<PAGE> 1
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT
PURSUANT TO SECTION 14(D)(4)
OF THE SECURITIES EXCHANGE ACT OF 1934
NATIONAL CONVENIENCE STORES INCORPORATED
(NAME OF SUBJECT COMPANY)
NATIONAL CONVENIENCE STORES INCORPORATED
(NAME OF PERSON(S) FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED RIGHTS TO PURCHASE PREFERRED STOCK)
WARRANTS TO PURCHASE COMMON STOCK
(TITLES OF CLASSES OF SECURITIES)
635570500
635570112
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
------------------------
A. J. GALLERANO
SENIOR VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
NATIONAL CONVENIENCE STORES INCORPORATED
100 WAUGH DRIVE
HOUSTON, TEXAS 77007
(713) 863-2200
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON
AUTHORIZED TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON(S) FILING STATEMENT)
WITH A COPY TO:
EDGAR J. MARSTON III
BRACEWELL & PATTERSON, L.L.P.
711 LOUISIANA STREET, SUITE 2900
HOUSTON, TEXAS 77002-2781
(713) 223-2900
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
<PAGE> 2
ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is National Convenience Stores
Incorporated, a Delaware corporation (the "Company"). The address of the
principal executive offices of the Company is 100 Waugh Drive, Houston, Texas
77007. The titles of the classes of equity securities to which this Schedule
relates are (i) the Company's Common Stock, par value $.01 per share (the
"Common Stock"), including the associated Rights to Purchase Preferred Stock
(the "Rights") issued pursuant to the Rights Agreement dated as of August 31,
1995 (the "Rights Agreement"), between the Company and Boatmen's Trust Company,
as Rights Agent, and (ii) the Warrants to Purchase Common Stock (the "Warrants")
issued pursuant to the Warrant Agreement dated as of March 9, 1993, between the
Company and Boatmen's Trust Company, as Warrant Agent.
ITEM 2. TENDER OFFER OF THE BIDDER.
This Schedule relates to the tender offer by Circle K Acquisition, Inc., a
Delaware corporation (the "Offeror"), a wholly-owned indirect subsidiary of The
Circle K Corporation, a Delaware corporation ("Circle K"), to purchase (i) all
outstanding shares of Common Stock, together with the associated Rights, at the
purchase price of $20 per share of Common Stock (and associated Right), net to
the tendering holder in cash, and (ii) all outstanding Warrants at the purchase
price of $2.25 per Warrant, net to the tendering holder in cash, upon the terms
and subject to the conditions set forth in the Offer to Purchase dated September
7, 1995 (the "Offer to Purchase") and the related Letters of Transmittal (which
together constitute the "Circle K Offer"). The Circle K Offer is disclosed in a
Tender Offer Statement on Schedule 14D-1 dated September 7, 1995. According to
the Offer to Purchase, the principal executive offices of the Offeror and Circle
K are located at 3003 North Central Avenue, Phoenix, Arizona 85012.
ITEM 3. IDENTITY AND BACKGROUND.
(a) Identity.
The name and business address of the Company, which is the person filing
this Schedule, are set forth in Item 1 above.
(b) Contracts.
Except as described in Annex A hereto or elsewhere in this Schedule, to the
knowledge of the Company, as of the date hereof, there are no material
contracts, agreements, arrangements or understandings, or any actual or
potential conflicts of interest, between the Company or its affiliates and (i)
the Company or its executive officers, directors or affiliates, or (ii) the
Offeror, Circle K or their executive officers, directors or affiliates. Certain
contracts, agreements, arrangements and understandings between the Company and
certain of its directors, executive officers and affiliates are described in
Annex A hereto, which is incorporated herein by reference.
(c) Background.
Following discussions between the Company and Circle K in 1993 and early
1994 concerning the possibility of an exchange of convenience stores, in
February 1994 the Company and Circle K reached an agreement pursuant to which
Circle K acquired 80 stores in Southern California and Atlanta, Georgia from the
Company, and the Company acquired 88 stores in Houston and Dallas, Texas, as
well as approximately $9 million in cash, from Circle K. This transaction was
consummated in late April 1994.
In late February 1994, before the store swap transaction was consummated,
V.H. Van Horn, President and Chief Executive Officer of the Company, met with
John F. Antioco, Chairman, President and Chief Executive Officer of Circle K, at
a conference in Scottsdale, Arizona. At this conference, Mr. Antioco proposed to
Mr. Van Horn that Circle K acquire the Company. Mr. Van Horn indicated that the
Company was not for sale. Shortly thereafter, Mr. Antioco called Mr. Van Horn
and said that he had spoken with the principal stockholders of Circle K and that
they were interested in meeting with Mr. Van Horn. After consulting with the
Chairman of the Company's Board of Directors (the "Board"), Mr. Van Horn agreed
to
2
<PAGE> 3
such a meeting on the condition that Circle K commit not to undertake an
unfriendly acquisition of the Company. On behalf of Circle K and its principal
owners, Mr. Antioco made such a commitment.
On March 24, 1994, Mr. Van Horn met in Phoenix with Mr. Antioco, Bart A.
Brown, Jr., who was then Chairman of the Board of Circle K, Savio Tang, the
Chief Executive Officer of Investcorp S.A., a Luxembourg corporation
("Investcorp"), a principal stockholder of Circle K, and Chris O'Brien, another
Investcorp affiliate. After Mr. Van Horn elicited further representations from
each of the Circle K and Investcorp representatives that they would not attempt
a hostile takeover or acquisition of the Company as a prerequisite to his
agreement to meet, the parties discussed the possible negotiated acquisition of
the Company by Circle K. At the end of these discussions, Mr. Van Horn informed
the Circle K representatives that he did not believe the Company would accept
their proposed transaction. Mr. Van Horn expressed his view that the management
and the Board of the Company believed that the long-range plans for the Company,
embarked upon in 1993 after the Company emerged from bankruptcy, would result in
increased value for the stockholders of the Company in future years, and,
therefore, a sale of the Company at that time would not be in its stockholders'
best interests. Mr. Van Horn indicated, however, that he thought that the
Company would consider a transaction with Circle K if circumstances led the
Company's Board to conclude that the Company should be merged or sold.
Approximately a week after the March 24 meeting, Mr. Van Horn called Mr. Antioco
and informed Mr. Antioco that he had discussed the March 24 meeting with the
Board, who had confirmed that it believed a transaction between the Company and
Circle K would be inappropriate at that time.
In the fall of 1994, Mr. Brown called Mr. Van Horn and told him that the
Company was vulnerable to a hostile takeover because its stock price was low.
Mr. Brown proposed that Circle K acquire the Company in a friendly transaction,
and Mr. Van Horn once again advised him that the Company was not for sale at
that time.
On August 7, 1995, Mr. Antioco contacted Mr. Van Horn and requested an
immediate meeting with him. The two met on August 8 in Dallas, and Mr. Antioco
told Mr. Van Horn that Circle K had decided to acquire the Company and that Mr.
Van Horn would receive a letter later that day from Circle K offering to acquire
the Company for $17 per share of Common Stock (the "Circle K Proposal"). Mr. Van
Horn expressed his view that this price would be unfair to the Company's
stockholders and reminded Mr. Antioco of Circle K's previous statements
regarding an unfriendly acquisition. Mr. Antioco acknowledged those statements
but said that he hoped for a friendly acquisition. He also advised Mr. Van Horn,
however, that if the Company did not agree to be acquired by Circle K within
three days, Circle K would attempt to seize control of the Company by nominating
a number of directors to be elected at the Company's annual stockholders'
meeting. Mr. Van Horn stated that he did not believe Circle K would be able to
gain control of the Board at the next annual meeting because of the Company's
staggered Board. Mr. Antioco indicated that Circle K believed it had found a way
to circumvent that provision. Later on August 8, Mr. Van Horn received a letter,
a copy of which is filed as Exhibit 17 hereto, from Circle K confirming and
describing the Circle K Proposal. On August 9, the Company engaged Merrill
Lynch, Pierce, Fenner & Smith Incorporated ("Merrill Lynch") to act as its
financial advisor.
On August 10, the Board met and determined that it would consider the
Circle K Proposal. Also at this meeting, the Board amended the Company's
Restated By-Laws (the "By-Laws") to increase the vote required to amend the
section of the By-Laws dealing with the number of directors of the Company or to
adopt a By-Law inconsistent with that section to 75% of the shares of Common
Stock eligible to vote at a stockholders' meeting (the "By-Law Amendment"). See
Item 8(a). Following this meeting, Mr. Van Horn called Mr. Antioco and told him
that the Company's Board was considering the Circle K Proposal.
On August 11, the Company received from Circle K a notice that, in
connection with the Company's next annual meeting of stockholders, Circle K
would propose an amendment to the By-Laws that would increase the number of
directors of the Company from eight to seventeen and would nominate a slate of
nine candidates for election as directors of the Company. The Company also
received notice from Bedford Falls Investors, L.P. ("Bedford"), a stockholder of
the Company, that it intended to nominate four persons for election as directors
of the Company, to propose, in effect, an amendment to the By-Laws to increase
the
3
<PAGE> 4
number of directors to be elected at the upcoming annual meeting to five and to
nominate a person for election to fill the additional directorship. See Item
8(b).
On August 31, the Company's Board met and unanimously determined to reject
the Circle K Proposal based in part on the opinion dated August 31, 1995 of
Merrill Lynch that, as of the date of such opinion and based upon and subject to
the matters set forth therein, the proposed cash consideration to be received by
the Company's stockholders pursuant to the Circle K Proposal was inadequate to
such stockholders from a financial point of view. Also at this meeting, the
Board adopted the Rights Agreement, which is described in Item 8(d) of this
Schedule, and authorized in concept certain agreements and the amendment of
certain employment contracts and benefit plans of the Company, which are
described in Annex A hereto.
On September 5, Circle K announced its intention to commence the Circle K
Offer and filed two lawsuits against the Company, which are described in Item
8(c) of this Schedule. On September 7, 1995, the Offeror commenced the Circle K
Offer.
After the close of business on September 14, 1995, the Company received a
letter from a third party setting forth an unsolicited proposal to acquire the
Company for cash at a significantly higher price than the Circle K Offer (the
"Additional Acquisition Proposal").
At the meeting held on September 18, 1995, the Board considered and
reviewed in detail the Circle K Offer and developed the recommendation set forth
in Item 4(a) of this Schedule. Also at that meeting, the Board reviewed and
discussed the Additional Acquisition Proposal. See also the final paragraphs of
Items 8(b) and 8(d).
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) Recommendation
THE BOARD HAS UNANIMOUSLY REJECTED THE CIRCLE K OFFER AS INADEQUATE AND NOT
IN THE BEST INTERESTS OF THE STOCKHOLDERS AND THE WARRANTHOLDERS OF THE COMPANY.
THE BOARD UNANIMOUSLY RECOMMENDS THAT ALL HOLDERS OF COMMON STOCK (AND
ASSOCIATED RIGHTS) AND WARRANTS REJECT THE CIRCLE K OFFER AND NOT TENDER THEIR
SECURITIES. A copy of the letter to the Company's stockholders and
warrantholders communicating the Board's recommendation and the press release,
the text of which is set out in Annex B to this Schedule, issued by the Company
on September 18, 1995 are filed as Exhibits 18 and 19 to this Schedule and are
incorporated herein by reference.
(b) Reasons for the Recommendation.
The Board met on September 18, 1995 to consider the Circle K Offer and
related matters. The Board considered the Company's business, financial
condition, current business strategy and future prospects, the long-term
business outlook in Texas, where all of the Company's stores are located, recent
and historical market prices for the Common Stock, the terms and conditions of
the Circle K Offer and other matters. In addition, the Company's management and
Merrill Lynch each reviewed and updated presentations made earlier to the Board.
Also, Merrill Lynch delivered to the Board its opinion dated September 18, 1995
that, as of the date of such opinion and based upon and subject to the matters
set forth therein, the proposed cash consideration to be received by the holders
of Common Stock and Warrants pursuant to the Circle K Offer was inadequate to
such holders, other than Circle K and the Offeror, from a financial point of
view.
In reaching the conclusions and recommendations with respect to the Circle
K Offer described above, the Board considered a number of factors including,
among other things, the following:
(i) The Board's familiarity with the Company's businesses, financial
condition and future prospects and the Company's opportunities to reap
substantial benefits in the future from the various strategic initiatives
that the Company has implemented over the past several years, which
benefits should accrue to the Company and its securityholders, not Circle
K;
(ii) The fact that the Company has been successfully pursuing a
long-term business strategy, and the Board's belief that pursuit of this
strategy would produce greater long-term value for the stockholders than
would the Circle K Offer;
4
<PAGE> 5
(iii) Significant recent developments involving the Company which
should materially enhance future growth and earnings prospects including:
(a) its implementation in the Dallas/Fort Worth market of Project
Breakthrough and the benefits of the scheduled roll out of Project
Breakthrough across the Company's entire store base, (b) the automated
teller machine agreement with NationsBank of Texas, N.A., under which an
automated teller machine will be installed in each of the Company's stores,
(c) the commercial fleet gasoline credit card arrangement that permits the
Company to accept the Wright Express Universal Fleet Card, and (d) the
initial results of operations of the Company's new concept store in the
Houston area;
(iv) The Company's recent results, including a threefold increase in
earnings for the fourth quarter of fiscal 1995 as compared with the same
period in the preceding fiscal year and a substantial increase in unaudited
earnings for the first two months of fiscal 1996 as compared with the same
period in the prior year (in each case excluding non-recurring gains and
losses);
(v) The written opinion, dated September 18, 1995, of Merrill Lynch
that, as of the date of such opinion, the proposed cash consideration to be
received by the holders of shares of Common Stock and the holders of
Warrants pursuant to the Circle K Offer is inadequate to such stockholders
and warrantholders, other than Circle K and the Offeror, from a financial
point of view (the full text of such opinion, which sets forth the
assumptions made, the matters considered and the limitations on the review
undertaken by Merrill Lynch, is included as Annex C hereto and is
incorporated herein by reference and should be read carefully in its
entirety by stockholders and warrantholders);
(vi) The significant conditionality of the Circle K Offer. The Circle
K Offer is conditioned, among other things, on the following: (A) there
being tendered and not withdrawn a number of shares of Common Stock and
Warrants which represents at least three-quarters of the shares outstanding
on a fully diluted basis, (B) Circle K being satisfied that the Rights are
invalid or inapplicable to the Circle K Offer and Circle K's proposed
second-step merger; (C) Circle K being satisfied that, after consummation
of the Circle K Offer, the restrictions on "Business Combinations"
contained in Section 203 of the Delaware General Corporation Law will not
apply to Circle K's proposed second-step merger, (D) Circle K being
satisfied that the Circle K Offer and the proposed second-step merger
comply with the requirements of Article V of the Company's Restated
Certificate of Incorporation (the "Charter"), (E) Circle K being satisfied
that it has received sufficient proxies pursuant to its proposed proxy
solicitation to increase the size of the Company's Board and to elect its
nominees as a majority of the members of the Company's Board, (F) the
Company not having entered into any employment, severance or similar
agreement or plan, or amendments thereto, with its employees, other than in
the ordinary course of business, that provide increased compensation or
benefits to such employees as a result of the Circle K Offer or any other
change in control of the Company, when in fact the Company already has
taken certain actions that may contravene this condition (see Annex A), (G)
Article IX of the Charter not causing the consummation of the second-step
merger to affect adversely the value of the Company, as determined in the
Offeror's sole discretion, and (H) a considerable number of further
conditions which are subject to Circle K's sole judgment or permit
termination of the Circle K Offer for developments which the Company
considers immaterial; and
(vii) The Additional Acquisition Proposal.
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 Circle K
Offer, 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.
(c) Other Actions.
At its September 18, 1995 meeting, the Board determined not to accept the
Additional Acquisition Proposal. However, given all available information,
including the Additional Acquisition Proposal and other
5
<PAGE> 6
indications of interest which the Company had received subsequent to August 8,
1995, the Board also considered and reviewed at the same meeting the
desirability of exploring and investigating other alternative transactions.
