FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-------------------------------
FORM 10-Q
Quarterly Report Under Section 13 or 15(d
of the Securities Exchange Act of 1934
For 26 Weeks Ended: July 30, 1998 Commission File Number: 1-6187
ALBERTSON'S, INC.
-----------------------------------------------------
(Exact name of Registrant as specified in its charter)
Delaware 82-0184434
------------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
250 Parkcenter Blvd., P.O. Box 20, Boise, Idaho 83726
-------------------------------------------------------------
(Address) (Zip Code)
Registrant's telephone number, including area code: (208) 395-6200
--------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
---- ----
Number of Registrant's $1.00 par value
common shares outstanding at August 27, 1998: 245,518,775
Page 1
<PAGE>
PART I. FINANCIAL INFORMATION
ALBERTSON'S, INC.
CONSOLIDATED EARNINGS
(in thousands except per share data)
(unaudited)
<TABLE>
<CAPTION>
13 WEEKS ENDED 26 WEEKS ENDED
---------------------------------- ----------------------------------
July 30, July 31, July 30, July 31,
1998 1997 1998 1997
---------------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Sales $3,995,052 $3,680,509 $7,843,305 $7,288,050
Cost of sales 2,925,708 2,748,549 5,749,491 5,427,384
---------------- ----------------- ----------------- ----------------
Gross profit 1,069,344 931,960 2,093,814 1,860,666
Selling, general and
administrative expenses 842,119 746,344 1,645,627 1,478,332
Impairment - store closures 29,423
---------------- ----------------- ----------------- ----------------
Operating profit 227,225 185,616 418,764 382,334
Other (expenses) income:
Interest, net (27,606) (19,541) (51,110) (38,855)
Other, net 5,850 9,356 14,777 9,045
---------------- ----------------- ----------------- ----------------
Earnings before income taxes 205,469 175,431 382,431 352,524
Income taxes 77,051 65,991 143,412 133,818
---------------- ----------------- ----------------- ----------------
NET EARNINGS $ 128,418 $ 109,440 $ 239,019 $ 218,706
================ ================= ================= ================
EARNINGS PER SHARE:
Basic $0.52 $0.44 $0.97 $0.88
Diluted $0.52 $0.44 $0.97 $0.87
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING:
Basic 245,623 249,021 245,716 249,827
Diluted 246,668 249,750 246,798 250,524
DIVIDENDS DECLARED PER SHARE $0.17 $0.16 $0.34 $0.32
</TABLE>
See Notes to Consolidated Financial Statements.
Page 2
<PAGE>
ALBERTSON'S, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands)
<TABLE>
<CAPTION>
July 30, 1998
(unaudited) January 29, 1998
-------------------------- -------------------------
ASSETS
------
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 50,462 $ 108,083
Accounts and notes receivable 123,752 121,023
Inventories 1,295,697 1,308,578
Prepaid expenses 56,751 44,426
Deferred income taxes 53,064 45,747
-------------------------- -------------------------
TOTAL CURRENT ASSETS 1,579,726 1,627,857
OTHER ASSETS 250,004 207,360
GOODWILL (net of accumulated amortization
of $1,077) 91,991
LAND, BUILDINGS AND EQUIPMENT (net of
accumulated depreciation and amortization
of $2,000,714 and $1,822,263,
respectively) 3,631,321 3,383,373
-------------------------- --------------------------
$5,553,042 $5,218,590
========================== =========================
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
CURRENT LIABILITIES:
Accounts payable $ 748,011 $ 742,557
Salaries and related liabilities 152,877 149,898
Taxes other than income taxes 86,587 80,842
Income taxes 1,948 37,657
Self-insurance 70,236 69,982
Unearned income 60,260 46,069
Other current liabilities 58,521 52,395
Current maturities of long-term debt 5,640 86,511
Current capitalized lease obligations 9,968 9,608
-------------------------- -------------------------
TOTAL CURRENT LIABILITIES 1,194,048 1,275,519
LONG-TERM DEBT 1,272,221 989,650
CAPITALIZED LEASE OBLIGATIONS 138,540 140,957
OTHER LONG-TERM LIABILITIES AND DEFERRED CREDITS 387,132 393,008
STOCKHOLDERS' EQUITY:
Preferred stock - $1 par value; authorized
- 10,000,000 shares; issued - none
Common stock - $1 par value; authorized
- 1,200,000,000 shares; issued -
245,507,844 shares and 245,735,633
shares, respectively 245,508 245,736
Capital in excess of par value 696 4,271
Retained earnings 2,314,897 2,169,449
-------------------------- -------------------------
2,561,101 2,419,456
-------------------------- -------------------------
$5,553,042 $5,218,590
========================== =========================
</TABLE>
See Notes to Consolidated Financial Statements.
Page 3
<PAGE>
ALBERTSON'S, INC.
CONSOLIDATED CASH FLOWS
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
26 WEEKS ENDED
-----------------------------------------------
July 30, July 31,
1998 1997
---------------------- ----------------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 239,019 $ 218,706
Adjustments to reconcile net earnings to
net cash provided by operating activities:
Depreciation and amortization 179,333 160,276
Net deferred income taxes (12,217) (11,047)
Increase in cash surrender value of
Company-owned life insurance (11,282) (11,000)
Impairment - store closures 29,423
Changes in operating assets and
liabilities:
Receivables and prepaid expenses (30,402) (5,126)
Inventories 30,296 49,147
Accounts payable (9,766) 8,255
Other current liabilities (28,853) 1,468
Self-insurance 410 7,257
Unearned income (4,109) (161)
Other long-term liabilities 5,352 4,316
---------------------- ----------------------
Net cash provided by operating activities 387,204 422,091
CASH FLOWS FROM INVESTING ACTIVITIES:
Net capital expenditures excluding
noncash activities (375,025) (281,393)
Business acquisitions, net of cash acquired (121,348)
Increase in other assets (7,675) (9,664)
---------------------- ----------------------
Net cash used in investing activities (504,048) (291,057)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from long-term borrowings 317,000 200,000
Payments on long-term borrowings (122,490) (4,068)
Net commercial paper activity (38,881) (149,365)
Proceeds from stock options exercised 1,216 1,474
Cash dividends (81,104) (77,622)
Stock purchased and retired (16,518) (176,162)
---------------------- ----------------------
Net cash provided by (used in)
financing activities 59,223 (205,743)
---------------------- ----------------------
NET DECREASE IN CASH AND CASH EQUIVALENTS (57,621) (74,709)
CASH AND CASH EQUIVALENTS AT BEGINNING
OF PERIOD 108,083 90,865
---------------------- ----------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 50,462 $ 16,156
====================== ======================
</TABLE>
See notes to Consolidated Financial Statements
Page 4
<PAGE>
ALBERTSON'S, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
Basis of Presentation
- ---------------------
The accompanying unaudited consolidated financial statements include the
results of operations, account balances and cash flows of the Company and its
wholly owned subsidiaries. All material intercompany balances have been
eliminated.
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments necessary to present fairly, in all
material respects, the results of operations of the Company for the periods
presented. Such adjustments consisted only of normal recurring items except for
the impairment charge discussed under "Impairment - Store Closures" below. The
statements have been prepared by the Company pursuant to the rules and
regulations of the Securities and Exchange Commission. Certain information and
footnote disclosures normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to such rules and regulations. It is suggested that these
consolidated financial statements be read in conjunction with the consolidated
financial statements and the accompanying notes included in the Company's 1997
Annual Report.
The balance sheet at January 29, 1998, has been taken from the audited
financial statements at that date.
The preparation of the Company's consolidated financial statements, in
conformity with generally accepted accounting principles, requires management to
make estimates and assumptions. These estimates and assumptions affect the
reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements, and the reported
amounts of revenues and expenses during the reporting period. Actual results
could differ from these estimates.
Historical operating results are not necessarily indicative of future
results.
Reclassifications
- -----------------
Certain reclassifications have been made in the prior year's financial
statements to conform to classifications used in the current year.
Impairment - Store Closures
- ---------------------------
The Company recorded a charge to earnings in the first quarter of 1998
related to management's decision to close 16 underperforming stores in 8 states
during the fiscal year. The charge includes impaired real estate and equipment,
as well as the present value of remaining liabilities under leases, net of
expected sublease recoveries. As of July 30, 1998, 10 of these stores had been
closed.
Page 5
<PAGE>
Supplemental Cash Flow Information
- ----------------------------------
Selected cash payments and noncash activities were as follows (in thousands):
<TABLE>
<CAPTION>
26 Weeks Ended 26 Weeks Ended
July 30, 1998 July 31, 1997
------------------------- --------------------------
<S> <C> <C>
Cash payments for:
Income taxes $189,322 $148,926
Interest, net of amounts
capitalized 40,308 30,828
Noncash activities:
Capitalized leases incurred 8,049 3,069
Capitalized leases terminated 5,509 361
Note payable related to
business acquisition 8,000
Tax benefits related to stock
options 1,450 842
Liabilities assumed in connection
with asset acquisition 90
</TABLE>
Business Acquisitions
- ---------------------
On January 30, 1998, the Company acquired all of the outstanding shares of
Seessel's Holdings, Inc., a wholly owned subsidiary of Bruno's, Inc. for cash
consideration of approximately $88 million. This acquisition included 10 grocery
stores in the Memphis, Tennessee, area and a central bakery and central kitchen
which manufacture fresh bakery and prepared foods for distribution to the
Seessel's stores. The Company is continuing to operate these stores under the
Seessel's name.
On April 20, 1998, the Company acquired Smitty's Super Markets, Inc. for cash
consideration of approximately $36 million plus an $8 million unsecured note.
This acquisition included 10 combination stores and 3 fuel centers with
convenience stores in the Springfield and Joplin, Missouri, areas. The Company
is continuing to operate these stores under the Smitty's name.
Both acquisitions were accounted for using the purchase method of accounting.
The results of operations of the acquired businesses have been included in the
consolidated financial statements from their date of acquisition. Pro forma
results of operations have not been presented due to the immaterial effects of
these acquisitions on the Company's consolidated operations. The excess of the
purchase price over the fair market value of net assets acquired was allocated
to goodwill which is being amortized over 40 years. The Company has not
finalized its purchase price allocation relative to either acquisition, however,
the final purchase price allocation should not differ significantly from the
preliminary purchase price allocations recorded as of July 30, 1998.
Indebtedness
- ------------
The Company issued medium term notes of $84 million in February 1998, $77
million in April 1998 and $156 million in June 1998 under a shelf registration
statement filed with the Securities and Exchange Commission in 1997.
The $84 million of medium-term notes issued in February 1998 mature at
various dates between February 2013 and February 2028. Interest is paid
semiannually at rates ranging from 6.34% to 6.57%. The weighted average interest
rate is 6.47%.
Page 6
<PAGE>
The $77 million of medium-term notes issued in April 1998 mature in April
2028, of which $50 million contain a put option which would require the Company
to repay the notes in April 2008, if the holder of the note so elects by giving
the Company a 60 day notice. Interest is paid semiannually at rates ranging from
6.10% to 6.53%. The weighted average interest rate is 6.25%.
The $156 million of medium-term notes issued in June 1998 mature in June
2028. Interest is paid semiannually at a rate of 6.63%.
Proceeds from these issuances were used primarily to repay borrowings under
the Company's commercial paper program. Medium-term notes up to $183 million
remain available for issuance under the 1997 registration statement.
Capital Stock
- -------------
Since 1987 the Board of Directors had continuously adopted or renewed
programs under which the Company was authorized, but not required, to purchase
and retire shares of its common stock. The remaining authorization under the
program adopted by the Board on March 2, 1998, which authorized the Company to
purchase and retire up to 5 million shares through March 31, 1999, was rescinded
in connection with the proposed merger with American Stores Company.
Subsequent Events
- -----------------
On August 2, 1998, the Company entered into a definitive merger agreement
with American Stores Company (ASC). The agreement provides for a business
combination between the Company and ASC in which ASC will ultimately become a
wholly owned subsidiary of the Company. Under the terms of the agreement, the
holders of ASC Common Stock will be issued 0.63 shares of Albertson's, Inc.
Common Stock in exchange for each share of ASC Common Stock ("Exchange Ratio"),
with cash being paid in lieu of fractional shares (the "Consideration"), in a
transaction intended to qualify as a pooling of interests for accounting
purposes and as a tax-free reorganization for federal income tax purposes. On
July 31, 1998, the last trading day prior to the public announcement of the
merger, the closing price on the New York Stock Exchange Composite Tape of a
share of Albertson's Common Stock was $48.00 and of ASC Common Stock was $23.19.
Based upon such closing prices and the Exchange Ratio, the Consideration had a
value of $30.24 which represented a 30.4% premium over the pre-announcement
closing price of the ASC Common Stock. At closing, the Consideration may have a
market value that is greater or lesser than this amount depending on the market
price of Albertson's Common Stock.
As a result of the merger, former stockholders of ASC will hold
approximately 41.3% of the outstanding Albertson's Common Stock (assuming no
conversion of outstanding options). The transaction is subject to certain
regulatory clearance and is expected to close in early 1999.
On August 25, 1998, the Company completed its purchase of the assets of 15
Bruno's, Inc. stores. The transaction included 14 operating stores and 1 store
under construction which, when completed, will replace a store currently
operating. The stores are located in the Nashville and Chattanooga, Tennessee,
metropolitan areas. The Chattanooga area stores include a store in northern
Georgia.
Page 7
<PAGE>
On August 26, 1998, the Company announced the extension of its tender offer
for all outstanding shares of common stock of Buttrey Food and Drug Stores
Company until 12:00 midnight New York City time on September 30, 1998. All terms
and conditions of its tender offer, including the purchase price of $15.50 per
share, remain unchanged. The Company has reached a tentative agreement with the
Federal Trade Commission (FTC) staff and the staff has submitted that agreement
for approval by the FTC Commissioners with a favorable recommendation.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
Results for the quarter:
The following table sets forth certain income statement components expressed
as a percent to sales and the percentage change from the previous year in the
amounts of such components:
<TABLE>
<CAPTION>
Percent to Sales Percentage
----------------------------------
13 weeks ended Increase
----------------------------------
7-30-98 7-31-97 (Decrease)
----------------- ---------------- ------------------
<S> <C> <C> <C>
Sales 100.00% 100.00% 8.5%
Gross profit 26.77 25.32 14.7
Selling, general and
administrative
expenses 21.08 20.28 12.8
Operating profit 5.69 5.04 22.4
Net interest expense 0.69 0.53 41.3
Other income 0.15 0.25 (37.5)
Earnings before
income taxes 5.14 4.77 17.1
Net earnings 3.21 2.97 17.3
</TABLE>
Sales increased primarily as a result of the continued expansion of net
retail square footage. Identical store sales increased 0.6% and comparable store
sales (which include replacement stores) increased 0.8%. Management estimates
that there was inflation in products the Company sells of approximately 0.4%
(annualized). During the 13 weeks, 18 stores were opened, 12 stores were closed
and 5 store remodels were completed. Included in store openings are 4 acquired
stores. Retail square footage increased to 45.2 million square feet, a net
increase of 10.4% from July 31, 1997.
In addition to new store development, the Company plans to increase sales
through its continued investment in programs initiated in 1997 and 1996 which
are designed to provide solutions to customer needs. These programs include: the
Front End Manager program; the home meal solutions process called "Quick Fixin'
Ideas;" special destination categories such as Albertson's Better Care
pharmacies and baby care, pet care, snack and beverage centers; and increased
emphasis on training programs utilizing Computer Guided Training. To provide
additional solutions to customer needs, the Company has added new,
gourmet-quality bakery products and organic grocery and produce items. Other
solutions include neighborhood marketing, targeted advertising, and exciting new
and remodeled stores.
Page 8
<PAGE>
Gross profit, as a percent to sales, increased primarily as a result of
improvements made in retail stores. Gross profit improvements were also realized
through the continued utilization of Company-owned distribution facilities and
increased buying efficiencies. The Company's distribution centers provided
approximately 75% of retail store purchases. Utilization of the Company's
distribution centers has enabled the Company to improve its control over product
costs and product distribution. The pre-tax LIFO charge reduced gross profit by
$5.2 million (0.13% to sales) for the 13 weeks ended July 30, 1998, as compared
to $10.9 million (0.30% to sales) for the 13 weeks ended July 31, 1997.
Selling, general and administrative expenses, as a percent to sales,
increased due primarily to increased labor and related benefit costs resulting
from the Company's initiatives to increase sales and increased depreciation
expense associated with the Company's expansion program.
The increase in net interest expense resulted primarily from higher average
outstanding debt during the 13 weeks ended July 30, 1998, as compared to the 13
weeks ended July 31, 1997. The average outstanding debt has increased as a
result of the Company's continued investment in new and acquired stores.
Other income for the 13 weeks ended July 30, 1998, included noncash income of
$2.0 million for the increase in cash surrender value of Company-owned life
insurance as compared to income of $10.4 million for the 13 weeks ended July 31,
1997.
Year-to-date results:
The following table sets forth certain income statement components expressed
as a percent to sales and the percentage change from the previous year in the
amounts of such components:
<TABLE>
<CAPTION>
Percent to Sales
----------------------------------
26 weeks ended Percentage
----------------------------------
7-30-98 7-31-97 Increase
----------------- ---------------- ----------------
<S> <C> <C> <C>
Sales 100.00% 100.00% 7.6%
Gross profit 26.70 25.53 12.5
Selling, general and
administrative
expenses 20.98 20.28 11.3
Impairment - store
closures 0.38 N.A.
Operating profit 5.34 5.25 9.5
Net interest
expense 0.65 0.53 31.5
Other income 0.19 0.12 63.4
Earnings before
income taxes 4.88 4.84 8.5
Net earnings 3.05 3.00 9.3
</TABLE>
Page 9
<PAGE>
Sales increased primarily as a result of the continued expansion of net
retail square footage. Identical store sales increased 0.1% and comparable store
sales (which include replacement stores) increased 0.3%. Management estimates
that there was inflation in products the Company sells of approximately 0.4%
(annualized). During the 26 weeks, 53 stores were opened, 15 stores were closed
and 7 store remodels were completed. Included in store openings are 24 acquired
stores. Retail square footage increased to 45.2 million square feet, a net
increase of 10.4% from July 31, 1997.
In addition to new store development, the Company plans to increase sales
through its continued investment in programs initiated in 1997 and 1996 which
are designed to provide solutions to customer needs. These programs include: the
Front End Manager program; the home meal solutions process called "Quick Fixin'
Ideas;" special destination categories such as Albertson's Better Care
pharmacies and baby care, pet care, snack and beverage centers; and increased
emphasis on training programs utilizing Computer Guided Training. To provide
additional solutions to customer needs, the Company has added new,
gourmet-quality bakery products and organic grocery and produce items. Other
solutions include neighborhood marketing, targeted advertising, and exciting new
and remodeled stores.
Gross profit, as a percent to sales, increased primarily as a result of
improvements made in retail stores. Gross profit improvements were also realized
through the continued utilization of Company-owned distribution facilities and
increased buying efficiencies. The Company's distribution centers provided
approximately 75% of retail store purchases. Utilization of the Company's
distribution centers has enabled the Company to improve its control over product
costs and product distribution. The pre-tax LIFO charge reduced gross profit by
$13.2 million (0.17% to sales) for the 26 weeks ended July 30, 1998, as compared
to $21.8 million (0.30% to sales) for the 26 weeks ended July 31, 1997.
Selling, general and administrative expenses, as a percent to sales,
increased due primarily to increased labor and related benefit costs resulting
from the Company's initiatives to increase sales and increased depreciation
expense associated with the Company's expansion program.
The Company recorded a charge to earnings (Impairment - store closures) in
the first quarter of 1998 related to management's decision to close 16
underperforming stores in 8 states during the fiscal year. The charge includes
impaired real estate and equipment, as well as the present value of remaining
liabilities under leases, net of expected sublease recoveries. As of July 30,
1998, 10 of these stores had been closed.
The increase in net interest expense resulted primarily from higher average
outstanding debt during the 26 weeks ended July 30, 1998, as compared to the
prior year. The average outstanding debt has increased as a result of the
Company's continued investment in new and acquired stores.
Other income for the 26 weeks ended July 30, 1998, included noncash income of
$11.3 million for the increase in cash surrender value of Company-owned life
insurance as compared to income of $11.0 million for the 26 weeks ended July 31,
1997.
Page 10
<PAGE>
Liquidity and Capital Resources
- -------------------------------
The Company's operating results continue to enhance its financial position
and ability to continue its planned expansion program. Cash provided by
operating activities during the 26 weeks ended July 30, 1998, was $387 million
compared to $422 million in the prior year. During the 26 weeks ended July 30,
1998, the Company invested $375 million for net capital expenditures and $121
million acquiring two businesses. The Company's financing activity for the 26
weeks ended July 30, 1998, included net new long-term borrowings of $195
million, a reduction of commercial paper borrowings of $39 million, $81 million
for the payment of dividends and $17 million for the purchase and retirement of
the Company's common stock.
