to the termination of the Merger Agreement, the Company shall take
such actions as may be reasonably necessary so that Newco (or its designee)
shall, subject to applicable law, be entitled at the stockholders meeting to
vote on the Merger and the Merger Agreement to vote the shares of
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* Revised to reflect the First Amendment dated as of May 18, 1995.
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<PAGE>
Company Common Stock issued upon exercise of such Option (including, with
respect to such stockholders meeting, adjourning such meeting, resetting the
record date of such meeting and/or resetting the date of such meeting).
(b) In the event Newco (or its designee) wishes to exercise the Option,
Newco shall send a written notice to the Company of its intention to so
exercise the Option (a "Notice"), specifying the number of Shares to be
purchased, and the place, time and date of the closing of such purchase (the
"Closing Date" or the "Closing"), which date shall not be less than two
business days nor more than ten business days from the date on which a
Notice is delivered; provided, that the respective obligations of each party
hereto to consummate the purchase of the Shares at the Closing shall be
subject to the satisfaction or waiver on or prior to the Closing Date of the
following conditions: (i) such purchase would not otherwise violate or cause
the violation of, any applicable law or regulations (including, the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act") and (ii) no statute, rule, regulation, decree, order or injunction
shall have been promulgated, enacted, entered into, or enforced by any
governmental agency or authority or court which prohibits delivery of the
Shares, whether temporary, preliminary or permanent (provided, however, that
the parties hereto shall use their best efforts to have any such order,
decree or injunction vacated or reversed); and provided further, that the
obligation of Newco to purchase the Shares at the Closing is further subject
to the condition that such purchase would not otherwise violate or cause the
violation of the rules of the NASDAQ National Market System ("NASDAQ"). In
the event the Closing is delayed as a result of the immediately preceding
sentence, the Closing Date shall be within five business days following the
cessation of such violation, potential violation, statute, rule, regulation,
decree, order or injunction, as the case may be; provided that,
notwithstanding any prior notice of intention to exercise the Option, Newco
shall not be obligated to purchase any Shares pursuant hereto after the date
six months following the date of such Notice.
(c) At any Closing, the Company shall deliver to Newco (or its designee)
all of the Shares to be purchased by delivery of a certificate or
certificates evidencing such Shares in the denominations designated by Newco
in the Notice.
1.3 Payments. (a) In the event Newco exercises the Option, Newco (or, at
Newco's option, its designee) shall, at any Closing, deliver to the Company an
amount in cash equal to $12.00 (the "Exercise Price") multiplied by the number
of Shares purchased pursuant to this Section 1, which will be paid by wire
transfer of same day funds to an account designated by the Company.
(b) In the event that a payment is actually made to KKR & Co. pursuant
to Section 8.02(b) of the Merger Agreement, the Exercise Price shall be
adjusted upward (retroactively if necessary and net of any taxes or
brokerage fees paid or payable in connection with the sale, tender or
exchange of shares by Newco or its designee) to reflect (i) with respect to
any Shares actually sold, tendered, or exchanged in any third party
transaction that triggered a payment pursuant to Section 8.02(b) of the
Merger Agreement, the price per share (subject to the calculation principles
set forth in the next succeeding sentence) actually paid to holders of
Company Common Stock as a result of any such third party transaction and
(ii) with respect to any Shares sold, tendered or exchanged to another party
or parties by Newco (or its designee) other than pursuant to such third
party transaction, the price per share (subject to the calculation
principles set forth in clause (i) of the next succeeding sentence) actually
paid to Newco (or its designee) by such other party or parties in
consideration for such Shares (the "Exercise Price Adjustment"). To the
extent the "price per share" referred to in the preceding sentence consists
in whole or in part of non-cash consideration, it shall be based on the
trading market value thereof or if there is no trading market for such
consideration, the fair market value as determined by an independent
investment banker jointly selected by Newco and the Company. The Exercise
Price Adjustment shall be payable with respect to shares actually sold,
tendered or exchanged promptly following receipt of the consideration
therefor (and, if necessary, the valuation thereof and the good faith
estimation by Newco of
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any taxes which it expects to be payable), and Newco agrees promptly, but in
no event later than two business days following such event, to notify the
Company of the receipt of such consideration.
1.4 Listing of Shares. In the event Newco exercises the Option herein
granted and receives newly issued Shares in connection therewith, the Company
shall use its best efforts to take, or cause to be taken, all actions necessary
to list the Shares on NASDAQ.
2. Representations and Warranties.
2.1 Representations and Warranties of Newco. Newco hereby represents and
warrants to the Company as follows:
(a) Organization, Standing and Corporate Power. Newco is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Alabama and has the requisite corporate power and authority to
carry on its business as now being conducted. Newco is duly qualified or
licensed to do business and is in good standing in each jurisdiction in
which the nature of its business or the ownership or leasing of its
properties makes such qualification or licensing necessary, other than in
such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect
on Newco.
(b) Authority; Noncontravention. Newco has all requisite corporate power
and authority to enter into this Agreement and to consummate the
transactions contemplated by this Agreement. The execution and delivery of
this Agreement by Newco and the consummation by Newco of the transactions
contemplated by this Agreement have been duly authorized by all necessary
corporate action on the part of Newco. This Agreement has been duly executed
and delivered by and constitutes a valid and binding obligation of Newco,
enforceable against Newco in accordance with its terms. The execution and
delivery of this Agreement do not, and the consummation of the transactions
contemplated by this Agreement and compliance with the provisions of this
Agreement will not, conflict with, or result in any breach or violation of,
or default (with or without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration of any
obligation or to loss of a material benefit under, or result in the creation
of any Lien upon any of the properties or assets of Newco under, (i) the
certificate of incorporation, or by-laws of Newco, (ii) any loan or credit
agreement, note, bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license applicable to Newco or
their respective properties or assets or (iii) subject to the governmental
filings and other matters referred to in the following sentence, any
judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Newco or their respective properties or assets, other than, in
the case of clauses (ii) and (iii), any such conflicts, breaches,
violations, defaults, rights, losses or Liens that individually or in the
aggregate would not (x) have a material adverse effect on Newco, (y)
materially impair the ability of Newco to perform their respective
obligations under this Agreement or (z) prevent the consummation of any of
the transactions contemplated by this Agreement. No consent, approval, order
or authorization of, or registration, declaration or filing with, or notice
to, any Governmental Entity is required by or with respect to Newco in
connection with the execution and delivery of this Agreement by Newco or the
consummation by Newco, as the case may be, of any of the transactions
contemplated by this Agreement, except for (i) filings under the HSR Act, if
applicable, (ii) the filing with the SEC of such reports under Sections 13
and 16 of the Exchange Act as may be required in connection with this
Agreement and the transactions contemplated by this Agreement and (iii) such
other consents, approvals, orders, authorizations, registrations,
declarations, filings or notices as may be required under the "takeover" or
"blue sky" laws of various states.
(c) Distribution. Any Shares acquired by Newco (or any designee of
Newco) upon exercise of the Option will not be taken with a view to the
public distribution thereof and will not be
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<PAGE>
transferred or otherwise disposed of except in a transaction registered or
exempt from registration under the Securities Act.
2.2 Representations and Warranties of the Company. The Company hereby
represents and warrants to Newco as follows:
(a) Organization, Standing and Corporate Power. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Alabama and has the requisite corporate power and
authority to carry on its business as now being conducted. The Company is
duly qualified or licensed to do business and is in good standing in each
jurisdiction in which the nature of its business or the ownership or leasing
of its properties makes such qualification or licensing necessary, other
than in such jurisdictions where the failure to be so qualified or licensed
(individually or in the aggregate) would not have a material adverse effect
on the Company.
(b) Option Shares. Subject to Section 2.2(c), the Company has taken all
necessary corporate and other action to authorize, and to permit it to
deliver, and at all times from the date hereof until such time as the
obligation to deliver Shares hereunder terminates, will have reserved for
delivery (in the case of Shares of treasury stock) or issuance (in the case
of newly issued Shares), upon exercise of the Option, 15,541,570 shares of
Company Common Stock. All of such Shares are (in the case of Shares of
treasury stock), or shall be (in the case of newly issued Shares), duly
authorized, validly issued, fully paid and nonassessable with no personal
liability attached to the ownership thereof and are approved for listing on
NASDAQ (in the case of Shares of treasury stock). Upon delivery of such
Shares, such Shares shall be free and clear of all claims, Liens,
encumbrances, security interests and charges of any nature whatsoever and
shall not be subject to any preemptive right of any stockholder of the
Company.