After careful consideration and consultation with management of the Company, the
Board instructed management of the Company and Merrill Lynch to explore the
Company's strategic alternatives, including a sale of the Company. The Company
intends to invite interested parties, including Circle K and the party which
made the other proposal, to participate in this process.
While the Board believes that the execution of its long-term business
strategy will create long-term shareholder value, it is committed to determining
whether a sale of the Company or some other alternative transaction will achieve
superior value for the Company's securityholders. Following the completion of
this process, the Board will evaluate all alternatives, including whether any
proposal to acquire the Company is in the best interests of the Company and its
securityholders. The Board may conclude that the best available alternative is
to remain a publicly owned company pursuing its existing strategy.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
Pursuant to an engagement letter dated August 9, 1995 (the "Engagement
Letter"), the Company has retained Merrill Lynch as its exclusive financial
advisor in connection with (a) any acquisition by a person or group of persons
of 5% or more of any class of the Company's equity securities; (b) any
solicitation of proxies or shareholder consents in opposition to, or without the
support of, the Board of Directors of the Company; or (c) any oral or written
offer or proposal (an "Acquisition Proposal") to the Company or any of its
stockholders (including, without limitation, the Circle K Proposal) relating to
an Acquisition Transaction (as defined below) or an acquisition of any or all of
the then outstanding voting capital stock of the Company, and generally in
connection with strategic, financial and stockholder relations matters. Merrill
Lynch also will assist the Company in analyzing and advise the Company with
respect to other transactions specified in the Engagement Letter (each, an
"Alternative Transaction").
"Acquisition Transaction" is defined in the Engagement Letter as, whether
effected in one transaction or a series of transactions and whether or not
resulting from an Acquisition Proposal, (a) any merger, consolidation,
reorganization or other business combination pursuant to which the business of
the Company is combined with that of one or more third parties, (b) the
acquisition, directly or indirectly, by one or more third parties (including,
without limitation, Circle K) of more than 50% of the outstanding voting capital
stock of the Company, by way of a tender or exchange offer, negotiated purchases
or other means or (c) the acquisition, directly or indirectly, by one or more
third parties (including, without limitation, Circle K) of all or a substantial
portion of the assets of, or of any right to all or a substantial portion of the
revenues or income of, the Company by way of a joint venture, negotiated
purchase, lease, license, exchange or other means. With respect to a transaction
described in clause (b), the fee payable to Merrill Lynch will be calculated as
if all of the then outstanding shares of capital stock of the Company on a fully
diluted basis (including stock options) were acquired in the transaction.
For such financial advisory services, the Company has agreed to pay Merrill
Lynch under the Engagement Letter the following fees: (1) a fee of $50,000,
payable in cash on the date of the Engagement Letter; (2) a fee in the amount of
$200,000, payable in cash upon the public announcement of any Acquisition
Proposal or Alternative Transaction; (3) a fee to be mutually agreed upon by the
Company and Merrill Lynch in good faith and based on fees paid to major
investment banks for similar services considering results achieved and efforts
expended, if, on June 30, 1996 neither of the following (i) and (ii) has
occurred: (i) a person or group owns or otherwise is the beneficial owner of a
majority of the Common Stock and other voting securities, if any, (as defined in
Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act")), of the Company, and (ii) the sale of all or substantially all of the
assets of the Company; and (4) if, during the period Merrill Lynch is retained
by the Company or within one year thereafter, (a) any Acquisition Transaction or
Alternative Transaction is consummated or (b) the Company enters into a
definitive agreement which subsequently results in an Acquisition Transaction or
Alternative Transaction, an additional fee calculated as follows: (i) if the
consideration per share of Common Stock to be received by holders thereof is
less than, or equal to, $17.00, then $1,500,000; or (ii) if the consideration
per share of Common Stock to be received by holders thereof is greater than
$17.00, then the sum of (x) the fee referred
6
<PAGE> 7
to in the immediately preceding clause (i) and (y) 2.5% of the difference
between the Purchase Price (as defined below), as calculated assuming the per
share consideration to holders of Common Stock of $17.00, and the Purchase
Price, as calculated assuming the per share consideration to be received by the
holders of Common Stock. Any such fee shall be payable in cash upon the closing
of such Acquisition Transaction or Alternative Transaction or, in the case of a
tender offer or exchange offer, upon the first purchase or exchange of shares
pursuant to such tender offer or exchange offer, as the case may be. "Purchase
Price" is defined in the Engagement Letter as an amount equal to the sum of the
aggregate fair market value of any securities issued and any other non-cash
consideration delivered (including, without limitation, any joint venture
interest delivered to, or retained by, the Company), and any cash consideration
paid, to or by the Company or to its security holders in connection with an
Acquisition Transaction or Alternative Transaction and the amount of all
indebtedness of the Company or any subsidiary of the Company, which is assumed
or acquired by a prospective purchaser or retired or defeased in connection with
such Acquisition Transaction or Alternative Transaction.
The Company has also agreed to reimburse Merrill Lynch for its reasonable
out-of-pocket expenses, including all reasonable fees and disbursements of its
legal counsel, incurred in connection with its representation of the Company,
and to indemnify Merrill Lynch and certain related persons against certain
liabilities resulting from or arising out of its performance under the
Engagement Letter.
The Company has retained Morrow & Co., Inc. ("Morrow") and Abernathy
MacGregor Scanlon ("Abernathy") to assist the Company with its communication
with its securityholders with respect to, and to provide other services to the
Company in connection with, the Circle K Offer. Morrow and Abernathy each will
receive reasonable and customary compensation for its services and reimbursement
of out-of-pocket expenses in connection therewith.
Neither the Company nor any person acting on its behalf currently intends
to employ, retain or compensate any other person to make solicitations or
recommendations to securityholders on their behalf concerning the Circle K
Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) Transactions in Securities.
To the knowledge of the Company, no transactions in the Common Stock or
Warrants have been effected during the past 60 days by the Company or any
executive officer, director, affiliate or subsidiary of the Company.
(b) No Intent to Tender.
To the knowledge of the Company, none of its executive officers, directors,
affiliates or subsidiaries currently intends to tender pursuant to the Circle K
Offer any shares of Common Stock or Warrants that are held of record or
beneficially owned by such persons.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Negotiations.
In conjunction with the Board's decision to explore strategic alternatives,
including a sale of the Company, and as an alternative to the Circle K Offer,
the Company expects to engage in discussions which may result in negotiations
which relate to or could result in (i) a sale of the Company, (ii) a purchase,
sale or transfer of a material amount of assets by the Company or any of its
subsidiaries or a sale or issuance of voting stock, rights or other securities
of the Company or any of its subsidiaries, (iii) a tender or exchange offer for,
or open market or privately negotiated purchases or other acquisitions of
securities by or of, the Company, (iv) a material change in the present
capitalization of the Company, or (v) a business combination, merger,
reorganization or other extraordinary transaction involving the Company or any
of its subsidiaries.
The Board has determined that disclosure with respect to the possible terms
of any transaction or proposal regarding strategic alternatives or of any
possible transactions or proposals of the type referred to in
7
<PAGE> 8
this Item 7, or the parties thereto, might jeopardize the institution or
continuation of any discussions or negotiations that the Company may conduct.
Accordingly, the Board, on September 18, 1995, adopted a resolution instructing
management not to disclose the possible terms of any such transactions or
proposals, or the parties thereto, unless and until an agreement in principle
relating thereto has been reached, except as required by law.
There can be no assurance that any of the foregoing will result in any
transaction being recommended to the Board or that any transaction that may be
recommended will be authorized or consummated, or that a transaction other than
those described herein will not be proposed, authorized or consummated. The
proposal, authorization, announcement or consummation of any transaction of the
type referred to in this Item 7 could adversely affect or result in withdrawal
of the Circle K Offer.
(b) Transactions and Other Matters.
Except as discussed above or elsewhere in this Schedule, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Circle K Offer that relate to or would result in one or more of
the events referred to in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
(a) By-Law Amendment.
Article X of the Company's Charter provides that the number of directors
shall be fixed by, and in the manner provided in, the By-Laws. It also provides
that the directors shall be divided into three classes. Section 1 of Article II
of the By-Laws provides, in part, that the "total number of authorized
directors . . . shall not be greater than eight." In view of the Circle K
Proposal and its potential impact on the Company and its stockholders, the Board
determined during its conference call meeting on August 10, 1995 to amend
Article VIII of the By-Laws to increase the number of votes of the holders of
Common Stock required to amend Section 1 of Article II of the By-Laws, or to
adopt a By-Law inconsistent therewith, from a majority to 75%.
(b) Proposed Proxy Solicitations.
The Offer to Purchase states that Circle K intends to file preliminary
proxy solicitation materials with the Securities and Exchange Commission (the
"Commission") for use in connection with the solicitation of proxies from
stockholders of the Company for use at the Company's 1995 Annual Meeting of
Stockholders which was scheduled for November 7, 1995 or any subsequent meeting
for the following purposes: (i) to amend the By-Laws to fix the number of
directors of the Company at 17 and to permit holders of 25% or more of the
shares of Common Stock to call special meetings of stockholders, (ii) to elect
nine individuals to serve as directors of the Company, and (iii) to repeal each
provision of the By-Laws or amendment thereto adopted subsequent to January 1,
1994 and prior to the effectiveness of such proposals. Circle K delivered to the
Company a notice with respect to these matters on August 11, 1995. The Offer to
Purchase also sets forth certain information with respect to positions and
actions which Circle K's nominees would take with respect to a sale of the
Company and the Circle K Offer.
On August 11, 1995, the Company also received from Bedford a proposal
regarding its intention to nominate four persons for election as directors at
the Company's 1995 Annual Meeting, to propose, in effect, an amendment to the
By-Laws to increase the number of directors to be elected at such meeting to
five and to nominate a person for election to fill the resulting directorship.
Copies of the foregoing proposals received from Circle K and Bedford are
filed as Exhibits 26 and 27 to this Schedule and are incorporated by reference
herein; the foregoing descriptions are qualified in their entirety by reference
to such Exhibits.
In view of the Company's decision to explore alternative transactions, the
Board has determined to postpone the Company's Annual Meeting, previously
scheduled for November 7, 1995, and the record date therefor, to undetermined
dates.
8
<PAGE> 9
(c) Litigation.
Delaware Chancery Court. On August 11, 1995, a purported class action
lawsuit was filed in the Chancery Court of New Castle County, Delaware against
the Company and its directors alleging that the directors, by adopting the
By-Law Amendment, carried out a preconceived scheme to entrench themselves in
office, infringed upon the stockholders' ability to choose between competing
slates for control of the Company and, therefore, breached or aided and abetted
breaches of their fiduciary duties to the Company and its stockholders. The
Complaint requested, among other things, that the By-Law Amendment be declared
void and that the directors be ordered to carry out their fiduciary duties to
the plaintiff stockholder and the other members of the class. The case is styled
Thomas J. McKula, Jr., on behalf of himself and all others similarly situated v.
William K. Wilde, et al., C.A. 14481 (the "McKula Case"). The Complaint in the
foregoing action is filed as Exhibit 21 to this Schedule and is incorporated by
reference herein; the foregoing description is qualified in its entirety by
reference to such Exhibit.
On September 5, 1995, Circle K filed a lawsuit against the Company and its
directors in the Chancery Court of New Castle County, Delaware alleging, among
other things, that the directors improperly refused to negotiate or consider any
bona fide offer for the Company and that such action, the By-Law Amendment and
the adoption by the directors of the Rights Agreement constituted unfair
dealing, improper interference with shareholder voting rights, a manipulation of
corporate machinery for personal purposes, an effort by the directors to
entrench themselves in their positions with the Company and a breach of the
directors' fiduciary duties to the Company's stockholders. The Complaint
requests, among other things, that the Court declare the By-Law Amendment and
the Rights Agreement void or enjoin the enforcement thereof and award
unspecified damages. This case is styled The Circle K Corporation v. National
Convenience Stores Incorporated, et al., C.A. 14518 (the "Circle K Case"). The
Complaint in the foregoing action is filed as Exhibit 24 to this Schedule and is
incorporated by reference herein; the foregoing description is qualified in its
entirety by reference to such Exhibit.
Counsel for the plaintiffs and the Company in the McKula Case and the
Circle K Case have agreed to an expedited discovery schedule in preparation for
a trial limited to the By-Law Amendment issue in Chancery Court that has been
scheduled by the Court for October 18, 1995. The Company intends to defend these
cases vigorously.
On August 18, 1995, another purported class action lawsuit was filed in the
Chancery Court of New Castle County, Delaware against the Company and its
directors alleging, among other things, that the directors improperly refused to
negotiate or consider any bona fide offer for the Company including the Circle K
Proposal and that such action and the By-Law Amendment constituted unfair
dealing, improper interference with shareholder voting rights, a manipulation of
corporate machinery for personal purposes, an attempt by the directors to
entrench themselves in their positions with the Company and a breach of the
directors' fiduciary duty to maximize shareholder value. The Complaint seeks,
among other things, injunctive relief against enforcement of the By-Law
Amendment, an order compelling the directors of the Company to carry out their
fiduciary duties to the plaintiff stockholder and the other members of the
class, and unspecified damages. The case is styled Crandon Capital Partners v.
V. H. Van Horn, et al., C.A. 14489, and as of September 18, 1995 service of
process has not been made on the Company or, to its knowledge, the other
defendants. The Complaint in the foregoing action is filed as Exhibit 22 to this
Schedule and is incorporated by reference herein; the foregoing description is
qualified in its entirety by reference to such Exhibit.
Delaware Federal Court. On September 5, 1995, Circle K filed another
lawsuit against the Company and its directors in the United States District
Court for the District of Delaware alleging, among other things, that the
omission of certain information concerning the By-Law Amendment from a press
release issued by the Company on August 14, 1995 and the omission of certain
information relating to a nomination of directors received from Bedford from a
Current Report on Form 8-K filed by the Company with the Commission on August
14, 1995 rendered the press release and the Form 8-K materially false and
misleading. Therefore, the Complaint alleges, the press release and the Form 8-K
violated Section 10(b) of the Exchange Act and Rule 10b-5 promulgated
thereunder. The Complaint requests, among other things, that the court compel
the defendants to make corrective disclosures and enjoin the defendants from
soliciting proxies of the Company's
9
<PAGE> 10
stockholders until such corrective action is completed. The case is styled The
Circle K Corporation v. National Convenience Stores Incorporated, et al., C.A.
95-537. The Complaint in the foregoing action is filed as Exhibit 23 to this
Schedule and is incorporated by reference herein; the foregoing description is
qualified in its entirety by reference to such Exhibit.
(d) Rights Agreement.
On August 31, 1995, the Board declared a dividend of one Right for each
outstanding share of Common Stock, payable on September 11, 1995 to stockholders
of record at the close of business on that date. Each Right entitles the
registered holder to purchase from the Company a unit consisting of one
one-hundredth of a share (a "Unit") of Series A Junior Participating Preferred
Stock, par value $1.00 per share (the "Preferred Stock"), at a Purchase Price of
$55 per Unit, subject to adjustment. The description and terms of the Rights are
set forth in the Rights Agreement.
Initially, the Rights will be attached to all certificates representing
outstanding shares of Common Stock, and no separate Rights Certificates will be
distributed. The Rights will separate from the Common Stock and a "Distribution
Date" will occur upon the earlier of (i) ten days following a public
announcement that a person or group of affiliated or associated persons (an
"Acquiring Person") has acquired, or obtained the right to acquire, beneficial
ownership of 10% or more of the outstanding shares of Common Stock (the date of
the announcement being the "Stock Acquisition Date"), or (ii) ten business days
(or such later date as may be determined by the Board before the Distribution
Date occurs) following the commencement of a tender offer or exchange offer that
would result in a person's becoming an Acquiring Person. Until the Distribution
Date, (a) the Rights will be evidenced by the Common Stock certificates
(together with a copy of a Summary of Rights or bearing the notation referred to
below) and will be transferred with and only with such Common Stock
certificates, (b) new Common Stock certificates issued after September 11, 1995
will contain a notation incorporating the Rights Agreement by reference and (c)
the surrender for transfer of any certificate for Common Stock outstanding (with
or without a copy of the Summary of Rights) will also constitute the transfer of
the Rights associated with the Common Stock represented by such certificate.