The Company utilizes its commercial paper program primarily to supplement
cash requirements from seasonal fluctuations in working capital resulting from
operations and the Company's capital expenditure program. Accordingly,
commercial paper borrowings will fluctuate between the Company's quarterly
reporting periods. The Company had $244 million of commercial paper borrowings
outstanding at July 30, 1998, compared to $283 million at January 29, 1998, and
$180 million at July 31, 1997.
The Company issued $317 million of medium-term notes during the 26 weeks
ended July 30, 1998. The notes were issued under a shelf registration statement
filed with the Securities and Exchange Commission in 1997. Proceeds from the
issuances were primarily used to repay borrowings under the Company's commercial
paper program. Medium-term notes up to $183 million remain available for
issuance under the 1997 shelf registration statement.
Since 1987 the Board of Directors had continuously adopted or renewed
programs under which the Company was authorized, but not required, to purchase
and retire shares of its common stock. The remaining authorization under the
program adopted by the Board on March 2, 1998, which authorized the Company to
purchase and retire up to 5 million shares through March 31, 1999, was rescinded
in connection with the proposed merger with American Stores Company. During the
26 weeks ended July 30, 1998, 349,300 shares were purchased and retired prior to
the authorization being rescinded.
Year 2000 Compliance
- --------------------
The Year 2000 issue results from computer programs being written using two
digits rather than four to define the applicable year. As the year 2000
approaches, systems using such programs may be unable to accurately process
certain date-based information. Like many other companies, the Company is
continuing to assess and modify its computer applications and business processes
to provide for their continued functionality. The Company is also continuing its
assessment of the readiness of external entities, such as vendors, which
interface with the Company.
In addition, the Company is addressing the Year 2000 issue both by augmenting
previously scheduled computer maintenance with procedures designed to locate and
correct Year 2000 problems and by slightly accelerating its normal equipment and
software replacement schedules. The Company does not expect the costs associated
with these procedures to be material.
Page 11
<PAGE>
The Company believes that its efforts will result in Year 2000 compliance.
However, the impact on business operations of failure by the Company to achieve
compliance or failure by external entities which the Company cannot control,
such as vendors, to achieve compliance, could be material to the Company's
consolidated results of operations.
Cautionary Statement for Purposes of "Safe Harbor Provisions"
of the Private Securities Litigation Reform Act of 1995
- -------------------------------------------------------------
From time to time, information provided by the Company, including written or
oral statements made by its representatives, may contain forward-looking
information as defined in the Private Securities Litigation Reform Act of 1995.
All statements, other than statements of historical facts, which address
activities, events or developments that the Company expects or anticipates will
or may occur in the future, including such things as expansion and growth of the
Company's business, future capital expenditures and the Company's business
strategy, contain forward-looking information. In reviewing such information it
should be kept in mind that actual results may differ materially from those
projected or suggested in such forward-looking information. This forward-looking
information is based on various factors and was derived utilizing numerous
assumptions. Many of these factors have previously been identified in filings or
statements made by or on behalf of the Company.
Important assumptions and other important factors that could cause actual
results to differ materially from those set forth in the forward-looking
information include: changes in the general economy, changes in consumer
spending, competitive factors and other factors affecting the Company's business
in or beyond the Company's control. These factors include changes in the rate of
inflation, changes in state or federal legislation or regulation, adverse
determinations with respect to litigation or other claims (including
environmental matters), labor negotiations, adverse effects of failure to
achieve Year 2000 compliance, the Company's ability to recruit and develop
employees, its ability to develop new stores or complete remodels as rapidly as
planned, its ability to successfully implement new technology and stability of
product costs.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
information. The Company does not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
- --------------------------
Three civil lawsuits filed in September 1996 as purported statewide class
actions in Washington, California and Florida and two civil lawsuits filed in
April 1997 in federal court in Boise, Idaho, as purported multi-state class
actions (including the remaining states in which the Company operated at the
time) have been brought against the Company raising various issues that include:
(i) allegations that the Company has a widespread practice of permitting its
employees to work "off-the-clock" without being paid for their work and (ii)
allegations that the Company's bonus and workers' compensation plans are
unlawful. Four of these suits are being sponsored and financed by the United
Food and Commercial Workers (UFCW) International Union. The five suits have been
consolidated in Boise, Idaho. In addition, three other similar suits have been
filed as purported class actions in Colorado, New Mexico and Nevada which, in
effect, duplicate the coverage of the UFCW-sponsored suits. These three cases
have been transferred to the federal court in Boise, Idaho.
Page 12
<PAGE>
The Company is committed to full compliance with all applicable laws.
Consistent with this commitment, the Company has firm and long-standing policies
in place prohibiting off-the-clock work and has structured its bonus and
workers' compensation plans to comply with applicable law. The Company believes
that the UFCW-sponsored suits are part of a broader and continuing effort by the
UFCW and some of its locals to pressure the Company to unionize employees who
have not expressed a desire to be represented by a union. The Company intends to
vigorously defend against all of these lawsuits, and, at this stage of the
litigation, the Company believes that it has strong defenses against them.
Although these lawsuits are subject to the uncertainties inherent in the
litigation process, based on the information presently available to the Company,
management does not expect the ultimate resolution of these actions to have a
material adverse effect on the Company's financial condition, results of
operations or cash flows.
The Company is also involved in routine litigation incidental to operations.
In the opinion of management, the ultimate resolution of these legal proceedings
will not have a material adverse effect on the Company's financial condition,
results of operations or cash flows.
Item 2. Changes in Securities
- ------------------------------
In accordance with the Company's $600 million revolving credit agreement, the
Company's consolidated tangible net worth, as defined, shall not be less than
$750 million.
Item 3. Defaults upon Senior Securities
- ----------------------------------------
Not applicable.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
Information regarding the Company's Annual meeting of Stockholders held on
May 22, 1998, was included under Item 4 of the Company's Form 10-Q for the
quarter ended April 30, 1998.
Item 5. Other Information
- --------------------------
On August 31, 1998, the Board of Directors of the Company was reduced from 15
to 14 members, with the designation of Kathryn Albertson as a Director Emeritus
of the Company for the rest of her life. As a Director Emeritus, she is
entitled, but not required, to attend Board meetings, shall not vote or be
counted in the quorum for Board meetings and shall receive an annual fee of
$35,000 for her services as Director Emeritus.
Page 13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
- -----------------------------------------
a. Exhibits
2 Agreement and Plan of Merger, dated as of August 2, 1998,
among Albertson's, Inc., Abacus Holdings, Inc. and American
Stores Company
2.1 Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (American Stores
Company as Issuer)
2.2 Stock Option Agreement, dated as of August 2, 1998, between
Albertson's, Inc. and American Stores Company (Albertson's, Inc.
as Issuer)
27 Financial data schedule for the 26 weeks ended July 30, 1998
b. The following reports on Form 8-K were filed subsequent to the quarter
ended July 30, 1998:
Current Report on Form 8-K dated August 5, 1998, regarding the
announcement of Albertson's, Inc. and American Stores Company
Definitive Merger Agreement.
Page 14
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
ALBERTSON'S, INC.
---------------------------------
(Registrant)
Date: September 2, 1998 /S/ A. Craig Olson
--------------------- ---------------------------------
A. Craig Olson
Senior Vice President, Finance
and Chief Financial Officer
Page 15
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
DATED AS OF
AUGUST 2, 1998
BY AND BETWEEN
ALBERTSON'S, INC.,
ABACUS HOLDINGS, INC.,
AND
AMERICAN STORES COMPANY
TABLE OF CONTENTS
ARTICLE I 2
Section 1.1 The Merger..............................................2
Section 1.2 The Closing; Effective Time.............................2
Section 1.3 Subsequent Actions......................................3
Section 1.4 Certificate of Incorporation; Bylaws; Directors
and Officers of the Surviving Corporation...............3
ARTICLE II 4
Section 2.1 Treatment of Capital Stock..............................4
Section 2.2 Conversion of Common Stock..............................4
Section 2.3 Cancellation of Excluded Shares.........................4
Section 2.4 Conversion of Common Stock of Abacus Holdings...........5
Section 2.5 Exchange Agent; Exchange Procedures.....................5
Section 2.6 Transfer Books..........................................6
Section 2.7 No Fractional Share Certificates; Termination of
Exchange Fund...........................................6
Section 2.8 Options to Purchase Abacus Shares.......................7
Section 2.9 Appraisal Rights........................................8
Section 2.10 Dividends..............................................8
Section 2.11 Certain Adjustments....................................9
ARTICLE III 9
Section 3.1 Organization and Qualification; Subsidiaries............9
Section 3.2 Certificate of Incorporation and Bylaws................10
Section 3.3 Capitalization.........................................10
Section 3.4 Power and Authority; Authorization; Valid & Binding....11
Section 3.5 No Conflict; Required Filings and Consents.............11
Section 3.6 SEC Reports; Financial Statements......................13
Section 3.7 Absence of Certain Changes.............................13
Section 3.8 Litigation and Liabilities.............................14
Section 3.9 No Violation of Law; Permits...........................15
Section 3.10 Employee Matters; ERISA...............................15
Section 3.11 Labor Matters.........................................18
Section 3.12 Environmental Matters.................................18
Section 3.13 Board Action; Vote Required...........................20
Section 3.14 Opinion of Financial Advisor..........................21
Section 3.15 Brokers...............................................21
Section 3.16 Tax Matters...........................................21
Section 3.17 Intellectual Property.................................22
Section 3.18 Insurance.............................................23
Section 3.19 Contracts and Commitments.............................23
Section 3.20 Accounting and Tax Matters............................24
Section 3.21 Ownership of Shares of Alphabet.......................24
ARTICLE IV 24
Section 4.1 Organization and Qualification; Subsidiaries...........24
Section 4.2 Certificate of Incorporation and Bylaws................25
Section 4.3 Capitalization.........................................25
Section 4.4 Power and Authority; Authorization; Valid & Binding....26
Section 4.5 No Conflict; Required Filings and Consents.............27
Section 4.6 SEC Reports; Financial Statements......................28
Section 4.7 Absence of Certain Changes.............................29
Section 4.8 Litigation and Liabilities.............................30
Section 4.9 No Violation of Law; Permits...........................30
Section 4.10 Employee Matters; ERISA...............................31
Section 4.11 Labor Matters.........................................33
Section 4.12 Environmental Matters.................................33
Section 4.13 Board Action; Vote Required...........................34
Section 4.14 Opinion of Financial Advisor..........................35
Section 4.15 Brokers...............................................35
Section 4.16 Tax Matters...........................................35
Section 4.17 Intellectual Property.................................36
Section 4.18 Insurance.............................................36
Section 4.19 Contracts and Commitments.............................37
Section 4.20 Accounting and Tax Matters............................38
Section 4.21 Ownership of Shares of Alphabet.......................38
Section 4.22. Rights Agreement.....................................38
ARTICLE V 38
Section 5.1 Interim Operations of Abacus...........................38
Section 5.2 Interim Operations of Alphabet.........................41
Section 5.3 No Solicitation by Abacus..............................43
Section 5.4 No Solicitation by Alphabet............................45
ARTICLE VI 48
Section 6.1 Meetings of Stockholders...............................48
Section 6.2 Filings Best Efforts...................................48
Section 6.3 Publicity..............................................50
Section 6.4 Registration Statement.................................50
Section 6.5 Listing Application....................................51
Section 6.6 Further Action.........................................51
Section 6.7 Expenses...............................................52
Section 6.8 Notification of Certain Matters........................52
Section 6.9 Access to Information..................................52
Section 6.10 Review of Information.................................53
Section 6.11 Indemnification, Directors' and Officers'
Insurance.............................................53
Section 6.12 Employee Benefit Plans................................54
Section 6.13 Alphabet Board of Directors...........................56
Section 6.14 Affiliates............................................57
Section 6.15 Pooling-of-Interests..................................58
Section 6.16 Tax-Free Reorganization...............................58
Section 6.17 Accountant's Comfort Letters..........................58
Section 6.18 Accountant's Pooling Letters..........................58
ARTICLE VII 58
Section 7.1 Conditions to Obligations of the Parties to
Consummate the Merger..................................58
Section 7.2 Additional Conditions to Obligations of Alphabet
and Abacus Holdings....................................59
Section 7.3 Additional Conditions to Obligations of Abacus.........60
ARTICLE VIII 62
Section 8.1 Termination............................................62
Section 8.2 Effect of Termination and Abandonment..................64
Section 8.3 Amendment..............................................67
ARTICLE IX 67
Section 9.1 Non-Survival of Representations, Warranties and
Agreements.............................................67
Section 9.2 Notices................................................67
Section 9.3 Certain Definitions; Interpretation....................68
Section 9.4 Headings...............................................70
Section 9.5 Severability...........................................70
Section 9.6 Entire Agreement; No Third-Party Beneficiaries.........70
Section 9.7 Assignment.............................................70
Section 9.8 Governing Law..........................................71
Section 9.9 Counterparts...........................................71
INDEX OF DEFINED TERMS
DEFINED TERM Page No.
Abacus....................................................................1
Abacus Acquisition Proposal..............................................42
Abacus Acquisition Transaction...........................................43
Abacus Benefit Plan......................................................14
Abacus Business Combination Proposal.....................................64
Abacus Capital Stock Disclosure Date......................................9
Abacus Certificate of Incorporation.......................................3
Abacus Common Stock.......................................................1
Abacus Contracts.........................................................22
Abacus Covered Employees.................................................52
Abacus Covered Salt Lake Employees.......................................54
Abacus Disclosure Letter..................................................8
Abacus Employee..........................................................15
Abacus Employees.........................................................15
Abacus Equity Rights.....................................................10
Abacus ERISA Affiliate...................................................16
Abacus Holdings...........................................................1
Abacus Material Adverse Effect...........................................66
Abacus Multiemployer Plan................................................15
Abacus Options............................................................7
Abacus Preferred Stock....................................................9
Abacus SEC Reports.......................................................12
Abacus Shares.............................................................1
Abacus Stock Option Agreement.............................................1
Abacus Superior Proposal.................................................42
Abacus Termination Fee...................................................62
Affiliate................................................................67
Agreement.................................................................1
Allowance Plan...........................................................53
Alphabet..................................................................1
Alphabet Acquisition Proposal............................................45
Alphabet Benefit Plan....................................................29
Alphabet Business Combination Proposal...................................64
Alphabet Capital Stock Disclosure Date...................................24
Alphabet Certificate of Incorporation.....................................3
Alphabet Common Stock.....................................................2
Alphabet Contracts.......................................................35
Alphabet Disclosure Letter...............................................23
Alphabet Employee........................................................30
Alphabet Employees.......................................................30
Alphabet Equity Rights...................................................24
Alphabet ERISA Affiliate.................................................30
Alphabet Material Adverse Effect.........................................66
Alphabet Multiemployer Plan..............................................29
Alphabet Preferred Stock.................................................24
Alphabet Rights..........................................................36
Alphabet Rights Agreement................................................36
Alphabet SEC Reports.....................................................27
Alphabet Shares...........................................................2
Alphabet Stock Option Agreement...........................................1
Alphabet Superior Proposal...............................................44
Alphabet Termination Fee.................................................62
Certificate of Incorporation..............................................3
Closing...................................................................2
Closing Date..............................................................2
Code......................................................................1
Confidentiality Agreement................................................42
Consents.................................................................58
Control..................................................................67
Current Premium..........................................................52
D&O Insurance............................................................52
Deloitte.................................................................56
DGCL......................................................................2
E&Y......................................................................56
Effective Time............................................................2
Environmental Claim......................................................18
Environmental Laws.......................................................18
Environmental Permits....................................................17
ERISA....................................................................67
Exchange Agent............................................................4
Exchange Fund.............................................................5
Exchange Ratio............................................................4
Excluded Shares...........................................................4
Fees and Expenses........................................................63
Filings..................................................................58
Form S-4.................................................................49
GAAP......................................................................1
Governmental Entity......................................................12
Hazardous Materials......................................................19
HSR Act..................................................................11
Indemnified Parties......................................................51
Knowledge................................................................67
Merger....................................................................1
Merger Sub................................................................1
NYSE......................................................................6
Party.....................................................................1
PCBs.....................................................................19
Pension Plan.............................................................15
Person...................................................................67
Proxy Statement/Prospectus...............................................49
Release..................................................................19
Renewal Date.............................................................53
Representative.......................................................41, 44
SEC.......................................................................1
Securities Act...........................................................11
Significant Subsidiary...................................................67
Stock Option Agreements...................................................1
Subsidiary...............................................................67
Surviving Corporation.....................................................2
Tax Return...............................................................21
Taxable..................................................................21
Taxes....................................................................21
Termination Date.........................................................60
Termination Fee..........................................................62
Trusts...................................................................41
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 2, 1998 (this
"Agreement"), between Albertson's, Inc. ("Alphabet") a Delaware
corporation, Abacus Holdings, Inc. ("Abacus Holdings" or "Merger Sub"), a
Delaware corporation and a wholly-owned subsidiary of Alphabet, and
American Stores Company ("Abacus"), a Delaware corporation. Alphabet and
Abacus are sometimes referred to herein, individually, as a "Party," and
together, as the "Parties."
W I T N E S S E T H:
WHEREAS, the respective Boards of Directors of Alphabet, Abacus
Holdings and Abacus have each determined that the merger of Abacus Holdings
with and into Abacus (the "Merger") upon the terms and subject to the
conditions set forth in this Agreement is advisable, fair to and in the
best interests of their respective corporations and stockholders and have
approved the Merger;
WHEREAS, it is intended that, for federal income tax purposes,
the Merger will qualify as a tax-free reorganization under Section 368 of
the Internal Revenue Code of 1986, as amended and the rules and regulations
promulgated thereunder (the "Code");
WHEREAS, it is intended that, for accounting purposes, the Merger
will be accounted for as a pooling-of-interests under United States
generally accepted accounting principles ("GAAP") and applicable rules and
regulations of the Securities and Exchange Commission (the "SEC").
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Alphabet's willingness to
enter into this Agreement, Alphabet and Abacus have executed and delivered
a Stock Option Agreement, dated as of the date hereof (the "Abacus Stock
Option Agreement"), pursuant to which Abacus is granting to Alphabet an
option to purchase, under certain circumstances, up to a number of shares
of common stock, par value $1.00 per share, of Abacus (the "Abacus Common
Stock" or "Abacus Shares") equal to 19.9% of the outstanding shares of
Abacus Common Stock with an exercise price per share equal to $30.24.
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition and inducement to Abacus' willingness to enter
into this Agreement, Abacus and Alphabet have executed and delivered a
Stock Option Agreement, dated as of the date hereof (the "Alphabet Stock
Option Agreement" and together with the Abacus Stock Option Agreement, the
"Stock Option Agreements"), pursuant to which Alphabet is granting to
Abacus an option to purchase, under certain circumstances, up to a number
of shares of common stock, par value $1.00 per share, of Alphabet, together
with the associated preferred stock purchase rights (the "Alphabet Common
Stock" or "Alphabet Shares") equal to 19.9% of the outstanding shares of
Alphabet Common Stock with an exercise price per share equal to $48.00.
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements contained in this Agreement, and intending to be
legally bound hereby, the parties hereto agree as follows (certain
capitalized terms used herein are defined in Section 9.3 hereof):
ARTICLE I
Section 1.1 The Merger. At the Effective Time (as defined in Section
1.2(b)) and subject to and upon the terms and conditions of this Agreement
and in accordance with the Delaware General Corporation Law (the "DGCL"),
Abacus Holdings shall be merged with and into Abacus and the separate
corporate existence of Abacus Holdings shall cease. Abacus shall continue
as the surviving corporation (sometimes referred to herein as the
"Surviving Corporation") in the Merger, and as of the Effective Time shall
be a wholly-owned subsidiary of Alphabet. The Merger shall have the effects
specified in Section 259(a) of the DGCL.
Section 1.2 The Closing; Effective Time. (a) The closing of the Merger
(the "Closing") shall take place (i) at the offices of Fried, Frank,
Harris, Shriver & Jacobson, One New York Plaza, New York, New York, 10004,
at 10:00 A.M. local time, on the second business day following the date on
which the last to be satisfied or waived of the conditions set forth in
Article VII (other than those conditions that by their nature are to be
satisfied at the Closing, but subject to the satisfaction or, where
permitted, waiver of those conditions) shall be satisfied or waived in
accordance with this Agreement or (ii) at such other place, time and/or
date as Alphabet and Abacus shall agree (the date of the Closing, the
"Closing Date").
(b) On the Closing Date, Alphabet, Abacus and Abacus Holdings
shall cause a certificate of merger in respect of the Merger to be properly
executed, and filed with the Secretary of State of the State of Delaware as
provided in Section 251 of the DGCL. The Merger shall become effective at
such time at which such certificate of merger shall be duly filed with
Secretary of State of Delaware, or at such later time reflected in such
certificate of merger as shall be agreed by Alphabet and Abacus (the time
that the Merger becomes effective, the "Effective Time").