(c) Authority; Noncontravention. The Company has the requisite corporate
and other power and authority to enter into this Agreement and to consummate
the transactions contemplated by this Agreement. The execution and delivery
of this Agreement by the Company and the consummation by the Company of the
transactions contemplated by this Agreement have been duly authorized by all
necessary corporate action on the part of the Company. This Agreement has
been duly executed and delivered by the Company and constitutes a valid and
binding obligation of the Company, enforceable against the Company in
accordance with its terms. The execution and delivery of this Agreement does
not, and the consummation of the transactions contemplated by this Agreement
and compliance with the provisions of hereof will not, conflict with, or
result in any breach or violation of, or default (with or without notice or
lapse of time, or both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to loss of a material
benefit under, or result in the creation of any Lien upon any of the
properties or assets of the Company or any of its subsidiaries under, (i)
the Articles of Incorporation, as amended, or By-laws, as amended, of the
Company or the comparable charter or organizational documents of any of its
subsidiaries, (ii) any loan or credit agreement, note, note purchase
agreement, bond, mortgage, indenture, lease or other agreement, instrument,
permit, concession, franchise or license applicable to the Company or any of
its subsidiaries or their respective properties or assets or (iii) subject
to the governmental filings and other matters referred to in the following
sentence, any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or any of its subsidiaries or their
respective properties or assets, other than, in the case of clauses (ii) and
(iii), any such conflicts, breaches, violations, defaults, rights, losses or
Liens that individually or in the aggregate would not (x) have a material
adverse effect on the Company, (y) impair the ability of the Company to
perform its obligations under this Agreement or (z) prevent the consummation
of any of the transactions contemplated by this Agreement. No consent,
approval, order or authorization of, or registration, declaration or filing
with, or notice to, any Governmental Entity, is required by or with respect
to the Company or any of its subsidiaries in connection with
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<PAGE>
the execution and delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated hereby, except
for (i) filings under the HSR Act, if applicable, (ii) the filing with the
SEC of such reports under Sections 13 and 16 of the Exchange Act, as may be
required in connection with this Agreement.
3. Adjustment Upon Changes in Capitalization. In the event of any change in
the number of issued and outstanding shares of Company Common Stock by reason of
any stock dividend, split-up, merger, recapitalization, combination, exchange of
shares, spin-off or other change in the corporate or capital structure of the
Company which could have the effect of diluting or otherwise diminishing Newco's
rights hereunder (including any issuance of Company Common Stock or other equity
security of the Company at a price below the fair value thereof), the number and
kind of Shares or other securities subject to the Option and the Exercise Price
shall be appropriately adjusted so that Newco shall receive upon exercise (or,
if such a change occurs between exercise and Closing, upon Closing) of the
Option the number and kind of shares or other securities or property that Newco
would have received in respect of the Shares that Newco is entitled to purchase
upon exercise of the Option if the Option had been exercised (or the purchase
thereunder had been consummated, as the case may be) immediately prior to such
event. The rights of Newco under this Section shall be in addition to, and shall
in no way limit, its rights against the Company for breach of the Merger
Agreement.
4. Registration of Shares Under the Securities Act. (a) If the Option is
exercised and if Newco (or its designees) shall so request in writing, the
Company shall use its best efforts to effect, from time to time, the
registration under the Securities Act or any successor statute then in effect,
and any applicable state law (a "Demand Registration"), of such number of Shares
owned by Newco (or its designee) as Newco (or its designee) shall request and to
keep such Demand Registration effective for a period of not less than 90 days,
unless, in the written opinion of counsel to the Company, which opinion shall be
delivered to Newco and which shall be satisfactory in form and substance to
Newco and its counsel, such Demand Registration is not required in order to
lawfully sell and distribute such Shares in the manner contemplated by Newco (or
its designee). The Company may delay the filing of a Demand Registration
required hereunder for a single period of up to 90 days if it believes in good
faith that it would be disadvantageous to the Company for such Demand
Registration to be effected at the time requested by Newco (or its designee).
(b) In lieu of effecting any Demand Registration for Newco (or its
designee), the Company may use its best efforts to effect a "shelf"
registration statement on appropriate forms pursuant to Rule 415 under the
Securities Act (or any similar rule that may be adopted) with respect to
such number of Shares owned by Newco (or its designee) as Newco (or its
designee) shall request and to keep such registration continuously effective
(a "Shelf Registration" and, together with any Demand Registration, a
"Registration"). If Newco (or its designee) desires to sell or otherwise
transfer any Shares pursuant to the Shelf Registration, Newco (or its
designee) shall notify the Company of its intention to do so by written
notice received by the Company at least two business days prior to such sale
or transfer. Newco (or its designee) may thereafter effect such sale or
transfer within 15 days of the delivery of such notice unless at least one
business day prior thereto the Company elects to delay such sale or transfer
(for a single period of up to 90 days) as a result of a good faith
determination that it would be disadvantageous to the Company to prepare a
Prospectus or any amendment to the Registration Statement with respect to
the Shelf Registration to permit such sale or transfer.
(c) The Company shall use its best efforts to cause Shares registered
pursuant to a Registration to be designated for listing on the NASDAQ
National Market System or any national securities exchange on which the
Company Common Stock is then listed, subject to official notice of issuance,
which notice shall be given by the Company upon issuance. The out-of-pocket
expenses incurred by the Company and Newco (or its designee) in connection
with any requested Registration pursuant to this Section 4 (including the
registration fee payable to the SEC in connection
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<PAGE>
with such Registration) shall be borne by the Company. The Company shall
have no obligation hereunder after four Registrations pursuant to this
Section 4 have been effected.
5. Public Announcements. The initial press release with respect to the
transactions contemplated hereby shall be mutually satisfactory to the parties
and thereafter, except as may be required by applicable securities laws, court
process or by obligations pursuant to any listing agreement with a securities
exchange, no party shall issue any press release or make any public statements
relating to the transactions contemplated hereby, including the exercise of the
Option, without the consent of the Company on the one hand and Newco on the
other, which consent will not be unreasonably withheld.
6. Best Efforts; Further Assurances. (a) From time to time, at the other
party's request and without further consideration, each party hereto shall
execute and deliver such additional documents and take all such further action
as may be necessary or desirable to consummate the transactions contemplated by
this Agreement, including, without limitation, to vest in Newco (or its
designee) good title to any Shares purchased hereunder.
(b) The Company and Newco shall, as promptly as practicable, file
notification and report forms under the HSR Act with the Federal Trade
Commission (the "FTC") and the Antitrust Division of the Department of
Justice (the "Antitrust Division") and make any other necessary filings with
the applicable Governmental Entities related to the transactions
contemplated by this Agreement and shall use their best efforts to respond
as promptly as practicable to all inquiries received from the FTC or the
Antitrust Division or such other Governmental Entities for additional
information or documentation. The Company shall, subject to the condition
that the transactions contemplated herein actually occur, make any and all
divestitures and undertakings required in order to comply with the antitrust
requirements or laws of any governmental entity, including the HSR Act, in
connection with the transactions contemplated by this Agreement; provided
that no such divestiture or undertaking shall be made unless acceptable to
Newco. The costs and expenses of obtaining and complying with the antitrust
requirements of the FTC, the Antitrust Division or any other Governmental
Entity shall be paid by the Company.
7. Survival of Certain Provisions. The respective representations and
warranties of the Company and Newco contained herein or in any certificates or
other documents delivered at or prior to any Closing shall not be deemed waived
or otherwise affected by any investigation made by the other party hereto, shall
survive the closing of the transactions contemplated hereby for one year, and
the agreements contained herein shall survive the closing of the transactions
contemplated hereby. The Option shall survive any termination of the Merger
Agreement.
8. Miscellaneous.
8.1 Entire Agreement; Assignment. This Agreement (i) constitutes the entire
agreement among the parties with respect to the subject matter hereof and
supersedes all other prior agreements and understandings, both written and oral,
between the parties with respect to the subject matter hereof and (ii) shall not
be assigned by operation of law or otherwise, provided that Newco may assign its
rights and obligations hereunder to Parent or any direct or indirect wholly
owned subsidiary of Parent, but no such assignment shall relieve Newco of its
obligations hereunder if such assignee does not perform such obligations.
Subject to the foregoing, this Agreement will be binding upon, inure to the
benefit of, and be enforceable by the parties hereto and their respective
successors (including any successor in interest by merger, sale of all or
substantially all of the assets or otherwise) and assigns.
8.2 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by the parties hereto.
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<PAGE>
8.3 Notices. All notices, requests, claims, demands and other communications
under this Agreement shall be in writing and shall be deemed given if delivered
personally or sent by overnight courier (providing proof of delivery) to the
parties at the following addresses (or at such other address for a party as
shall be specified by like notice):
(a) if to Newco, to
c/o Kohlberg Kravis Roberts & Co.
9 West 57th Street
New York, New York 10019
Attention: Paul E. Raether
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, NY 10017
Attention: David J. Sorkin, Esq.