The Company, its subsidiaries and their employee benefit plans will not at
any time be deemed Acquiring Persons.
The Rights are not exercisable until the Distribution Date and will expire
at the close of business on August 31, 2005, unless earlier redeemed or
exchanged by the Company as described below. Pursuant to the Rights Agreement,
the Company reserves the right to require prior to the occurrence of a
Triggering Event (as defined below) that, upon any exercise of Rights, a number
of Rights be exercised so that only whole shares of Preferred Stock will be
issued.
As soon as practicable after the Distribution Date, Rights Certificates
will be mailed to holders of record of Common Stock as of the close of business
on the Distribution Date and, from and after the Distribution Date, the separate
Rights Certificates alone will represent the Rights. All shares of Common Stock
issued prior to the Distribution Date will be issued with Rights. Shares of
Common Stock issued after the Distribution Date in connection with certain
employee benefit plans or upon exercise or conversion of certain securities will
be issued with Rights. Except as otherwise determined by the Board, no other
shares of Common Stock issued after the Distribution Date will be issued with
Rights.
In the event (a "Flip-In Event") that a Person becomes an Acquiring Person,
each holder of a Right will thereafter have the right to receive, upon exercise
of such Right, a number of shares of Common Stock (or, in certain circumstances,
cash, property or other securities of the Company) having a Current Market Price
(as defined in the Rights Agreement) equal to two times the exercise price of
the Right. Notwithstanding any of the foregoing, following the occurrence of any
Flip-In Event, all Rights that are, or (under certain circumstances specified in
the Rights Agreement) were, beneficially owned by any Acquiring Person (or by
certain related parties) will be null and void in the circumstances set forth in
the Rights Agreement. However, Rights are not exercisable following the
occurrence of any Flip-In Event until such time as the Rights are no longer
redeemable by the Company as set forth below.
10
<PAGE> 11
In the event (a "Flip-Over Event") that, at any time on or after the Stock
Acquisition Date, (i) the Company is acquired in a merger or other business
combination transaction or (ii) 50% or more of the Company's assets or earning
power is sold or transferred, each holder of a Right (except Rights that
previously have been voided as set forth above) shall thereafter have the right
to receive, upon exercise, a number of shares of common stock of the acquiring
company having a Current Market Price equal to two times the exercise price of
the Right. Flip-In Events and Flip-Over Events are collectively referred to as
"Triggering Events."
At any time until ten days following the Stock Acquisition Date, the
Company may redeem the Rights in whole, but not in part, at a price of $.01 per
Right, payable, at the option of the Company, in cash, shares of Common Stock or
such other consideration as the Board may determine. Immediately upon the
effectiveness of the action of the Board ordering redemption of the Rights, the
Rights will terminate and the only right of the holders of Rights will be to
receive the $.01 redemption price.
At any time after the occurrence of a Flip-In Event, the Company may
exchange the Rights (other than Rights owned by an Acquiring Person or an
affiliate or an associate of an Acquiring Person, which will have become void),
in whole or in part, at an exchange ratio of one share of Common Stock, and/or
other equity securities deemed to have the same value as one share of Common
Stock, per Right, subject to adjustment.
Until a Right is exercised, the holder thereof, as such, will have no
rights as a stockholder of the Company, including, without limitation, the right
to vote or to receive dividends. While the distribution of the Rights will not
be taxable to stockholders or to the Company, stockholders may, depending upon
the circumstances, recognize taxable income in the event that the Rights become
exercisable for Common Stock (or other consideration) of the Company or for the
common stock of the acquiring company as set forth above or are exchanged as
provided in the preceding paragraph.
Other than those provisions relating to the principal economic terms of the
Rights, any of the provisions of the Rights Agreement may be amended by the
Board prior to the Distribution Date. Thereafter, the provisions of the Rights
Agreement may be amended by the Board in order to cure any ambiguity, defect or
inconsistency, to make changes that do not materially adversely effect the
interests of holders of Rights (excluding the interests of any Acquiring Person
and certain related parties), or to shorten or lengthen any time period under
the Rights Agreement; provided, however, that no amendment to lengthen the time
period governing redemption shall be made at such time as the Rights are not
redeemable.
A copy of the Rights Agreement is filed as Exhibit 25 to this Schedule.
This summary description of the Rights does not purport to be complete and is
qualified in its entirety by reference to the Rights Agreement, which is
incorporated herein by reference.
The Board, at its September 18, 1995 meeting, adopted a resolution pursuant
to the Rights Agreement that has the effect of providing that the Distribution
Date would be deferred until the earlier of (i) 10 days after the Stock
Acquisition Date or (ii) such date as may be subsequently determined by the
Board.
(e) Charter Provisions.
Vote Required for Certain Matters. The Company's Charter provides that the
holders of at least two-thirds of the outstanding shares of the Common Stock
must approve the following actions: (i) amendment of the Charter; (ii) certain
mergers or consolidations of the Company; (iii) the sale, lease or exchange of
all or substantially all of the property and assets of the Company; or (iv) the
dissolution, or the revocation of a dissolution, of the Company.
Section 382 Transfers. Article V of the Charter provides that until July 1,
1996, (i) any attempted sale, transfer, assignment, conveyance, grant, pledge,
gift or other disposition of any share or shares of Common Stock (within the
meaning of Section 382 of the Internal Revenue Code of 1986 (the "Code")), or
any option or right to purchase such stock, as defined in the Treasury
Regulations under Section 382 of the Code (each, a "Section 382 Transfer"), to
any person or entity (or group of persons or entities acting in concert) who
either directly or indirectly owns or would be treated as owning, or whose
shares are or would be attributed to any person or entity who directly or
indirectly owns or would be treated as owning, in either case prior to the
11
<PAGE> 12
purported transfer and after giving effect to the applicable attribution rules,
5% or more of the value of the outstanding stock of the Company or otherwise
treated as a 5% stockholder (within the meaning of Section 382 of the Code)
(collectively, a "Five Percent Stockholder"), regardless of the percent or the
value of the stock owned, shall be void ab initio insofar as it purports to
transfer ownership or rights in respect of such stock to the purported
transferee. In addition, the Charter provides that any attempted Section 382
Transfer to any person or entity (or group of persons or entities acting in
concert) who is not a Five Percent Stockholder but who would as a result of the
purported transfer and after giving effect to the applicable attribution rules
become a Five Percent Stockholder, shall, as to that number of shares causing
such person or entity to be a Five Percent Stockholder, be void ab initio
insofar as it purports to transfer ownership or rights in respect of such stock
to the purported transferee.
These restrictions on transfer shall not, however, prevent a valid transfer
if (A) the transferor obtains the written approval of the Board and provides the
Company with an opinion of counsel satisfactory to the Company that (assuming,
as of the date of such opinion, the full exercise of (i) all warrants issued
under, and (ii) any options granted pursuant to any stock option plan approved
by, the Company's Revised Fourth Amended and Restated Joint Plan of
Reorganization) the transfer shall not result in the application of any tax law
limitation on the use of the Company's loss carryforwards or other tax
attributes or (B) a tender offer, within the meaning of the Exchange Act and
pursuant to the rules and regulations thereof, is made by a bona fide third
party purchaser to purchase at least 66 2/3% of the issued and outstanding
Common Stock and the offeror (i) agrees to effect, within 90 days of the
consummation of the tender offer, a back-end merger in which all non-tendering
shareholders would receive the same consideration as paid in the tender offer,
and (ii) has received the tender of sufficient shares to effect such merger. The
Company may rely and shall be protected in relying on its stockholder lists and
stock transfer records for all purposes relating to such notices, voting,
payment of dividend or other communications or distributions to its
stockholders.
The Charter provides that in the absence of special Board approval, a
purported transfer of shares in excess of the shares that can be transferred
pursuant to the Charter (the "Prohibited Shares") to the purported acquiror (the
"Purported Acquiror") is not effective to transfer ownership of such Prohibited
Shares. On demand by the Company, which demand must be made within 30 days of
the time the Company learns of the transfer of the Prohibited Shares, a
Purported Acquiror must transfer any certificate or other evidence of ownership
of the Prohibited Shares within the Purported Acquiror's possession or control,
together with any dividends or other distributions (collectively,
"Distributions") that were received by the Purported Acquiror from the Company
with respect to the Prohibited Shares, to an agent designated by the Company
(the "Agent"). The Agent will sell the Prohibited Shares in an arm's length
transaction, and the Purported Acquiror will receive an amount of sales proceeds
not in excess of the price paid or consideration surrendered by the Purported
Acquiror for the Prohibited Shares (or the fair market value of the Prohibited
Shares at the time of any attempted transfer to the Purported Acquiror by gift,
inheritance, or a similar transfer). If the Purported Acquiror has resold the
Prohibited Shares prior to receiving the Company's demand to surrender the
Prohibited Shares to the Agent, the Purported Acquiror shall be deemed to have
sold the Prohibited Shares as an agent for the initial transferor, and shall be
required to transfer to the Agent any proceeds of such sale and any
Distributions.
If the initial transferor can be identified, the Agent will pay to it any
sales proceeds in excess of those due to the Purported Acquiror, together with
any Distributions received by the Agent. If the initial transferor cannot be
identified within 90 days, the Agent may pay any such amounts to a charity of
its choosing. In no event shall amounts paid to the Agent inure to the benefit
of the Company or the Agent, but such amounts may be used to cover expenses of
the Agent in attempting to identify the initial transferor. If the Purported
Acquiror fails to surrender the Prohibited Shares within the next 30 business
days from the demand by the Company, then the Company will institute legal
proceedings to compel the surrender. The Company shall be entitled to damages,
including reasonable attorneys' fees and costs, from the Purported Acquiror, on
account of such purported transfer.
Fair Value Provision. Article IX of the Charter provides modified appraisal
rights to all stockholders who comply with the provisions of Section 262 of the
Delaware General Corporation Law in the event of certain transactions (each, an
"Interested Transaction") with an "Interested Stockholder." An "Interested
12
<PAGE> 13
Stockholder" (as more fully described in the Charter) includes a person who is
(i) a beneficial owner of at least 15% of the Common Stock; (ii) an Affiliate
(as defined in Rule 12b-2 under the Exchange Act) who at any time within the two
year period immediately prior to the date of the first public announcement (the
"Announcement Date") of the proposed Interested Transaction was the beneficial
owner of at least 15% of the Common Stock; or (iii) the assignee or successor,
in the course of a transaction or series of transactions not involving a public
offering within the meaning of the Securities Act of 1933, to any shares of
Common Stock which were at any time within the two year period immediately prior
to an Announcement Date owned by an Interested Stockholder. Interested
Transactions include (i) the merger or consolidation of the Company with (x) any
Interested Stockholder or (y) any other corporation which is, or after such
merger or consolidation would be, an Affiliate of an Interested Stockholder;
(ii) the sale, lease or exchange of all or substantially all of the property and
assets of Company (in one transaction or a series of transactions) to or with
any Interested Stockholder or any Affiliate thereof; or (iii) any amendment of
the Charter which effects a reclassification of securities or a recapitalization
of the Company, which has the effect, directly or indirectly, of increasing the
proportionate share of the outstanding shares of any class of voting stock of
the Company which is beneficially owned by any Interested Stockholder or any
Affiliate thereof.
Upon the occurrence of an Interested Transaction, any stockholder of the
Company who complies with the requirements of Section 262 will be entitled to an
appraisal by the Court of Chancery of the State of Delaware of the "fair value"
of his shares of Common Stock. If within 115 days after the effective date of an
Interested Transaction, no stockholder of the Company, who has complied with the
provisions of Section 262 and is otherwise entitled to appraisal rights, has
filed a petition in the Court of Chancery demanding a determination of the fair
value of the Common Stock owned by all stockholders similarly situated, the
Company is required within 120 days after the effective date of an Interested
Transaction, to file such a petition. In any such appraisal proceeding initiated
by a stockholder or by the Company pursuant to Section 262 relating to an
Interested Transaction, the Company is required to file appropriate pleadings
which confirm and at all stages of the proceeding vigorously assert that the
fair value (as determined under the Charter) of each share of Common Stock
subject to such proceeding is not less than the highest amount determined under
the Charter. The price determined pursuant to the Charter would be the highest
of several alternatives, including the highest price per share paid by the
Interested Stockholder for any share of Common Stock in the preceding two years.
Further, if the Court of Chancery determines in any appraisal proceeding
relating to any of the foregoing transactions that the fair value of any share
of Common Stock is less than the Minimum Fair Value Per Share (as defined in and
determined in accordance with the Charter), the Company nonetheless is required
to pay to stockholders entitled to receive the fair value of their shares in
such appraisal proceeding an amount per share equal to the Minimum Fair Value
Per Share. The appraisal rights provided by the Charter also would extend to
preferred stock of the Company, if any were outstanding. The affirmative vote of
the holders of at least 66 2/3% of the shares of Common Stock entitled to vote
and not beneficially owned by an Interested Stockholder or its affiliates,
voting as a class, is necessary to amend, repeal, or adopt provisions
inconsistent with, the provisions of the Charter providing for modified
appraisal rights.
The Company's Charter is filed as Exhibit 28 hereto and is incorporated
herein by reference. The foregoing descriptions are qualified in their entirety
by reference to such Exhibit.
(f) Delaware Takeover Statute.
Section 203 of the Delaware General Corporation Law may have the effect of
significantly delaying the Offeror's ability to acquire the entire equity
interest of the Company.
In general, Section 203 prevents an "Interested Stockholder" (defined
generally as a person with 15% or more of a corporation's outstanding voting
stock other than any person who owned shares in excess of the 15% limitation on,
or acquired such shares pursuant to a tender offer commenced prior to, December
23, 1987) from engaging in a "Business Combination" (defined as a variety of
transactions, including mergers, as set forth below) with a Delaware corporation
for three years following the date such person became an Interested Stockholder
unless: (i) before such person became an Interested Stockholder, the board of
directors of the corporation approved the transaction in which the Interested
Stockholder became an Interested Stockholder or approved the Business
Combination; (ii) upon consummation of the transaction which resulted in the
13
<PAGE> 14
Interested Stockholder becoming an Interested Stockholder, the Interested
Stockholder owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced (excluding stock held by
directors who are also officers and employee stock ownership plans in which
employee participants do not have the right to determine confidentially whether
shares held subject to the plan will be tendered in a tender or exchange offer);
or (iii) following the transaction in which such person became an Interested
Stockholder, the Business Combination is (x) approved by the board of directors
of the corporation and (y) authorized at a meeting of stockholders by the
affirmative vote of the holders of two-thirds of the outstanding voting stock of
the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (i) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203, (ii)
the corporation, by action of its board of directors, adopts an amendment to its
bylaws within 90 days of February 2, 1988, the effective date of Section 203,
expressly electing not to be governed by Section 203, which amendment may not be
further amended by the board of directors, (iii) the corporation, by action of
its stockholders, adopts an amendment to its certificate of incorporation or
bylaws expressly electing not to be governed by Section 203, provided that, in
addition to any other vote required by law, such amendment to the certificate of
incorporation or bylaws must be approved by the affirmative vote of a majority
of the shares entitled to vote (such an amendment would not be effective until
12 months after the adoption of such amendment and would not apply to any
Business Combination between the corporation and any person who became an
Interested Stockholder of the corporation on or prior to the date of such
adoption), (iv) the corporation does not have a class of voting stock that is
(x) listed on a national securities exchange, (y) authorized for quotation on an
inter-dealer quotation system of a registered national securities association or
(z) held of record by more than 2,000 stockholders, unless any of the foregoing
results from action taken, directly or indirectly, by an Interested Stockholder
or from a transaction in which a person becomes an Interested Stockholder, or
(v) a stockholder becomes an Interested Stockholder "inadvertently" and
thereafter divests itself of a sufficient number of shares so that such
stockholder ceases to be an Interested Stockholder. Section 203 would also not
apply to certain Business Combinations proposed by an Interested Stockholder
following the announcement or notification of one of certain extraordinary
transactions involving the corporation and a person who had not been an
Interested Stockholder during the three years preceding the date of the Business
Combination or who became an Interested Stockholder with the approval of a
majority of the corporation's board of directors.