Section 1.3 Subsequent Actions. If, at any time after the Effective
Time, the Surviving Corporation shall consider or be advised that any
deeds, bills of sale, assignments, assurances or any other actions or
things are necessary or desirable to continue in, vest, perfect or confirm
of record or otherwise in the Surviving Corporation's right, title or
interest in, to or under any of the rights, properties, privileges,
franchises or assets of either of its constituent corporations acquired or
to be acquired by the Surviving Corporation as a result of, or in
connection with, the Merger, or otherwise to carry out the intent of this
Agreement, the officers and directors of the Surviving Corporation shall be
authorized to execute and deliver, in the name and on behalf of either of
the constituent corporations of the Merger, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
each of such corporations or otherwise, all such other actions and things
as may be necessary or desirable to vest, perfect or confirm any and all
right, title and interest in, to and under such rights, properties,
privileges, franchises or assets in the Surviving Corporation or otherwise
to carry out the intent of this Agreement.
Section 1.4 Certificate of Incorporation; Bylaws; Directors and
Officers of the Surviving Corporation. Unless otherwise agreed by Alphabet
and Abacus prior to the Closing, at the Effective Time:
(a) The Amended and Restated Certificate of Incorporation of
Abacus, as amended (the "Abacus Certificate of Incorporation;" it and the
Amended and Restated Certificate of Incorporation of Alphabet, as amended
(the "Alphabet Certificate of Incorporation"), are each sometimes referred
to herein as a "Certificate of Incorporation"), as in effect immediately
prior to the Effective Time shall be at and after the Effective Time (until
amended as provided by law and by such Certificate of Incorporation) the
certificate of incorporation of the Surviving Corporation, except that
Article Fourth of the Abacus Certificate of Incorporation shall be amended
to read in its entirety as follows: "The aggregate number of shares that
the Corporation shall have the authority to issue is 1,000 shares of Common
Stock, par value $1.00 per share."
(b) The Bylaws of Abacus as in effect immediately prior to the
Effective Time shall be at and after the Effective Time (until amended as
provided by law, its Certificate of Incorporation and its Bylaws, as
applicable) the Bylaws of the Surviving Corporation;
(c) The officers of Abacus immediately prior to the Effective
Time shall continue to serve in their respective offices of the Surviving
Corporation from and after the Effective Time, until their successors are
elected or appointed and qualified or until their resignation or removal;
and
(d) The directors of Abacus Holdings immediately prior to the
Effective Time shall be the directors of the Surviving Corporation from and
after the Effective Time, until their successors are elected or appointed
and qualified or until their resignation or removal.
ARTICLE II
Section 2.1 Treatment of Capital Stock. The manner and basis of
converting the shares of common stock of Abacus and Abacus Holdings, by
virtue of the Merger and without any action on the part of any holder
thereof, shall be as set forth in this Article II.
Section 2.2 Conversion of Common Stock. (a) Each share of Abacus
Common Stock issued and outstanding immediately prior to the Effective Time
(excluding those held in the treasury of Abacus, by any of its Subsidiaries
or by Alphabet or any of its Subsidiaries (collectively, the "Excluded
Shares")), and all rights in respect thereof, shall at the Effective Time,
without any action on the part of any holder thereof, forthwith cease to
exist and be converted into the right to receive .63 (the "Exchange Ratio")
validly issued, fully paid and nonassessable shares of Alphabet Common
Stock.
(b) Except as otherwise provided herein, commencing immediately
after the Effective Time, each certificate which, immediately prior to the
Effective Time, represented issued and outstanding shares of Abacus Common
Stock shall evidence the right to receive shares of Alphabet Common Stock
on the basis set forth in paragraph (a) above (and cash in lieu of any
fractional shares pursuant to Section 2.7 hereof).
Section 2.3 Cancellation of Excluded Shares. At the Effective Time,
each Excluded Share, by virtue of the Merger and without any action on the
part of the holder thereof, shall cease to be outstanding, shall be
canceled and retired, and no shares of stock or other securities of
Alphabet or the Surviving Corporation shall be issuable, and no payment or
other consideration shall be made or paid, in respect thereof.
Section 2.4 Conversion of Common Stock of Abacus Holdings. At the
Effective Time, each share of common stock of Abacus Holdings issued and
outstanding immediately prior to the Effective Time, and all rights in
respect thereof, shall, without any action on the part of Alphabet,
forthwith cease to exist and be converted into one validly issued, fully
paid and nonassessable share of common stock of the Surviving Corporation.
Section 2.5 Exchange Agent; Exchange Procedures. (a) Subject to the
terms and conditions of this Agreement, at or prior to the Effective Time,
Alphabet shall appoint ChaseMellon Shareholder Services, L.L.C., or such
other exchange agent selected by Alphabet that is reasonably acceptable to
Abacus (the "Exchange Agent"), to effect the exchange of Abacus Shares for
shares of Alphabet Common Stock in accordance with the provisions of this
Article II. As soon as reasonably practicable following the Effective Time,
Alphabet shall deposit, or cause to be deposited, with the Exchange Agent
certificates representing the shares of Alphabet Common Stock to be issued
in the Merger, any cash payable in respect of fractional shares in
accordance with Section 2.7 hereof and the amount of any dividends or
distributions in accordance with Section 2.5(b) hereof (the "Exchange
Fund").
(b) As soon as reasonably practicable after the Effective Time,
Alphabet shall instruct the Exchange Agent to mail to each record holder of
a certificate or certificates which immediately prior to the Effective Time
represented Abacus Shares (i) a letter of transmittal (which shall specify
that delivery shall be effected, and risk of loss and title to such
certificates shall pass, only upon delivery to the Exchange Agent and shall
be in such form and have such other provisions as Alphabet shall reasonably
specify) and (ii) instructions for use in effecting the surrender of
certificates which immediately prior to the Effective Time represented
Abacus Shares for certificates representing shares of Alphabet Common Stock
and cash in lieu of fractional shares, if any. Commencing immediately after
the Effective Time, upon the surrender to the Exchange Agent of such
certificate or certificates, together with a duly executed and completed
letter of transmittal and all other documents and other materials required
by the Exchange Agent to be delivered in connection therewith, the holder
thereof shall be entitled to receive a certificate or certificates
representing the number of whole shares of Alphabet Common Stock into which
the shares of Abacus Common Stock which immediately prior to the Effective
Time were represented by the certificate or certificates so surrendered
shall have been converted in accordance with the provisions of Section 2.2,
together with a cash payment (net of any applicable tax withholdings) in
lieu of fractional shares, if any. Unless and until any certificate or
certificates which immediately prior to the Effective Time represented
shares of Abacus Common Stock are so surrendered, no dividend or other
distribution, if any, payable to the holders of record of shares of
Alphabet Common Stock as of any date subsequent to the Effective Time shall
be paid to the holder of such certificate or certificates in respect
thereof. Except as otherwise provided herein, upon the surrender of any
certificate or certificates which immediately prior to the Effective Time
represented Abacus Shares, the record holder of the certificate or
certificates representing shares of Alphabet Common Stock issued in
exchange therefore shall be entitled to receive (i) at the time of
surrender, the amount of any dividends or other distributions (net of any
applicable tax withholdings) having a record date after the Effective Time
and a payment date prior to the surrender date, payable in respect of such
shares of Alphabet Common Stock and (ii) at the appropriate payment date,
the amount of dividends or other distributions (net of any applicable tax
withholdings) having a record date after the Effective Time and a payment
date subsequent to the date of such surrender, payable in respect of such
shares of Alphabet Common Stock. No interest shall be payable in respect of
the payment of dividends or distributions pursuant to the immediately
preceding sentence.
(c) Notwithstanding anything in this Agreement to the contrary,
certificates surrendered for exchange by any "affiliate" (as defined in
Section 6.14 hereof) of Abacus shall not be exchanged for shares of
Alphabet Common Stock until Alphabet shall have received a signed agreement
from such "affiliate" as provided in Section 6.14 hereof.
Section 2.6 Transfer Books. The stock transfer books of Abacus shall
be closed at the Effective Time and no transfer of any Abacus Shares will
thereafter be recorded on any of such stock transfer books. In the event of
a transfer of ownership of any Abacus Shares that is not registered in the
stock transfer records of Abacus at the Effective Time, a certificate or
certificates representing the number of full shares of Alphabet Common
Stock into which such Abacus Shares shall have been converted in the Merger
shall be issued to the transferee together with a cash payment (net of any
applicable tax withholdings) in lieu of fractional shares, if any, in
accordance with Section 2.7, and a cash payment in accordance with Section
2.5(b) of dividends or distributions, if any, only if the certificate or
certificates which immediately prior to the Effective Time represented such
Abacus Shares are surrendered as provided in Section 2.5, accompanied by
all documents required to evidence and effect such transfer and by evidence
of payment of any applicable stock transfer taxes.
Section 2.7 No Fractional Share Certificates; Termination of Exchange
Fund. (a) No scrip or fractional share certificate for Alphabet Common
Stock will be issued upon the surrender for exchange of a certificate or
certificates which immediately prior to the Effective Time represented
Abacus Shares, and no outstanding fractional share interest will entitle
the holder thereof to vote or receive dividends or distributions or any
other rights of a stockholder of Alphabet with respect to such fractional
share interest. Each holder entitled to receive a fractional share of
Alphabet Common Stock but for this Section 2.7(a) shall be entitled to
receive an amount of cash (net of applicable tax withholdings) equal to the
product obtained by multiplying (i) the fractional share interest to which
such holder would otherwise be entitled (after taking into account all
shares of Abacus Common Stock held immediately prior to the Effective Time
by such holder) by (ii) the closing price for a share of Alphabet Common
Stock on the New York Stock Exchange (the "NYSE") Composite Transaction
Tape on the trading day immediately prior to the Closing Date. No interest
shall be payable in respect of any cash payment for fractional share
interests.
(b) Any portion of the Exchange Fund which remains undistributed
one year after the Effective Time shall be delivered to Alphabet upon
demand, and each holder of Abacus Shares who had not theretofore
surrendered certificates or certificates which immediately prior to the
Effective Time represented Abacus Shares in accordance with the provisions
of this Article II shall thereafter look only to Alphabet for satisfaction
of such holder's claims for shares of Alphabet Common Stock, any cash in
lieu of fractional shares of Alphabet Common Stock and any dividends or
distributions payable in accordance with Section 2.5(b). Notwithstanding
the foregoing, none of Alphabet, the Surviving Corporation, the Exchange
Agent or any other Person shall be liable to any former holder of Abacus
Shares for any amount properly delivered to a public official pursuant to
applicable abandoned property, escheat or similar laws.
Section 2.8 Options to Purchase Abacus Shares. (a) Prior to the
Effective Time, Abacus shall take all action necessary with respect to each
of the plans or arrangements of Abacus and its Subsidiaries pursuant to
which options to purchase Abacus Shares (the "Abacus Options") will be
outstanding immediately prior to the Effective Time such that as of and
after the Effective Time each Abacus Option shall entitle the holder
thereof to purchase such number of shares of Alphabet Common Stock as is
equal to the product of (x) the number of shares of Abacus Common Stock
subject to such option immediately prior to the Effective Time and (y) the
Exchange Ratio; and the exercise price per share of Alphabet Common Stock
subject to such option shall be equal to (x) the exercise price per share
of Abacus Common Stock immediately prior to the Effective Time divided by
(y) the Exchange Ratio. Abacus shall take no action to cause any Abacus
Option which pursuant to its terms as in effect as of the date hereof would
not become vested or exercisable by reason of the transactions contemplated
by this Agreement to become vested or exercisable in connection herewith,
and nothing contained in this Agreement shall be interpreted as causing any
such Abacus Option to become vested or exercisable.
(b) Notwithstanding the foregoing, the number of shares of
Alphabet Common Stock deliverable upon exercise of each Abacus Option at
and after the Effective Time as contemplated by paragraph (a) above shall
be rounded, if necessary, to the nearest whole share, and the exercise
price with respect thereto shall be rounded, if necessary, to the nearest
one one-hundredth of a cent. Other than as provided in paragraph (a) above
and in the prior sentence of this paragraph (b), as of and after the
Effective Time, each Abacus Option shall be subject to the same terms and
conditions as in effect immediately prior to the Effective Time, but giving
effect to the Merger (it being understood that all Options exercisable at
the same price and granted on the same date shall be aggregated for this
purpose).
(c) As soon as practicable after the Effective Time, Alphabet
shall deliver (i) to the holders of Abacus Options which become fully
vested and exercisable by virtue of the Merger a notice stating that by
virtue of the Merger and pursuant to the terms of the relevant Abacus
Benefit Plan (as herein defined) such Abacus Options have become fully
vested and exercisable and (ii) to the holders of all Abacus Options a
notice stating that the agreements evidencing the grants of such Abacus
Options shall continue in effect on the same terms and conditions (subject
to the adjustments required by this Section 2.8 after giving effect to the
Merger and the terms of the relevant Abacus Benefit Plan).
(d) Alphabet shall take all corporate action necessary to reserve
for issuance a sufficient number of shares of Alphabet Common Stock for
delivery upon exercise of Abacus Options in accordance with this Section
2.8. Promptly after the Effective Time, Alphabet shall file a registration
statement on Form S-8 (if available) (or any successor or other appropriate
forms) with respect to the shares of Alphabet Common Stock subject to such
options and shall use all reasonable efforts to maintain the effectiveness
of such registration statement (and maintain the current status of the
prospectus or prospectuses contained therein) for so long as such options
remain outstanding.
Section 2.9 Appraisal Rights. In accordance with Section 262 of the
DGCL, no appraisal rights shall be available to holders of Abacus Shares in
connection with the Merger.
Section 2.10 Dividends. Alphabet and Abacus shall coordinate with each
other the declaration of, and the setting of record dates and payment dates
for, dividends in respect of their respective common stock so that, in
respect of any fiscal quarter, holders thereof (i) do not receive dividends
in respect of both (x) Abacus Shares and (y) shares of Alphabet Common
Stock received pursuant to the Merger in respect thereof or (ii) fail to
receive a dividend in respect of both (x) Abacus Shares and (y) the shares
of Alphabet Common Stock received pursuant to the Merger in respect
thereof.
Section 2.11 Certain Adjustments. If between the date of this
Agreement and the Effective Time, the outstanding shares of Abacus Common
Stock or Alphabet Common Stock shall be changed into a different number of
shares by reason of any stock split, combination of shares, or any dividend
payable in stock shall be declared thereon with a record date within such
period, the Exchange Ratio shall be appropriately adjusted to provide the
holders of Abacus Shares the same economic effect as contemplated by this
Agreement prior to such event.
ARTICLE III
Except as set forth in the corresponding sections or subsections
of the disclosure letter, dated the date hereof, delivered by Abacus to
Alphabet (the "Abacus Disclosure Letter"), Abacus hereby represents and
warrants to Alphabet and Abacus Holdings as follows:
Section 3.1 Organization and Qualification; Subsidiaries. (a) Abacus
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of the Subsidiaries of Abacus
is a corporation or other business entity duly organized, validly existing
and in good standing under the laws of its jurisdiction of incorporation or
organization, and each of Abacus and its Subsidiaries has the requisite
corporate or other organizational power and authority to own, operate or
lease its properties and to carry on its business as it is now being
conducted, and is duly qualified as a foreign corporation to do business,
and is in good standing, in each jurisdiction where the character of its
properties owned, operated or leased or the nature of its activities makes
such qualification necessary, in each case except as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(b) All of the outstanding shares of capital stock and other
equity securities of the Significant Subsidiaries of Abacus have been
validly issued and are fully paid and nonassessable, and are owned,
directly or indirectly, by Abacus, free and clear of all pledges and
security interests. All outstanding shares of capital stock and other
equity interests of each Subsidiary of Abacus owned directly or indirectly
by Abacus are free and clear of all liens, claims or encumbrances as would,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. There are no subscriptions, options, warrants,
calls, commitments, agreements, conversion rights or other rights of any
character (contingent or otherwise) entitling any Person to purchase or
otherwise acquire from Abacus or any of its Significant Subsidiaries at any
time, or upon the happening of any stated event, any shares of capital
stock or other equity securities of any of the Significant Subsidiaries of
Abacus. The Abacus Disclosure Letter lists the name and jurisdiction of
incorporation or organization of each of the Significant Subsidiaries of
Abacus.
(c) Except for interests in its Subsidiaries, neither Abacus nor
any of its Subsidiaries owns directly or indirectly any material equity
interest in any Person or has any obligation or made any commitment to
acquire any such interest or make any such investment.
Section 3.2 Certificate of Incorporation and Bylaws. Abacus has
furnished, or otherwise made available, to Alphabet a complete and correct
copy of the certificate of incorporation and bylaws, as amended to the date
of this Agreement, of Abacus. Such certificate of incorporation and bylaws
are in full force and effect. Abacus is not in violation of any of the
provisions of its certificate of incorporation or bylaws.
Section 3.3 Capitalization. (a) The authorized capital stock of Abacus
consists of 700,000,000 shares of Abacus Common Stock and 10,000,000 shares
of Preferred Stock, par value $1.00 per share (the "Abacus Preferred
Stock"). At the close of business on June 28, 1998 (the "Abacus Capital
Stock Disclosure Date"), (i) 274,216,016 shares of Abacus Common Stock, and
no shares of Abacus Preferred Stock, were issued and outstanding and (ii)
25,562,456 shares of Abacus Common Stock, and no shares of Abacus Preferred
Stock, were held by Abacus in its treasury. The Abacus Disclosure Letter
lists the number of shares of Abacus Common Stock and Abacus Preferred
Stock reserved for issuance as of the Abacus Capital Stock Disclosure Date
under each of the Abacus Benefit Plans (as defined in Section 3.10) or
otherwise. Since the Abacus Capital Stock Disclosure Date until the date of
this Agreement, no shares of Abacus Common Stock or Abacus Preferred Stock
have been issued or reserved for issuance, except in respect of the
exercise, conversion or exchange of Abacus Equity Rights (as defined below)
outstanding as of the Abacus Capital Stock Disclosure Date and in
connection with the Abacus Stock Option Agreement. For purposes of this
Agreement, "Abacus Equity Rights" shall mean subscriptions, options,
warrants, calls, commitments, agreements, conversion rights or other rights
of any character (contingent or otherwise) to purchase or otherwise acquire
from Abacus or any of its Subsidiaries at any time, or upon the happening
of any stated event, any shares of the capital stock of Abacus. The Abacus
Disclosure Letter sets forth the number and type of Abacus Equity Rights
(including the number and class of Abacus' capital stock for or into which
such Abacus Equity Rights are exercisable, convertible or exchangeable and
any Abacus Benefit Plan pursuant to which such Abacus Equity Rights were
granted or issued) outstanding as of the Abacus Capital Stock Disclosure
Date. Other than the Abacus Equity Rights disclosed in the Abacus
Disclosure Letter and the Abacus Equity Rights granted pursuant to the
Abacus Stock Option Agreement, Abacus does not have outstanding any Abacus
Equity Rights as of the date of this Agreement. Except as disclosed in the
Abacus SEC Reports (defined below), no stockholders of Abacus are party to
any voting agreement, voting trust or similar arrangement with respect to
Abacus Shares to which Abacus or any Subsidiary of Abacus is a Party.
(b) There are no outstanding obligations of Abacus or any of its
Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Abacus Common Stock or any Abacus Equity Rights (except in connection with
the exercise, conversion or exchange of outstanding Abacus Equity Rights).
All of the issued and outstanding shares of Abacus Common Stock are validly
issued, fully paid, nonassessable and free of preemptive rights. The Abacus
Disclosure Letter sets forth the number of shares of Abacus Common Stock
repurchased, and the number issued, by Abacus or any of its Subsidiaries
since July 1, 1996.
Section 3.4 Power and Authority; Authorization; Valid & Binding.
Abacus has the necessary corporate power and authority to enter into and
deliver this Agreement and to perform its obligations hereunder and to
consummate the transactions contemplated hereby, except that the Merger is
subject to the adoption and approval of this Agreement and the Merger by
Abacus' stockholders as required by the DCGL. The execution and delivery of
this Agreement by Abacus, the performance by it of its obligations
hereunder and the consummation by Abacus of the transactions contemplated
hereby, have been duly authorized by all necessary corporate action on the
part of Abacus (other than with respect to the Merger, the adoption and
approval of this Agreement and the Merger by its stockholders as required
by the DGCL). This Agreement has been duly executed and delivered by Abacus
and, assuming the due authorization, execution and delivery by Alphabet and
Merger Sub, constitutes a legal, valid and binding obligation of Abacus
enforceable against it in accordance with the terms hereof or thereof,
subject to bankruptcy, insolvency, fraudulent transfer, moratorium,
reorganization and similar laws of general applicability relating to or
affecting creditors' rights and to general equity principles (regardless of
whether such enforceability is considered in a proceeding in equity or at
law).