(b) if to the Company, to
Bruno's, Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
Attention: Ronald G. Bruno
with copies to:
Sirote & Permutt
2222 Arlington Avenue South
Birmingham, Alabama 35205
Attention: Richard Cohn, Esq.
8.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, regardless of the laws that
might otherwise govern under applicable principles of conflicts of laws thereof.
8.5 Enforcement. The parties agree that irreparable damage would occur in
the event that any of the provisions of this Agreement were not performed in
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement.
8.6 Counterparts. This Agreement may be executed in two counterparts, each
of which shall be deemed to be an original, but both of which shall constitute
one and the same Agreement.
8.7 Descriptive Headings. The descriptive headings used herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
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<PAGE>
8.8 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein. Without limiting the generality of the foregoing, in the event
that the number of Shares issuable upon exercise of the Option is held to be
invalid, illegal or unenforceable for any reason (including as a result of the
failure to obtain any required vote of stockholders to authorize such issuance),
the number of Shares so issuable shall be reduced to that number which could
validly and legally be issued.
8.9 Definitions. For purposes of this Agreement:
(a) an "affiliate" of any person means another person that directly or
indirectly, through one or more intermediaries, controls, is controlled by,
or is under common control with, such first person;
(b) "beneficially own" or "beneficial ownership" with respect to any
securities shall mean having "beneficial ownership" of such securities (as
determined pursuant to Rule 13d-3 under the Exchange Act), including
pursuant to any agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same securities by the same
holder, securities beneficially owned by a person shall include securities
beneficially owned by all other persons with whom such person would
constitute a "group" as described in Section 13(d)(3) of the Exchange Act.
(c) "material adverse effect" means, when used in connection with the
Company, any effect that either individually or in the aggregate with all
other such effects is materially adverse to the business, assets,
properties, condition (financial or otherwise), results of operations or
prospects of the Company and its subsidiaries taken as a whole;
(d) "person" means an individual, corporation, partnership, joint
venture, association, trust, unincorporated organization or other entity;
and
(e) a "subsidiary" of any person means another person, an amount of the
voting securities, other voting ownership or voting partnership interests of
which is sufficient to elect at least a majority of its Board of Directors
or other governing body (or, if there are no such voting interests, 50% or
more of the equity interests of which) is owned directly or indirectly by
such first person.
IN WITNESS WHEREOF, the Company and Newco have caused this Agreement to be
duly executed as of the day and year first above written.
BRUNO'S, INC.
By /s/ RONALD G. BRUNO
...................................
Name: Ronald G. Bruno
Title: Chairman CEO
CRIMSON ACQUISITION CORP.
By /s/ JAMES H. GREENE, JR.
...................................
Name: James H. Greene, Jr.
Title: President
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<PAGE>
ANNEX IV
[ROBINSON-HUMPHREY LETTERHEAD]
May 18, 1995
Board of Directors
Bruno's, Inc.
800 Lakeshore Parkway
Birmingham, Alabama 35211
To the Members of the Board:
We understand that Bruno's, Inc. (the "Company") is considering a proposed
plan of merger between the Company and an affiliate of Kohlberg Kravis Roberts &
Co. ("Newco"). We understand that under this plan of merger, as amended (the
"Proposed Transaction"), all of the issued and outstanding shares of Common
Stock of the Company (the "Common Stock") shall be converted into total merger
consideration of approximately $886 million in cash (representing approximately
94.7% of the total consideration) and approximately 4.17 million shares of
retained Common Stock (representing approximately 5.3% of the total
consideration) (the "Merger Consideration"). We further understand that the
Merger Consideration to be received per share will be approximately $12.00, and
that the actual combination of cash and retained Common Stock to be received for
each share of Common Stock will depend on the election made with respect to each
share and the aggregate elections made with respect to all shares of Common
Stock, as described in detail in the Agreement and Plan of Merger dated April
20, 1995 and the First Amendment to the Agreement and Plan of Merger dated May
18, 1995 between Newco and the Company (collectively, the "Agreements"). We
further understand that the minimum cash to be received for a given share of
Common Stock that elects to receive cash will be approximately $11.36 per share,
with the remaining value in retained Common Stock.
In addition, we understand that under the Agreements, Kohlberg Kravis
Roberts & Co. and affiliates will receive ten-year warrants ("Warrants") to
purchase up to 10,000,000 shares of Common Stock at $12.00 per share. We further
understand that the holders of these Warrants will not be required to pay cash
in order to exercise the Warrants. Accordingly, it is possible that the Company
will receive no cash proceeds from the exercise of the Warrants. In this case,
the Company would issue upon exercise a number of shares of Common Stock equal
to (i) the per share difference in the then current per share price of Common
Stock and $12.00, multiplied by (ii) the number of Warrants exercised, divided
by (iii) the then current per share price of Common Stock. Alternatively, the
holders of the Warrants have the right to exercise the Warrants using cash. In
any event, if exercised, the Warrants will be dilutive to the holders of Common
Stock that do not also hold Warrants.
We have been requested by the Company to render our opinion with respect to
the fairness, from a financial point of view, to the Company's stockholders of
the consideration to be received by the Company's stockholders in the Proposed
Transaction.
In arriving at our opinion, we reviewed and analyzed: (1) the Agreements,
(2) publicly available information concerning the Company which we believe to be
relevant to our inquiry, (3) financial and operating information with respect to
the business, operations and prospects of the Company furnished to us by the
Company, (4) a trading history of the Company's Common Stock from April 13, 1992
to the present and a comparison of that trading history with those of other
companies which we deemed
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<PAGE>
relevant, (5) a comparison of the historical financial results and present
financial condition of the Company with those of other companies which we deemed
relevant, (6) a comparison of the financial terms of the Proposed Transaction
with the financial terms of certain other recent transactions which we deemed
relevant, and (7) certain historical data relating to percentage premiums paid
in acquisitions of publicly traded companies. In addition, we held discussions
with the management of the Company concerning its business and operations,
assets, present condition and future prospects and undertook such other studies,
analyses and investigations as we deemed appropriate.
We have relied upon the accuracy and completeness of the financial and other
information used by us in arriving at our opinion without independent
verification. In arriving at our opinion, we have not conducted a physical
inspection of the properties and facilities of the Company. We have not made nor
obtained any evaluations or appraisals of the assets or liabilities of the
Company. In addition, you have not authorized us to solicit, and we have not
solicited, any indications of interest from any third party with respect to the
purchase of all or a part of the Company's business. Our opinion is necessarily
based upon market, economic and other conditions as they exist and can be
evaluated as of the date of this letter.
We have acted as financial advisor to the Company in connection with the
Proposed Transaction and will receive a fee for our services which is in part
contingent upon the consummation of the Proposed Transaction. In addition, the
Company has agreed to indemnify us for certain liabilities arising out of the
rendering of this opinion. We have served as managing underwriter for three
public offerings of the Company's securities and have provided other investment
banking services for the Company in the past. We have received customary fees
for these services. In the ordinary course of our business, we actively trade in
the Common Stock of the Company for our own account and for the accounts of our
customers and, accordingly, may at any time hold a long or short position in
such securities.
Based upon and subject to the foregoing, we are of the opinion as of the
date hereof that, from a financial point of view, the consideration to be
received by the Company's stockholders in the Proposed Transaction is fair to
the stockholders of the Company.
Very truly yours,
THE ROBINSON-HUMPHREY COMPANY, INC.
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<PAGE>
ANNEX V
EXCERPTS FROM THE ALABAMA BUSINESS
CORPORATION ACT RELATING TO DISSENTERS' RIGHTS
SEC. 10-2B- 13.01. DEFINITIONS.
(1) "Corporate action" means the filing of articles of merger or share
exchange by the probate judge or Secretary of State, or other action giving
legal effect to a transaction that is the subject of dissenters' rights.
(2) "Corporation" means the issuer of shares held by a dissenter before the
corporate action, or the surviving or acquiring corporation by merger or share
exchange of that issuer.
(3) "Dissenter" means a shareholder who is entitled to dissent from
corporate action under Section 10-2B-13.02 and who exercises that right when and
in the manner required by Sections 10-2B-13.20 through 10-2B-13.28.
(4) "Fair Value," with respect to a dissenter's shares, means the value of
the shares immediately before the effectuation 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.
(5) "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 circumstances.
(6) "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.
(7) "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.
(8) "Shareholder" means the record shareholder or the beneficial
shareholder. (Acts 1994,
No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.02. RIGHT TO DISSENT.