Section 203 provides that during such three-year period following the date
a person becomes an Interested Stockholder, the corporation may not merge or
consolidate with an Interested Stockholder or any affiliate or associate
thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (i) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all the outstanding stock of the corporation, (ii) any
transaction which results in the issuance or transfer by the corporation or by
certain subsidiaries thereof of any stock of the corporation to the Interested
Stockholder, subject to certain exceptions, (iii) any transaction involving the
corporation or certain subsidiaries thereof which has the effect of increasing
the proportionate share of the stock of any class or series, or securities
convertible into the stock of any class or series, of the corporation or any
such subsidiary which is owned directly or indirectly by the Interested
Stockholder (except as a result of immaterial changes due to fractional share
adjustments or as a result of any purchase or redemption of any shares of stock
not caused, directly or indirectly, by the Interested Stockholder), or (iv) any
receipt by the Interested Stockholder of the benefit (except proportionately as
a stockholder of such corporation) of any loans, advances, guarantees, pledges
or other financial benefits provided by or through the corporation.
Unless the Offeror acquires a sufficient amount of securities pursuant to
the Circle K Offer to satisfy the share percentage provision of Section 203 or
unless the provisions of clause (iii) of the second preceding paragraph or
clause (i) or (iii) of the third preceding paragraph are complied with, the
Offeror would be unable to effect a merger with the Company for a period of
three years from the consummation of the Circle K
14
<PAGE> 15
Offer and the Offeror and Circle K would be prevented from engaging in certain
other transactions with the Company by Section 203.
If the Offeror acquires a sufficient amount of securities pursuant to the
Circle K Offer to satisfy the 85 percent requirement of Section 203, the Offeror
would be able to effect a merger with the Company without regard for the
three-year waiting period.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- -------------
<S> <C>
Exhibit 1 Pages 8 through 11 of the Proxy Statement dated September 27, 1994 relating to
the Company's Annual Meeting of Stockholders held November 10, 1994.
Exhibit 2 Amended and Restated National Convenience Stores Incorporated Officers'
Retirement Plan effective as of August 31, 1995 (incorporated by reference from
Exhibit 99.4 to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 3 Amended and Restated Trust under National Convenience Stores Incorporated
Officers' Retirement Plan effective as of August 31, 1995, by and between the
Company and Bank One, Texas, N.A. (incorporated by reference from Exhibit 99.5
to the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 4 Amended and Restated National Convenience Stores Incorporated Directors'
Retirement Plan effective as of August 31, 1995 (incorporated by reference from
Exhibit 99.6 to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 5 Amended and Restated Trust under National Convenience Stores Incorporated
Directors' Retirement Plan effective as of August 31, 1995, by and between the
Company and Bank One, Texas, N.A. (incorporated by reference from Exhibit 99.7
to the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 6 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective from and after July 1, 1995 by and between the Company and
V.H. Van Horn (incorporated by reference from Exhibit 99.10 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 7 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective as of May 18, 1993 by and between the Company and A.J.
Gallerano (incorporated by reference from Exhibit 99.11 to the Company's
Current Report on Form 8-K filed on September 15, 1995).
Exhibit 8 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective as of May 18, 1993 by and between the Company and Arnold Van
Zanten (incorporated by reference from Exhibit 99.12 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 9 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective as of May 18, 1993 by and between the Company and C.R.
Wortham (incorporated by reference from Exhibit 99.13 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 10 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective as of May 18, 1993 by and between the Company and Brian
Fontana (incorporated by reference from Exhibit 99.14 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 11 Agreement Amending and Restating Employment Agreement executed as of August 31,
1995 but effective as of October 31, 1994 by and between the Company and
Douglas B. Binford (incorporated by reference from Exhibit 99.15 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
</TABLE>
15
<PAGE> 16
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- -----------
<S> <C>
Exhibit 12 Employment Agreement executed as of March 21, 1995 but effective as of February
1, 1995 by and between the Company and Janice E. Bryant (incorporated by
reference from Exhibit 99.16 to the Company's Current Report on Form 8-K filed
on September 15, 1995).
Exhibit 13 Form of Director Agreement effective as of August 31, 1995 by and between the
Company and each of Richard C. Steadman, Dunbar N. Chambers, Jr., Charles J.
Luellen, Raymond W. Oeland, Jr., Lionel Sosa, Robert B. Stobaugh, and William
K. Wilde (incorporated by reference from Exhibit 99.9 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 14 Twenty-second Amendment to the Company's Profit Sharing Plan and Trust
effective as of July 1, 1995 (incorporated by reference from Exhibit 99.8 to
the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 15 Form of Indemnification Agreement for officers and directors of the Company
dated as of July 18, 1986 (incorporated by reference from Exhibit 10.7 to the
Company's Annual Report on Form 10-K for the year ended June 30, 1987
(Commission File No. 1-7936)).
Exhibit 16 The Company's 1993 Non-Qualified Stock Option Plan dated as of March 9, 1993
(incorporated by reference from Exhibit 10(b) the Company's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1993).
Exhibit 17 Letter dated August 8, 1995 from The Circle K Corporation to V.H. Van Horn.
Exhibit 18* Letter to National Convenience Stores Incorporated stockholders and
warrantholders dated September 19, 1995.
Exhibit 19* Press release issued by National Convenience Stores Incorporated on September
19, 1995.
Exhibit 20* Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated September
18, 1995.
Exhibit 21 Class Action Complaint, Thomas J. McKula, Jr., on behalf of himself and all
others similarly situated v. William K. Wilde, et al., C.A. 14481 (Chancery
Court for the State of Delaware in and for New Castle County) (as filed August
15, 1995) (incorporated by reference from Exhibit 99.3 to the Company's Current
Report on Form 8-K dated August 11, 1995).
Exhibit 22 Class Action Complaint, Crandon Capital Partners v. V.H. Van Horn, et al., C.A.
14489 (Chancery Court of the State of Delaware in and for New Castle County)
(as filed August 18, 1995) (incorporated by reference from Exhibit 99.1 to the
Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 23 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 95-537 (U.S. District Court for the District of
Delaware) (as filed September 5, 1995) (incorporated by reference from Exhibit
99.2 to the Company's Current Report on Form 8-K filed on September 15, 1995).
Exhibit 24 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 14518 (Chancery Court of the State of Delaware in
and for New Castle County) (as filed September 5, 1995) (incorporated by
reference from Exhibit 99.3 to the Company's Current Report on Form 8-K filed
on September 15, 1995).
Exhibit 25 Rights Agreement dated as of August 31, 1995 between the Company and Boatmen's
Trust Company, as Rights Agent (incorporated by reference from Exhibit 4.1 to
the Company's Current Report on Form 8-K dated August 31, 1995).
Exhibit 26 (a) Letter dated August 10, 1995 from The Circle K Corporation to Mr. A. J.
Gallerano (incorporated by reference from Exhibit 99.1(a) to the Company's
Current Report on Form 8-K dated August 11, 1995).
(b) Letter dated August 10, 1995 from Cede & Co., indirectly on behalf of The
Circle K Corporation to Mr. A. J. Gallerano, including the exhibits thereto
(incorporated by reference from Exhibit 99.1(b) to the Company's Current
Report on Form 8-K dated August 11, 1995).
</TABLE>
16
<PAGE> 17
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
---------- -----------
<S> <C>
Exhibit 27 (a) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to Mr. V.
H. Van Horn (incorporated by reference from Exhibit 99.2(a) to the Company's
Current Report on Form 8-K dated August 11, 1995).
(b) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to the
Company, including the exhibits (incorporated by reference from Exhibit 99.2(b)
to the Company's Current Report on Form 8- K dated August 11, 1995).
Exhibit 28 The Company's Restated Certificate of Incorporation dated March 9, 1993
(incorporated by reference from Exhibit 2.1 to the Company's Current Report on
Form 8-K dated March 3, 1993).
</TABLE>
---------------
* Included in copy sent to holders of Common Stock and Warrants.
17
<PAGE> 18
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
NATIONAL CONVENIENCE STORES
INCORPORATED
By: /s/ V. H. VAN HORN
------------------------------------
V. H. Van Horn
President and Chief Executive
Officer
Dated: September 19, 1995
18
<PAGE> 19
ANNEX A
SUMMARY COMPENSATION TABLE
The following table sets forth information concerning all compensation for
services rendered in all capacities to the Company during the fiscal years
indicated for the chief executive officer and the four other most highly
compensated executive officers of the Company who were serving as such on
September 18, 1995.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
----------------------------------- COMPENSATION
FISCAL OTHER ANNUAL ------------ ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION OPTIONS(2) COMPENSATION(3)
------------------------------- ------ -------- -------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
V. H. Van Horn................. 1995 $418,461 $504,000 (1) 0 $75,600
President and CEO 1994 400,000 133,000 (1) 0 20,578
1993 400,000 200,000 (1) 150,000 0
A. J. Gallerano................ 1995 $190,400 $194,922 (1) 0 $29,238
Senior Vice President,
General Counsel and 1994 182,000 67,760 (1) 0 5,759
Secretary 1993 182,000 103,980 (1) 60,000 0
C. R. Wortham, Jr. ............ 1995 $183,077 $187,425 (1) 0 $28,114
Senior Vice President - Real 1994 175,000 81,500 (1) 0 7,500
Estate and Gasoline 1993 172,405 99,750 (1) 60,000 0
Arnold Van Zanten.............. 1995 $162,154 $166,005 (1) 0 $24,901
Senior Vice President - 1994 155,000 102,900 (1) 0 11,685
Administration 1993 155,000 88,350 (1) 60,000 0
Brian Fontana.................. 1995 $130,769 $111,563 (1) 0 $16,734
Vice President - 1994 115,519 86,200 (1) 0 10,763
Chief Financial Officer 1993 89,234 16,200 (1) 30,000 0
</TABLE>
---------------
(1) The officers receive certain perquisites such as car allowances and
insurance benefits; however, the value of such perquisites did not exceed
the lesser of $50,000 or 10% of the officer's salary and bonus.
(2) All options granted during fiscal 1993 were granted pursuant to the
Company's 1993 Non-Qualified Option Plan, which was implemented pursuant to
the Plan of Reorganization.
(3) The amounts presented as All Other Compensation include the amounts the
Company contributed or accrued for the accounts of the executive officers in
connection with (i) the defined contribution feature of the Company's
Officers' Retirement Plan (see "Officers' Retirement Plan"), and (ii) the
Company's 401(k) Profit Sharing Plan (see "Profit Sharing Plan").
1993 OPTION PLAN
The Company maintains the National Convenience Stores Incorporated 1993
Non-Qualified Stock Option Plan (the "Option Plan"). The Option Plan provides
for the issuance of options to purchase up to a maximum of 900,000 shares of
Common Stock to directors, management employees (including officers) and other
key employees of the Company. The Plan is administered by the Board of
Directors. Pursuant to the Company's Plan of Reorganization and the Option Plan,
options covering a total of 865,000 shares of Common Stock had been granted to
employees and directors of the Company as of June 30, 1995, each of which grants
was subject to a three-year vesting schedule. Any such options not already
vested will vest upon a change of control (as defined in the Option Plan) of the
Company. Except as described below, the exercise price for such options is
$10.50 per share. No options were granted to any of the officers named in the
Summary Compensation Table during fiscal 1995.
A-1
<PAGE> 20
Aggregated Option Exercises in Fiscal 1995 and Fiscal Year-End Option Values
The following table sets forth certain information concerning the exercise
in fiscal 1995 of options to purchase Common Stock by the individuals named in
the Summary Compensation Table and the unexercised options to purchase Common
Stock held by such individuals at June 30, 1995.
<TABLE>
<CAPTION>
VALUE OF
NUMBER NUMBER OF UNEXERCISED
OF UNEXERCISED IN-THE-MONEY
SHARES OPTIONS AT OPTIONS
ACQUIRED 6/30/95 AT 6/30/95 (1)
ON VALUE ------------------------- --------------------------
NAME EXERCISE REALIZED EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- -------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
V. H. Van Horn.................. 0 $0 100,000/50,000 $212,500/$106,250
A. J. Gallerano................. 0 $0 40,000/20,000 $85,000/$42,500
C. R. Wortham, Jr............... 0 $0 40,000/20,000 $85,000/$42,500
Arnold Van Zanten............... 0 $0 40,000/20,000 $85,000/$42,500
Brian Fontana................... 0 $0 20,000/10,000 $42,500/$21,250
</TABLE>
---------------
(1) The value has been calculated based on the closing price of the Common Stock
on The New York Stock Exchange on June 30, 1995 as reported in The Wall
Street Journal ($12.625) less the relevant exercise price per share,
multiplied by the relevant number of shares. On September 15, 1995 the
closing price of the Common Stock was $21 1/2 per share.
OFFICERS' RETIREMENT PLAN
The Company maintains an Officers' Retirement Plan which was amended and
restated effective August 31, 1995. Participation in the Officers' Retirement
Plan is limited to management personnel who have a significant impact upon the
formulation of the Company's policies and its profitability. Pension benefits
under the Officers' Retirement Plan are determined primarily by average final
compensation and credited years of service, up to a maximum of 30 years. The
following Pension Plan Table shows estimated annual pension benefits payable
upon retirement in specified compensation and years of service classifications,
assuming retirement at age 65.
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
AVERAGE --------------------------------------------------------------------------
EARNINGS 5 10 15 20 25 30
------------------------- --------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
$ 200,000............... $ 20,000 $ 40,000 $ 60,000 $ 80,000 $100,000 $120,000
400,000............... 40,000 80,000 120,000 160,000 200,000 240,000
600,000............... 60,000 120,000 180,000 240,000 300,000 360,000
800,000............... 80,000 160,000 240,000 320,000 400,000 480,000
1,000,000............... 100,000 200,000 300,000 400,000 500,000 600,000
1,200,000............... 120,000 240,000 360,000 480,000 600,000 720,000
</TABLE>
The compensation covered by the Officers' Retirement Plan is the officer's
salary as reported in the Summary Compensation Table plus any bonuses earned in
a fiscal year. The estimated credited years of service for each of the named
executive officers are as follows: Mr. Van Horn: 30 years; Mr. Gallerano: 16
years; Mr. Wortham: 17 years; Mr. Van Zanten: 14 years; and Mr. Fontana: 5
years. The basis on which pension benefits are computed at a participant's
retirement at age 65 is joint-life annuity amounts for married participants and
single-life annuity amounts for single participants. The pension benefits shown
in the table are not subject to any reduction for Social Security or other
offset amounts. The Officers' Retirement Plan permits participants to elect, in
advance, to receive a lump sum distribution, or three equal annual installments,
at retirement in lieu of the pension benefits otherwise payable over a period of
time to such participant.
Prior to August 31, 1995, the Officers' Retirement Plan included a defined
contribution feature pursuant to which the Company has committed, through the
year ended June 30, 1995, to contribute an annual amount for the benefit of each
participant equal to 15% of such participant's annual bonus, if any ("Company
15%
A-2
<PAGE> 21
Bonus Contribution"). For the year ended June 30, 1995, the amounts which the
Company contributed for the named executive officers were as follows: Mr.
VanHorn -- $75,600; Mr. Gallerano -- $29,238; Mr. Wortham -- $28,114; Mr. Van
Zanten -- $24,901; and Mr. Fontana -- $16,734. As of August 31, 1995, this was
discountinued and the annual bonus earned is included in average base earnings.