Section 3.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement and the Abacus Stock Option
Agreement by Abacus does not, and the performance by Abacus of its
obligations hereunder and thereunder and the consummation by Abacus of the
transactions contemplated hereby, and thereby will not, (i) violate or
conflict with the certificate of incorporation, or bylaws of Abacus, (ii)
subject to obtaining or making the notices, reports, filings, waivers,
consents, approvals or authorizations referred to in paragraph (b) below,
conflict with or violate any law, regulation, court order, judgment or
decree applicable to Abacus or any of its Subsidiaries or by which any of
their respective property is bound or affected, (iii) result in any breach
of or constitute a default (or an event which with notice or lapse of time
or both would become a default) under, or give to others any rights of
termination, cancellation, vesting, modification, alteration or
acceleration of any obligation under, result in the creation of a lien,
claim or encumbrance on any of the properties or assets of Abacus or any of
its Subsidiaries pursuant to, result in the loss of any material benefit
under (including an increase in the price paid by, or cost to, Abacus or
any of its Subsidiaries), require the consent of any other party to, or
result in any obligation of the part of Abacus or any of its Subsidiaries
to repurchase (with respect to a bond or a note), any agreement, contract,
instrument, bond, note, indenture, permit, license or franchise to which
Abacus or any of its Subsidiaries is a party or by which Abacus, any of its
Subsidiaries or any of their respective property is bound or affected,
except, in the case of clauses (ii) and (iii) above, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(b) Except for applicable requirements, if any, under the
premerger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), the filing of a
certificate of merger with respect to the Merger as required by the DGCL,
filings with the SEC under the Securities Act of 1933, as amended (the
"Securities Act"), and the Exchange Act, any filings required pursuant to
any state securities or "blue sky" laws, any filings required pursuant to
any state liquor, gaming or pharmacy laws, any applicable Environmental
Laws (as defined herein) governing the transfer of any interest in real
property or of business operations (including without limitation transfer
acts, notifications, and deed restrictions), and the transfer or
application requirements with respect to the environmental permits of
Abacus or its Subsidiaries, or pursuant to the rules and regulations of any
stock exchange on which the Abacus Shares are listed, neither Abacus nor
any of its Subsidiaries is required to submit any notice, report or other
filing with any Governmental Entity (defined below) in connection with the
execution, delivery, performance or consummation of this Agreement, the
Stock Option Agreements or the Merger except for such notices, reports or
filings that, if not made, would not, individually or in the aggregate,
reasonably be expected to have an Abacus Material Adverse Effect. Except as
set forth in the immediately preceding sentence, no waiver, consent,
approval or authorization of any governmental or regulatory authority,
court, agency, commission or other governmental entity or any securities
exchange or other self-regulatory body, domestic or foreign ("Governmental
Entity"), is required to be obtained by Abacus or any of its Subsidiaries
in connection with its execution, delivery, performance or consummation of
this Agreement, the Stock Option Agreement or the transactions contemplated
hereby except for such waivers, consents, approvals or authorizations that,
if not obtained or made, would not, individually or in the aggregate,
reasonably be expected to have, an Abacus Material Adverse Effect.
Section 3.6 SEC Reports; Financial Statements. (a) Abacus has filed
all forms, reports and documents (including all Exhibits, Schedules and
Annexes thereto) required to be filed by it with the SEC since January 1,
1995, including any amendments or supplements thereto (collectively,
including any such forms, reports and documents filed after the date
hereof, the "Abacus SEC Reports"), and, with respect to the Abacus SEC
Reports filed by Abacus after the date hereof and prior to the Closing
Date, will deliver or make available, to Alphabet all of its Abacus SEC
Reports in the form filed with the SEC. The Abacus SEC Reports (i) were
(and any Abacus SEC Reports filed after the date hereof will be) in all
material respects in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (ii) as of their respective filing dates, did
not (and any Abacus SEC Reports filed after the date hereof will not)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Abacus SEC Reports (or incorporated therein by
reference) fairly present in all material respects (or, with respect to
financial statements contained in the Abacus SEC Reports filed after the
date hereof, will fairly present in all material respects) the consolidated
financial position of Abacus and its consolidated subsidiaries as of the
respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of Abacus and its consolidated
subsidiaries for the respective periods indicated, in each case in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the
notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be required
by GAAP but which are not required by Form 10-Q of the SEC.
Section 3.7 Absence of Certain Changes. Except as disclosed in the
Abacus SEC Reports filed prior to the date hereof, since the end of Abacus'
fiscal year last ended, (a) Abacus and each of its Subsidiaries has
conducted its business in all material respects in the ordinary and usual
course of its business consistent with past practice and there has not been
any change in the financial condition, business or results of operations of
Abacus and its Subsidiaries, or any development or combination of
developments that, individually or in the aggregate, has had or would
reasonably be expected to have an Abacus Material Adverse Effect and (b)
since the end of Abacus' fiscal year last ended until the date hereof there
has not been (i) any declaration, setting aside or payment of any dividend
or other distribution in respect of the capital stock of Abacus, other than
regular cash dividends consistent with past practice; (ii) any change by
Abacus to its accounting policies, practices or methods; (iii) any
amendment or change to the terms of any of its indebtedness material to
Abacus and its Subsidiaries taken as a whole; (iv) any incurrence of any
material indebtedness outside of the ordinary course of business; (v)
outside the ordinary course of business, any transfer, lease, license,
sale, mortgage, pledge, encumbrance or other disposition of assets or
properties material to Abacus and its Subsidiaries taken as a whole; (vi)
any material damage, destruction or other casualty loss with respect to any
asset or property owned, leased or otherwise used by Abacus or its
Subsidiaries material to Abacus and its Subsidiaries taken as a whole,
whether or not covered by insurance; (vii) except on a case-by-case basis
in the ordinary course of business consistent with past practice for
employees other than executive officers or directors, or except as required
by applicable law or pursuant to a contractual obligation in effect as of
the date of this Agreement, (A) any execution, adoption or amendment of any
agreement or arrangement relating to severance or any employee benefit plan
or employment or consulting agreement (including, without limitation, the
Abacus Benefit Plans referred to in Section 3.10 hereof) or (B) any grant
of any stock options or other equity related award; or (viii) any agreement
or commitment entered into with respect to any of the foregoing. With
respect to Abacus, any action taken by Abacus pursuant to and consistent
with its corporate and functional consolidations or its Delta Plan shall be
deemed for the purposes hereof to be an action of Abacus that is consistent
with past practice.
Section 3.8 Litigation and Liabilities. (a) Except as disclosed in the
Abacus SEC Reports filed prior to the date hereof, there are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings) or, to the knowledge of Abacus, hearings or
investigations, pending or, to the knowledge of Abacus, threatened against,
or otherwise adversely affecting Abacus or any of its Subsidiaries or any
of their respective properties and assets, except for any of the foregoing
which would not, individually or in the aggregate, reasonably be expected
to have an Abacus Material Adverse Effect.
(b) Neither Abacus nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) the existence of
which would, individually or in the aggregate, reasonably be expected to
have an Abacus Material Adverse Effect except (i) liabilities, described in
the Abacus SEC Reports filed with the SEC prior to the date hereof or
reflected on Abacus' consolidated balance sheet (and related notes thereto)
as of the end of its most recently completed fiscal year filed in the
Abacus SEC Reports, (ii) liabilities incurred since the end of Abacus' most
recently completed fiscal year in the ordinary course of business
consistent with past practice that would not, individually or in the
aggregate, reasonably be expected to have an Abacus Material Adverse Effect
or (iii) liabilities permitted to be incurred pursuant to Section 5.1.
Section 3.9 No Violation of Law; Permits. The business of Abacus and
each of its Subsidiaries is being conducted in accordance with all
applicable statutes of law, ordinances, regulations, judgments, orders or
decrees of any Governmental Entity, and not in violation of any permits,
franchises, licenses, authorizations or consents granted by any
Governmental Entity, and Abacus and each of its Subsidiaries has obtained
all permits, franchises, licenses, authorizations or consents necessary for
the conduct of its business, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. Neither Abacus nor any of its Subsidiaries is
subject to any cease and desist or other order, judgment, injunction or
decree issued by, or is a party to any written agreement, consent agreement
or memorandum of understanding with, or, to the knowledge of Abacus, is a
party to any commitment letter or similar undertaking to, or, to the
knowledge of Abacus, is subject to any order or directive by, or has
adopted any board resolutions at the request of, any Governmental Entity,
that materially restricts the conduct of its business (whether the type of
business, the location thereof or otherwise) and which, individually or in
the aggregate, would reasonably be expected to have an Abacus Material
Adverse Effect, nor to the knowledge of Abacus, has Abacus been advised in
writing that any Governmental Entity has proposed issuing or requesting any
of the foregoing.
Section 3.10 Employee Matters; ERISA. (a) Set forth in the Abacus
Disclosure Letter is a complete list of each Abacus Benefit Plan and each
Abacus Multiemployer Plan. The term "Abacus Benefit Plan" shall mean (i)
each plan, program, policy, contract or agreement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any
kind, including, without limitation, any "employee benefit plan," within
the meaning of Section 3(3) of ERISA but excluding any "multiemployer plan"
within the meaning of Sections 3(37) or 4001(a)(3) of ERISA, and (ii) each
employment, severance, consulting, non-compete, confidentiality, or similar
agreement or contract, in each case, with respect to which Abacus or any
Subsidiary of Abacus has or may have any liability (accrued, contingent or
otherwise). The term "Abacus Multiemployer Plan" shall mean any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA in
respect to which Abacus or any Subsidiary of Abacus has or may have any
liability (accrued, contingent or otherwise).
(b) Abacus has provided or made available, or has caused to be
provided or made available, to Alphabet (i) current, accurate and complete
copies of all documents embodying each Abacus Benefit Plan, including all
amendments thereto, written interpretations thereof (which interpretation
materially increases the liabilities of Abacus and its Subsidiaries taken
as a whole under the relevant Abacus Benefit Plan) and all trust or funding
agreements with respect thereto; (ii) the most recent annual actuarial
valuation, if any, prepared for each Abacus Benefit Plan; (iii) the most
recent annual report (Series 5500 and all schedules thereto), if any,
required under ERISA in connection with each Abacus Benefit Plan or related
trust; (iv) the most recent determination letter received from the Internal
Revenue Service, if any, for each Abacus Benefit Plan and related trust
which is intended to satisfy the requirements of Section 401(a) of the
Code; (v) if any Abacus Benefit Plan is funded, the most recent annual and
periodic accounting of such Abacus Benefit Plan's assets; (vi) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Abacus Benefit Plan; and (vii) all material communications to any one or
more current, former or retired employee, officer, consultant, independent
contractor, agent or director of Abacus or any Subsidiary of Abacus (each,
an "Abacus Employee" and collectively, the "Abacus Employees") relating to
each Abacus Benefit Plan (which communication materially increases the
liabilities of Abacus and its Subsidiaries taken as a whole under the
relevant Abacus Benefit Plan). The Board of Directors of Abacus has adopted
a resolution described on Schedule 3.10(b).
(c) All Abacus Benefit Plans have been administered in all
respects in accordance with the terms thereof and all applicable laws
except for violations which, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect. Each
Abacus Benefit Plan which is an "employee pension benefit plan" within the
meaning of Section 3(2) of ERISA ("Pension Plan") and which is intended to
be qualified under Section 401(a) of the Code (each, an "Abacus Pension
Plan"), has received a favorable determination letter from the Internal
Revenue Service, and Abacus is not aware of any circumstances that would
reasonably be expected to result in the revocation or denial of such
qualified status. Except as otherwise set forth in the Abacus Disclosure
Letter or in the Abacus SEC Reports filed prior to the date hereof, there
is no pending or, to Abacus' knowledge, threatened, claim, litigation,
proceeding, audit, examination or investigation relating to any Abacus
Benefit Plans or Abacus Employees that, individually or in the aggregate,
would reasonably be expected to have an Abacus Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is
reasonably expected to be incurred by Abacus or any Subsidiaries of Abacus
or any entity which is considered a single employer with Abacus or any
Subsidiary of Abacus under Section 4001(a)(15) of ERISA or Section 414 of
the Code (an "Abacus ERISA Affiliate"). No notice of a "reportable event,"
within the meaning of Section 4043 of ERISA for which the 30-day reporting
requirement has not been waived, has been required to be filed for any
Abacus Pension Plan within the past twelve (12) months.
(e) All contributions, premiums and payments (other than
contributions, premiums or payments that are not material, in the
aggregate) required to be made under the terms of any Abacus Benefit Plan
have been made. No Abacus Pension Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. Neither Abacus nor any Subsidiaries of
Abacus nor any Abacus ERISA Affiliate has provided, or is required to
provide, security to any Abacus Pension Plan pursuant to Section 401(a)(29)
of the Code.
(f) Except as set forth in the Abacus SEC Reports filed prior to
the date hereof, under each Abacus Pension Plan which is a defined benefit
plan, as of the last day of the most recent plan year ended prior to the
date hereof, the actuarially determined present value of all "benefit
liabilities", within the meaning of Section 4001(a)(16) of ERISA (as
determined on the basis of the actuarial assumptions contained in each such
Pension Plan's most recent actuarial valuation) did not exceed the then
current value of the assets of such Pension Plan, and there has been no
adverse change in the financial condition of such Pension Plan (with
respect to either assets or benefits) since the last day of the most recent
plan year of such Pension Plan.
(g) As of the Closing Date, neither Abacus, any Subsidiary of
Abacus nor any Abacus ERISA Affiliate will have incurred any withdrawal
liability as described in Section 4201 of ERISA for withdrawals that have
occurred on or prior to the Closing Date that has not previously been
satisfied. Neither Abacus, any Subsidiary of Abacus nor any Abacus ERISA
Affiliate has knowledge that any Abacus Multiemployer Plan fails to qualify
under Section 401(a) of the Code, is insolvent or is in reorganization
within the meaning of Part 3 of Subtitle E of Title IV of ERISA nor of any
condition that would reasonably be expected to result in an Abacus
Multiemployer Plan becoming insolvent or going into reorganization.
(h) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event
under any Abacus Benefit Plan, trust or loan that will or may result in any
payment (whether of severance pay or otherwise), acceleration, forgiveness
of indebtedness, vesting, distribution, increase in benefits or obligation
to fund benefits with respect to any Abacus Employee, or (ii) result in the
triggering or imposition of any restrictions or limitations on the right of
Abacus, any Subsidiary of Abacus or Alphabet to amend or terminate any
Abacus Benefit Plan. No payment or benefit which will or may be made by
Abacus, any Subsidiary of Abacus, Alphabet or any of their respective
affiliates with respect to any Abacus Employee will be characterized as an
"excess parachute payment," within the meaning of Section 280G(b)(1) of the
Code.
Section 3.11 Labor Matters. (a) Except as set forth in the Abacus SEC
Reports filed prior to the date hereof, and except for those matters that
would not, individually or in the aggregate, reasonably be expected to have
an Abacus Material Adverse Effect no work stoppage, slowdown, lockout or
labor strike against Abacus or any Subsidiary of Abacus by Abacus Employees
(or any union that represents them) is pending or, to the knowledge of
Abacus, threatened.
(b) Except as set forth in the Abacus SEC Reports filed prior to
the date hereof and as, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect, as of the
date of this Agreement, neither Abacus nor any Subsidiary of Abacus is
involved in or, to the knowledge of Abacus, threatened with any labor
dispute, grievance, or arbitration or union organizing activity (by it or
any of its employees) involving any Abacus Employees.
Section 3.12 Environmental Matters. Except as set forth in the Abacus
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Abacus Material Adverse Effect:
(i) Abacus and each of its Subsidiaries is in compliance
with all applicable Environmental Laws (as defined below), and neither
Abacus nor any of its Subsidiaries has received any written communication
from any Person or Governmental Entity that alleges that Abacus or any of
its Subsidiaries is not in compliance with applicable Environmental Laws.
(ii) Abacus and each of its Subsidiaries has obtained or has
applied for all applicable environmental, health and safety permits,
licenses, variances, approvals and authorizations required under
Environmental Laws (collectively, the "Environmental Permits") necessary
for the construction of its facilities or the conduct of its operations,
and all those Environmental Permits are in effect or, where applicable, a
renewal application has been timely filed and is pending agency approval,
and Abacus and its Subsidiaries are in compliance with all terms and
conditions of such Environmental Permits.
(iii) There is no Environmental Claim (as defined below)
pending or, to the knowledge of Abacus, threatened (i) against Abacus or
any of its Subsidiaries, (ii) against any Person whose liability for any
Environmental Claim has been retained or assumed contractually by Abacus or
any of its Subsidiaries, or (iii) against any real or personal property or
operations which Abacus or any of its Subsidiaries owns, leases or
operates, in whole or in part.
(iv) There have been no Releases (as defined below) of any
Hazardous Material (as defined below) that would be reasonably likely to
form the basis of any Environmental Claim against Abacus or any of its
Subsidiaries, or against any Person whose liability for any Environmental
Claim has been retained or assumed contractually by Abacus or any of its
Subsidiaries.
(v) None of the properties owned, leased or operated by
Abacus, its Subsidiaries or any predecessor thereof are now, or were in the
past, listed on the National Priorities List of Superfund Sites or any
analogous state list (excluding easements that transgress those Superfund
sites).
For purposes of this Agreement:
(i) "Environmental Claim" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters, directives,
claims, liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any person (including any federal, state,
local or foreign governmental authority) alleging potential liability
(including, without limitation, potential responsibility for or liability
for enforcement, investigatory costs, cleanup costs, governmental response
costs, removal costs, remedial costs, natural resources damages, property
damages, personal injuries or penalties) arising out of, based on or
resulting from (A) the presence, or Release or threatened Release into the
environment, of any Hazardous Materials at any location, whether or not
owned, operated, leased or managed by the representing Party or any of its
Subsidiaries; or (B) circumstances forming the basis of any violation or
alleged violation of any Environmental Law; or (C) any and all claims by
any third party seeking damages, contribution, indemnification, cost
recovery, compensation or injunctive relief resulting from the presence or
Release of any Hazardous Materials.
(ii) "Environmental Laws" means all applicable foreign,
federal, state and local laws, rules, requirements and regulations relating
to pollution, the environment (including, without limitation, ambient air,
surface water, groundwater, land surface or subsurface strata) or
protection of human health as it relates to the environment including,
without limitation, laws and regulations relating to Releases of Hazardous
Materials, or otherwise relating to the manufacture, processing,
distribution, use, treatment, storage, disposal, transport or handling of
Hazardous Materials or relating to management of asbestos in buildings.
(iii) "Hazardous Materials" means (A) any petroleum or any
by-products or fractions thereof, asbestos or asbestos-containing
materials, urea formaldehyde foam insulation, any form of natural gas,
explosives, polychlorinated biphenyls ("PCBs"), radioactive materials,
ionizing radiation, electromagnetic field radiation or microwave
transmissions; (B) any chemicals, materials or substances, whether waste
materials, raw materials or finished products, which are now defined as or
included in the definition of "hazardous substances," "hazardous wastes,"
"hazardous materials," "extremely hazardous substances," "restricted
hazardous wastes," "toxic substances," "toxic pollutants," "pollutants,"
"contaminants," or words of similar import under any Environmental Law; and
(C) any other chemical, material or substance, whether waste materials, raw
materials or finished products, regulated or forming the basis of liability
under any Environmental Law.
(iv) "Release" means any release, spill, emission, leaking,
injection, deposit, disposal, discharge, dispersal, leaching or migration
into the environment (including without limitation ambient air, atmosphere,
soil, surface water, groundwater or property).
Section 3.13 Board Action; Vote Required. (a) Abacus' Board of
Directors has approved this Agreement, the Abacus Stock Option Agreement
and the transactions contemplated hereby and thereby, including the Merger,
has determined that the Merger is advisable, fair to and in the best
interests of Abacus and its stockholders and has resolved to recommend to
stockholders that they vote in favor of approving and adopting this
Agreement and approving the Merger. Neither Section 203 of the DGCL nor any
other state takeover or similar statute or regulation applies to the
Merger, this Agreement, the Abacus Stock Option Agreement (including the
purchase of shares of Abacus Common Stock thereunder) or any of the
transactions contemplated hereby or thereby. The Board of Directors of
Abacus has duly adopted (and not withdrawn) a resolution rescinding any
authorization previously granted permitting Abacus to repurchase shares of
Abacus Common Stock. In connection with each Abacus Benefit Plan under
which a holder of an option granted pursuant thereto would be entitled, in
respect of such option, to receive cash upon a change of control, the Board
of Directors (or the appropriate Committee thereof) has taken all necessary
action so that in connection with the Merger such holder would be entitled
to exercise such option solely for shares of Abacus Common Stock or,
following the Merger, Alphabet Common Stock.
(b) The affirmative vote of the holders of a majority of all of
the outstanding shares of Abacus Common Stock is necessary to approve and
adopt this Agreement and the Merger. Such vote is the only vote of the
holders of any class or series of Abacus' capital stock required to approve
this Agreement, the Abacus Stock Option Agreement and the transactions
contemplated hereby and thereby.
Section 3.14 Opinion of Financial Advisor. Abacus or its Board of
Directors has received the written opinion of The Blackstone Group, dated
as of the date hereof, to the effect that, as of the date hereof, the
Exchange Ratio is fair to the holders of shares of Abacus Common Stock from
a financial point of view. An executed copy of such opinion has been
delivered to Alphabet.