(a) A shareholder is entitled to dissent from, and obtain payment of the
fair value of his or her shares in the event of, any of the following corporate
actions:
(1) Consummation of a plan of merger to which the corporation is a party
(i) if shareholder approval is required for the merger by Section
10-2B-11.03 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 Section 10-2B-11.04;
(2) 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;
(3) Consummation of a sale or exchange by 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;
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<PAGE>
(4) To the extent that the articles of incorporation of the corporation
so provide, an amendment of the articles of incorporation that materially
and adversely affects rights in respect to a dissenter's shares because it:
(i) Alters or abolishes a preferential right of the shares;
(ii) Creates, alters, or abolishes a right in respect of redemption,
including a provision respecting a sinking fund for the redemption or
repurchase of the shares;
(iii) Alters or abolishes a preemptive right of the holder of the
shares to acquire shares or other securities;
(iv) Excludes or limits the right of the shares to vote on any
matter, or to cumulate votes, other than a limitation by dilution through
issuance of shares or other securities with similar voting rights; or
(v) 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 Section 10-2B-6.04; or
(5) 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.
(b) A shareholder entitled to dissent and obtain payment for shares under
this chapter may not challenge the corporate action creating his or her
entitlement unless the action is unlawful or fraudulent with respect to the
shareholder or the corporation. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.03. DISSENT BY NOMINEES AND BENEFICIAL OWNERS.
(a) A record shareholder may assert dissenters' rights as to fewer than all
of the shares registered in his or her name only if he or she 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 he
or she asserts dissenters' rights. The rights of a partial dissenter under this
subsection are determined as if the shares to which he or she dissents and his
or her other shares were registered in the names of different shareholders.
(b) A beneficial shareholder may assert dissenters' rights as to shares held
on his or her behalf only if:
(1) He or she 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
(2) He or she does so with respect to all shares of which he or she is
the beneficial shareholder or over which he or she has power to direct the
vote. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.20. NOTICE OF DISSENTERS' RIGHTS.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 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 article and be accompanied by a copy of this article.
(b) If corporate action creating dissenters' rights under Section
10-2B-13.02 is taken without a vote of shareholders, the corporation shall (1)
notify in writing all shareholders entitled to assert dissenters' rights that
the action was taken; and (2) send them the dissenters' notice described in
Section 10-2B-13.22. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
V-2
<PAGE>
SEC. 10-2B-13.21. NOTICE OF INTENT TO DEMAND PAYMENT.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 is submitted to a vote at a shareholder's meeting, a shareholder who
wishes to assert dissenters' rights (1) must deliver to the corporation before
the vote is taken written notice of his or her intent to demand payment or his
or her shares if the proposed action is effectuated; and (2) must not vote his
or her shares in favor of the proposed action.
(b) A shareholder who does not satisfy the requirements of subsection (a) is
not entitled to payment for his or her shares under this article. (Acts 1994,
No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.22. DISSENTERS' NOTICE.
(a) If proposed corporate action creating dissenters' rights under Section
10-2B-13.02 is authorized at a shareholders' meeting, the corporation shall
deliver a written dissenters' notice to all shareholders who satisfied the
requirements of Section 10-2B-13.21.
(b) The dissenters' notice must be sent no later than 10 days after the
corporate action was taken, and must:
(1) State where the payment demand must be sent;
(2) Inform holders of shares to what extent transfer of the shares will
be restricted after the payment demand is received;
(3) Supply a form for demanding payment;
(4) Set a date by which the corporation must receive the payment demand,
which date may not be fewer than 30 nor more than 60 days after the date the
subsection (a) notice is delivered; and
(5) Be accompanied by a copy of this article. (Acts 1994, No. 94-245, p.
343 Sec. 1.)
SEC. 10.2B.13.23. DUTY TO DEMAND PAYMENT.
(a) A shareholder sent a dissenters' notice described in Section 10.2B-13.22
must demand payment in accordance with the terms of the dissenters' notice.
(b) The shareholder who demands payment retains all other rights of a
shareholder until those rights are canceled or modified by the taking of the
proposed corporate action.
(c) A shareholder who does not demand payment by the date set in the
dissenters' notice is not entitled to payment for his or her shares under this
article.
(d) A shareholder who demands payment under subsection (a) may not
thereafter withdraw that demand and accept the terms offered under the proposed
corporate action unless the corporation shall consent thereto. (Acts 1994, No.
94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.24. SHARE RESTRICTIONS.
(a) Within 20 days after making a formal payment demand, each shareholder
demanding payment shall submit the certificate or certificates representing his
or her shares to the corporation for (1) notation thereon by the corporation
that such demand has been made and (2) return to the shareholder by the
corporation.
V-3
<PAGE>
(b) The failure to submit his or her shares for notation shall, at the
option of the corporation, terminate the shareholders' rights under this article
unless a court of competent jurisdiction, for good and sufficient cause, shall
otherwise direct.
(c) If shares represented by a certificate on which notation has been made
shall be transferred, each new certificate issued therefor shall bear similar
notation, together with the name of the original dissenting holder of such
shares.
(d) A transferee of such shares shall acquire by such transfer no rights in
the corporation other than those which the original dissenting shareholder had
after making demand for payment of the fair value thereof. (Acts 1994, No.
94-245, p.343 Sec. 1.)
SEC. 10-2B-13.25. OFFER OF PAYMENT.
(a) As soon as the proposed corporate action is taken, or upon receipt of a
payment demand, the corporation shall offer to pay each dissenter who complied
with Section 10-2B-13.23 the amount the corporation estimates to be the fair
value of his or her shares, plus accrued interest.
(b) The offer of payment must be accompanied by:
(1) The corporation's balance sheet as of the end of a fiscal year
ending not more than 16 months before the date of the offer, an income
statement for that year, and the latest available interim financial
statements, if any;
(2) A statement of the corporation's estimate of the fair value of the
shares;
(3) An explanation of how the interest was calculated;
(4) A statement of the dissenter's right to demand payment under Section
10-2B-13.28; and
(5) A copy of this article.
(c) Each dissenter who agrees to accept the corporation's offer of payment
in full satisfaction of his or her demand must surrender to the corporation the
certificate or certificates representing his or her shares in accordance with
terms of the dissenters' notice. Upon receiving the certificate or certificates,
the corporation shall pay each dissenter the fair value of his or her shares,
plus accrued interest, as provided in subsection (a). Upon receiving payment, a
dissenting shareholder ceases to have any interest in the shares. (Acts 1994,
No. 94-245, p.343 Sec. 1.)
SEC. 10-2B-13.26. FAILURE TO TAKE CORPORATE ACTION.
(a) If the corporation does not take the proposed action within 60 days
after the date set for demanding payment, the corporation shall release the
transfer restrictions imposed on shares.
(b) If, after releasing transfer restrictions, the corporation takes the
proposed action, it must send a new dissenters' notice under Section 10-2B-13.22
and repeat the payment demand procedure. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.27. RESERVED.
SEC. 10-2B-13.28. PROCEDURE IF SHAREHOLDER DISSATISFIED WITH OFFER OF PAYMENT.
(a) A dissenter may notify the corporation in writing of his or her own
estimate of the fair value of his or her shares and amount of interest due, and
demand payment of his or her estimate, or reject the
V-4
<PAGE>
corporation's offer under Section 10-2B-13.25 and demand payment of the fair
value of his or her shares and interest due, if:
(1) The dissenter believes that the amount offered under Section
10-2B-13.25 is less than the fair value of his or her shares or that the
interest due is incorrectly calculated;
(2) The corporation fails to make an offer under Section 10-2B-13.25
within 60 days after the date set for demanding payment; or
(3) The corporation, having failed to take the proposed action, does not
release the transfer restrictions imposed on shares within 60 days after the
date set for demanding payment.
(b) A dissenter waives his or her right to demand payment under this section
unless he or she notifies the corporation of his or her demand in writing under
subsection (a) within 30 days after the corporation offered payment for his or
her shares. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.30. COURT ACTION.
(a) If a demand for payment under Section 10-2B-13.28 remains unsettled, the
corporation shall commence a proceeding within 60 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 60 day period, it shall pay each dissenter whose demand remains unsettled
the amount demanded.
(b) The corporation shall commence the proceeding in the circuit court of
the county where the 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.
(c) 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 under the Alabama Rules of Civil Procedure.
(d) After service is completed, the corporation shall deposit with the clerk
of the court an amount sufficient to pay unsettled claims of all dissenters
party to the action in an amount per share equal to its prior estimate of fair
value, plus accrued interest, under Section 10-2B-13.25.
(e) The jurisdiction of the court in which the proceeding is commenced under
subsection (b) 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.
(f) Each dissenter made a party to the proceeding is entitled to judgment
for the amount the court finds to be the fair value of his or her shares, plus
accrued interest. If the court's determination as to the fair value of a
dissenter's shares, plus accrued interest, is higher than the amount estimated
by the corporation and deposited with the clerk of the court pursuant to
subsection (d), the corporation shall pay the excess to the dissenting
shareholder. If the court's determination as to fair value, plus accrued
interest, of a dissenter's shares is less than the amount estimated by the
corporation and deposited with the clerk of the court pursuant to subsection
(d), then the clerk shall return the balance of funds deposited, less any costs
under Section 10-2B-13.31, to the corporation.