Prior to the Officers' Retirement Plan being amended effective August 31,
1995, a participant in the Officers' Retirement Plan became fully vested in his
pension benefit upon the later to occur of (i) December 15, 1998, or (ii) the
participant attaining 5 years of credited service. Effective August 31, 1995,
the Officers' Retirement Plan was amended to provide that participants become
fully vested in their pension benefits after five years of credited service. A
participant becomes fully vested in the Company 15% Bonus Contribution upon the
participant remaining an employee for three years after such contribution is
credited to the participant. In addition, upon the occurrence of a Change in
Control (as defined below) a participant shall become fully vested in his
pension benefit and Company 15% Bonus Contribution. The definition of the term
"Change in Control" was amended effective August 31, 1995 to include additional
events; and, as so amended, means the occurrence with respect to the Company of
any of the following events:
(i) a report on Schedule 13D is filed with the Securities and Exchange
Commission (the "SEC") pursuant to Section 13(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), disclosing that any person,
entity or group (within the meaning of Section 13(d) or 14(d) of the
Exchange Act), other than the Company (or one of its subsidiaries) or any
employee benefit plan sponsored by the Company (or one of its
subsidiaries), is the beneficial owner (as such term is defined in Rule
13d-3 promulgated under the Exchange Act), directly or indirectly, of 20
percent or more of the outstanding shares of common stock of the Company or
the combined voting power of the then-outstanding securities of the
Company;
(ii) a report is filed by the Company disclosing a response to either
Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Exchange
Act, or to Item 1 of Form 8-K promulgated under the Exchange Act, or to any
similar reporting requirement subsequently promulgated by the SEC;
(iii) any person, entity or group (within the meaning of Section 13(d)
or 14(d) of the Exchange Act), other than the Company (or one of its
subsidiaries) or any employee benefit plan sponsored by the Company (or one
of its subsidiaries), shall purchase securities pursuant to a tender offer
or exchange offer to acquire any common stock of the Company (or securities
convertible into common stock) for cash, securities or any other
consideration, provided that after consummation of the offer, the person,
entity or group in question is the beneficial owner (as such term is
defined in Rule 13d-3 promulgated under the Exchange Act), directly or
indirectly, of 20 percent or more of the combined voting power of the
then-outstanding securities of the Company (as determined under paragraph
(d) of Rule 13d-3 promulgated under the Exchange Act, in the case of rights
to acquire common stock);
(iv) the stockholders of the Company shall approve:
(A) any merger, consolidation, or reorganization of the Company:
(1) in which the Company is not the continuing or surviving
corporation,
(2) pursuant to which shares of common stock of the Company
would be converted into cash, securities or other property,
(3) with a corporation which prior to such merger,
consolidation, or reorganization owned 20 percent or more of the
combined voting power of the then-outstanding securities of the
Company, or
(4) in which the Company will not survive as an independent,
publicly-owned corporation;
(B) any sale, lease, exchange or other transfer (in one transaction
or a series of related transactions) of all or substantially all the
assets of the Company; or
(C) any liquidation or dissolution of the Company;
A-3
<PAGE> 22
(v) the stockholders of the Company shall approve a merger,
consolidation, reorganization, recapitalization, exchange offer, purchase
of assets or other transaction after the consummation of which any person,
entity or group (as defined in accordance with Section 13(d) or 14(d) of
the Exchange Act) would own beneficially in excess of 50% of the
outstanding shares of common stock of the Company or in excess of 50% of
the combined voting power of the then-outstanding securities of the
Company;
(vi) the Company's common stock ceases to be listed on the New York
Stock Exchange;
(vii) the existence of a Distribution Date as defined in the Rights
Agreement of the Company dated August 31, 1995; or
(viii) during any period of two consecutive years, the individuals who
at the beginning of such period constituted the Board of Directors of the
Company cease for any reason to constitute a majority of the Board of
Directors of the Company, unless the election or nomination for election by
the Company's stockholders of each new director during any such two-year
period was approved by the vote of two-thirds of the directors then still
in office who were directors at the beginning of such two-year period.
To fund the benefits payable under the Officers' Retirement Plan, the
Company has established an irrevocable trust for the benefit of the officers
participating in such plan. Immediately prior to a Change in Control (as defined
above), the Company is required to contribute to the irrevocable trust an amount
sufficient to pay all benefits under the Officers' Retirement Plan calculated as
of the day prior to the Change in Control.
COMPENSATION OF DIRECTORS
The Company pays each outside director of the Company an annual fee of
$36,300. An additional fee of $42,350 is paid to the Chairman of the Board. Fees
payable to directors serving less than the entire fiscal year are prorated. The
Company also reimburses travel and related expenses incurred by directors in
attending meetings of the Board. No director receives additional compensation
for serving on committees of the Board or for attending meetings of the Board or
such committees.
The Company maintains a Directors' Retirement Plan, which was amended and
restated effective August 31, 1995. Prior to the amendment, non-employee
directors were generally entitled to be paid an annual retirement benefit equal
to two-thirds of the annual fee paid by the Company to its directors for serving
on the Company's Board. The August 31, 1995 amendment increased the retirement
benefit for non-employee directors to 100% of the current amount of the
Company's directors' annual fees and eliminated a provision that, in general,
had prevented directors from collecting retirement benefits prior to attaining
70 years of age. Benefits under the Directors' Retirement Plan commence on the
director's retirement from service on the Board, and continue, in general, for a
period of time equal to the period of time he served as a director of the
Company. To fund the benefits payable under the Directors' Retirement Plan, the
Company has established an irrevocable trust for the benefit of the non-employee
directors participating in such plan. Immediately prior to a Change in Control
(as defined in the Officers' Retirement Plan, as described above), the Company
is required to contribute to the irrevocable trust an amount sufficient to pay
all benefits under the Directors' Retirement Plan calculated as of the day prior
to the Change in Control. The definition of the term "Change in Control" was
amended by the August 31, 1995 amendments to include additional Change in
Control events.
The Option Plan provided that each outside director of the Company who was
serving as such on the date 180 days after confirmation of the Company's Plan of
Reorganization was to receive options covering 15,000 shares of Common Stock at
an exercise price of $10.50 per share, and such options were granted to such
persons on August 25, 1993. Two-thirds of such options were vested and
exercisable as of August 25, 1995, and the remainder will vest and become
exercisable on August 25, 1996 or upon an earlier change of control (as defined
in the Option Plan) of the Company.
A-4
<PAGE> 23
DIRECTOR AGREEMENTS
Effective August 31, 1995, the Company entered into a Director Agreement
with each non-employee director of the Company. Each Director Agreement, in
general, provides that in the event any payment or distribution by the Company
or any of its affiliates to or for the benefit of the director is subject to the
excise tax imposed by Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"), the Company will pay to the director an additional payment
or payments in an amount sufficient to make such director whole for any such tax
and for any excise and other tax imposed on any such additional payment or
payments.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into an Agreement Amending and Restating Employment
Agreement (the "Employment Agreements") with each of the individuals named in
the Summary Compensation Table.
The Company's Employment Agreement with Mr. Van Horn relates to his service
as President and Chief Executive Officer of the Company, and provides that the
Company will pay Mr. Van Horn a minimum salary of $420,000 annually. Mr. Van
Horn's Employment Agreement provides for an annual bonus opportunity of not less
than $200,000, the amount of which is based on percentages of Mr. Van Horn's
annual salary if the Company satisfies certain corresponding earnings levels as
determined by the Board for each fiscal year. Additionally, pursuant to his
Employment Agreement Mr. Van Horn is entitled to reimbursement of expenses and
to participate in any other bonus plan, profit sharing plan, stock option plan,
vacation, retirement benefit, medical and dental benefits, individual or group
life insurance plans and other plans, programs, arrangements and policies as are
or may be normally and customarily provided by the Company.
Mr. Van Horn's Employment Agreement expires on June 30, 2000. The
Employment Agreement may also be terminated by the Company or by Mr. Van Horn on
30 days' written notice. If the Company terminates Mr. Van Horn's Employment
Agreement with "Cause" (as defined below in this paragraph) before or after a
Change in Control, or if Mr. Van Horn terminates his Employment Agreement
without "Good Reason" (as defined below in this paragraph) or "Good
Reason--Change in Control" (as defined below), the Company will be required to
pay Mr. Van Horn in cash in one lump sum within 30 days of the termination date
the amount of annual salary earned through such termination date plus all other
benefits earned through such date, excluding any bonus. If Mr. Van Horn
terminates his Employment Agreement with Good Reason before a Change in Control
or if the Company terminates his Employment Agreement without Cause before a
Change in Control, or if Mr. Van Horn terminates his Employment Agreement with
Good Reason--Change in Control, the Company will be required to (i) pay Mr. Van
Horn cash within 30 days of the termination date equal to the aggregate amount
of the salary and other benefits earned through the termination date, and (ii)
continue to pay Mr. Van Horn through June 30, 2000 (A) an annual salary of the
greater of $420,000 or Mr. Van Horn's salary on his termination date, and (B) an
annual bonus equal to the greater of the average bonus earned by Mr. Van Horn
for the two entire annual periods ended on June 30 immediately preceding Mr. Van
Horn's termination date and the average bonus earned by Mr. Van Horn for the two
fiscal years of the Company immediately preceding the fiscal year in which a
Change in Control or Mr. Van Horn's termination date occurs. If there is a
Change in Control, the Company will be required to pay Mr. Van Horn, in addition
to the amounts described above, an amount of bonus calculated in accordance with
the Employment Agreement in cash within 30 days of a Change in Control. The term
"Cause" as defined in Mr. Van Horn's Employment Agreement means Mr. Van Horn's
gross or willful neglect of his duties which is not cured within 30 days after
notice from the Company. The term "Good Reason" as defined in Mr. Van Horn's
Employment Agreement means the Company breaches any material provision of his
Employment Agreement which is not cured within 30 days after notice from Mr. Van
Horn, or the Company removes Mr. Van Horn from his position as President and
Chief Executive Officer, or otherwise relieves him of his responsibilities for
any reason, but does not include any breach that occurs after the occurrence of
a Change in Control.
The Company has entered into Employment Agreements with each of the
executive officers named in the Summary Compensation Table other than Mr. Van
Horn (the "Executives"). Pursuant to such Employment Agreements, the Company
employs Mr. Gallerano as Senior Vice President, General Counsel
A-5
<PAGE> 24
and Secretary at an annual salary commencing July 1, 1995 of $200,000, Mr.
Wortham as Senior Vice President--Gasoline and Real Estate at an annual salary
commencing July 1, 1995 of $183,750, Mr. Van Zanten as Senior Vice
President--Administration at an annual salary commencing July 1, 1995 of
$170,000, and Mr. Fontana as Vice President--Chief Financial Officer at an
annual salary commencing July 1, 1995 of $150,000.
The Employment Agreements for the Executives provide for a bonus to be paid
to each Executive based on certain percentages of each Executive's annual salary
if the Company satisfies certain corresponding earnings levels as determined by
the Board for each fiscal year. Additionally, pursuant to the Employment
Agreements, each Executive is entitled to reimbursement of expenses and to
participate in any other bonus plan, profit sharing plan, stock option plan,
vacation, retirement benefit, medical and dental benefits, individual or group
life insurance plans and other plans, programs, arrangements and policies as are
or may be normally and customarily provided by the Company.
The Employment Agreements for the Executives each expire on August 31,
1998, but may also be terminated by the Company or by the Executive on 30 days'
written notice. If the Company terminates an Employment Agreement with Cause, as
defined below, or if an Executive terminates an Employment Agreement without
Good Reason or Good Reason--Change in Control, each as defined below, the
Company will be required to pay the Executive in cash within 30 days of the
termination date the amount of annual salary earned through such termination
date plus all other benefits earned through such date. If an Executive
terminates his Employment Agreement with Good Reason or if the Company
terminates his Employment Agreement without Cause, before a Change in Control,
the Company will be required to pay the Executive cash within 30 days of the
termination date equal to the aggregate of the full amount of all salary that
otherwise would have been paid to the Executive for the remaining term of the
Employment Agreement, plus all other benefits earned through the termination
date. If an Executive terminates his Employment Agreement with Good
Reason--Change in Control, or if the Company terminates his Employment Agreement
without Cause on or after the occurrence of a Change in Control, the Company
will be required to pay the Executive the amounts described in the preceding
sentence as well as a bonus calculated as provided in the Employment Agreements.
As used above, the term "Cause" means willful misconduct by the Executive,
gross neglect by the Executive of his duties which continues for more than 30
days after notice from the Company, the commission by the Executive of a felony
or the commission by the Executive of an act not in good faith, which is
directly detrimental to the Company and exposes the Company to material
liability. As used herein, the term "Change in Control" shall have the same
meaning as defined under "Officers' Retirement Plan." The term "Good Reason"
means a breach of any material provision of an Employment Agreement which is not
cured within 30 days after the Executive gives written notice thereof to the
Company but does not include any breach that occurs after a Change in Control.
The term "Good Reason--Change in Control" means a determination, after the
occurrence of a Change in Control, by Mr. Van Horn or an Executive, as the case
may be, that any one or more specified events has occurred, including among
other things, any change in the Executive's responsibilities and any reduction
in the Executive's compensation or benefits.
The Employment Agreements provide that neither Mr. Van Horn nor the
Executives will be liable for any damages resulting from their respective
actions if they acted in good faith and in a manner they reasonably believed to
be in or not opposed to the best interests of the Company. The Employment
Agreements for Mr. Van Horn and the Executives also provide that if and to the
extent that any payment or distribution by the Company or any of its affiliates
to or for the benefit of such officer would be subject to any excise tax imposed
under Section 4999 of the Code, such officer will receive an additional payment
or payments in an amount sufficient to make such officer whole for any such tax
and for any excise and other tax imposed on any such payment or payments.
Two other officers of the Company have been offered one year employment
agreements in substantially the same form as the Employment Agreements with the
Executives referred to in this Annex A. One of such officers has executed that
agreement and the other is reviewing it. Until the new agreement is executed,
the second officer's employment will be governed by an existing agreement.
A-6
<PAGE> 25
OTHER EMPLOYMENT MATTERS
During fiscal 1994 the Company made two three-year unsecured loans in the
aggregate amount of $300,000 (the "Prior Loans") with interest payable at 8 1/2%
annually to the President and Chief Executive Officer of the Company. On August
31, 1995 the Company and the President and Chief Executive Officer entered into
a Promissory Note (the "Note") in renewal, replacement and rearrangement of the
Prior Loans. The Note is in the principal amount of $194,717.70, the balance of
the Prior Loans as a result of payments by Mr. Van Horn, and bears interest at
9% annually. Accrued interest is payable monthly beginning October 1, 1995 until
August 31, 1996, when all then unpaid principal and accrued interest is due and
payable. The Prior Loans required that certain bonus payments be applied to
reduce their outstanding balances.
PROFIT SHARING PLAN
The Company has a Section 401(k) profit sharing plan available to all
employees eligible under the Code. During 1995 the Company made matching
contributions at a level equal to 100% of employees' before-tax contributions,
up to 3% of salary. The executive officers did not participate in the plan
during fiscal 1995.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1985 the Company established an Employee Stock Ownership Plan (the
"ESOP"). Pursuant to the Plan of Reorganization, the ESOP Trustee received 9,706
shares of Common Stock and 16,179 Warrants. The Company intends to terminate the
ESOP and has filed for a ruling from the Internal Revenue Service regarding the
tax consequences of the proposed termination. The Company has not yet received
such a ruling.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the year ended June 30,
1995 were Messrs. Chambers, Luellen, Steadman and Wilde, none of whom is an
employee of the Company. Mr. Wilde is a member of Bracewell & Patterson, L.L.P,
Houston, Texas, a law firm retained by the Company from time to time. During
fiscal 1995, the full Board (with Mr. Van Horn, who serves as President and
Chief Executive Officer of the Company, abstaining from voting on compensation
decisions) performed the functions normally delegated to the Compensation
Committee.
INDEMNIFICATION AGREEMENT
The directors and executive officers of the Company have entered into
indemnification agreements whereby the Company has agreed to indemnify such
persons and advance expenses as provided in such agreements to the fullest
extent permitted by applicable law.
1994 PROXY STATEMENT
Pages 8-11 of the Company's Proxy Statement dated September 27, 1994
relating to the Company's Annual Meeting of Stockholders held on November 10,
1994 are filed as Exhibit 1 to this Schedule and are incorporated herein by
reference.