Section 3.15 Brokers. Set forth in the Abacus Disclosure Letter is a
list of each broker, finder or investment banker and other Person entitled
to any brokerage, finder's, investment banking or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Abacus or any of
its Subsidiaries and the expected amounts of such fees and commissions.
Abacus has previously provided to Alphabet copies of any agreements giving
rise to any such fee or commission.
Section 3.16 Tax Matters. (a) All material Tax Returns (defined below)
required to be filed by Abacus or its Subsidiaries on or prior to the
Effective Time or with respect to taxable periods ending on or prior to the
Effective Time have been or will be prepared in good faith and timely filed
with the appropriate Governmental Entity on or prior to the Effective Time
or by the due date thereof including extensions except where the failure to
so file would not, individually or in the aggregate, reasonably be expected
to have an Abacus Material Adverse Effect.
(b) Except where the failure to pay, collect or withhold would
not, individually or in the aggregate, reasonably be expected to have an
Abacus Material Adverse Effect (i) all Taxes (defined below), that are
required to be paid, have been or will be fully paid (except with respect
to matters contested in good faith as set forth in the Abacus Disclosure
Letter) or as of May 2, 1998 adequately reflected as a liability on Abacus'
or its Subsidiaries' books and records (without taking into account any
deferred Tax liabilities) and (ii) all Taxes required to be collected or
withheld from third parties have in all material respects been collected or
withheld.
(c) Abacus and each of its Subsidiaries have not waived any
statute of limitations with respect to federal income Taxes or agreed to
any extension of time with respect to federal income or material state Tax
assessment or deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Abacus, threatened in writing, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters that
(i) were raised by any Taxing authority in a written communication to
Abacus or any Subsidiary and (ii) would, individually or in the aggregate,
reasonably be expected to have an Abacus Material Adverse Effect after
taking into account any reserves for Taxes set forth on the most recent
balance sheet contained in the Abacus SEC Reports filed prior to the date
hereof.
(e) Abacus has made available to Alphabet true and correct copies
of the United States federal income and all material state income or
franchise Tax Returns filed by Abacus and its Subsidiaries for each of its
fiscal years ended on or about January 31, 1995, 1996, and 1997.
As used in this Agreement, (i) the term "Tax " (including, with
correlative meaning, the terms "Taxes" and "Taxable") includes all federal,
state, local and foreign income, profits, franchise, gross receipts,
license, premium, environmental (including taxes under Section 59A of the
Code), capital stock, severance, stamp, payroll, sales, employment,
unemployment, disability, use, transfer, property, withholding, excise,
production, occupation, windfall profits, customs duties, social security
(or similar), registration, value added, alternative or add-on minimum,
estimated, occupancy and other taxes, duties or governmental assessments of
any nature whatsoever, together with all interest, penalties and additions
imposed with respect to such amounts and any interest in respect of such
penalties and additions, and (ii) the term "Tax Return" includes all
returns and reports (including elections, declarations, disclosures,
schedules, estimates and information returns) required to be supplied to a
Tax authority relating to Taxes.
Section 3.17 Intellectual Property. Neither Abacus nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel
and members of the legal department of Abacus involved in intellectual
property, has in the past utilized, any existing or pending patent,
trademark, trade name, service mark, copyright, software, trade secret or
know-how, except for those which are owned, possessed or lawfully used by
Abacus or its Subsidiaries in their business operations, and neither Abacus
nor any of its Subsidiaries infringes upon or unlawfully uses any patent,
trademark, trade name, service mark, copyright or trade secret owned or
validly claimed by another Person except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect. Abacus and its Subsidiaries own, have a valid
license to use or have the right validly to use all existing and pending
patents, trademarks, tradenames, service marks, copyrights and software
necessary to carry on their respective businesses substantially as
currently conducted except the failure of which to own, validly license or
have the right validly to use, individually or in the aggregate, would not
reasonably be expected to have an Abacus Material Adverse Effect.
Section 3.18 Insurance. Except to the extent adequately accrued on the
most recent balance sheet contained in the Abacus SEC Reports filed as of
the date hereof, neither Abacus nor its Subsidiaries has any obligation
(contingent or otherwise) to pay in connection with any insurance policies
any retroactive premiums or "retro-premiums" that, individually or in the
aggregate, would reasonably be expected to have an Abacus Material Adverse
Effect.
Section 3.19 Contracts and Commitments. Set forth in the Abacus
Disclosure Letter is a complete and accurate list of all of the following
contracts (written or oral), plans, undertakings, commitments or agreements
("Abacus Contracts") to which Abacus or any of its Subsidiaries is a party
or by which any of them is bound as of the date of this Agreement:
(a) each distribution, supply, inventory purchase, franchise,
license, sales, agency or advertising contract involving annual
expenditures or liabilities in excess of $30,000,000 which is not
cancelable (without material penalty, cost or other liability) within one
year;
(b) each promissory note, loan, agreement, indenture, evidence of
indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other
arrangement containing any "radius clause" applicable to markets in which
Alphabet has operations the compliance (or failure to comply) with which
would reasonably be expected, individually or in the aggregate, to have an
Abacus Material Adverse Effect;
(d) each joint venture or partnership agreement pursuant to which
any third party is entitled to develop any property and/or facility on each
behalf of Abacus or any of its Subsidiaries material to Abacus and its
Subsidiaries taken as a whole; and
(e) any contract that would constitute a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC).
True and complete copies of the written Abacus Contracts, as
amended to date, that would be required to be filed as exhibits to Abacus'
Form 10-K if such Form 10-K were being filed on the date hereof, that are
identified in the Abacus Disclosure Letter and have not been filed prior to
the date hereof as Exhibits to the Abacus SEC Reports have been delivered
or made available to Alphabet.
To the knowledge of Abacus, each Abacus Contract is valid and
binding on Abacus, any Subsidiary of Abacus which is a party thereto and
each other party thereto and is in full force and effect, and Abacus and
its Subsidiaries have performed and complied with all obligations required
to be performed or compiled with by them under each Abacus Contract, except
in each case as would not, individually or in the aggregate, reasonably be
expected to have an Abacus Material Adverse Effect.
Section 3.20 Accounting and Tax Matters. Neither Abacus nor any of its
affiliates has taken or agreed to take any action, nor does Abacus have any
knowledge of any fact or circumstance with respect to Abacus, which would
prevent the business combination to be effected pursuant to the Merger from
being accounted for as a "pooling-of-interests" under GAAP or the rules and
regulations of the SEC or prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code.
Section 3.21 Ownership of Shares of Alphabet. Abacus and its
Subsidiaries do not beneficially own (as defined in Rule 13d-3 under the
Exchange Act) any capital stock or other equity securities of Alphabet or
any Alphabet Equity Rights (as defined herein) other than pursuant to the
Alphabet Stock Option Agreement.
ARTICLE IV
Except as set forth in the corresponding sections or subsections
of the disclosure letter, dated the date hereof, delivered by Alphabet to
Abacus (the "Alphabet Disclosure Letter"), Alphabet and Abacus Holdings
hereby represent and warrant to Abacus as follows:
Section 4.1 Organization and Qualification; Subsidiaries. (a) Alphabet
is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware. Each of the Subsidiaries of
Alphabet (including Abacus Holdings) is a corporation or other business
entity duly organized, validly existing and in good standing under the laws
of its jurisdiction of incorporation or organization, and each of Alphabet
and its Subsidiaries has the requisite corporate or other organizational
power and authority to own, operate or lease its properties and to carry on
its business as it is now being conducted, and is duly qualified as a
foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of its properties owned, operated or
leased or the nature of its activities makes such qualification necessary,
in each case except as would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) All of the outstanding shares of capital stock and other
equity securities of the Significant Subsidiaries of Alphabet (including
Abacus Holdings) have been validly issued and are fully paid and
nonassessable, and are owned, directly or indirectly, by Alphabet, free and
clear of all pledges and security interests. All outstanding shares of
capital stock and other equity interests of each Subsidiary of Alphabet
owned directly or indirectly by Alphabet are free and clear of all liens,
claims or encumbrances as would, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect. There
are no subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or
otherwise) entitling any Person to purchase or otherwise acquire from
Alphabet or any of its Significant Subsidiaries at any time, or upon the
happening of any stated event, any shares of capital stock or other equity
securities of any of the Subsidiaries of Alphabet (including Abacus
Holdings). The Alphabet Disclosure Letter lists the name and jurisdiction
of incorporation or organization of each of the Significant Subsidiaries of
Alphabet.
(c) Except for interests in Subsidiaries, neither Alphabet nor
any of its Subsidiaries owns directly or indirectly any material equity
interest in any Person or, other than pursuant to this Agreement, has any
obligation or made any commitment to acquire any such interest or make any
such investment.
Section 4.2 Certificate of Incorporation and Bylaws. Alphabet has
furnished, or otherwise made available, to Abacus a complete and correct
copy of the certificate of incorporation and bylaws, as amended to the date
of this Agreement, of Alphabet. Such certificate of incorporation and
bylaws are in full force and effect. Alphabet is not in violation of any of
the provisions of its certificate of incorporation or bylaws.
Section 4.3 Capitalization. (a) The authorized capital stock of
Alphabet consists of 1,200,000,000 shares of Alphabet Common Stock and
10,000,000 shares of Preferred Stock, par value $1.00 per share (the
"Alphabet Preferred Stock"). At the close of business on July 30, 1998 (the
"Alphabet Capital Stock Disclosure Date"), (i) 245,507,844 shares of
Alphabet Common Stock, and no shares of Alphabet Preferred Stock, were
issued and outstanding and (ii) no shares of Alphabet Common Stock, and no
shares of Alphabet Preferred Stock, were held by Alphabet in its treasury.
The Alphabet Disclosure Letter lists the number of shares of Alphabet
Common Stock and Alphabet Preferred Stock reserved for issuance as of the
Alphabet Capital Stock Disclosure Date under each of the Alphabet Benefit
Plans (as defined in Section 4.10) or otherwise. Since the Alphabet Capital
Stock Disclosure Date until the date of this Agreement, no shares of
Alphabet Common Stock or Alphabet Preferred Stock have been issued or
reserved for issuance, except in respect of the exercise, conversion or
exchange of Alphabet Equity Rights outstanding as of the Alphabet Capital
Stock Disclosure Date and in connection with the Alphabet Stock Option
Agreement. For purposes of this Agreement, "Alphabet Equity Rights" shall
mean subscriptions, options, warrants, calls, commitments, agreements,
conversion rights or other rights of any character (contingent or
otherwise) to purchase or otherwise acquire from Alphabet or any of its
Subsidiaries at any time, or upon the happening of any stated event, any
shares of the capital stock of Alphabet. The Alphabet Disclosure Letter
sets forth the number and type of Alphabet Equity Rights (including the
number and class of Alphabet's capital stock for or into which such
Alphabet Equity Rights are exercisable, convertible or exchangeable and any
Alphabet Benefit Plan pursuant to which such Alphabet Equity Rights were
granted or issued) outstanding as of the Alphabet Capital Stock Disclosure
Date. Other than the Alphabet Equity Rights disclosed in the Alphabet
Disclosure Letter and the Alphabet Equity Rights granted pursuant to the
Alphabet Stock Option Agreement, Alphabet does not have any outstanding
Alphabet Equity Rights as of the date of this Agreement. Except as
disclosed in the Alphabet SEC Reports (defined below), no stockholders of
Alphabet are party to any voting agreement, voting trust or similar
arrangement with respect to Alphabet Shares to which Alphabet or any
Subsidiary of Alphabet is a Party.
(b) There are no outstanding obligations of Alphabet or any of
its Subsidiaries to repurchase, redeem or otherwise acquire any shares of
Alphabet Common Stock or any Alphabet Equity Rights (except in connection
with the exercise, conversion or exchange of outstanding Alphabet Equity
Rights). All of the issued and outstanding shares of Alphabet Common Stock
are validly issued, fully paid, nonassessable and free of preemptive
rights. The Alphabet Disclosure Letter sets forth the number of shares of
Alphabet Common Stock repurchased, and the number issued, by Alphabet or
any of its Subsidiaries since July 1, 1996.
Section 4.4 Power and Authority; Authorization; Valid & Binding. Each
of Alphabet and Abacus Holdings has the necessary corporate power and
authority to deliver this Agreement and, in the case of Alphabet, the Stock
Option Agreements, to perform its obligations hereunder, as applicable, and
to consummate the transactions contemplated hereby, as applicable, except
that the issuance of shares of Alphabet Common Stock in accordance with the
terms of this Agreement is subject to the approval of stockholders of
Alphabet as required by the rules and regulations of the NYSE. The
execution and delivery by each of Alphabet and Abacus Holdings of this
Agreement and, in the case of Alphabet, the Stock Option Agreements, the
performance by it of its obligations hereunder and thereunder, as
applicable, and the consummation by Alphabet of the transactions
contemplated hereby and thereby, as applicable, have been duly authorized
by all necessary corporate action on the part of Alphabet, except that the
issuance of shares of Alphabet Common Stock in accordance with the terms of
this Agreement and the Merger is subject to the approval of stockholders of
Alphabet as required by the rules and regulations of the NYSE. This
Agreement has been duly executed and delivered by Alphabet and Abacus
Holdings and, assuming the due authorization, execution and delivery by
Abacus, constitutes a legal, valid and binding obligation of Alphabet and
Abacus Holdings enforceable against such parties in accordance with the
terms hereof or thereof, subject to bankruptcy, insolvency, fraudulent
transfer, moratorium, reorganization and similar laws of general
applicability relating to or affecting creditors' rights and to general
equity principles (regardless of whether such enforceability is considered
in a proceeding in equity or at law).
Section 4.5 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by each of Alphabet and Abacus
Holdings and the Alphabet Stock Option Agreement by Alphabet does not, and
the performance by Alphabet of its obligations hereunder and thereunder and
the consummation by Alphabet of the transactions contemplated hereby and
thereby will not, (i) violate or conflict with the certificate of
incorporation or bylaws of Alphabet (ii) subject to obtaining or making the
notices, reports, filings, waivers, consents, approvals or authorizations
referred to in paragraph (b) below, conflict with or violate any law,
regulation, court order, judgment or decree applicable to Alphabet or any
of its Subsidiaries or by which any of their respective property is bound
or affected, (iii) subject to obtaining the approval of the stockholders of
Alphabet for the issuance of shares of Alphabet Common Stock in accordance
with the terms hereof, result in any breach of or constitute a default (or
an event which with notice or lapse of time or both would become a default)
under, or give to others any rights of termination, cancellation, vesting,
modification, alteration or acceleration of any obligation under, result in
the creation of a lien, claim or encumbrance on any of the properties or
assets of Alphabet or any of its Subsidiaries pursuant to, result in the
loss of any material benefit under (including an increase in the price paid
by, or cost to, Alphabet or any of its Subsidiaries), require the consent
of any other party to, or result in any obligation on the part of Alphabet
or any of its Subsidiaries to repurchase (with respect to a bond or a
note), any agreement, contract, instrument, bond, note, indenture, permit,
license or franchise to which Alphabet or any of its Subsidiaries is a
party or by which Alphabet, any of its Subsidiaries or any of their
respective property is bound or affected, except, in the case of clauses
(ii) and (iii) above, as would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) Except for applicable requirements, if any, under the
premerger notification requirements of the HSR Act, the filing of a
certificate of merger with respect to the Merger as required by the DGCL,
filings with the SEC under the Securities Act and the Exchange Act, any
filings required pursuant to any state securities or "blue sky" laws any
filings required pursuant to any state liquor, gaming or pharmacy laws, any
applicable Environmental Laws (as defined herein) governing the transfer of
any interest in real property or of business operations (including without
limitation transfer acts, notifications, and deed restrictions), and the
transfer or application requirements with respect to the environmental
permits of Alphabet or its Subsidiaries, or pursuant to the rules and
regulations of any stock exchange on which the Alphabet Shares are listed,
and approval of stockholders required under the rules and regulations of
the NYSE, neither Alphabet nor any of its Subsidiaries (including Abacus
Holdings) is required to submit any notice, report or other filing with any
Governmental Entity in connection with the execution, delivery, performance
or consummation of this Agreement, the Stock Option Agreements or the
Merger except for such notices, reports or filings, that, if not made,
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect. Except as set forth in the immediately
preceding sentence, no waiver, consent, approval or authorization of any
Governmental Entity is required to be obtained by Alphabet or any of its
Subsidiaries (including Abacus Holdings) in connection with its execution,
delivery, performance or consummation of this Agreement, the Stock Option
Agreements or the transactions contemplated hereby and thereby except for
such waivers, consents, approvals or authorizations that, if not obtained
or made, would not, individually or in the aggregate, reasonably be
expected to have an Alphabet Material Adverse Effect.
Section 4.6 SEC Reports; Financial Statements. (a) Alphabet has filed
all forms, reports and documents (including all Exhibits, Schedules and
Annexes thereto) required to be filed by it with the SEC since January 1,
1995, including any amendments or supplements thereto (collectively,
including any such forms, reports and documents filed after the date
hereof, the "Alphabet SEC Reports"), and, with respect to the Alphabet SEC
Reports filed by Alphabet after the date hereof and prior to the Closing
Date, will deliver or make available, to Abacus all of its Alphabet SEC
Reports in the form filed with the SEC. The Alphabet SEC Reports (i) were
(and any Alphabet SEC Reports filed after the date hereof will be) in all
material respects in accordance with the requirements of the Securities Act
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder, and (ii) as of their respective filing dates, did
not (and any Alphabet SEC Reports filed after the date hereof will not)
contain any untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(b) The financial statements, including all related notes and
schedules, contained in the Alphabet SEC Reports (or incorporated therein
by reference) fairly present in all material respects (or, with respect to
financial statements contained in the Alphabet SEC Reports filed after the
date hereof, will fairly present in all material respects) the consolidated
financial position of Alphabet and its consolidated subsidiaries as at the
respective dates thereof and the consolidated results of operations,
retained earnings and cash flows of Alphabet and its consolidated
subsidiaries for the respective periods indicated, in each case in
accordance with GAAP applied on a consistent basis throughout the periods
involved (except for changes in accounting principles disclosed in the
notes thereto) and the rules and regulations of the SEC, except that
interim financial statements are subject to normal year-end adjustments
which are not and are not expected to be, individually or in the aggregate,
material in amount and do not include certain notes which may be required
by GAAP but which are not required by Form 10-Q of the SEC.
Section 4.7 Absence of Certain Changes. Except as disclosed in the
Alphabet SEC Reports filed prior to the date hereof, (a) since the end of
Alphabet's fiscal year last ended, Alphabet and each of its Subsidiaries
has conducted its business in all material respects in the ordinary and
usual course of its business consistent with past practice and there has
not been any change in the financial condition, business or results of
operations of Alphabet and its Subsidiaries or any development or
combination of developments that, individually or in the aggregate, has had
or would reasonably be expected to have an Alphabet Material Adverse Effect
and (b) since the end of Alphabet's fiscal year last ended until the date
hereof, there has not been (i) any declaration, setting aside or payment of
any dividend or other distribution in respect of the capital stock of
Alphabet, other than regular cash dividends consistent with past practice;
(ii) any change by Alphabet to its accounting policies, practices or
methods; (iii) any amendment or change to the terms of any of its
indebtedness material to Alphabet and its Subsidiaries taken as a whole;
(iv) any incurrence of any material indebtedness outside of the ordinary
course of business; (v) outside the ordinary course of business, any
transfer, lease, license, sale, mortgage, pledge, encumbrance or other
disposition of assets or properties material to Alphabet and its
Subsidiaries taken as a whole; (vi) any material damage, destruction or
other casualty loss with respect to any asset or property owned, leased or
otherwise used by Alphabet or its Subsidiaries material to Alphabet and its
Subsidiaries taken as a whole, whether or not covered by insurance; (vii)
except on a case-by-case basis in the ordinary course of business
consistent with past practice for employees other than executive officers
or directors, or except as required by applicable law or pursuant to a
contractual obligation in effect as of the date of this Agreement, (A) any
execution, adoption or amendment of any agreement or arrangement relating
to severance or any employee benefit plan or employment or consulting
agreement (including, without limitation, the Alphabet Benefit Plans
referred to in Section 4.10 hereof) or (B) any grant of any stock options
or other equity related award; or (viii) any agreement or commitment
entered into with respect to any of the foregoing.
Section 4.8 Litigation and Liabilities. (a) Except as disclosed in the
Alphabet SEC Reports filed prior to the date hereof, there are no civil,
criminal or administrative actions, suits or claims, proceedings (including
condemnation proceedings) or, to the knowledge of Alphabet, hearings or
investigations, pending or, to the knowledge of Alphabet, threatened
against, or otherwise adversely affecting Alphabet or any of its
Subsidiaries or any of their respective properties and assets, except for
any of the foregoing which would not, individually or in the aggregate,
reasonably be expected to have an Alphabet Material Adverse Effect.