V-5
<PAGE>
(g) Upon payment of the judgment, and surrender to the corporation of the
certificate or certificates representing the appraised shares, a dissenting
shareholder ceases to have any interest in the shares. (Acts 1994, No. 94-245,
p. 343 Sec. 1.)
SEC. 10-2B-13.31. COURT COSTS AND COUNSEL FEES.
(a) The court in an appraisal proceeding commenced under Section 10-2B-13.30
shall determine all costs of the proceeding, including compensation and expenses
of appraisers appointed by the court. The court shall assess the costs against
the corporation, except that the court may assess 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 Section 10-2B-13.28.
(b) The court may also assess the reasonable fees and expenses of counsel
and experts for the respective parties, in amounts the court finds equitable:
(1) 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 Sections 10-2B-13.20 through 10-2B-13.28; or
(2) 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 this chapter.
(c) 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 benefitted (Acts 1994, No. 94-245, p. 343 Sec. 1.)
SEC. 10-2B-13.32. STATUS OF SHARES AFTER PAYMENT.
Shares acquired by a corporation pursuant to payment of the agreed value
therefor or to payment of the judgment entered therefor, as in this chapter
provided, may be held and disposed of by such corporation as in the case of
other treasury shares, except that, in the case of a merger or share exchange,
they may be held and disposed of as the plan of merger or share exchange may
otherwise provide. (Acts 1994, No. 94-245, p. 343 Sec. 1.)
V-6
<PAGE>
THE PROXY SOLICITOR FOR THE MERGER IS:
[Logo]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
Any requests for assistance in filling out or delivering Proxy Cards or
requests for additional copies of this Proxy Statement or the Proxy Card may be
directed to the Proxy Solicitor.
THE EXCHANGE AGENT FOR THE MERGER IS:
Chemical Mellon
Shareholder Services
Attention: Reorganization Department
(800) 684-8842
BY MAIL: BY HAND:
Chemical Mellon Shareholder Services Chemical Mellon Shareholder Services
Reorganization Department Reorganization Department
PO Box 817 120 Broadway
Midtown Station 13th Floor
New York, NY 10018 New York, NY 10271
OVERNIGHT DELIVERY:
Chemical Mellon Shareholder Services
Reorganization Department
85 Challenger Road
Ridgefield Park, NJ 07660
BY FACSIMILE (For Eligible Institutions
Only): CONFIRM BY TELEPHONE TO:
(201)-296-4293 (201)-296-4209
Any questions or requests for assistance in filling out or delivery of
Non-Cash Election Forms or share certificates or requests for additional copies
of the Non-Cash Election Form may be directed to the Exchange Agent by calling
TOLL-FREE (800) 684-8842.
<PAGE>
BRUNO'S, INC.
Birmingham, Alabama
THIS PROXY IS SOLICITED ON BEHALF OF THE
BOARD OF DIRECTORS FOR THE SPECIAL MEETING
OF SHAREHOLDERS ON THE 18TH DAY OF AUGUST, 1995.
The undersigned hereby appoints Ronald G. Bruno and Glenn J. Griffin, and
each of them, each with the power to appoint his substitute, attorneys with the
powers the undersigned would possess if personally present to vote all of the
Common Stock of Bruno's, Inc. (hereinafter "Bruno's") held of record by the
undersigned on July 7, 1995, at the Special Meeting of the Shareholders to be
held on the 18th day of August, 1995, at 8:00 a.m. Central Time, at The Medical
Forum Auditorium, Birmingham-Jefferson Civic Center, 950 22nd Street North,
Birmingham, Alabama 35203, and at any adjournments thereof, upon the matters set
forth herein and, in their discretion, upon all other matters which may come
before the meeting. Without otherwise limiting the general authorization hereby
given, said attorneys are instructed to vote as follows on the matters set forth
below:
MANAGEMENT AND THE BOARD OF DIRECTORS RECOMMEND A VOTE FOR PROPOSALS 1, 2 AND 3.
(1) To consider and vote upon a proposal to approve and adopt the Agreement and
Plan of Merger, dated as of April 20, 1995, as amended as of May 18, 1995
(the "Merger Agreement"), between Bruno's and Crimson Acquisition Corp., an
Alabama corporation ("Crimson"), which is a subsidiary of Crimson
Associates, L.P., a partnership organized by Kohlberg Kravis Roberts & Co.,
L.P. The Merger Agreement provides, among other things, for the merger of
Crimson with and into Bruno's (the "Merger") pursuant to which each share of
Bruno's common stock, $.01 par value per share ("Bruno's Common Stock")
(other than (i) shares of Bruno's Common Stock held by Bruno's, the
Partnership, Crimson or any subsidiary thereof, which will be cancelled and
retired, and (ii) shares of Bruno's Common Stock subject to dissenters'
rights) will be converted into either (a) the right to receive $12.00 in
cash or (b) the right to retain one share of Bruno's Common Stock. Because
4,173,682 shares of Bruno's Common Stock in the aggregate must be retained
by existing Bruno's shareholders either through election or proration, the
right to receive either $12.00 in cash for each share or to retain that
share of Bruno's Common Stock is subject to proration, as set forth in the
Merger Agreement.
FOR:_______ AGAINST:_______ ABSTAIN:_______
(2) To consider and vote upon a proposal to approve and consent to an increase
in the bonded indebtedness of the Company in the amount of $1.1 billion to
finance the conversion to cash of approximately 94.7% of the Bruno's Common
Stock currently held by shareholders of Bruno's, to refinance the
outstanding indebtedness of Bruno's and to provide for working capital
purposes.
FOR:_______ AGAINST:_______ ABSTAIN:_______
(3) To approve and adopt the Amended and Restated Articles of Incorporation.
FOR:_______ AGAINST:_______ ABSTAIN:_______
(4) To transact such other business as may properly come before the Special
Meeting or any adjournments or postponements thereof.
<PAGE>
THE PROXY WILL BE VOTED AS SPECIFIED, OR IF NO CHOICE IS SPECIFIED, FOR
PROPOSALS 1, 2, AND 3, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS
AS MAY PROPERLY COME BEFORE THE MEETING.
Please mark, sign, date and return this proxy in the enclosed envelope as
soon as possible, even though you plan to attend this meeting.
To help our preparations for the meeting, please check here if you plan to
attend.___
SIGN HERE EXACTLY AS NAME(S) APPEAR(S) ABOVE
______________________________________ Date:_________________
______________________________________ Date:_________________
When shares are held by joint tenants, both should sign. When signing as
attorney, executor, administrator, trustee or guardian, please give full title
as such. If a corporation, please sign in full corporate name by president or
other authorized officer. If a partnership, please sign in partnership name by
authorized person.
If your address has changed, please note new address:
______________________________________ Zip Code __________
<PAGE>
NON-CASH ELECTION FORM
TO ACCOMPANY ALL CERTIFICATE(S) FOR SHARES OF COMMON STOCK OF
BRUNO'S, INC.
IN THE EVENT A HOLDER ELECTS TO RETAIN ALL OR
A PORTION OF ITS SHARES IN CONNECTION WITH THE
MERGER OF CRIMSON ACQUISITION CORP., A
SUBSIDIARY OF CRIMSON ASSOCIATES, L.P.,
A PARTNERSHIP ORGANIZED BY
KOHLBERG KRAVIS ROBERTS & CO.,
WITH AND INTO
BRUNO'S, INC.
This Form is to accompany all of a holder's certificates for shares of
common stock, par value $.01 per share ("Bruno's Common Stock"), of Bruno's,
Inc. ("Bruno's" or the "Company") if this Form is submitted pursuant to an
election (a "Non-Cash Election") to retain shares of Bruno's Common Stock
("Non-Cash Election Shares") in connection with the proposed merger (the
"Merger") of Crimson Acquisition Corp., as of the date hereof a wholly-owned
subsidiary of Crimson Associates, L.P., which is a partnership organized by
Kohlberg Kravis Roberts & Co., with and into Bruno's. HOLDERS OF BRUNO'S COMMON
STOCK WHO DO NOT WISH TO MAKE A NON-CASH ELECTION (ANY SUCH HOLDER, A
"NON-ELECTING HOLDER") NEED NOT SUBMIT THIS FORM OR ANY CERTIFICATES AT THIS
TIME. Each share of Bruno's Common Stock owned by any such Non-Electing Holder
will automatically, subject to proration as described in the Proxy Statement (as
defined below), be converted into the right to receive an amount equal to $12.00
in cash from Bruno's following the Merger.