A-7
<PAGE> 26
news | National Convenience Stores
| Incorporated
100 Waugh Drive
Houston, Texas 77007
Contact: Brian Fontana
Chief Financial Officer
(713) 863-2434
NCS #277
ANNEX B
FOR IMMEDIATE RELEASE:
NATIONAL CONVENIENCE STORES REJECTS CIRCLE K OFFER;
RECEIVES SIGNIFICANTLY HIGHER PROPOSAL;
WILL EXPLORE STRATEGIC ALTERNATIVES
HOUSTON, TEXAS, September 19, 1995 -- National Convenience Stores
Incorporated (NYSE: NCS) announced today that at a meeting on September 18,
1995, the Company's Board of Directors unanimously determined to reject The
Circle K Corporation's unsolicited $20 per share and $2.25 per warrant tender
offer and recommends that NCS securityholders not tender any of their securities
pursuant to the offer. The Company's financial advisor, Merrill Lynch & Co., has
opined that the consideration offered to NCS securityholders in the Circle K
offer is inadequate to NCS securityholders from a financial point of view.
At the same meeting, the Board reviewed and discussed an unsolicited
proposal received after the close of business on September 14, 1995 from another
party to acquire the Company at a significantly higher price than the Circle K
offer. The Board determined not to accept this proposal. However, given all of
the information available, including the unsolicited proposal, the Board has
instructed management and Merrill Lynch to explore the Company's strategic
alternatives, including the possible sale of the Company to a third party. The
Board intends to invite interested parties, including Circle K and the other
party, to participate in this process.
While the Board believes that the execution of the Company's long-term
business strategy will create long-term shareholder value, it is committed to
determining whether a sale of the Company or an alternative transaction will
achieve superior value for NCS securityholders. Following completion of this
process, the Board will evaluate all alternatives, including whether any
proposal to acquire NCS is in the best interests of the Company and its
securityholders. The Board may conclude that the best available alternative is
to remain a publicly owned company pursuing its existing strategy.
The Company's long-term business strategy includes the following key
initiatives:
o PROJECT BREAKTHROUGH. In the fall of 1993, management of the Company
undertook a comprehensive reevaluation of its participation in the
convenience store industry. All facets of its business were extensively
reviewed, including staffing, the appearance and layout of its stores,
and sales and inventory controls. In February 1994, the Company formally
launched the transformation of its 94 stores in the Dallas/Fort Worth
market under the name Project Breakthrough. The transformation was
substantially completed in early summer 1995 after an investment of more
than $10 million. The Company intends to roll out Project Breakthrough
across its entire store base over the next two years, beginning with
Austin and San Antonio in fiscal 1996.
The Company's stores in Dallas/Fort Worth have specially trained staffs,
upgraded gasoline dispensing units with pay-at-the-pump credit card
readers, enhanced exterior lighting and integrated state-of-the-art point
of sale systems which facilitate inventory management and store
automation. In the Dallas/Fort Worth market, for the five months ended
August 31, 1995, same store merchandise and
-- more --
<PAGE> 27
NATIONAL CONVENIENCE STORES INCORPORATED
NEWS RELEASE #277
ADD 1
gasoline sales were up over 8.5% and 13%, respectively, compared with the
same period a year ago. Same store merchandise and gasoline sales for the
Company's other markets for the five months ended August 31, 1995
increased 2.5% and 1%, respectively, over the same period a year ago.
o ALLIANCE WITH NATIONSBANK. NCS and NationsBank of Texas recently entered
into a six-year alliance to install automated teller machines in the
Company's 661 stores. This is expected to generate over 21 million
customer visits per year and $22.5 million in store profits over the six
year period, without giving effect to incremental profits from increased
gasoline and merchandise sales. The Company's existing automated teller
machine agreement generates approximately $500,000 per year in store
profits. NCS and NationsBank intend to engage in an extensive marketing
campaign to promote the new strategic alliance.
o NEW CONCEPT STORE. After more than a year in the planning, the Company
has recently opened a completely redesigned store in the Houston area
which incorporates the lessons learned during the rollout of Project
Breakthrough in Dallas/Fort Worth. The new concept store integrates
advanced merchandising concepts, state-of-the-art technology and expanded
gasoline facilities. For this 4,000 square foot store, NCS has created a
new logo, proprietary branded gasoline and pay-at-the-pump service. The
Company expects the store will generate total revenues approximately
three times greater than NCS's average store. During fiscal 1996, the
Company expects to construct approximately five such stores.
o FLEET CARD. NCS has entered into an alliance with Wright Express that
will provide for the acceptance of the Wright Express Universal Fleet
Card at all 595 Stop N Go gasoline stores beginning this October. This
card is the most accepted of its kind in the U.S. The venture, combined
with recent capital improvements in gasoline facilities, should enable
the Company to generate significant additional gasoline sales volumes
from fleet customers.
o TEXAS FOCUS. As the largest operator of convenience stores in Texas, the
Company believes it is in a unique position to capitalize on the
currently booming Texas economy, as well as the improved competitive
position and economies of scale inherent in a single regional market.
The benefits of the Company's long-term business strategy have begun to be
reflected in its earnings in recent quarters, including a threefold increase in
earnings for the fourth quarter of fiscal 1995 as compared with the same period
in the preceding fiscal year and a substantial increase in unaudited earnings
for the first two months of fiscal 1996 as compared with the same period in the
prior year (in each case excluding non-recurring gains and losses). The
Company's capital budget for fiscal 1996 is $33 million. With the full
implementation of Project Breakthrough, the new concept store program, and the
new ATM and commercial gasoline fleet agreements, the Company believes that its
growth and earnings prospects are excellent.
The Board has postponed to an undetermined date the Company's annual
meeting, which was scheduled for November 7, 1995, and the related record date,
while it explores alternative transactions.
The Company is filing today with the Securities and Exchange Commission a
Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the
Company's recommendation with respect to the Circle K offer. The Schedule 14D-9
will also be mailed to all securityholders.
National Convenience Stores Incorporated, headquartered in Houston, Texas,
is the largest convenience store chain in Texas, operating primarily in the
geographic area known as the "Texas Triangle," which encompasses Houston,
Dallas/Fort Worth and San Antonio. The Company maintains its leading position
through the operation of approximately 660 Stop N Go stores throughout Texas and
employs approximately 5,000 people throughout the state. NCS sells gasoline at
about 595 of its stores.
# # #
<PAGE> 28
ANNEX C
[MERRILL LYNCH LETTERHEAD]
September 18, 1995
Board of Directors
National Convenience Stores Incorporated
100 Waugh Drive
Houston, TX 77007
Gentlemen:
Circle K Acquisition, Inc. (the "Purchaser"), an indirect wholly-owned
subsidiary of The Circle K Corporation ("Circle K"), has commenced an offer (the
"Offer") to acquire all of the outstanding shares of common stock of National
Convenience Stores Incorporated (the "Company"), par value $0.01 per share,
including the associated rights to purchase preferred stock (the "Shares"), at
$20.00 per Share, and all outstanding warrants to purchase Shares (the
"Warrants") issued pursuant to the warrant agreement dated as of March 9, 1993
between the Company and Boatman's Trust Company, as Warrant Agent, at a purchase
price of $2.25 per Warrant, in each case, net to the seller in cash, subject to
the terms and conditions set forth in its Offer to Purchase and the related
Letters of Transmittal dated September 7, 1995 (the "Offer to Purchase"). You
have asked us whether, in our opinion, the proposed cash consideration to be
received by the holders of the Shares and the holders of the Warrants pursuant
to the Offer is adequate to such Shareholders and Warrant holders, other than
Circle K and the Purchaser, from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended June 30, 1994 and the
Company's Form 10-Q and the related unaudited financial information for
the quarterly periods ending September 30, 1994, December 31, 1994 and
March 31, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with that of certain
companies which we deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the Offer with financial terms
of certain other transactions which we deemed to be relevant;
(7) Reviewed the Tender Offer Statement on Schedule 14D-1, dated September
7, 1995 (including the Offer to Purchase) filed by the Purchaser and
Circle K with the Securities and Exchange Commission in connection with
the Offer; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
<PAGE> 29
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company. In connection with the preparation of this opinion,
we have not been authorized by the Company or the Board of Directors to solicit,
nor have we solicited, third-party indications of interest for the acquisition
of all or any part of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and Circle K and have received fees for the rendering of such
services.
In addition, in the ordinary course of business, we may actively trade the
securities of both the Company and Circle K for our own account and the account
of our customers and, accordingly, may at any time hold a long or short position
in securities of the Company and Circle K.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Shares and
the holders of the Warrants pursuant to the Offer is inadequate to such
Shareholders and Warrant holders, other than Circle K and the Purchaser, from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
<PAGE> 30
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
Exhibit 1 Pages 8 through 11 of the Proxy Statement dated September 27, 1994
relating to the Company's Annual Meeting of Stockholders held November
10, 1994.
Exhibit 2 Amended and Restated National Convenience Stores Incorporated Officers'
Retirement Plan effective as of August 31, 1995 (incorporated by
reference from Exhibit 99.4 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 3 Amended and Restated Trust under National Convenience Stores
Incorporated Officers' Retirement Plan effective as of August 31, 1995,
by and between the Company and Bank One, Texas, N.A. (incorporated by
reference from Exhibit 99.5 to the Company's Current Report on Form 8-K
filed on September 15, 1995).
Exhibit 4 Amended and Restated National Convenience Stores Incorporated
Directors' Retirement Plan effective as of August 31, 1995
(incorporated by reference from Exhibit 99.6 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 5 Amended and Restated Trust under National Convenience Stores
Incorporated Directors' Retirement Plan effective as of August 31,
1995, by and between the Company and Bank One, Texas, N.A.
(incorporated by reference from Exhibit 99.7 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 6 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective from and after July 1, 1995 by and
between the Company and V.H. Van Horn (incorporated by reference from
Exhibit 99.10 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 7 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective as of May 18, 1993 by and between the
Company and A.J. Gallerano (incorporated by reference from Exhibit
99.11 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 8 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective as of May 18, 1993 by and between the
Company and Arnold Van Zanten (incorporated by reference from Exhibit
99.12 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 9 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective as of May 18, 1993 by and between the
Company and C.R. Wortham (incorporated by reference from Exhibit 99.13
to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 10 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective as of May 18, 1993 by and between the
Company and Brian Fontana (incorporated by reference from Exhibit 99.14
to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 11 Agreement Amending and Restating Employment Agreement executed as of
August 31, 1995 but effective as of October 31, 1994 by and between the
Company and Douglas B. Binford (incorporated by reference from Exhibit
99.15 to the Company's Current Report on Form 8-K filed on September
15, 1995).
Exhibit 12 Employment Agreement executed as of March 21, 1995 but effective as of
February 1, 1995 by and between the Company and Janice E. Bryant
(incorporated by reference from Exhibit 99.16 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
</TABLE>
<PAGE> 31
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
Exhibit 13 Form of Director Agreement effective as of August 31, 1995 by and
between the Company and each of Richard C. Steadman, Dunbar N.
Chambers, Jr., Charles J. Luellen, Raymond W. Oeland, Jr., Lionel Sosa,
Robert B. Stobaugh, and William K. Wilde (incorporated by reference
from Exhibit 99.9 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 14 Twenty-second Amendment to the Company's Profit Sharing Plan and Trust
effective as of July 1, 1995 (incorporated by reference from Exhibit
99.8 to the Company's Current Report on Form 8-K filed on September 15,
1995).
Exhibit 15 Form of Indemnification Agreement for officers and directors of the
Company dated as of July 18, 1986 (incorporated by reference from
Exhibit 10.7 to the Company's Annual Report on Form 10-K for the year
ended June 30, 1987 (Commission File No. 1-7936)).
Exhibit 16 The Company's 1993 Non-Qualified Stock Option Plan dated as of March 9,
1993 (incorporated by reference from Exhibit 10(b) the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1993).
Exhibit 17 Letter dated August 8, 1995 from The Circle K Corporation to V.H. Van
Horn.
Exhibit 18* Letter to National Convenience Stores Incorporated stockholders and
warrantholders dated September 19, 1995.
Exhibit 19* Press release issued by National Convenience Stores Incorporated on
September 19, 1995.
Exhibit 20* Opinion of Merrill Lynch, Pierce, Fenner & Smith Incorporated dated
September 18, 1995.
Exhibit 21 Class Action Complaint, Thomas J. McKula, Jr., on behalf of himself and
all others similarly situated v. William K. Wilde, et al., C.A. 14481
(Chancery Court for the State of Delaware in and for New Castle County)
(as filed August 15, 1995) (incorporated by reference from Exhibit 99.3
to the Company's Current Report on Form 8-K dated August 11, 1995).
Exhibit 22 Class Action Complaint, Crandon Capital Partners v. V.H. Van Horn, et
al., C.A. 14489 (Chancery Court of the State of Delaware in and for New
Castle County) (as filed August 18, 1995) (incorporated by reference
from Exhibit 99.1 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 23 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 95-537 (U.S. District Court for the District
of Delaware) (as filed September 5, 1995) (incorporated by reference
from Exhibit 99.2 to the Company's Current Report on Form 8-K filed on
September 15, 1995).
Exhibit 24 Complaint, The Circle K Corporation v. National Convenience Stores
Incorporated, et al., C.A. 14518 (Chancery Court of the State of
Delaware in and for New Castle County) (as filed September 5, 1995)
(incorporated by reference from Exhibit 99.3 to the Company's Current
Report on Form 8-K filed on September 15, 1995).
Exhibit 25 Rights Agreement dated as of August 31, 1995 between the Company and
Boatmen's Trust Company, as Rights Agent (incorporated by reference
from Exhibit 4.1 to the Company's Current Report on Form 8-K dated
August 31, 1995).
Exhibit 26 (a) Letter dated August 10, 1995 from The Circle K Corporation to Mr.
A. J. Gallerano (incorporated by reference from Exhibit 99.1(a) to the
Company's Current Report on Form 8-K dated August 11, 1995).
</TABLE>
<PAGE> 32
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE NO.
------- ----------- --------
<S> <C> <C>
(b) Letter dated August 10, 1995 from Cede & Co., indirectly on behalf
of The Circle K Corporation to Mr. A. J. Gallerano, including the
exhibits thereto (incorporated by reference from Exhibit 99.1(b) to
the Company's Current Report on Form 8-K dated August 11, 1995).
Exhibit 27 (a) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to
Mr. V. H. Van Horn (incorporated by reference from Exhibit 99.2(a) to
the Company's Current Report on Form 8-K dated August 11, 1995).
(b) Letter dated August 10, 1995 from Bedford Falls Investors, L.P. to
the Company, including the exhibits (incorporated by reference from
Exhibit 99.2(b) to the Company's Current Report on Form 8-K dated
August 11, 1995).
Exhibit 28 The Company's Restated Certificate of Incorporation dated March 9, 1993
(incorporated by reference from Exhibit 2.1 to the Company's Current
Report on Form 8-K dated March 3, 1993).
</TABLE>
---------------
* Included in copy sent to holders of Common Stock and Warrants.
<PAGE> 1
Exhibit 1
________________________________________________________________________________
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Annual Compensation Long-Term
------------------------------------- Compensation
Fiscal Other Annual ------------ All Other
Name and Principal Position Year Salary Bonus(1) Compensation Options(4) Compensation(5)
--------------------------- ------ --------- --------- ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
V. H. Van Horn....................... 1994 $ 400,000 $ 133,000 (2) 0 $ 20,578
President and CEO 1993 400,000 200,000 (2) 150,000 0
1992 400,000 0 (3) 0 (3)
A. J. Gallerano...................... 1994 182,000 67,760 (2) 0 5,759
Senior Vice President, 1993 182,000 103,980 (2) 60,000 0
General Counsel and 1992 182,000 0 (3) 0 (3)
Secretary
C. R. Wortham, Jr. .................. 1994 175,000 81,500 (2) 0 7,500
Senior Vice President -- 1993 172,405 99,750 (2) 60,000 0
Real Estate/Gasoline 1992 160,000 0 (3) 0 (3)
Arnold Van Zanten.................... 1994 155,000 102,900 (2) 0 11,685
Senior Vice President -- 1993 155,000 88,350 (2) 60,000 0
Administration 1992 138,840 0 (3) 0 (3)
M. David Wishard..................... 1994 148,269 71,600 (2) 0 8,028
Vice President -- 1993 120,000 68,400 (2) 30,000 0
Stores 1992 113,846 0 (3) 0 (3)
</TABLE>
________________________________________________________________________________
(1) THE AMOUNTS SHOWN INCLUDE BONUSES PAID TO THE OFFICERS (OTHER THAN MR. VAN
HORN) UNDER THE COMPANY'S RESTART BONUS PROGRAM DURING FISCAL 1994
RELATING TO THE IMPLEMENTATION OF THE COMPANY'S PLAN OF REORGANIZATION.