(b) Neither Alphabet nor any of its Subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) the existence of
which would, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect, except (i) liabilities described
in the Alphabet SEC Reports filed with the SEC prior to the date hereof or
reflected on the Alphabet's consolidated balance sheet (and related notes
thereto) as of the end of its most recently completed fiscal year filed in
the Alphabet SEC Reports, (ii) liabilities incurred since the end of
Alphabet's most recently completed fiscal year in the ordinary course of
business consistent with past practice, that would not, individually or in
the aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect or (iii) liabilities permitted to be incurred pursuant to Section
5.2.
Section 4.9 No Violation of Law; Permits. The business of Alphabet and
each of its Subsidiaries is being conducted in accordance with all
applicable statutes of law, ordinances, regulations, judgments, orders or
decrees of any Governmental Entity, and not in violation of any permits,
franchises, licenses, authorizations or consents granted by any
Governmental Entity, and Alphabet and each of its Subsidiaries has obtained
all permits, franchises, licenses, authorizations or consents necessary for
the conduct of its business, except, in each case, as would not,
individually or in the aggregate, reasonably be expected to have an
Alphabet Material Adverse Effect. Neither Alphabet nor any of its
Subsidiaries is subject to any cease and desist or other order, judgment,
injunction or decree issued by or is a party to any written agreement,
consent agreement or memorandum of understanding with, or to the knowledge
of Alphabet, is a party to any commitment letter or similar undertaking to,
or, to the knowledge of Alphabet, is subject to any order or directive by,
or has adopted any board resolutions at the request of, any Governmental
Entity, that materially restricts the conduct of its business (whether the
type of business, the location thereof or otherwise) and which,
individually or in the aggregate, would reasonably be expected to have an
Alphabet Material Adverse Effect, nor to the knowledge of Alphabet, has
Alphabet been advised in writing that any Governmental Entity has proposed
issuing or requesting any of the foregoing.
Section 4.10 Employee Matters; ERISA. (a) Set forth in the Alphabet
Disclosure Letter is a complete list of each Alphabet Benefit Plan and each
Alphabet Multiemployer Plan. The term "Alphabet Benefit Plan" shall mean
(i) each plan, program, policy, contract or agreement providing for
compensation, severance, termination pay, performance awards, stock or
stock-related awards, fringe benefits or other employee benefits of any
kind including, without limitation, any "employee benefit plan," within the
meaning of Section 3(3) of ERISA but excluding any "multiemployer plan"
within the meaning of Sections 3(37) or 4001(a)(3) of ERISA, and (ii) each
employment, severance, consulting, non-compete, confidentiality, or similar
agreement or contract, in each case, with respect to which Alphabet or any
Subsidiary of Alphabet has or may have any liability (accrued, contingent
or otherwise). The term "Alphabet Multiemployer Plan" shall mean any
"multiemployer plan" within the meaning of Section 4001(a)(3) of ERISA in
respect to which Alphabet or any Subsidiary of Alphabet has or may have any
liability (accrued, contingent or otherwise).
(b) Alphabet has provided or made available, or has caused to be
provided or made available, to Abacus (i) current, accurate and complete
copies of all documents embodying each Alphabet Benefit Plan, including all
amendments thereto, written interpretations thereof (which interpretation
materially increases the liabilities of Alphabet and its Subsidiaries taken
as a whole under the relevant Alphabet Benefit Plan) and all trust or
funding agreements with respect thereto; (ii) the most recent annual
actuarial valuation, if any, prepared for each Alphabet Benefit Plan; (iii)
the most recent annual report (Series 5500 and all schedules thereto), if
any, required under ERISA in connection with each Alphabet Benefit Plan or
related trust; (iv) the most recent determination letter received from the
Internal Revenue Service, if any, for each Alphabet Benefit Plan and
related trust which is intended to satisfy the requirements of Section
401(a) of the Code; (v) if any Alphabet Benefit Plan is funded, the most
recent annual and periodic accounting of such Alphabet Benefit Plan's
assets; (vi) the most recent summary plan description together with the
most recent summary of material modifications, if any, required under ERISA
with respect to each Alphabet Benefit Plan; and (vii) all material
communications to any one or more current, former or retired employee,
officer, consultant, independent contractor, agent or director of Alphabet
or any Subsidiary of Alphabet (each, an "Alphabet Employee" and
collectively, the "Alphabet Employees") relating to each Alphabet Benefit
Plan (which communication materially increases the liabilities of Alphabet
and its Subsidiaries taken as a whole under the relevant Alphabet Benefit
Plan).
(c) All Alphabet Benefit Plans have been administered in all
respects in accordance with the terms thereof and all applicable laws
except for violations which, individually or in the aggregate, would not
reasonably be expected to have an Alphabet Material Adverse Effect. Each
Alphabet Benefit Plan which is a Pension Plan and which is intended to be
qualified under Section 401(a) of the Code (each, an "Alphabet Pension
Plan"), has received a favorable determination letter from the Internal
Revenue Service, and Alphabet is not aware of any circumstances that would
reasonably be expected to result in the revocation or denial of such
qualified status. Except as otherwise set forth in the Alphabet Disclosure
Letter or in the Alphabet SEC Reports filed prior to the date hereof, there
is no pending or, to Alphabet's knowledge, threatened, claim, litigation,
proceeding, audit, examination or investigation relating to any Alphabet
Benefit Plans or Alphabet Employees that, individually or in the aggregate,
would reasonably be expected to have an Alphabet Material Adverse Effect.
(d) No material liability under Title IV of ERISA has been or is
reasonably expected to be incurred by Alphabet or any Subsidiaries of
Alphabet or any entity which is considered a single employer with Alphabet
or any Subsidiary of Alphabet under Section 4001(a)(15) of ERISA or Section
414 of the Code (an "Alphabet ERISA Affiliate"). No notice of a "reportable
event," within the meaning of Section 4043 of ERISA for which the 30-day
reporting requirement has not been waived, has been required to be filed
for any Alphabet Pension Plan within the past twelve (12) months.
(e) All contributions, premiums and payments (other than
contributions, premiums or payments that are not material, in the
aggregate) required to be made under the terms of any Alphabet Benefit Plan
have been made. No Alphabet Pension Plan has an "accumulated funding
deficiency" (whether or not waived) within the meaning of Section 412 of
the Code or Section 302 of ERISA. Neither Alphabet nor any Subsidiaries of
Alphabet nor any Alphabet ERISA Affiliate has provided, or is required to
provide, security to any Alphabet Pension Plan pursuant to Section
401(a)(29) of the Code.
(f) Except as set forth in the Alphabet SEC Reports filed prior
to the date hereof, under each Alphabet Pension Plan which is a defined
benefit plan, as of the last day of the most recent plan year ended prior
to the date hereof, the actuarially determined present value of all
"benefit liabilities", within the meaning of Section 4001(a)(16) of ERISA
(as determined on the basis of the actuarial assumptions contained in each
such Pension Plan's most recent actuarial valuation) did not exceed the
then current value of the assets of such Pension Plan, and there has been
no adverse change in the financial condition of such Pension Plan (with
respect to either assets or benefits) since the last day of the most recent
plan year of such Pension Plan.
(g) As of the Closing Date, neither Alphabet, any Subsidiary of
Alphabet nor any Alphabet ERISA Affiliate will have incurred any withdrawal
liability as described in Section 4201 of ERISA for withdrawals that have
occurred on or prior to the Closing Date that has not previously been
satisfied. Neither Alphabet, any Subsidiary of Alphabet nor any Alphabet
ERISA Affiliate has knowledge that any Alphabet Multiemployer Plan fails to
qualify under Section 401(a) of the Code, is insolvent or is in
reorganization within the meaning of Part 3 of Subtitle E of Title IV of
ERISA nor of any condition that would reasonably be expected to result in
an Alphabet Multiemployer Plan becoming insolvent or going into
reorganization.
(h) The execution of, and performance of the transactions
contemplated in, this Agreement will not (either alone or upon the
occurrence of any additional or subsequent events) (i) constitute an event
under any Alphabet Benefit Plan, trust or loan that will or may result in
any payment (whether of severance pay or otherwise), acceleration,
forgiveness of indebtedness, vesting, distribution, increase in benefits or
obligation to fund benefits with respect to any Alphabet Employee, or (ii)
result in the triggering or imposition of any restrictions or limitations
on the right of Alphabet or any Subsidiary of Alphabet to amend or
terminate any Alphabet Benefit Plan. No payment or benefit which will or
may be made by Alphabet, any Subsidiary of Alphabet or any of their
respective affiliates with respect to any Alphabet Employee will be
characterized as an "excess parachute payment," within the meaning of
Section 280G(b)(1) of the Code.
Section 4.11 Labor Matters. (a) Except as set forth in the Alphabet
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect, no work stoppage, slowdown,
lockout or labor strike against Alphabet or any Subsidiary of Alphabet by
Alphabet Employees (or any union that represents them) is pending or, to
the knowledge of Alphabet, threatened.
(b) Except as set forth in the Alphabet SEC Reports filed prior
to the date hereof and as, individually or in the aggregate, would not
reasonably be expected to have an Alphabet Material Adverse Effect, as of
the date of this Agreement, neither Alphabet nor any Subsidiary of Alphabet
is involved in or, to the knowledge of Alphabet, threatened with any labor
dispute, grievance, or arbitration or union organizing activity (by it or
any of its employees) involving any Alphabet Employees.
Section 4.12 Environmental Matters. Except as set forth in Alphabet's
SEC Reports filed prior to the date hereof and except for those matters
that would not, individually or in the aggregate, reasonably be expected to
have an Alphabet Material Adverse Effect:
(i) Alphabet and each of its Subsidiaries is in compliance
with all applicable Environmental Laws, and neither Alphabet nor any of its
Subsidiaries has received any written communication from any Person or
Governmental Entity that alleges that Alphabet or any of its Subsidiaries
is not in compliance with applicable Environmental Laws.
(ii) Alphabet and each of its Subsidiaries has obtained or
has applied for all Environmental Permits necessary for the construction of
its facilities or the conduct of its operations, and all those
Environmental Permits are in effect or, where applicable, a renewal
application has been timely filed and is pending agency approval, and
Alphabet and its Subsidiaries are in compliance with all terms and
conditions of such Environmental Permits.
(iii) There is no Environmental Claim pending or, to the
knowledge of Alphabet, threatened (i) against Alphabet or any of its
Subsidiaries, (ii) against any Person whose liability for any Environmental
Claim has been retained or assumed contractually by Alphabet or any of its
Subsidiaries, or (iii) against any real or personal property or operations
which Alphabet or any of its Subsidiaries owns, leases or operates, in
whole or in part.
(iv) There have been no Releases of any Hazardous Material
that would be reasonably likely to form the basis of any Environmental
Claim against Alphabet or any of its Subsidiaries, or against any Person
whose liability for any Environmental Claim has been retained or assumed
contractually by Alphabet or any of its Subsidiaries.
(v) None of the properties owned, leased or operated by
Alphabet, its Subsidiaries or any predecessor thereof are now, or were in
the past, listed on the National Priorities List of Superfund Sites or any
analogous state list (excluding easements that transgress those Superfund
sites).
Section 4.13 Board Action; Vote Required. (a) Alphabet's Board of
Directors has approved this Agreement, the Alphabet Stock Option Agreement
and the transactions contemplated hereby and thereby, including the Merger,
has determined that the Merger is advisable, fair to and in the best
interests of Alphabet and its stockholders and has resolved to recommend to
its stockholders that they vote in favor of the issuance of shares of
Alphabet Common Stock pursuant to the terms hereof. Neither Section 203 of
the DGCL, nor any other state takeover or similar statute or regulation
applies to the Merger, this Agreement, the Alphabet Stock Option Agreement
(including the purchase of shares of Alphabet Common Stock thereunder) or
any of the transactions contemplated hereby or thereby. The Board of
Directors of Alphabet has duly adopted (and not withdrawn) a resolution
rescinding any authorization previously granted permitting Alphabet to
repurchase shares of Alphabet Common Stock.
(b) The affirmative vote of the holders of a majority of the
shares of Alphabet Common Stock present in person or by proxy at a duly
convened and held meeting of the stockholders of Alphabet is necessary to
approve the issuance by Alphabet of the shares of Alphabet Common Stock
pursuant to the terms hereof. Such vote is the only vote of the holders of
any class or series of Alphabet's capital stock required in connection with
this Agreement, the Stock Option Agreements and the transactions
contemplated hereby and thereby.
Section 4.14 Opinion of Financial Advisor. Alphabet or its Board of
Directors has received the written opinion of Merrill Lynch, Pierce, Fenner
& Smith Incorporated dated as of the date hereof, to the effect that, as of
the date hereof, the Exchange Ratio is fair from a financial point of view
to Alphabet. An executed copy of such opinion has been delivered to Abacus.
Section 4.15 Brokers. Set forth in the Alphabet Disclosure Letter is a
list of each broker, finder or investment banker and other Person entitled
to any brokerage, finder's, investment banking or other similar fee or
commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of Alphabet or any
of its Subsidiaries and the expected amounts of such fees and commissions.
Alphabet has previously provided to Abacus copies of any agreements giving
rise to any such fee or commission.
Section 4.16 Tax Matters. (a) All material Tax Returns required to be
filed by Alphabet or its Subsidiaries on or prior to the Effective Time or
with respect to taxable periods ending on or prior to the Effective Time
have been or will be prepared in good faith and timely filed with the
appropriate Governmental Entity on or prior to the Effective Time or by the
due date thereof including extensions except where the failure to so file
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect.
(b) Except where the failure to pay, collect or withhold would
not, individually or in the aggregate, reasonably be expected to have an
Alphabet Material Adverse Effect (i) all Taxes that are required to be paid
have been or will be fully paid (except with respect to matters contested
in good faith as set forth in the Alphabet Disclosure Letter) or as of May
2, 1998 adequately reflected as a liability on Alphabet's or its
Subsidiaries' books and records (without taking into account any deferred
Tax liabilities) and (ii) all Taxes required to be collected or withheld
from third parties have in all material respects been collected or
withheld.
(c) Alphabet and each of its Subsidiaries have not waived any
statute of limitations with respect to federal income Taxes or agreed to
any extension of time with respect to a federal income or material state
Tax assessment or deficiency.
(d) As of the date hereof, there are not pending or, to the
knowledge of Alphabet, threatened in writing, any audits, examinations,
investigations or other proceedings in respect of Taxes or Tax matters that
(i) were raised by any Taxing authority in a written communication to
Alphabet or any Subsidiary and (ii) would, individually or in the
aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect after taking into account any reserves for Taxes set forth on the
most recent balance sheet contained in the Alphabet SEC Report filed prior
to the date hereof.
(e) Alphabet has made available to Abacus true and correct copies
of the United States federal income and all material state income or
franchise Tax Returns filed by Alphabet and its Subsidiaries for each of
its fiscal years ended on or about January 31, 1995, 1996, 1997.
Section 4.17 Intellectual Property. Neither Alphabet nor any of its
Subsidiaries currently utilizes, or to the knowledge of the general counsel
and the members of the legal department of Alphabet involved in
intellectual property, has in the past, utilized any existing or pending
patent, trademark, trade name, service mark, copyright, software, trade
secret or know-how, except for those which are owned, possessed or lawfully
used by Alphabet or its Subsidiaries in their business operations, and
neither Alphabet nor any of its Subsidiaries infringes upon or unlawfully
uses any patent, trademark, trade name, service mark, copyright or trade
secret owned or validly claimed by another Person except, in each case, as
would not, individually or in the aggregate, reasonably be expected to have
an Alphabet Material Adverse Effect. Alphabet and its Subsidiaries own or
have a valid license to use or have the right validly to use all existing
and pending patents, trademarks, tradenames, service marks, copyrights and
software necessary to carry on their respective businesses substantially as
currently conducted except the failure of which to own, or validly license,
or have the right to validly use individually or in the aggregate, would
not reasonably be expected to have an Alphabet Material Adverse Effect.
Section 4.18 Insurance. Except to the extent adequately accrued on the
most recent balance sheet contained in the Alphabet SEC Reports filed as of
the date hereof, neither Alphabet nor its Subsidiaries has any obligation
(contingent or otherwise) to pay in connection with any insurance policies
any retroactive premiums or "retro premiums" that, individually in the
aggregate, would reasonably be expected to have, an Alphabet Material
Adverse Effect.
Section 4.19 Contracts and Commitments. Set forth in the Alphabet
Disclosure Letter is a complete and accurate list of all of the following
contracts (written or oral), plans, undertakings, commitments or agreements
("Alphabet Contracts") to which Alphabet or any of its Subsidiaries is a
party or by which any of them is bound as of the date of this Agreement.
(a) each distribution, supply, inventory purchase, franchise,
license, sales, agency or advertising contract involving annual
expenditures or liabilities in excess of $30,000,000 which is not
cancelable (without material penalty, cost or other liability) within one
(1) year;
(b) each promissory note, loan, agreement, indenture, evidence of
indebtedness or other instrument providing for the lending of money,
whether as borrower, lender or guarantor, in excess of $20,000,000;
(c) each contract, lease, agreement, instrument or other
arrangement containing any "radius clause" applicable to markets in which
Alphabet has operations the compliance (or failure to comply) with which
would not reasonably be expected, individually or in the aggregate, to have
an Alphabet Material Adverse Effect;
(d) each joint venture or partnership agreement pursuant to which
any third party is entitled to develop any property and/or facility on each
behalf of Alphabet or any of its Subsidiaries material to Alphabet and its
Subsidiaries taken as a whole;
(e) any contract that would constitute a "material contract" (as
such term is defined in Item 601(b)(10) of Regulation S-K of the SEC); and
(f) except as would not reasonably be expected to have,
individually or in the aggregate, an Alphabet Material Adverse Effect, each
contract, lease, agreement, plan (including Alphabet Benefit Plans),
instrument, note, indenture or other arrangement to which Alphabet or any
of its Subsidiaries is a party or otherwise bound under the terms of which
any of the rights or obligations of a party thereto (or any other Person
who has rights or obligations thereunder) may be terminated, accelerated,
vested, modified or altered as a result of the execution and delivery of
this Agreement and the Stock Option Agreement, the performance by the
parties of their obligations hereunder or thereunder or consummation of the
transactions contemplated hereby and thereby;
True and complete copies of the written Alphabet Contracts, as
amended to date, that would be required to be filed as exhibits to
Alphabet's Form 10-K if such Form 10-K were being filed on the date hereof,
that are identified in the Alphabet Disclosure Letter and have not been
filed prior to the date hereof as Exhibits to the Alphabet SEC Reports have
been delivered or made available to Abacus.
To the knowledge of Alphabet, each Alphabet Contract is valid and
binding on Alphabet, any Subsidiary of Alphabet which is a party thereto
and each other party thereto and is in full force and effect, and Alphabet
and its Subsidiaries have performed and complied with all obligations
required to be performed or compiled with by them under each Alphabet
Contract, except in each case as would not, individually or in the
aggregate, reasonably be expected to have an Alphabet Material Adverse
Effect.
Section 4.20 Accounting and Tax Matters. Neither Alphabet nor any of
its affiliates has taken or agreed to take any action, nor does Alphabet
have any knowledge of any fact or circumstance with respect to Alphabet or
Merger Sub, which would prevent the business combination to be effected
pursuant to the Merger from being accounted for as a "pooling-of-interests"
under GAAP or the rules and regulations of the SEC or prevent the Merger
from qualifying as a "reorganization" within the meaning of Section 368 of
the Code.
Section 4.21 Ownership of Shares of Alphabet. Alphabet and its
Subsidiaries do not beneficially own (as defined in Rule 13d-3 under the
Exchange Act) any capital stock or other equity securities of Abacus or any
Abacus Equity Rights other than the Abacus Stock Option Agreement.
Section 4.22. Rights Agreement. No "Distribution Date," "Stock
Acquisition Date" or "Triggering Event" (as such terms are defined in the
Rights Agreement, dated as of December 9, 1996, between Alphabet and
ChaseMellon Shareholder Services L.L.C., as Rights Agent (the "Alphabet
Rights Agreement")) has occurred as of the date hereof. The execution and
delivery of this Agreement and the Alphabet Stock Option Agreement and the
consummation of the transactions contemplated hereby and thereby will not
result in the ability of any Person to exercise any rights ("Alphabet
Rights") issued under the Alphabet Rights Agreement or cause the Alphabet
Rights to separate from the shares of Alphabet Common Stock to which they
are attached or to be triggered or become exercisable.