To: Chemical Mellon Shareholder Services, Exchange Agent
Attention: Reorganization Department
(800) 684-8842
<TABLE>
<CAPTION>
By mail: By Overnight Courier: By hand:
<S> <C> <C>
Chemical Mellon Shareholder Chemical Mellon Shareholder Chemical Mellon Shareholder
Services Services Services
Reorganization Department Reorganization Department Reorganization Department
PO Box 817 85 Challenger Road 120 Broadway
Midtown Station Ridgefield Park, NJ 07660 13th Floor
New York, NY 10018 New York, NY 10271
</TABLE>
By Facsimile: Confirm by telephone to:
(For Eligible Institutions Only)
(201)-296-4293 (201)-296-4209
Delivery of this Form to an address, or transmission of instructions via a
telecopy facsimile number, other than as set forth above, does not constitute a
valid delivery.
<PAGE>
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
If you are electing to retain all or a portion of your shares, you must
properly fill in the information requested in this box and return all your
certificates with this Form, even if you are electing to retain only a portion
of your shares. See Instruction 4.
BOX I
<TABLE>
<CAPTION>
TOTAL NUMBER OF SHARES HELD
NAME AND ADDRESS OF REGISTERED HOLDER* (ATTACH ADDITIONAL LIST IF NECESSARY)
TOTAL NUMBER
OF SHARES NUMBER OF
CERTIFICATE REPRESENTED BY SHARES
NUMBER*** CERTIFICATE(S) TO BE RETAINED**
<S> <C> <C> <C>
Total Common Shares
</TABLE>
<TABLE>
<S> <C>
* Only certificates registered in a single form may be deposited with this Form of Election. If
certificates are registered in different forms (e.g., John R. Doe and J.R. Doe), it will be necessary to
fill in, sign and submit as many separate Forms of Election as there are different registrations of
certificates.
** UNLESS OTHERWISE INDICATED IN THIS BOX, IT WILL BE ASSUMED THAT ALL SHARES SUBMITTED ARE TO BE TREATED AS
HAVING MADE AN ELECTION TO RETAIN SUCH SHARES. Remaining shares represented by such certificates will be
converted into cash, subject to proration.
*** In the event of proration, a holder may be required to receive some cash and thus may choose to indicate
in the space following this sentence the number(s) of the certificate(s) deemed to represent any shares of
Bruno's Common Stock converted into cash. Certificate No(s): .
HOLDERS ARE NOT REQUIRED TO SO IDENTIFY CERTIFICATE NUMBERS IN THIS SPACE. IN THE EVENT OF PRORATION,
SHARES WILL BE CONVERTED TO CASH FROM STOCK CERTIFICATES IN THE ORDER IN WHICH THEY HAVE BEEN LISTED.
THERE CAN BE NO ASSURANCE THAT ANY IDENTIFICATION OF SHARE CERTIFICATE(S) WILL BE RECOGNIZED BY ANY
GOVERNMENTAL AGENCY OR THIRD PARTY. IN ADDITION, NO SUCH CERTIFICATE IDENTIFICATION WILL OPERATE TO ALTER
THE APPLICATION OF THE PRORATION PROCEDURES IN THE MERGER.
</TABLE>
<PAGE>
Ladies and Gentlemen:
In connection with the merger (the "Merger") of Crimson Acquisition Corp.,
as of the date hereof a wholly-owned subsidiary of Crimson Associates, L.P.,
which is a partnership organized by Kohlberg Kravis Roberts & Co., with and into
Bruno's, Inc. ("Bruno's" or the "Company"), the undersigned hereby submits the
certificate(s) for shares of common stock, par value $.01 per share, of Bruno's
("Bruno's Common Stock") listed above (which represent all the shares of Bruno's
Common Stock owned by such holder) and elects, subject as set forth below, to
have all or a portion of the shares of Bruno's Common Stock represented by such
certificates as set forth above converted into the right to retain shares of
Bruno's Common Stock following the Merger ("Non-Cash Election Shares").
It is understood that the following election is subject to (i) the terms,
conditions and limitations set forth in the Proxy Statement, dated July 17,
1995, relating to the Merger (including all documents incorporated therein, and
as it may be amended or supplemented from time to time, the "Proxy Statement"),
receipt of which is acknowledged by the undersigned, (ii) the terms of the
Agreement and Plan of Merger, dated as of April 20, 1995, and as amended as of
May 18, 1995 (as the same may be amended from time to time, the "Merger
Agreement"), a conformed copy of which appears as Annex I to the Proxy
Statement, and (iii) the accompanying Instructions.
The undersigned authorizes and instructs you, as Exchange Agent, to deliver
such certificates of Bruno's Common Stock to the Company and to receive on
behalf of the undersigned, in exchange for the shares of Bruno's Common Stock
represented thereby, any certificate for Non-Cash Election Shares or any check
for cash issuable in the Merger pursuant to the Merger Agreement. If
certificates of Bruno's Common Stock are not delivered herewith, there is
furnished below a guarantee of delivery of such certificates representing shares
of Bruno's Common Stock from a member of a national securities exchange, a
member of the National Association of Securities Dealers, Inc. or a commercial
bank or trust company having an office in the United States.
Unless otherwise indicated under Special Payment Instructions below, please
issue any certificate for Non-Cash Election Shares and/or any check issuable in
exchange for the shares of Bruno's Common Stock represented by the certificates
submitted hereby in the name of the registered holder(s) of such Bruno's Common
Stock. Similarly, unless otherwise indicated under Special Delivery
Instructions, please mail any certificate for shares of Bruno's Common Stock
and/or any check for cash issuable in exchange for the shares of Bruno's Common
Stock represented by the certificates submitted hereby to the registered
holder(s) of the Bruno's Common Stock at the address or addresses shown above.
PLEASE READ CAREFULLY THE ACCOMPANYING INSTRUCTIONS
<TABLE>
<CAPTION>
BOX II BOX III
<S> <C>
SPECIAL PAYMENT INSTRUCTIONS SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS D(6) AND D(7)) (SEE INSTRUCTION D(8))
To be completed ONLY if the certificates for To be completed ONLY if the certificates for
Non-Cash Election Shares are to be registered in Non-Cash Election Shares are to be registered in
the name of, or the checks are to be made payable the name of, or the checks are to be made payable
to, someone other than the registered holder(s) of to, the registered holder(s) of shares of Bruno's
shares of Bruno's Common Stock. Common Stock, but are to be sent to someone other
than the registered holder(s) or to an address other
than the address of the registered holder(s) set forth
above.
Name..............................................
(PLEASE PRINT)
.................................................. Name..............................................
(PLEASE PRINT) (PLEASE PRINT)
Address........................................... ..................................................
(PLEASE PRINT)
..................................................
(INCLUDING ZIP CODE) Address...........................................
................................................. ..................................................
(TAX IDENTIFICATION OR (INCLUDING ZIP CODE)
SOCIAL SECURITY NUMBER)
</TABLE>
<PAGE>
BOX IV
SIGN HERE AND HAVE SIGNATURES GUARANTEED
(SEE INSTRUCTIONS D(1) AND D(7) CONCERNING SIGNATURE GUARANTEE)
<TABLE>
<S> <C>
..................................................... Name(s):......................................
(PLEASE PRINT)
..................................................... Name(s):......................................
(PLEASE PRINT)
..................................................... Name(s):......................................
SIGNATURE(S) OF OWNER(S) (PLEASE PRINT)
Must be signed by registered holder(s) exactly as
name(s) appear(s) on stock certificate(s) or by ..............................................
person(s) authorized to become registered holder(s) (AREA CODE AND TELEPHONE NUMBER(S))
by certificates and documents transmitted herewith.
If signature is by a trustee, executor, administrator, ..............................................
guardian, officer of a corporation, attorney-in-fact
or any other person acting in a fiduciary capacity, ..............................................
set forth full title in such capacity and see (TAX IDENTIFICATION OR SOCIAL SECURITY
Instruction D(3). NUMBER(S))
SIGNATURE(S)
GUARANTEED:.......................................... DATED:...................................1995.
(SEE INSTRUCTION D(7))
</TABLE>
BOX V
<TABLE>
<CAPTION>
GUARANTEE OF DELIVERY
(TO BE USED ONLY IF CERTIFICATES ARE NOT SURRENDERED HEREWITH)*
<S> <C>
The undersigned is:
........................................
(FIRM--PLEASE PRINT)
. a member of a national securities exchange.
........................................
. a member of the National Association of Securities (AUTHORIZED SIGNATURE)
Dealers, Inc., or
........................................