THE AMOUNTS PAID TO SUCH OFFICERS UNDER THE RESTART BONUS PROGRAM DURING
FISCAL 1994 WERE AS FOLLOWS: MR. GALLERANO: $32,760, MR. WORTHAM: $31,500,
MR. VAN ZANTEN: $27,900, AND MR. WISHARD: $21,600. THE BALANCES OF THE
AMOUNTS SHOWN WERE PAID BASED ON THE COMPANY'S 1994 PRE-TAX EARNINGS.
(2) THE OFFICERS RECEIVE CERTAIN PERQUISITES SUCH AS CAR ALLOWANCES AND
INSURANCE BENEFITS; HOWEVER, THE VALUE OF SUCH PERQUISITES DID NOT EXCEED
THE LESSER OF $50,000 OR 10% OF THE OFFICER'S SALARY AND BONUS.
(3) PURSUANT TO APPLICABLE RULES, OTHER ANNUAL COMPENSATION AND ALL OTHER
COMPENSATION ARE REPORTED FOR 1994 AND 1993 ONLY.
(4) ALL OPTIONS GRANTED DURING FISCAL 1993 WERE GRANTED PURSUANT TO THE
COMPANY'S 1993 NON-QUALIFIED OPTION PLAN, WHICH WAS IMPLEMENTED PURSUANT
TO THE PLAN OF REORGANIZATION.
(5) THE AMOUNTS PRESENTED AS ALL OTHER COMPENSATION INCLUDE THE AMOUNTS THE
COMPANY CONTRIBUTED OR ACCRUED FOR THE ACCOUNTS OF THE NAMED EXECUTIVE
OFFICERS IN CONNECTION WITH (I) THE DEFINED CONTRIBUTION FEATURE OF THE
COMPANY'S OFFICERS' RETIREMENT PLAN (SEE "OFFICERS' RETIREMENT PLAN"), AND
(II) THE COMPANY'S 401(k) PROFIT SHARING PLAN (SEE "PROFIT SHARING PLAN").
________________________________________________________________________________
OPTION GRANTS IN 1994
No options were granted to any of the officers named in the Summary
Compensation Table during fiscal 1994.
AGGREGATED OPTION EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION VALUES
The following table sets forth certain information concerning the exercise in
fiscal 1994 of options to purchase Common Stock by the individuals named in
the Summary Compensation Table and the unexercised options to purchase Common
Stock held by such individuals at June 30, 1994.
________________________________________________________________________________
<TABLE>
<CAPTION>
Value of Unexercised
Number of Number of Unexercised In-the-Money Options at
Shares Options at 6/30/94 6/30/94 (1)
Acquired Value ------------------------- -------------------------
Name on Exercise Realized Exercisable/Unexercisable Exercisable/Unexercisable
---- ----------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
V. H. Van Horn....................... 0 $ 0 50,000/100,000 $25,000/$50,000
A. J. Gallerano...................... 0 $ 0 20,000/40,000 $10,000/$20,000
C. R. Wortham, Jr.................... 0 $ 0 20,000/40,000 $10,000/$20,000
Arnold Van Zanten.................... 0 $ 0 20,000/40,000 $10,000/$20,000
M. David Wishard..................... 0 $ 0 10,000/20,000 $ 5,000/$10,000
</TABLE>
________________________________________________________________________________
(1) THE VALUE HAS BEEN CALCULATED BASED ON THE CLOSING PRICE OF THE COMMON
STOCK ON THE NASDAQ NATIONAL MARKET SYSTEM ON JUNE 30, 1994 AS REPORTED IN
THE WALL STREET JOURNAL ($11.00) LESS THE EXERCISE PRICE OF $10.50 PER
SHARE, MULTIPLIED BY THE RELEVANT NUMBER OF SHARES.
________________________________________________________________________________
8
<PAGE> 2
OFFICERS' RETIREMENT PLAN
During fiscal 1994 the Company implemented an Officers' Retirement Plan,
participation in which is limited to management personnel who have a
significant impact upon the formulation of the Company's policies and its
profitability. Benefits under the Officers' Retirement Plan are determined
primarily by average final compensation and credited years of service, up to a
maximum of 30 years. The following Pension Plan Table shows estimated annual
benefits payable upon retirement in specified compensation and years of
service classifications, assuming retirement at age 65.
________________________________________________________________________________
PENSION PLAN TABLE
<TABLE>
<CAPTION>
Average Years of Service
Base ---------------------------------------------------------------------------
Earnings 5 10 15 20 25 30
-------- ---------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
$100,000............................. $ 10,000 $ 20,000 $ 30,000 $ 40,000 $ 50,000 $ 60,000
150,000............................. 15,000 30,000 45,000 60,000 75,000 90,000
200,000............................. 20,000 40,000 60,000 80,000 100,000 120,000
250,000............................. 25,000 50,000 75,000 100,000 125,000 150,000
300,000............................. 30,000 60,000 90,000 120,000 150,000 180,000
350,000............................. 35,000 70,000 105,000 140,000 175,000 210,000
400,000............................. 40,000 80,000 120,000 160,000 200,000 240,000
450,000............................. 45,000 90,000 135,000 180,000 225,000 270,000
</TABLE>
________________________________________________________________________________
The compensation covered by the Officers' Retirement Plan is the officers'
base salary as reported in the Summary Compensation Table. The estimated
credited years of service for each of the named executive officers are as
follows: Mr. Van Horn: 28 years; Mr. Gallerano: 14 years; Mr. Wortham: 15
years; Mr. Van Zanten: 12 years; and Mr. Wishard: 12 years. The basis on which
benefits are computed is joint-life annuity amounts. The benefits shown in the
table are not subject to any deduction for Social Security or other offset
amounts. The Officers' Retirement Plan permits participants to elect, in
advance, to receive a lump sum distribution at retirement in lieu of the
benefits otherwise payable over a period of time to such participant.
The Officers' Retirement Plan includes a defined contribution feature pursuant
to which the Company has committed to contribute an annual amount for the
benefit of each participant equal to 15% of such participant's annual bonus,
if any. For the year ended June 30, 1994, the amounts which the Company
contributed for the named executive officers were as follows: Mr. Van
Horn -- $19,950; Mr. Gallerano -- $5,250; Mr. Wortham -- $7,500; Mr. Van
Zanten -- $11,250; and Mr. Wishard -- $7,500.
COMPENSATION OF DIRECTORS
The Company pays each outside director of the Company an annual fee of
$36,300. An additional fee of $42,350 is paid to Mr. Steadman for serving as
Chairman of the Board. Fees payable to directors serving less than the entire
fiscal year are prorated. The Company also reimburses travel and related
expenses incurred by directors in attending meetings of the Board. No director
receives additional compensation for serving on committees of the Board or for
attending meetings of the Board or such committees.
During fiscal 1994 the Company implemented a Directors' Retirement Plan,
pursuant to which non-employee directors will be paid an annual retirement
benefit equal to two-thirds of the annual fee paid by the Company to its
directors for serving on the Company's Board. Benefits under the Directors'
Retirement Plan commence on the later to occur of a director's retirement from
service on the Board or his seventieth birthday, and continue, in general, for
a period of time equal to the period of time he served as a director of the
Company.
The Company's 1993 Non-Qualified Stock Option Plan provided that each outside
director of the Company who was serving as such on the date 180 days after
confirmation of the Company's Plan of Reorganization was to receive options
covering 15,000 shares of
9
<PAGE> 3
Common Stock at an exercise price of $10.50 per share, and such options were
granted to such persons on August 25, 1993. One-third of such options vested
and became exercisable on August 25, 1994. Half of the remaining options will
vest and become exercisable on each of August 25, 1995 and 1996.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
The Company has entered into Employment Agreements (the "Employment
Agreements") with each of the individuals named in the Summary Compensation
Table.
In 1994 the Company renewed its Employment Agreement with Mr. Van Horn
relating to his service as President and Chief Executive Officer of the
Company. The Employment Agreement, which expires in 1999, provides that the
Company will pay Mr. Van Horn a salary of $420,000 annually and provides for
an annual bonus opportunity of not less than $200,000, the payment of which is
based on the performance of the Company. If the Company terminates the
agreement or otherwise removes Mr. Van Horn from his positions as President
and Chief Executive Officer of the Company for any reason other than Mr. Van
Horn's gross or willful breach of his duties, the Company will be obligated to
continue to pay Mr. Van Horn annually through 1999 (i) a salary of $420,000
and (ii) a bonus of $166,500. Additionally, Mr. Van Horn is entitled to
participate in other bonus, profit sharing, stock option, stock ownership and
other plans offered to other employees of the Company.
The Company has entered into Employment Agreements with Messrs. Gallerano,
Wortham, Van Zanten and Wishard (the "Executives"), pursuant to which
(effective August 1, 1994) the Company employs Mr. Gallerano as Senior Vice
President, General Counsel and Secretary at an annual salary of $191,100, Mr.
Wortham as Senior Vice President -- Gasoline/Real Estate at an annual salary
of $183,750, Mr. Van Zanten as Senior Vice President -- Administration at an
annual salary of $162,750 and Mr. Wishard as Vice President -- Stores at an
annual salary of $157,500.
Pursuant to the Employment Agreements, each Executive is entitled to
participate in any bonus plan, profit sharing plan, stock option plan,
vacation, retirement benefit, medical and dental insurance and individual or
group life insurance plan as are or may be normally and customarily provided
by the Company to its employees of similar experience and position.
The Employment Agreements for the Executives each expire on May 18, 1996, but
may be terminated by the Company or by the Executive on 30 days' notice. If
the Company terminates an Employment Agreement with Cause (as defined below),
or if an Executive terminates an Employment Agreement without Cause, the
Executive is not entitled to any severance payment upon such termination. If
an Executive terminates his Employment Agreement within 90 days after a Change
in Control (as defined below), the Company will be required to pay the
Executive a severance payment equal to one week's salary for each year the
Executive has then worked for the Company, plus all accrued benefits. If an
Executive terminates his Employment Agreement with Cause or if the Company
terminates his Employment Agreement without Cause, the Company will be
required to pay the Executive a severance payment equal to the full amount
that otherwise would have been paid to the Executive for the remaining term of
the Employment Agreement.
As used above, with respect to a termination of an Employment Agreement by an
Executive, the term "Cause" means the breach of a material provision of the
Employment Agreement by the Company which is not cured within 30 days after
notice from the Executive, or the occurrence of any Change in Control. With
respect to any termination of an Employment Agreement by the Company, the term
"Cause" means willful misconduct by the Executive, gross neglect by the
Executive of his duties which continues for more than 30 days after notice
from the Company, the commission by the Executive of a felony or the
commission by the Executive of an act not in good faith, which is directly
detrimental to the Company and exposes the Company to material liability. As
used above, the term "Change in Control" means the time at which individuals
who were directors of the Company immediately prior to May 18, 1993
10
<PAGE> 4
cease to constitute a majority of the Board of Directors of the Company.
The Employment Agreements provide that the Executive will not be liable for
any damages resulting from the Executive's actions if the Executive acted in
good faith and in a manner he reasonably believed to be in or not opposed to
the best interests of the Company.
PROFIT SHARING PLAN
The Company has a Section 401(k) profit sharing plan available to
substantially all employees. The Company did not make any contributions to the
plan from October 1991 to June 1993, but in July 1993 resumed matching
contributions at a level equal to 100% of employees' before-tax contributions,
up to 3% of salary. Beginning in July 1993 employees were permitted to have
amounts allocated to their accounts invested in one or more of a variety of
investment funds. Amounts deferred by the named executive officers, if any, as
well as the Company's matching contributions relating thereto, are included in
the Summary Compensation Table. For the year ended June 30, 1994, the
Company's matching contributions for the named executive officers were as
follows: Mr. Van Horn -- $628, Mr. Gallerano -- $509, Mr. Wortham -- $0, Mr.
Van Zanten -- $435, and Mr. Wishard -- $528.
EMPLOYEE STOCK OWNERSHIP PLAN
In 1985 the Company established an Employee Stock Ownership Plan (the "ESOP").
Pursuant to the Plan of Reorganization, the ESOP Trustee received 9,706 shares
of Common Stock and 16,179 Warrants.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee during the year ended June 30, 1994
were Messrs. Chambers, Luellen, Steadman and Wilde, none of whom is an
employee of the Company. Mr. Wilde is a member of Bracewell & Patterson,
L.L.P, Houston, Texas, a law firm retained by the Company from time to time.
As described elsewhere in this Proxy Statement, during fiscal 1994, the full
Board (with Mr. Van Horn, who serves as President and Chief Executive Officer
of the Company, abstaining from voting on compensation decisions) performed
the functions normally delegated to the Compensation Committee.
During fiscal 1994 the Company extended a three-year $300,000 unsecured loan
with interest payable at 8 1/2% annually to Mr. V.H. Van Horn. The loan is
payable in 35 monthly installments of $2,500 and a final payment of the then
unpaid principal and interest, and requires that any bonus compensation earned
by Mr. Van Horn while the loan is outstanding be applied as a mandatory
prepayment of the loan. The largest aggregate amount of indebtedness
outstanding in connection with the loan at any time during fiscal 1994 was
$302,323, and the amount of outstanding indebtedness at August 31, 1994 was
$204,859.
11
<PAGE> 1
Exhibit 17
August 8, 1995
PERSONAL & CONFIDENTIAL
TO BE OPENED BY ADDRESSEE ONLY
VIA HAND DELIVERY
Mr. V.H. Van Horn
President and Chief Executive Officer
National Convenience Stores Incorporated
100 Waugh Drive
Houston, Texas 77007
Dear Pete:
As I mentioned when we met earlier today, I am writing to formally confirm
The Circle K Corporation's offer to acquire all of the outstanding equity of
National Convenience Stores Incorporated ("NCS") at a price of $17 per share of
common stock, net to the sellers, in cash.
We believe that this proposal presents an extremely attractive opportunity
for your stockholders at a price which provides them a significant premium. We
hope that you and your Board of Directors will view this offer, as we do, as an
excellent opportunity for the stockholders of NCS to realize full value for
their shares to an extent not likely to be available to them in the marketplace.
The complementary nature of NCS's strong market position in Houston, San
Antonio and Dallas, where we do not have a significant presence, with Circle K's
strong operations in other markets in the Southwest will make the combination a
strong one. We also believe that a significant opportunity exists to improve the
performance of NCS's assets through the economies of scale and operating
efficiencies which will result from a combination with Circle K.
We are prepared to complete a definitive acquisition agreement very
swiftly. Our lead lending institution, Chemical Bank, has already advised us
that it will provide the financing necessary to complete this transaction.
Our valuation of NCS is based upon a careful review of publicly available
information. We are, of course, willing to consider any additional information
that you may wish to provide to us if you believe it would support a higher
price.
Should you have any questions concerning this offer, please feel free to
contact me at any time. Our financial advisor, David Glaser of Bear, Stearns &
Co. Inc. (212-272-3763), is also available to address any issues that may arise.
We trust that you and your Board of Directors will give our offer prompt
and serious consideration so that we may move forward, in our preferred course,
to a negotiated transaction. Thus, we would appreciate your response to our
proposal as soon as practicable.