ARTICLE V
Section 5.1 Interim Operations of Abacus. Abacus covenants and
agrees as to itself and its Subsidiaries that, after the date hereof and
prior to the Effective Time (unless Alphabet shall otherwise approve in
writing, or unless as otherwise expressly contemplated by this Agreement or
disclosed in the Abacus Disclosure Letter):
(i) the business of Abacus and its Subsidiaries shall be
conducted in all material respects in the ordinary and usual course and, to
the extent consistent therewith, each of Abacus and its Subsidiaries shall
use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
officers and employees as a group (subject to changes in the ordinary
course) and maintain its existing relations and goodwill in all material
respects with customers, suppliers, regulators, distributors, creditors,
lessors, and others having business dealings with it;
(ii) Abacus shall not (A) amend its Certificate of
Incorporation or Bylaws, or adopt any shareholders rights plan or enter
into any agreement with any of its stockholders in their capacity as such;
(B) split, combine, subdivide or reclassify its outstanding shares of
capital stock; (C) declare, set aside or pay any dividend or distribution
payable in cash, stock or property in respect of any of its capital stock,
other than regular quarterly cash dividends in amounts consistent with past
practice which dividends shall not exceed the per share quarterly dividend
amounts set forth on the Abacus Disclosure Letter; or (D) repurchase,
redeem or otherwise acquire or permit any of its Subsidiaries to purchase,
redeem or otherwise acquire, any shares of its capital stock or any Abacus
Equity Rights (it being understood that this provision shall not prohibit
the exercise (cashless or otherwise) of options);
(iii) neither Abacus nor any of its Subsidiaries shall take
any action that to the knowledge of Abacus would prevent the business
combination to be effected pursuant to the Merger from qualifying for
"pooling of interests" accounting treatment under GAAP and the rules and
regulations of the SEC, or would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code or take any
action that it knows would cause any of its representations and warranties
herein to become inaccurate in any material respect;
(iv) except as expressly permitted by this Agreement, and
except as required by applicable law or pursuant to contractual obligations
in effect on the date hereof, Abacus shall not, and shall not permit its
Subsidiaries to, (A) enter into, adopt or amend (except for renewals on
substantially identical terms) any agreement or arrangement relating to
severance, (B) enter into, adopt or amend (except for renewals on
substantially identical terms) any employee benefit plan or employment or
consulting agreement (including, without limitation, the Abacus Benefit
Plans referred to in Section 3.10 hereof; provided however that Abacus and
its Subsidiaries may enter into consulting agreements in the ordinary
course of business consistent with past practice pursuant to the Abacus
Delta Program as in effect on the date hereof), or (C) grant any stock
options or other equity related awards except issuances of restricted stock
in accordance with the existing obligations of Abacus under its Performance
Incentive Plan as in effect on the date hereof;
(v) except for (A) borrowings under lines of credit as
existing as of the date hereof, (B) any amendments, renewals, replacements
or extensions of such lines of credit that will not increase the aggregate
amount of borrowing permitted thereunder, (C) the issuance and roll-over of
commercial paper, (D) the issuance of medium term notes with a maturity
date not later than 364 days from the date of issuance to renew, replace or
refinance existing indebtedness and (E) new indebtedness with a maturity
date not later than 364 days from the date of issuance in the aggregate
principal amount not to exceed $300,000,000, in each case in the ordinary
course of business, neither Abacus nor any of its Subsidiaries shall issue,
incur or amend the terms of any indebtedness for borrowed money or
guarantee any such indebtedness (other than indebtedness of Abacus or any
wholly-owned Subsidiary thereof);
(vi) neither Abacus nor any of its Subsidiaries shall make
any capital expenditures in any twelve month period after the date hereof
in an aggregate amount in excess of the aggregate amount reflected in the
capital expenditure budget for such twelve month period, a copy of which is
attached to the Abacus Disclosure Letter;
(vii) other than in the ordinary course of business
consistent with past practice, neither Abacus nor any of its Subsidiaries
shall transfer, lease, license, sell, mortgage, pledge, encumber or
otherwise dispose of any of its or its Subsidiaries' property or assets
(including capital stock of any of its Subsidiaries) material to Abacus and
its Subsidiaries taken as a whole, except pursuant to contracts existing as
of the date hereof (the terms of which have been previously disclosed to
Alphabet);
(viii) neither Abacus nor any of its Subsidiaries shall
issue, deliver, sell or encumber shares of any class of its capital stock
or any securities convertible into, or any rights, warrants or options to
acquire, any such shares, except any such shares issued pursuant to options
and other awards outstanding on the date hereof under Abacus Benefit Plans
and awards of options and other awards granted hereafter under Abacus
Benefit Plans in accordance with the terms of this Agreement and shares
issuable pursuant to such awards;
(ix) neither Abacus nor any of its Subsidiaries shall
acquire any business, including any stores or other facilities, whether by
merger, consolidation, purchase of property or assets or otherwise, except
to the extent provided for in the capital expenditure budget attached to
the Abacus Disclosure Letter in respect of any twelve month period after
the date hereof;
(x) Abacus shall not change its accounting policies,
practices or methods except as required by GAAP or by the rules and
regulations of the SEC;
(xi) other than pursuant to this Agreement, Abacus shall
not, and shall not permit any of its Subsidiaries to, take any action to
cause Abacus Shares to cease to be listed on the NYSE;
(xii) Abacus shall not, and shall not permit any of its
Subsidiaries to, enter into any Abacus Contract described in clauses (a),
(c) and (d) of Section 3.19, or amend any distribution, supply, inventory,
purchase, franchise, license, sales agency or advertising contract such
that annual expenditures or liabilities thereunder increase by more than
$30,000,000 and Abacus' inability to cancel or terminate such contract is
extended by more than one year, but in no event to a date later than June
30, 2000;
(xiii) Abacus shall not change or, other than in the
ordinary course of business consistent with past practice, make any
material Tax election; or
(xiv) Abacus shall not enter into, or permit any of its
Subsidiaries to enter into, any commitments or agreements to do any of the
foregoing.
Section 5.2 Interim Operations of Alphabet. Alphabet covenants and
agrees as to itself and its Subsidiaries that, after the date hereof and
prior to the Effective Time (unless Abacus shall otherwise approve in
writing and except as otherwise expressly contemplated by this Agreement or
disclosed in the Alphabet Disclosure Letter):
(i) the business of Alphabet and its Subsidiaries shall be
conducted in all material respects in the ordinary and usual course and to
the extent consistent therewith, each of Alphabet and its Subsidiaries
shall use its reasonable best efforts to preserve its business organization
intact in all material respects, keep available the services of its
executive officers and employees as a group (subject to changes in the
ordinary course) and maintain its existing relationships and goodwill in
all material respects with customers, suppliers, regulators, distributors,
creditors, lessors and others having business dealings with it; provided,
however, that nothing contained in this clause (i) shall prohibit Alphabet
from acquiring, or exploring the acquisition of, any retail business,
including any stores or facilities, whether by merger, consolidation,
purchase of property or assets or otherwise to the extent that such
acquisition is not reasonably expected to interfere with or delay (in any
material respect) the consummation of the Merger provided that the
aggregate fair market value of the consideration paid in connection with
any single acquisition or series of integrally related acquisitions shall
not exceed $1,000,000,000;
(ii) Alphabet shall not issue, deliver, grant or sell any
additional shares of Alphabet Common Stock or any Alphabet Equity Rights,
(other than the issuance, delivery, grant or sale of shares of Alphabet
Common Stock or Alphabet Equity Rights (w) pursuant to a stock split or
stock dividend, (x) in the ordinary course of business consistent with past
practice pursuant to Alphabet Benefit Plans, (y) pursuant to the exercise
or conversion of Equity Rights outstanding as of the date hereof or issued
by Alphabet after the date hereof in accordance with subclauses (x) and (z)
of this clause (ii) and, (z) representing, in the aggregate (but not
including shares of Alphabet Common Stock or Alphabet Equity Rights issued,
delivered, granted or sold pursuant to subclauses (w), (x) and (y) hereof),
not more than such number of shares of Alphabet Common Stock as would
represent more than 15% of the then outstanding capital stock of Alphabet.
(iii) Alphabet shall not (A) amend its Certificate of
Incorporation, or Bylaws or amend the Alphabet Rights Agreement or redeem
the Alphabet Rights; (B) reclassify its outstanding shares of capital
stock; (C) declare, set aside or pay any dividend or distribution payable
in cash, stock or property in respect of any of its capital stock, other
than regular quarterly cash dividends in amounts consistent with past
practice; or (D) repurchase, redeem or otherwise acquire or permit any of
its Subsidiaries to purchase, redeem or otherwise acquire, any shares of
its capital stock or any Alphabet Equity Rights (it being understood that
this provision shall not prohibit the exercise (cashless or otherwise) of
options);
(iv) neither Alphabet nor any of its Subsidiaries shall take
any action that to the knowledge of Alphabet would prevent the business
combination to be effected pursuant to Merger from qualifying for "pooling
of interests" accounting treatment under GAAP and the rules and regulations
of the SEC, or would prevent the Merger from qualifying as a
"reorganization" within the meaning of Section 368 of the Code or take any
action that it knows would cause any of its representations and warranties
herein to become inaccurate in any material respect;
(v) other than in the ordinary course of business consistent
with past practice, neither Alphabet nor any of its Subsidiaries shall
transfer, lease, license, sell or otherwise dispose of any of its or its
Subsidiaries' property or assets (including capital stock of any of its
Subsidiaries) material to Alphabet and its Subsidiaries taken as a whole,
except pursuant to contracts existing as of the date hereof (the terms of
which have been previously disclosed to Abacus) and except for any sale or
disposition of assets in a single transaction or series of integrally
related sales or dispositions the proceeds of which have a fair market
value of not more than $1,000,000,000;
(vi) Alphabet shall not change its accounting policies,
practices or methods except as required by GAAP or by the rules and
regulations of the SEC;
(vii) other than pursuant to this Agreement, Alphabet shall
not, and shall not permit any of its Subsidiaries to, take any action to
cause the shares of its common stock to cease to be listed on the NYSE; and
(viii) Alphabet shall not enter into, or permit any of its
Subsidiaries to enter into, any commitments or agreements to do any of the
foregoing.
Nothing in this Section 5.2 shall prohibit Alphabet from amending
the Alphabet, Inc. Executive Deferred Compensation Trust, the Alphabet,
Inc. Executive Make-Up Trust and the Alphabet, Inc. 1990 Deferred
Compensation Trust (collectively, the "Trusts") to provide that the
transactions contemplated by this Agreement (including, without limitation,
the Merger) do not constitute a "Change in Control" (as defined in the
Trusts) for purposes of the Trusts.
Section 5.3 No Solicitation by Abacus. (a) Abacus shall immediately
cease and terminate any existing solicitation, initiation, encouragement,
activity, discussion or negotiation with any Persons conducted heretofore
by Abacus, its Subsidiaries or any of their respective Representatives
(defined below) with respect to any proposed, potential or contemplated
Abacus Acquisition Transaction (as defined below).
(b) From and after the date hereof, without the prior written
consent of Alphabet, Abacus will not, will not authorize or permit any of
its Subsidiaries to, and shall use its reasonable best efforts to cause any
of its or their respective officers, directors, employees, financial
advisors, agents or representatives (each a "Representative") not to,
directly or indirectly, solicit, initiate or encourage (including by way of
furnishing information) or take any other action to facilitate any
inquiries or the making of any proposal which constitutes or may reasonably
be expected to lead to an Abacus Acquisition Proposal (as defined below)
from any Person, or engage in any discussion or negotiations relating
thereto or accept any Abacus Acquisition Proposal; provided, however, that,
notwithstanding any other provision hereof, Abacus may (i) engage in
discussions or negotiations with a third party who (without any
solicitation, initiation or encouragement, directly or indirectly, by or
with Abacus, its Subsidiaries or any of their respective Representatives
after the date hereof) seeks to initiate such discussions or negotiations
and may furnish such third party information concerning Abacus, its
Subsidiaries and their business, properties and assets if, and only to the
extent that, (A)(x) the third party has first made a bona fide Abacus
Acquisition Proposal in writing prior to the date upon which the Agreement
and the Merger shall have been approved and adopted by the required vote of
the stockholders of Abacus, (y) Abacus' Board of Directors concludes in
good faith (after consultation with its financial advisor) that the Abacus
Acquisition Transaction contemplated by such Abacus Acquisition Proposal is
reasonably capable of being completed, taking into account all legal,
financial, regulatory and other aspects of the Abacus Acquisition Proposal
and the Person making the Abacus Acquisition Proposal, and could, if
consummated, reasonably be expected to result in a transaction more
favorable to Abacus' stockholders from a financial point of view than the
Merger contemplated by this Agreement (any such Abacus Acquisition
Proposal, an "Abacus Superior Proposal") and (z) Abacus' Board of Directors
shall have concluded in good faith, after considering applicable provisions
of state law, and after consultation with outside counsel, that such action
is required for the Board of Directors to act in a manner consistent with
its fiduciary duties under applicable law and (B) prior to furnishing such
information to or entering into discussions or negotiations with such
Person, Abacus (x) provides prompt notice to Alphabet to the effect that
Abacus is furnishing information to or entering into discussions or
negotiations with such Person and (y) receives from such Person an executed
confidentiality agreement in reasonably customary form on terms not in the
aggregate materially more favorable to such Person than the terms contained
in the confidentiality agreement, dated as of June 23, 1998, among
Alphabet, Abacus and the other party thereto (the "Confidentiality
Agreement").
(c) Abacus agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Abacus Acquisition
Proposal, or who Abacus or any of its Representatives have had discussions
with regarding a proposed, potential or contemplated Abacus Acquisition
Transaction unless the Abacus Board of Directors shall conclude in good
faith, after considering applicable provisions of state law, and after
consultation with outside counsel, that such action is required for the
Board of Directors to act in a manner consistent with its fiduciary duties
under applicable law. Abacus shall notify Alphabet orally and in writing of
any such inquiries, offers or proposals (including, without limitation, the
terms and conditions of any such offers or proposals, any amendments or
revisions thereto, and the identity of the Person making it), as promptly
as practicable following the receipt thereof, and shall keep Alphabet
reasonably informed of the status and material terms of any such inquiry,
offer or proposal. For purposes of this Agreement, "Abacus Acquisition
Proposal" shall mean, with respect to Abacus, any inquiry, proposal or
offer from any Person (other than Alphabet or any of its Subsidiaries)
relating to any (i) direct or indirect acquisition or purchase of a
business of Abacus or any of its Subsidiaries, that constitutes 15% or more
of the consolidated net revenues, net income or assets of Abacus and its
Subsidiaries, (ii) direct or indirect acquisition or purchase of 15% or
more of any class of equity securities of Abacus or any of its Subsidiaries
whose business constitutes 15% or more of the consolidated net revenues,
net income or assets of Abacus and its Subsidiaries, (iii) tender offer or
exchange offer that if consummated would result in any person beneficially
owning 15% or more of the capital stock of Abacus, or (iv) merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Abacus or any of its
Subsidiaries whose business constitutes 15% or more of the consolidated net
revenues, net income or assets of Abacus and its Subsidiaries. Each of the
transactions referred to in clauses (i) - (iv) of the definition of Abacus
Acquisition Proposal, other than any such transaction to which Alphabet or
any of its Subsidiaries is a party, is referred to herein as an "Abacus
Acquisition Transaction".
(d) Except as expressly permitted by this Section 5.3 or in
connection with its termination of this Agreement in accordance with the
terms and conditions of Section 8.1(g), neither the Board of Directors of
Abacus nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Alphabet, the
approval or recommendation by such Board of Directors of this Agreement or
the Merger, (ii) approve or recommend, or propose publicly to approve or
recommend, any Abacus Acquisition Proposal or Abacus Acquisition
Transaction or (iii) cause Abacus to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Abacus Acquisition Proposal or Abacus Acquisition
Transaction. Notwithstanding the foregoing, in the event that the Board of
Directors of Abacus shall conclude in good faith, after considering
applicable state law, and after consultation with outside counsel, that
such action is required for it to act in a manner consistent with its
fiduciary duties under applicable law, the Board of Directors of Abacus may
withdraw or modify its approval or recommendation of this Agreement and the
Merger.
(e) Nothing contained in this Section 5.3 shall prohibit Abacus
(x) from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or (y) from making any
disclosure to its stockholders if, the Board of Directors of Abacus shall
conclude in the good faith, after considering applicable provisions of
state law, and after consultation with outside counsel, that failure so to
disclose would violate its obligations under applicable law; provided,
however, that, except in accordance with paragraph (d) of this Section 5.3
or in connection with its termination of this Agreement in accordance with
the terms and conditions of Section 8.1(g), neither Abacus nor its Board of
Directors shall approve or recommend, an Abacus Acquisition Proposal or
Abacus Acquisition Transaction.
Section 5.4 No Solicitation by Alphabet. (a) Alphabet shall
immediately cease and terminate any existing solicitation, initiation,
encouragement, activity, discussion or negotiation with any Persons
conducted heretofore by Alphabet, its Subsidiaries or any of their
respective Representatives (defined below) with respect to any proposed,
potential or contemplated Alphabet Acquisition Transaction (as defined
below).
(b) From and after the date hereof, without the prior written
consent of Abacus, Alphabet will not, will not authorize or permit any of
its Subsidiaries to, and will not authorize any of its or their respective
officers, directors, employees, financial advisors, agents or
representatives (each a "Representative") to, and shall use reasonable best
efforts to cause its Representatives not to, directly or indirectly,
solicit, initiate or encourage (including by way of furnishing information)
or take any other action to facilitate any inquiries or the making of any
proposal which constitutes or may reasonably be expected to lead to an
Alphabet Acquisition Proposal (as defined below) from any Person, or engage
in any discussion or negotiations relating thereto or accept any Alphabet
Acquisition Proposal; provided, however, that, notwithstanding any other
provision hereof, Alphabet may (i) engage in discussions or negotiations
with a third party who (without any solicitation, initiation or
encouragement, directly or indirectly, by or with Alphabet, its
Subsidiaries or any of their respective Representatives after the date
hereof) seeks to initiate such discussions or negotiations and may furnish
such third party information concerning Alphabet, its Subsidiaries and
their business, properties and assets if, and only to the extent that,
(A)(x) the third party has first made a bona fide Alphabet Acquisition
Proposal in writing prior to the date upon which the issuance of Alphabet
Shares pursuant to this Agreement shall have been approved and adopted by
the required vote of the stockholders of Alphabet and (y) Alphabet's Board
of Directors concludes in good faith (after consultation with its financial
advisor) that the Alphabet Acquisition Transaction contemplated by such
Alphabet Acquisition Proposal is reasonably capable of being completed,
taking into account all legal, financial, regulatory and other aspects of
the Alphabet Acquisition Proposal and the Person making the Alphabet
Acquisition Proposal, and could, if consummated, reasonably be expected to
result in a transaction more favorable to Alphabet's stockholders from a
financial point of view than the Merger contemplated by this Agreement (any
such Alphabet Acquisition Proposal, an "Alphabet Superior Proposal") and
(z) Alphabet's Board of Directors shall have concluded in good faith, after
considering applicable provisions of state law, and after consultation with
outside counsel, that such action is required for the Board of Directors to
act in a manner consistent with its fiduciary duties under applicable law
and (B) prior to furnishing such information to or entering into
discussions or negotiations with such Person, Alphabet (x) provides prompt
notice to Abacus to the effect that Alphabet is furnishing information to
or entering into discussions or negotiations with such Person and (y)
receives from such Person an executed confidentiality agreement in
reasonably customary form on terms not in the aggregate materially more
favorable to such Person than the terms contained in the Confidentiality
Agreement.
(c) Alphabet agrees not to release any third party from, or waive
any provision of, any standstill agreement to which it is a party or any
confidentiality agreement between it and another Person who has made, or
who may reasonably be considered likely to make, an Alphabet Acquisition
Proposal, or who Alphabet or any of its Representatives have had
discussions with regarding a proposed, potential or contemplated Alphabet
Acquisition Transaction unless the Alphabet Board of Directors shall
conclude in good faith, after considering applicable provisions of state
law, and after consulting with outside counsel, that such action is
required for the Board of Directors to act in a manner consistent with its
fiduciary duties under applicable law. Alphabet shall notify Abacus orally
and in writing of any such inquiries, offers or proposals (including,
without limitation, the terms and conditions of any such offers or
proposals, any amendments or revisions thereto, and the identity of the
Person making it), as promptly as practicable following the receipt
thereof, and shall keep Abacus reasonably informed of the status and
material terms of any such inquiry, offer or proposal. For purposes of this
Agreement, "Alphabet Acquisition Proposal" shall mean, with respect to
Alphabet, any inquiry, proposal or offer from any Person (other than Abacus
or any of its Subsidiaries) relating to any (i) direct or indirect
acquisition or purchase of a business of Alphabet or any of its
Subsidiaries, that constitutes 15% or more of the consolidated net
revenues, net income or assets of Alphabet and its Subsidiaries, (ii)
direct or indirect acquisition or purchase of 15% or more of any class of
equity securities of Alphabet or any of its Subsidiaries whose business
constitutes 15% or more of the consolidated net revenues, net income or
assets of Alphabet and its Subsidiaries, (iii) tender offer or exchange
offer that if consummated would result in any person beneficially owning
15% or more of the capital stock of Alphabet, or (iv) merger,
consolidation, business combination, recapitalization, liquidation,
dissolution or similar transaction involving Alphabet or any of its
Subsidiaries whose business constitutes 15% or more of the consolidated net
revenues, net income or assets of Alphabet and its Subsidiaries; provided,
however, that an Alphabet Acquisition Transaction does not include a
Transaction permitted pursuant to Section 5.2 as long as such transaction
is not reasonably expected to interfere with or delay (in any material
respect) the consummation of the Merger.