. a commercial bank or trust company in the United
States; ........................................
and guarantees to deliver to the Exchange Agent the ........................................
certificates for shares of Bruno's Common Stock to (ADDRESS)
which this Form relates, duly endorsed in blank or
otherwise in form acceptable for transfer on the books ........................................
of Bruno's, no later than 5:00 P.M. New York City time (AREA CODE AND TELEPHONE NUMBER)
on the fifth NASDAQ trading day after the date of
execution of this guarantee of delivery. ........................................
(CONTACT NAME)
</TABLE>
<TABLE>
<CAPTION>
(DO NOT WRITE IN SPACES BELOW)
SHARES CONVERTED INTO SHARES
SHARES SHARES NON-CASH CERTIFICATE CONVERTED AMOUNT OF
SURRENDED ACCEPTED ELECTION-SHARES NO. BLOCK NO. INTO CASH CHECK NO. CHECK
<S> <C> <C> <C> <C> <C> <C> <C>
</TABLE>
<TABLE>
<S> <C> <C>
DELIVERY PREPARED BY............................. CHECKED BY................ DATE...................
</TABLE>
<PAGE>
INSTRUCTIONS
A. SPECIAL CONDITIONS.
1. TIME IN WHICH TO ELECT. To be effective, an election pursuant to the
terms and conditions set forth herein (an "Election") on this Form or a
facsimile hereof, accompanied by all of the holder's certificates representing
shares of Bruno's Common Stock or a proper guarantee of delivery thereof, must
be received by the Exchange Agent, at the address set forth above, no later than
5:00 P.M., New York City time, on August 17, 1995 (the "Election Date"). Holders
of Bruno's Common Stock whose stock certificates are not immediately available
may also make an effective Election by completing this form or a facsimile
hereof, having the Guarantee of Delivery box (BOX V) properly completed and duly
executed (subject to the condition that the certificates for which delivery is
thereby guaranteed are in fact delivered to the Exchange Agent, duly endorsed in
blank or otherwise in form acceptable for transfer on the books of Bruno's, no
later than 5:00 P.M., New York City time, on the fifth NASDAQ trading day after
the date of execution of such guarantee of delivery). Subject to proration as
described in the Proxy Statement, each share of Bruno's Common Stock with
respect to which the Exchange Agent shall have not received an effective
Election prior to the Election Date, or with respect to which the Exchange Agent
has received an effective election and to which the proration procedures set
forth in the Proxy Statement pertain, outstanding at the Effective Time of the
Merger will be converted into the right to receive an amount equal to $12.00 in
cash from the Company following the Merger. See Instruction B.
2. REVOCATION OF ELECTION. Any Election may be revoked by the person who
submitted this Form to the Exchange Agent and the certificate(s) for shares
withdrawn by written notice duly executed and received by the Exchange Agent
prior to the Election Date. Such notice must specify the person in whose name
the shares of Bruno's Common Stock to be withdrawn had been deposited, the
number of shares to be withdrawn, the name of the registered holder thereof, and
the serial numbers shown on the certificate(s) representing the shares to be
withdrawn. If an Election is revoked, and the certificate(s) for shares
withdrawn, the Bruno's Common Stock certificate(s) submitted therewith will be
promptly returned by the Exchange Agent to the person who submitted such
certificate(s).
3. TERMINATION OF RIGHT TO ELECT. If for any reason the Merger is not
consummated or is abandoned, all Forms will be void and of no effect.
Certificate(s) for Bruno's Common Stock previously received by the Exchange
Agent will be returned promptly by the Exchange Agent to the person who
submitted such stock certificate(s).
B. ELECTION AND PRORATION PROCEDURES.
A description of the election and proration procedures is set forth in the
Proxy Statement under "THE MERGER--Non-Cash Election" and "THE MERGER--Non-Cash
Election Procedure." A full statement of the election and proration procedures
is contained in the Merger Agreement and all Elections are subject to compliance
with such procedures. IN CONNECTION WITH MAKING ANY ELECTION, A HOLDER OF
BRUNO'S COMMON STOCK SHOULD READ CAREFULLY, AMONG OTHER MATTERS, THE AFORESAID
DESCRIPTION AND STATEMENT AND THE INFORMATION CONTAINED IN THE PROXY STATEMENT
UNDER "THE MERGER--FEDERAL INCOME TAX CONSEQUENCES." SEE ALSO "RISK
FACTORS--NON-CASH ELECTION AND PRORATION INTO CASH--POSSIBLE DIVIDEND TREATMENT"
IN THE PROXY STATEMENT FOR A DISCUSSION OF THE POSSIBILITY THAT THE RECEIPT OF
CASH AS A RESULT OF PRORATION BY A HOLDER WHO HAS MADE A NON-CASH ELECTION MAY
BE TREATED AS A DIVIDEND AS OPPOSED TO A CAPITAL GAIN.
AS A RESULT OF THE PRORATION PROCEDURES, HOLDERS OF BRUNO'S COMMON STOCK MAY
RECEIVE NON-CASH ELECTION SHARES OR CASH IN AMOUNTS WHICH VARY FROM THE AMOUNTS
SUCH HOLDERS ELECT TO RECEIVE. SUCH HOLDERS WILL NOT BE ABLE TO CHANGE THE
NUMBER OF NON-CASH ELECTION SHARES OR THE AMOUNT OF CASH ALLOCATED TO THEM
PURSUANT TO SUCH PROCEDURES.
C. RECEIPT OF NON-CASH ELECTION SHARES OR CHECKS.
As soon as practicable after the Effective Time of the Merger and after the
Election Date, the Exchange Agent will mail certificate(s) for Non-Cash Election
Shares and/or cash payments by check to the holders of Bruno's Common Stock with
respect to each share of Bruno's Common Stock which is included in any effective
Election. Subject to proration as described in the Proxy Statement, holders of
Bruno's Common Stock who declined to make an Election, or failed to make an
effective Election, with respect to any or all of their shares will receive, for
each such share, the right to receive an amount equal to $12.00 in cash as soon
as practicable after the certificate(s) representing such share or shares have
been submitted.
<PAGE>
No fractional shares will be issued in connection with the Merger. In lieu
thereof, the Exchange Agent, as agent for the holders of Bruno's Common Stock
who become entitled to a fraction of a Non-Cash Election Share, shall promptly
sell the aggregate of the fractional share interests of such holders and remit
the net proceeds thereof (after commissions, costs and expenses incurred in
connection with such sale) to such holders according to their respective
interests therein.
D. GENERAL.
1. Execution and Delivery. This Form or a facsimile hereof must be properly
filled in, dated and signed in BOX IV, and must be delivered (together with all
stock certificates representing the shares of Bruno's Common Stock held by such
holder or with a duly signed guarantee of delivery of such certificates) to the
Exchange Agent at any of the addresses set forth above.
THE METHOD OF DELIVERY OF ALL DOCUMENTS IS AT THE OPTION AND RISK OF THE
STOCKHOLDER, BUT IF SENT BY MAIL, REGISTERED MAIL, RETURN RECEIPT REQUESTED,
PROPERLY INSURED, IS SUGGESTED.
2. Inadequate Space. If there is insufficient space on this Form to list all
your stock certificates, please attach a separate list.
3. Signatures. The signature (or signatures, in the case of certificates
owned by two or more joint holders) on this Form should correspond exactly with
the name(s) as written on the face of the certificate(s) submitted unless the
shares of Bruno's Common Stock described on this Form have been assigned by the
registered holder(s), in which event this Form should be signed in exactly the
same form as the name of the last transferee indicated on the transfers attached
to or endorsed on the certificates.
If this Form is signed by a person or persons other than the registered
owners of the certificates listed, the certificates must be endorsed or
accompanied by appropriate stock powers, in either case signed exactly as the
name(s) of the registered owner(s) appear on the certificates.
If this Form or any stock certificate(s) or stock power(s) are signed by a
trustee, executor, administrator, guardian, officer of a corporation,
attorney-in-fact or any other person acting in a representative or fiduciary
capacity, the person signing must give such person's full title in such capacity
and appropriate evidence of authority to act in such capacity must be forwarded
with this Form.
4. Partial Exchanges. If fewer than all the shares represented by any
certificate(s) delivered to the Exchange Agent are to be retained, fill in the
number of shares which are elected to be retained in the box entitled "Number of
Shares To be Retained." In such case, the Exchange Agent will hold such
certificate(s) and, as soon as practicable after the Effective Time of the
Merger, the registered holder will receive a check representing the amount of
cash into which the remaining shares represented by such certificate are
converted. ALL SHARES REPRESENTED BY CERTIFICATES SUBMITTED HEREUNDER WILL BE
DEEMED TO HAVE BEEN ELECTED TO BE RETAINED UNLESS OTHERWISE INDICATED.
5. Lost or Destroyed Certificates. If your stock certificate(s) has been
either lost or destroyed, please make note of this fact on the front of this
Form opposite your name and address and the appropriate forms for replacement
will be sent to you. You will then be instructed as to the steps you must take
in order to receive a stock certificate(s) representing Non-Cash Election Shares
and/or any checks in accordance with the Merger Agreement.