Sincerely yours,
John F. Antioco
President and Chief Executive
Officer
The Circle K Corporation
cc: Board of Directors of
National Convenience Stores Incorporated
<PAGE> 1
Exhibit 18
September 19, 1995
Dear Securityholder:
At a meeting on September 18, 1995, your Board of Directors unanimously
determined to reject the unsolicited tender offer by The Circle K Corporation
for outstanding Common Stock and Warrants of NCS and recommends that NCS
securityholders not tender any of their securities pursuant to the offer.
At the same meeting, the Board reviewed and discussed an unsolicited
proposal received after the close of business on September 14, 1995 from another
party to acquire the Company at a significantly higher price than the Circle K
offer. The Board determined not to accept this proposal. However, given all of
the information available, including the unsolicited proposal, the Board has
instructed management and Merrill Lynch & Co., the Company's financial advisor,
to explore the Company's strategic alternatives, including the possible sale of
the Company to a third party. The Board intends to invite interested parties,
including Circle K and the other party, to participate in this process.
While your Board believes that the execution of the Company's long-term
business strategy will create long-term shareholder value, it is committed to
determining whether a sale of the Company or an alternative transaction will
achieve superior value for the Company's securityholders. Following the
completion of this process, your Board will evaluate all alternatives, including
whether any proposal received to acquire the Company is in the best interests of
the Company and its securityholders. The Board may conclude that the best
available alternative is to remain a publicly owned company pursuing its
existing strategy.
The Company's long-term business strategy includes the following key
initiatives:
- PROJECT BREAKTHROUGH. In the fall of 1993, management of the Company
undertook a comprehensive reevaluation of its participation in the
convenience store industry. All facets of its business were extensively
reviewed, including staffing, the appearance and layout of its stores,
and sales and inventory controls. In February 1994, the Company formally
launched the transformation of its 94 stores in the Dallas/Fort Worth
market under the name Project Breakthrough. The transformation was
substantially completed in early summer 1995 after an investment of more
than $10 million. The Company intends to roll out Project Breakthrough
across its entire store base over the next two years, beginning with
Austin and San Antonio in fiscal 1996.
The Company's stores in Dallas/Fort Worth have specially trained staffs,
upgraded gasoline dispensing units with pay-at-the-pump credit card
readers, enhanced exterior lighting and integrated state-of-the-art point
of sale systems which facilitate inventory management and store
automation. In the Dallas/Fort Worth market, for the five months ended
August 31, 1995, same store merchandise and gasoline sales were up over
8.5% and 13%, respectively, compared with the same period a year ago.
Same store merchandise and gasoline sales for the Company's other markets
for the five months ended August 31, 1995 increased 2.5% and 1%,
respectively, over the same period a year ago.
- ALLIANCE WITH NATIONSBANK. NCS and NationsBank of Texas recently entered
into a six-year alliance to install automated teller machines in the
Company's 661 stores. This is expected to generate over 21 million
customer visits per year and $22.5 million in store profits over the six
year period, without giving effect to incremental profits from increased
gasoline and merchandise sales. The Company's
<PAGE> 2
existing automated teller machine agreement generates approximately
$500,000 per year in store profits. NCS and NationsBank intend to engage
in an extensive marketing campaign to promote the new strategic alliance.
- NEW CONCEPT STORE. After more than a year in the planning, the Company
has recently opened a completely redesigned store in the Houston area
which incorporates the lessons learned during the rollout of Project
Breakthrough in Dallas/Fort Worth. The new concept store integrates
advanced merchandising concepts, state-of-the-art technology and expanded
gasoline facilities. For this 4,000 square foot store, NCS has created a
new logo, proprietary branded gasoline and pay-at-the-pump service. The
Company expects the store will generate total revenues approximately
three times greater than NCS's average store. During fiscal 1996, the
Company expects to construct approximately five such stores.
- FLEET CARD. NCS has entered into an alliance with Wright Express that
will provide for the acceptance of the Wright Express Universal Fleet
Card at all 595 Stop N Go gasoline stores beginning this October. This
card is the most accepted of its kind in the U.S. The venture, combined
with recent capital improvements in gasoline facilities, should enable
the Company to generate significant additional gasoline sales volumes
from fleet customers.
- TEXAS FOCUS. As the largest operator of convenience stores in Texas, the
Company believes it is in a unique position to capitalize on the
currently booming Texas economy, as well as the improved competitive
position and economies of scale inherent in a single regional market.
The benefits of the Company's long-term business strategy have begun to be
reflected in its earnings in recent quarters, including a threefold increase in
earnings for the fourth quarter of fiscal 1995 as compared with the same period
in the preceding fiscal year and a substantial increase in unaudited earnings
for the first two months of fiscal 1996 as compared with the same period in the
prior year (in each case excluding non-recurring gains and losses). The
Company's capital budget for fiscal 1996 is $33 million. With the full
implementation of Project Breakthrough, the new concept store program, and the
new ATM and commercial gasoline fleet agreements, the Company believes that its
growth and earnings prospects are excellent.
The Board has postponed to an undetermined date the Company's annual
meeting, which was scheduled for November 7, 1995, and the related record date,
while it explores alternative transactions.
WE STRONGLY URGE YOU TO JOIN WITH YOUR BOARD OF DIRECTORS IN REJECTING THE
CIRCLE K OFFER AND RECOMMEND THAT YOU DO NOT TENDER ANY OF YOUR NCS SECURITIES
PURSUANT TO THAT OFFER. NO DIRECTOR OR EXECUTIVE OFFICER INTENDS TO TENDER ANY
OF HIS OR HER SECURITIES PURSUANT TO THAT OFFER.
In arriving at its conclusion and recommendation to reject the Circle K
Offer, the Board of Directors gave careful consideration to a number of factors
described in the enclosed Schedule 14D-9 that has been filed with the Securities
and Exchange Commission. Among other things, your Board considered the opinion
dated September 18, 1995, of Merrill Lynch, Pierce, Fenner & Smith Incorporated
that the proposed consideration to be received by the Company's securityholders
pursuant to the Circle K Offer is inadequate to the Company's securityholders
from a financial point of view. The Schedule 14D-9 describes in more detail the
Board's decisions and the factors it considered and contains other important
information. We urge you to read it carefully.
Your Board of Directors greatly appreciates your continued support and
encouragement.
Sincerely,
V. H. Van Horn
President and Chief Executive Officer
<PAGE> 1
Exhibit 19
news | National Convenience Stores
| Incorporated
100 Waugh Drive
Houston, Texas 77007
Contact: Brian Fontana
Chief Financial Officer
(713) 863-2434
NCS #277
FOR IMMEDIATE RELEASE:
NATIONAL CONVENIENCE STORES REJECTS CIRCLE K OFFER;
RECEIVES SIGNIFICANTLY HIGHER PROPOSAL;
WILL EXPLORE STRATEGIC ALTERNATIVES
HOUSTON, TEXAS, September 19, 1995 -- National Convenience Stores
Incorporated (NYSE: NCS) announced today that at a meeting on September 18,
1995, the Company's Board of Directors unanimously determined to reject The
Circle K Corporation's unsolicited $20 per share and $2.25 per warrant tender
offer and recommends that NCS securityholders not tender any of their securities
pursuant to the offer. The Company's financial advisor, Merrill Lynch & Co., has
opined that the consideration offered to NCS securityholders in the Circle K
offer is inadequate to NCS securityholders from a financial point of view.
At the same meeting, the Board reviewed and discussed an unsolicited
proposal received after the close of business on September 14, 1995 from another
party to acquire the Company at a significantly higher price than the Circle K
offer. The Board determined not to accept this proposal. However, given all of
the information available, including the unsolicited proposal, the Board has
instructed management and Merrill Lynch to explore the Company's strategic
alternatives, including the possible sale of the Company to a third party. The
Board intends to invite interested parties, including Circle K and the other
party, to participate in this process.
While the Board believes that the execution of the Company's long-term
business strategy will create long-term shareholder value, it is committed to
determining whether a sale of the Company or an alternative transaction will
achieve superior value for NCS securityholders. Following completion of this
process, the Board will evaluate all alternatives, including whether any
proposal to acquire NCS is in the best interests of the Company and its
securityholders. The Board may conclude that the best available alternative is
to remain a publicly owned company pursuing its existing strategy.
The Company's long-term business strategy includes the following key
initiatives:
o PROJECT BREAKTHROUGH. In the fall of 1993, management of the Company
undertook a comprehensive reevaluation of its participation in the
convenience store industry. All facets of its business were extensively
reviewed, including staffing, the appearance and layout of its stores,
and sales and inventory controls. In February 1994, the Company formally
launched the transformation of its 94 stores in the Dallas/Fort Worth
market under the name Project Breakthrough. The transformation was
substantially completed in early summer 1995 after an investment of more
than $10 million. The Company intends to roll out Project Breakthrough
across its entire store base over the next two years, beginning with
Austin and San Antonio in fiscal 1996.
The Company's stores in Dallas/Fort Worth have specially trained staffs,
upgraded gasoline dispensing units with pay-at-the-pump credit card
readers, enhanced exterior lighting and integrated state-of-the-art point
of sale systems which facilitate inventory management and store
automation. In the Dallas/Fort Worth market, for the five months ended
August 31, 1995, same store merchandise and
-- more --
<PAGE> 2
NATIONAL CONVENIENCE STORES INCORPORATED
NEWS RELEASE #277
ADD 1
gasoline sales were up over 8.5% and 13%, respectively, compared with the
same period a year ago. Same store merchandise and gasoline sales for the
Company's other markets for the five months ended August 31, 1995
increased 2.5% and 1%, respectively, over the same period a year ago.
o ALLIANCE WITH NATIONSBANK. NCS and NationsBank of Texas recently entered
into a six-year alliance to install automated teller machines in the
Company's 661 stores. This is expected to generate over 21 million
customer visits per year and $22.5 million in store profits over the six
year period, without giving effect to incremental profits from increased
gasoline and merchandise sales. The Company's existing automated teller
machine agreement generates approximately $500,000 per year in store
profits. NCS and NationsBank intend to engage in an extensive marketing
campaign to promote the new strategic alliance.
o NEW CONCEPT STORE. After more than a year in the planning, the Company
has recently opened a completely redesigned store in the Houston area
which incorporates the lessons learned during the rollout of Project
Breakthrough in Dallas/Fort Worth. The new concept store integrates
advanced merchandising concepts, state-of-the-art technology and expanded
gasoline facilities. For this 4,000 square foot store, NCS has created a
new logo, proprietary branded gasoline and pay-at-the-pump service. The
Company expects the store will generate total revenues approximately
three times greater than NCS's average store. During fiscal 1996, the
Company expects to construct approximately five such stores.
o FLEET CARD. NCS has entered into an alliance with Wright Express that
will provide for the acceptance of the Wright Express Universal Fleet
Card at all 595 Stop N Go gasoline stores beginning this October. This
card is the most accepted of its kind in the U.S. The venture, combined
with recent capital improvements in gasoline facilities, should enable
the Company to generate significant additional gasoline sales volumes
from fleet customers.
o TEXAS FOCUS. As the largest operator of convenience stores in Texas, the
Company believes it is in a unique position to capitalize on the
currently booming Texas economy, as well as the improved competitive
position and economies of scale inherent in a single regional market.
The benefits of the Company's long-term business strategy have begun to be
reflected in its earnings in recent quarters, including a threefold increase in
earnings for the fourth quarter of fiscal 1995 as compared with the same period
in the preceding fiscal year and a substantial increase in unaudited earnings
for the first two months of fiscal 1996 as compared with the same period in the
prior year (in each case excluding non-recurring gains and losses). The
Company's capital budget for fiscal 1996 is $33 million. With the full
implementation of Project Breakthrough, the new concept store program, and the
new ATM and commercial gasoline fleet agreements, the Company believes that its
growth and earnings prospects are excellent.
The Board has postponed to an undetermined date the Company's annual
meeting, which was scheduled for November 7, 1995, and the related record date,
while it explores alternative transactions.
The Company is filing today with the Securities and Exchange Commission a
Solicitation/Recommendation Statement on Schedule 14D-9 setting forth the
Company's recommendation with respect to the Circle K offer. The Schedule 14D-9
will also be mailed to all securityholders.
National Convenience Stores Incorporated, headquartered in Houston, Texas,
is the largest convenience store chain in Texas, operating primarily in the
geographic area known as the "Texas Triangle," which encompasses Houston,
Dallas/Fort Worth and San Antonio. The Company maintains its leading position
through the operation of approximately 660 Stop N Go stores throughout Texas and
employs approximately 5,000 people throughout the state. NCS sells gasoline at
about 595 of its stores.
# # #
<PAGE> 1
Exhibit 20
[MERRILL LYNCH LETTERHEAD]
September 18, 1995
Board of Directors
National Convenience Stores Incorporated
100 Waugh Drive
Houston, TX 77007
Gentlemen:
Circle K Acquisition, Inc. (the "Purchaser"), an indirect wholly-owned
subsidiary of The Circle K Corporation ("Circle K"), has commenced an offer (the
"Offer") to acquire all of the outstanding shares of common stock of National
Convenience Stores Incorporated (the "Company"), par value $0.01 per share,
including the associated rights to purchase preferred stock (the "Shares"), at
$20.00 per Share, and all outstanding warrants to purchase Shares (the
"Warrants") issued pursuant to the warrant agreement dated as of March 9, 1993
between the Company and Boatman's Trust Company, as Warrant Agent, at a purchase
price of $2.25 per Warrant, in each case, net to the seller in cash, subject to
the terms and conditions set forth in its Offer to Purchase and the related
Letters of Transmittal dated September 7, 1995 (the "Offer to Purchase"). You
have asked us whether, in our opinion, the proposed cash consideration to be
received by the holders of the Shares and the holders of the Warrants pursuant
to the Offer is adequate to such Shareholders and Warrant holders, other than
Circle K and the Purchaser, from a financial point of view.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related financial
information for the two fiscal years ended June 30, 1994 and the
Company's Form 10-Q and the related unaudited financial information for
the quarterly periods ending September 30, 1994, December 31, 1994 and
March 31, 1995;
(2) Reviewed certain information, including financial forecasts, relating
to the business, earnings, cash flow, assets and prospects of the
Company, furnished to us by the Company;
(3) Conducted discussions with members of senior management of the Company
concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Shares and compared them with that of certain publicly traded companies
which we deemed to be reasonably similar to the Company;
(5) Compared the results of operations of the Company with that of certain
companies which we deemed to be reasonably similar to the Company;
(6) Compared the proposed financial terms of the Offer with financial terms
of certain other transactions which we deemed to be relevant;
(7) Reviewed the Tender Offer Statement on Schedule 14D-1, dated September
7, 1995 (including the Offer to Purchase) filed by the Purchaser and
Circle K with the Securities and Exchange Commission in connection with
the Offer; and
(8) Reviewed such other financial studies and analyses and performed such
other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market
and monetary conditions.
<PAGE> 2
In preparing our opinion, we have relied on the accuracy and completeness
of all information supplied or otherwise made available to us by the Company,
and we have not independently verified such information or undertaken an
independent appraisal of the assets of the Company. With respect to the
financial forecasts furnished by the Company, we have assumed that they have
been reasonably prepared and reflect the best currently available estimates and
judgment of the Company's management as to the expected future financial
performance of the Company. In connection with the preparation of this opinion,
we have not been authorized by the Company or the Board of Directors to solicit,
nor have we solicited, third-party indications of interest for the acquisition
of all or any part of the Company.
We have, in the past, provided financial advisory and financing services to
the Company and Circle K and have received fees for the rendering of such
services.
In addition, in the ordinary course of business, we may actively trade the
securities of both the Company and Circle K for our own account and the account
of our customers and, accordingly, may at any time hold a long or short position
in securities of the Company and Circle K.
On the basis of, and subject to the foregoing, we are of the opinion that
the proposed cash consideration to be received by the holders of the Shares and
the holders of the Warrants pursuant to the Offer is inadequate to such
Shareholders and Warrant holders, other than Circle K and the Purchaser, from a
financial point of view.
Very truly yours,
MERRILL LYNCH, PIERCE, FENNER &
SMITH INCORPORATED