6. New Certificates and Checks in Same Name. If any stock certificate(s)
representing Non-Cash Election Shares or any check(s) in respect of Non-Cash
Election Shares are to be registered in, or payable to the order of, exactly the
same name(s) that appears on the certificate(s) representing shares of Bruno's
Common Stock submitted with this Form, no endorsement of certificate(s) or
separate stock power(s) are required.
7. New Certificates and Checks in Different Name. If any stock
certificate(s) representing Non-Cash Election Shares or any check(s) in respect
of Non-Cash Election Shares are to be registered in, or payable to the order of,
other than exactly the name that appears on the certificate(s) representing
shares of Bruno's Common Stock submitted for exchange herewith, such exchange
shall not be made by the Exchange Agent unless the certificates submitted are
endorsed, BOX II is completed, and the signature is guaranteed in BOX IV by a
member of a national securities exchange, a member of the National Association
of Securities Dealers, Inc. or a commercial bank (not a savings bank or a
savings and loan association) or trust company in the United States.
<PAGE>
8. Special Delivery Instructions. If the checks are to be payable to the
order of, or the certificates for Non-Cash Election Shares are to be registered
in, the name of the registered holder(s) of shares of Bruno's Common Stock, but
are to be sent to someone other than the registered holder(s) or to an address
other than the address of the registered holder, it will be necessary to
indicate such person or address in BOX III.
9. Miscellaneous. A single check and/or a single stock certificate
representing Non-Cash Election Shares will be issued.
All questions with respect to this Form and the Elections (including,
without limitation, questions relating to the timeliness or effectiveness of
revocation or any Election and computations as to proration) will be determined
by Bruno's and Crimson Associates, L.P., which determination shall be conclusive
and binding.
10. Backup Federal Income Tax Withholding and Substitute Form W-9. Under the
"backup withholding" provisions of Federal income tax law, the Exchange Agent
may be required to withhold 31% of the amount of any payments made to holders of
Bruno's Common Stock pursuant to the Merger. To prevent backup withholding, each
holder should complete and sign the Substitute Form W-9 included in this Form
and either: (a) provide the correct taxpayer identification number ("TIN") and
certify, under penalties of perjury, that the TIN provided is correct (or that
such holder is awaiting a TIN), and that (i) the holder has not been notified by
the Internal Revenue Service ("IRS") that the holder is subject to backup
withholding as a result of failure to report all interest or dividends, or (ii)
the IRS has notified the holder that the holder is no longer subject to back
withholding; or (b) provide an adequate basis for exemption. If the box in Part
2 of the substitute Form W-9 is checked, the Exchange Agent shall retain 31% of
cash payments made to a holder during the sixty (60) day period following the
date of the Substitute Form W-9. If the holder furnishes the Exchange Agent with
his or her TIN within sixty (60) days of the date of the Substitute Form W-9,
the Exchange Agent shall remit such amounts retained during the sixty (60) day
period to the holder and no further amounts shall be retained or withheld from
payments made to the holder thereafter. If, however, the holder has not provided
the Exchange Agent with his or her TIN within such sixty (60) day period, the
Exchange Agent shall remit such previously retained amounts to the IRS as backup
withholding and shall withhold 31% of all payments to-the holder thereafter
until the holder furnishes a TIN to the Exchange Agent. In general, if a holder
is an individual, the TIN is the Social Security number of such individual. If
the certificates for Bruno's Common Stock are registered in more than one name
or are not in the name of the actual owner, consult the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report. If the Exchange Agent is not
provided with the correct TIN or an adequate basis for exemption, the holder may
be subject to a $50 penalty imposed by the IRS and backup withholding at a rate
of 31%. Certain holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to satisfy the Exchange Agent that a foreign individual
qualifies as an exempt recipient, such holder must submit a statement
(generally, IRS Form W-8), signed under penalties of perjury, attesting to that
individual's exempt status. A form for such statements can be obtained from the
Exchange Agent.
For further information concerning backup withholding and instructions for
completing the Substitute Form W-9 (including how to obtain a TIN if you do not
have one and how to complete the Substitute Form W-9 if Stock is held in more
than one name), consult the Guidelines of the IRS for Certification of Taxpayer
Identification Number on Substitute Form W-9.
Failure to complete the Substitute Form W-9 will not, by itself, cause
Bruno's Common Stock to be deemed invalidly tendered, but such failure may
require the Exchange Agent to withhold 31% of the amount of any payments made
pursuant to the Merger. Backup withholding is not an additional Federal income
tax. Rather, the Federal income tax liability of a person subject to backup
withholding will be reduced by the amount of tax withheld. If withholding
results in an overpayment of taxes, a refund may be obtained.
Additional copies of this Form may be obtained from Chemical Mellon
Shareholder Services (whose telephone number is (800) 684-8842).
<PAGE>
<TABLE>
<CAPTION>
PAYER'S NAME: CHEMICAL MELLON SHAREHOLDER SERVICES
<S> <C>
SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN Social Security Number
IN THE BOX AT THE RIGHT AND
CERTIFY BY SIGNING AND DATING OR__________________________________
FORM W-9 BELOW. Employer Identification Number
Department of the Treasury Part 2--Please check the box at the right if you have applied for, and are awaiting receipt of,
Internal Revenue Service your TIN. / /
</TABLE>
PAYER'S REQUEST FOR TAXPAYER
IDENTIFICATION NUMBER (TIN)
Certification--under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me), and
(2) I am not subject to backup withholding either because I have not been
notified by the IRS that I am subject to backup withholding as a result
of a failure to report all interests or dividends, or the IRS has
notified me that I am no longer subject to backup withholding.
CERTIFICATION INSTRUCTIONS--You must cross out item (2) above if you have
been notified by the IRS that you are subject to backup withholding because
of underreporting interest or dividends on your tax return. However, if
after being notified by the IRS that you were subject to backup withholding
you received another notification from the IRS that you are no longer
subject to backup withholding, do not cross out item (2). (Also see
Certification under Specific Instructions in the enclosed Guidelines.)
<TABLE>
<S> <C>
SIGNATURE ________________________________________________ DATE __________________________ , 1995
</TABLE>
IF YOU CHECKED THE BOX IN PART 2 OF THE SUBSTITUTE FORM W-9, YOU MUST
SIGN AND DATE THE FOLLOWING CERTIFICATION:
CERTIFICATION OF PAYEE AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify, under penalties of perjury, that a Taxpayer Identification
Number has not been issued to me, and that I mailed or delivered an
application to receive a Taxpayer Identification Number to the appropriate
IRS Center or Social Security Administration Office (or I intend to mail or
deliver an application in the near future). I understand that if I do not
provide a Taxpayer Identification Number to the payer, 31 percent of all
payments made to me pursuant to this Merger shall be retained until I
provide a Tax Identification Number to the payer and that, if I do not
provide my Taxpayer Identification Number within sixty (60) days, such
retained amounts shall be remitted to the IRS as backup withholding and 31
percent of all reportable payments made to me thereafter will be withheld
and remitted to the IRS until I provide a Taxpayer Identification Number.
<TABLE>
<S> <C>
SIGNATURE ___________________________________________________ DATE __________________________
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP
WITHHOLDING OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE
ELECTION, PLEASE REVIEW THE ENCLOSED GUIDELINES FOR CERTIFICATION OF
TAXPAYER IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL
DETAILS.
<PAGE>
THE PROXY SOLICITOR FOR THE MERGER IS:
[Logo]
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
or
CALL TOLL-FREE (800) 322-2885
Any requests for assistance in filling out or delivering Proxy Cards or
requests for additional copies of this Proxy Statement or the Proxy Card may be
directed to the Proxy Solicitor.
THE EXCHANGE AGENT FOR THE MERGER IS:
Chemical Mellon
Shareholder Services
Attention: Reorganization Department
(800) 684-8842
BY MAIL: BY HAND:
Chemical Mellon Shareholder Services Chemical Mellon Shareholder Services
Reorganization Department Reorganization Department
PO Box 817 120 Broadway
Midtown Station 13th Floor
New York, NY 10018 New York, NY 10271
OVERNIGHT DELIVERY:
Chemical Mellon Shareholder Services
Reorganization Department
85 Challenger Road
Ridgefield Park, NJ 07660
BY FACSIMILE (For Eligible Institutions
Only): CONFIRM BY TELEPHONE TO:
(201)-296-4293 (201)-296-4209
Any questions or requests for assistance in filling out or delivery of
Non-Cash Election Forms or share certificates or requests for additional copies
of the Non-Cash Election Form may be directed to the Exchange Agent by calling
TOLL-FREE (800) 684-8842.