(d) Except as expressly permitted by this Section 5.4 or in
connection with its termination of this Agreement in accordance with the
terms and conditions of Section 8.1(h), neither the Board of Directors of
Alphabet nor any committee thereof shall (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Abacus, the approval
or recommendation by such Board of Directors of this Agreement or the
Merger, (ii) approve or recommend, or propose publicly to approve or
recommend, any Alphabet Acquisition Proposal or Alphabet Acquisition
Transaction or (iii) cause Alphabet to enter into any letter of intent,
agreement in principle, acquisition agreement or other similar agreement
related to any Alphabet Acquisition Proposal or Alphabet Acquisition
Transaction. Notwithstanding the foregoing, in the event that the Board of
Directors of Alphabet shall conclude in good faith, after considering
applicable state law, and after consultation with outside counsel, that
such action is required for it to act in a manner consistent with its
fiduciary duties under applicable law, the Board of Directors of Alphabet
may withdraw or modify its approval or recommendation of this Agreement and
the Merger.
(e) Nothing contained in this Section 5.4 shall prohibit Alphabet
(x) from taking and disclosing to its stockholders a position contemplated
by Rule 14e-2(a) promulgated under the Exchange Act or (y) from making any
disclosure to its stockholders if, the Board of Directors of Alphabet shall
conclude in good faith, after considering applicable provisions of state
law, and after consultation with outside counsel, that failure so to
disclose would violate its obligations under applicable law; provided,
however, that, except in accordance with paragraph (d) of this Section 5.4
or in connection with its termination of this Agreement in accordance with
the terms and conditions of Section 8.1(h), neither Alphabet nor its Board
of Directors shall approve or recommend, an Alphabet Acquisition Proposal
or Alphabet Acquisition Transaction.
ARTICLE VI
Section 6.1 Meetings of Stockholders. Each of the Parties will take
all action necessary in accordance with applicable law and its Certificate
of Incorporation and Bylaws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the approval of this
Agreement and the Merger, in the case of Abacus, or the issuance of shares
of Alphabet Common Stock in accordance with the terms hereof, in the case
of Alphabet. The Board of Directors of each Party shall, subject to
Sections 5.3 and 5.4, recommend such approval and each of the Parties shall
take all lawful action to solicit such approval including, without
limitation, timely mailing the Proxy Statement/Prospectus (as defined in
Section 6.4). The Parties shall coordinate and cooperate with respect to
the timing of such meetings and shall use their reasonable best efforts to
hold such meetings on the same day.
Section 6.2 Filings Best Efforts
(a) Subject to the terms and conditions herein provided, Abacus
and Alphabet shall:
(i) within 20 business days from the date hereof, make their
respective filings under the HSR Act with respect to the Merger and
thereafter shall promptly make any other required submissions under the HSR
Act;
(ii) use their reasonable best efforts to cooperate with one
another in (i) determining which filings are required to be made prior to
the Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time
from, Governmental Entities of the United States and the several states in
connection with the execution and delivery of this Agreement and the
consummation of the Merger and the transactions contemplated hereby; (ii)
timely making all such filings and timely seeking all such consents,
approvals, permits or authorizations; and (iii) as promptly as practicable
responding to any request for information from such Governmental Entities;
(iii) subject to any restrictions under the antitrust laws,
to the extent practicable, promptly notify each other of any communication
to that party from any Governmental Entity and permit the other party to
review in advance any proposed communication to any Governmental Entity;
(iv) not agree to participate in any meeting with any
Governmental Entity in respect of any filings, investigation or other
inquiry unless it consults with the other party in advance and, to the
extent permitted by such Governmental Entity, gives the other party the
opportunity to attend and participate thereat, in each case to the extent
practicable;
(v) subject to any restrictions under the antitrust laws,
furnish the other party with copies of all correspondence, filings, and
communications (and memoranda setting forth the substance thereof) between
them and their affiliates and their respective representatives on the one
hand, and any Governmental Entity or members or its staffs on the other
hand, with respect to this Agreement and the transactions contemplated
hereby (excluding documents and communications which are subject to
preexisting confidentiality agreements and to attorney client privilege);
and
(vi) furnish the other party with such necessary information
and reasonable assistance as such other Party and its affiliates may
reasonably request in connection with their preparation of necessary
filings, registrations, or submissions of information to any Governmental
Entities, including without limitation, any filings necessary or
appropriate under the provisions of the HSR Act.
(b) Without limiting Section 6.2(a), Alphabet and Abacus shall
(i) each use its reasonable best efforts to avoid the entry
of, or to have vacated or terminated, any decree, order, or judgment that
would restrain, prevent or delay the Closing, on or before June 30, 1999,
including without limitation defending through litigation on the merits any
claim asserted in any court by any party; and
(ii) each take any and all steps necessary to avoid or
eliminate each and every impediment under any antitrust, competition or
trade regulation law that may be asserted by any Governmental Entity with
respect to the Merger so as to enable the Closing to occur as soon as
reasonably possible (and in any event no later than June 30, 1999),
including, without limitation, proposing, negotiating, committing to and
effecting, by consent decree, hold separate order, or otherwise, the sale,
divestiture or disposition of such assets or businesses of Alphabet or
Abacus (or any of their respective subsidiaries) or otherwise take or
commit to take any actions that limits its freedom of action with respect
to, or its ability to retain, any of the businesses, product lines or
assets of Alphabet, Abacus or their respective Subsidiaries, as may be
required in order to avoid the entry of, or to effect the dissolution of,
any injunction, temporary restraining order, or other order in any suit or
proceeding, which would otherwise have the effect of preventing or delaying
the Closing. At the request of Alphabet, Abacus shall agree to divest, hold
separate, or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, any of the
businesses, product lines or assets of Abacus or any of its Subsidiaries,
provided that any such action is conditioned upon the consummation of the
Merger. Abacus agrees and acknowledges that, in connection with any filing
or submission required, action to be taken or commitment to be made by
Alphabet, Abacus or any of its respective Subsidiaries to consummate the
Merger or other transactions contemplated in this Agreement, neither Abacus
nor any of its Subsidiaries shall, without Alphabet's prior written
consent, divest any assets, commit to any divestiture or assets or
businesses of Abacus and its subsidiaries or take any other action or
commit to take any action that would limit Abacus', Alphabet's or any of
their subsidiaries freedom of action with respect to, or their ability to
retain any of their businesses, product lines or assets.
Notwithstanding the foregoing, (x) nothing herein shall require
Alphabet to agree to the sale, transfer, divestiture or other disposition
of stores of Alphabet, Abacus or any of their subsidiaries having aggregate
gross annual sales for the fiscal year ended in January 1998 in excess of
6% of the combined gross annual sales of Abacus, Alphabet and their
respective subsidiaries taken as a whole for such period, (y) and other
than the sale, transfer, divestiture or other disposition of stores having
revenues up to the gross annual amount referenced in clause (x) of this
paragraph (b), neither party shall be required to take any actions or make
any commitments or agreements pursuant to paragraph (b)(ii) above, if the
taking of such action or the making of any commitments or the consequences
thereof, individually or in the aggregate, would be reasonably likely to
have an Alphabet Material Adverse Effect. Any actions taken by Alphabet or
Abacus to comply with their respective obligations under Section
6.2(b)(ii), including a decision by Alphabet to waive any of the provisions
of this paragraph, shall not be considered to constitute or result in an
Alphabet Material Adverse Effect or an Abacus Material Adverse Effect, as
applicable.
(c) If any "fair price," "moratorium," "control share
acquisition" or similar anti-takeover statute or regulation is or may
become applicable to the Merger, each Party and its Boards of Directors
shall grant such approvals and take such actions as are necessary so that
the Merger may be consummated as promptly as practicable on the terms
contemplated by this Agreement and otherwise act to eliminate or minimize
the effects of such statute or regulation on such transactions.
Section 6.3 Publicity. The Parties agree that the initial press
release with respect to the Merger shall be a joint press release.
Thereafter, subject to their respective legal obligations (including
requirements of stock exchanges and other similar regulatory bodies), the
Parties shall consult with each other, and use reasonable best efforts to
agree upon the text of any press release, before issuing any such press
release or otherwise making public statements with respect to the Merger
and in making any filings with any federal or state governmental or
regulatory agency or with any national securities exchange with respect
thereto.
Section 6.4 Registration Statement. The Parties shall cooperate and
promptly prepare and Alphabet shall file with the SEC as soon as
practicable a Registration Statement on Form S-4 (the "Form S-4") under the
Securities Act with respect to the Alphabet Common Stock issuable in the
Merger, a portion of which Registration Statement shall also serve as the
joint proxy statement/prospectus with respect to the meetings of the
stockholders of each of the Parties in connection with the Merger (the
"Proxy Statement/Prospectus"). The Parties will cause the Proxy
Statement/Prospectus and the Form S-4 to comply as to form in all material
respects with the applicable provisions of the Securities Act, the Exchange
Act and the rules and regulations thereunder. Alphabet shall use its
reasonable best efforts to, and Abacus will cooperate with Alphabet to,
have the Form S-4 declared effective by the SEC as promptly as practicable.
Alphabet shall use its reasonable best efforts to obtain, prior to the
effective date of the Form S-4, all necessary state securities law or "blue
sky" permits or approvals required to carry out the Merger (provided that
Alphabet shall not be required to qualify to do business in any
jurisdiction in which it is not now so qualified). Each of the Parties
agree that the information provided by it for inclusion in the Proxy
Statement/Prospectus and each amendment or supplement thereto, at the time
of mailing thereof, at the time of the respective meetings of stockholders
of the Parties, and at the time it is filed or becomes effective, will not
include an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made, not
misleading.
Section 6.5 Listing Application. Alphabet shall promptly prepare and
submit to the NYSE and all other securities exchanges on which the shares
of Alphabet Common Stock are listed a listing application with respect to
the shares of Alphabet Common Stock issuable in the Merger, and shall use
its reasonable best efforts to obtain, prior to the Effective Time,
approval for the listing of such Alphabet Common Stock on such exchanges,
subject to official notice of issuance.
Section 6.6 Further Action. Each of the Parties shall, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof and use its reasonable
best efforts to perform such further acts and execute such documents as may
be reasonably required to effect the transactions contemplated hereby. Each
of the Parties will comply in all material respects with all applicable
laws and with all applicable rules and regulations of any Governmental
Entity in connection with its execution, delivery and performance of this
Agreement and the Stock Option Agreements and the transactions contemplated
hereby and thereby. Each of the Parties agrees to use its reasonable best
efforts to obtain in a timely manner all necessary waivers, consents,
approvals and opinions and to effect all necessary registrations and
filings, and to use its reasonable best efforts to take, or cause to be
taken, all other actions and to do, or cause to be done, all other things
necessary, proper or advisable to consummate and make effective as promptly
as practicable the Merger.
Section 6.7 Expenses. Whether or not the Merger is consummated, all
costs and expenses incurred in connection with this Agreement and the
transactions contemplated thereby, including the Merger shall be paid by
the party hereto incurring such expenses except as expressly provided
herein and except that (a) the filing fees in connection with the filing of
the Form S-4 and the Proxy Statement/Prospectus with the SEC, (b) all
filing fees in connection with any filings, permits or approvals required
under applicable state securities or "blue sky" laws, and (c) the expenses
incurred in connection with printing and mailing of the Form S-4 and the
Proxy Statement/Prospectus shall be shared by Alphabet and Abacus equally.
Section 6.8 Notification of Certain Matters. Each Party shall give
prompt notice to the other Party of the following:
(a) the occurrence or nonoccurrence of any event whose occurrence
or nonoccurrence is reasonably expected to cause any of the conditions
precedent set forth in Article VII not to be satisfied;
(b) the status of matters relating to completion of the Merger,
including promptly furnishing the other with copies of notice or other
communications received by any Party or any of its respective Subsidiaries
from any Governmental Entity or other third party with respect to this
Agreement or the transactions contemplated thereby, including the Merger;
and
(c) any facts relating to that Party which would make it
necessary or advisable to amend the Proxy Statement/Prospectus or the Form
S-4 in order to make the statements therein not misleading or to comply
with applicable law; provided, however, that the delivery of any notice
pursuant to this Section 6.8 shall not limit or otherwise affect the
remedies available hereunder to the Party receiving such notice.
Section 6.9 Access to Information. (a) From this date to the Effective
Time, each of the Parties shall, and shall cause its respective
Subsidiaries, and its and their officers, directors, employees, auditors,
counsel and agents to afford the officers, employees, auditors, counsel and
agents of the other Party reasonable access at reasonable times upon
reasonable notice to each of the Party's and its Subsidiaries' officers,
employees, auditors, counsel, agents, properties, offices and other
facilities and to all of their respective books and records, and shall
furnish the other Party with all financial, operating and other data and
information as such other Party may reasonably request, in each case only
to the extent, in the judgment of counsel to such Party, permitted by law,
including antitrust law, and provided no Party shall be obligated to make
any disclosure which would cause forfeiture of attorney-client privilege or
would violate confidentiality agreements (so long as such Party shall have
used commercially reasonable efforts to obtain a release or waiver from the
applicable confidentiality agreement in respect of such disclosure).
(b) Each of the Parties agrees that all information so received
from the other Parties shall be deemed received pursuant to the
Confidentiality Agreement, and that Party shall, and shall cause its
affiliates and each of its and their Representatives to, comply with the
provisions of the Confidentiality Agreement with respect to such
information and the provisions of the Confidentiality Agreement are hereby
incorporated herein by reference with the same effect as if fully set forth
in this Agreement.
Section 6.10 Review of Information. Subject to applicable laws
relating to the exchange of information, each Party shall have the right to
review in advance, and to the extent practicable each will consult the
other on, all the information relating to it, or any of its respective
Subsidiaries, that appear in any filing made with, or written materials
submitted to, any third party and/or any Governmental Entity in connection
with the Merger. In exercising the foregoing right, each of the Parties
shall act reasonably and as promptly as practicable.
Section 6.11 Indemnification, Directors' and Officers' Insurance. (a)
From and after the Effective Time, Alphabet shall, or shall cause the
Surviving Corporation to, indemnify and hold harmless each present and
former director and officer of Abacus or any of its Subsidiaries (when
acting in such capacity) (the "Indemnified Parties"), against any costs or
expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages or liabilities incurred in connection with any claim,
action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, for acts or omissions existing or
occurring at or prior to the Effective Time, whether asserted or claimed
prior to, at or after the Effective Time, to the fullest extent permitted
under the DGCL or other applicable law, as applicable (and Alphabet shall,
or shall cause the Surviving Corporation to, also advance expenses as
incurred to the fullest extent permitted under the DGCL or other applicable
law, provided the Person to whom expenses are advanced provides an
undertaking to repay such advances if it is ultimately determined that such
Person is not entitled to indemnification).
(b) Alphabet shall maintain, or cause the Surviving Corporation
to maintain, a policy of officers' and directors' liability insurance for
acts and omissions occurring prior to the Effective Time ("D&O Insurance")
with coverage in amount and scope at least as favorable as its existing
directors' and officers' liability insurance coverage for a period of six
years after the Effective Time; provided, however, if the existing D&O
Insurance expires, is terminated or canceled, or if the annual premium
therefor is increased to an amount in excess of 200% of the last annualized
premium paid prior to this date (the "Current Premium"), in each case
during such six year period, Alphabet shall, or shall cause the Surviving
Corporation to, obtain D&O Insurance in an amount and scope as great as can
be obtained for the remainder of such period for a premium not in excess
(on an annualized basis) of 200% of the Current Premium.
(c) If Alphabet or the Surviving Corporation or any of their
respective successors or assigns (i) shall consolidate with or merge into
any other corporation or other entity and shall not be the continuing or
surviving corporation or entity of the consolidation or merger or (ii)
shall transfer all or substantially all of its properties and assets to any
individual, corporation or other entity, then and in each such case, proper
provisions shall be made so that the successors and assigns of Alphabet or
the Surviving Corporation shall assume all of the obligations set forth in
this Section 6.11.
(d) The provisions of this Section 6.11 are intended to be for
the benefit of, and shall be enforceable by, each of the Indemnified
Parties, their heirs and their representatives.
Section 6.12 Employee Benefit Plans. (a) From and after the Effective
Time, Alphabet will cause the Surviving Corporation and its Subsidiaries to
honor, in accordance with their terms, all existing employment and
severance agreements between Abacus and its Subsidiaries and any officer,
director or employee of Abacus or any of its Subsidiaries and all
obligations of Abacus under the Abacus Benefit Plans. Nothing in this
Section 6.12 shall be interpreted to prohibit Alphabet or any of its
Subsidiaries from amending or terminating any Abacus Benefit Plan in
accordance with the terms thereof.
(b) For a period of one year after the Effective Time, Alphabet
shall cause to be provided to each Abacus Employee (other than any person
who is subject to a collective bargaining agreement or party to a change in
control employment or similar agreement, including those persons listed on
Schedule 3.10 as party to a change in control employment agreement) who
continues to remain employed by Alphabet or any of its Subsidiaries after
the Effective Time ("Abacus Covered Employees") base salary not less than
his or her base salary in effect immediately prior to the date hereof and
welfare (including severance), retirement and savings benefits, in each
case, substantially identical to those provided to such person immediately
prior to the Effective Time. In addition, during the one-year period after
the Effective Time, Abacus Covered Employees shall have (i) annual cash
bonus opportunities substantially identical to those of similarly situated
employees of Alphabet and its Subsidiaries and (ii) opportunities to
receive equity-based awards of Alphabet on the same basis as similarly
situated employees of Alphabet and its Subsidiaries. For purposes of
determining eligibility and vesting (but not for benefits accrual) under
any Alphabet Benefit Plan in which an Abacus Employee or any of its
Subsidiaries participates after the Effective Time, such employee shall be
credited with his or her years of service with Abacus or its Subsidiaries,
but only to the extent that those years of service would have been credited
under the relevant Alphabet Benefit Plan if such Abacus Employee had been a
similarly situated Alphabet Employee during the relevant period of time. To
the extent that any Alphabet Benefit Plan in which an Abacus Employee
participates after the Effective Time provides medical, dental or vision
benefits, Alphabet shall cause all pre-existing condition exclusions and
actively at work requirements of such plan to be waived for such employee
and his or her covered dependents except to the extent such employee and
his or her covered dependents were subject to such requirements under the
applicable Abacus Benefit Plans, and Alphabet shall cause any eligible
expenses incurred by such employee on or before the Effective Time to be
taken into account under such plan for purposes of satisfying all
deductible, coinsurance and maximum out-of-pocket requirements applicable
to such employee and his or her covered dependents for the applicable plan
year.
(c) Prior to the Effective Time, Abacus shall amend Section 5(h)
of the American Stores Company Termination Allowance Plan (the "Allowance
Plan") to provide that with respect to periods after the later of the
Closing Date and December 31, 1998 (such later date, the "Renewal Date")
(i) the Allowance Plan shall remain in effect without further amendment
(except as provided in this Agreement) with respect to terminations of
employment occurring on or before the first anniversary of the Closing
Date, it being understood that Alphabet may cause the Allowance Plan to be
terminated immediately following such first anniversary with respect to
terminations occurring after such first anniversary and no amendment to the
Allowance Plan after the date hereof shall in any way limit Alphabet's
ability to do so, (ii) relocation benefits shall be payable thereunder only
if the individual is terminated by Alphabet or its Subsidiaries without
cause, or voluntarily terminates his or her own employment within three
months following receipt of notification from Alphabet of an event
described in subclause (A), (B) or (C) of clause (iii) of the immediately
following sentence, in either case within one year following the Change of
Control (as defined in the Allowance Plan) and such individual relocates
within six months of such termination, (iii) the maximum aggregate cash and
non-cash relocation benefit with respect to any individual (and his or her
family and dependents) pursuant to Section 5(h) shall be $40,000, and (iv)
the benefits set forth in such Section 5(h) shall not be provided to any
individual other than Abacus Covered Employees who have "Relocated" under
the Relocation Program (as defined in said Section 5(h)) within four years
preceding the Closing Date and who are employed at the time of termination
in Salt Lake City, Utah (the "Abacus Covered Salt Lake Employees"). In
addition, prior to the Effective Time Abacus shall amend the Allowance Plan
to provide that (i) each Abacus Covered Salt Lake Employee who is not an
officer and who is so employed on the date hereof and at the Effective Time
shall be paid a lump sum payment on the Closing Date equal to five times
his or her weekly Pay (as defined in the Allowance Plan), (ii) with respect
to Abacus Covered Salt Lake Employees who are not officers and who are
employed on the date hereof and at the Effective Time, the minimum
termination allowance payable pursuant to Section 5 thereof shall be seven
weeks' Pay, and (iii) a Participant (as defined in the Allowance Plan)
shall be entitled to a termination allowance pursuant to Section 5 thereof
if he or she voluntarily terminates his or her employment within three
months following receipt of notification from Alphabet that (A) his or her
base salary (whether expressed as an hourly rate or a salary) is being
reduced to an amount less than 80% of his or her base salary as of the date
hereof, (B) he or she is being required by Alphabet or its Subsidiaries to
relocate his or her employment to a facility more than 35 miles further
from his or her then current home than such home is from his or her then
current workplace (but only if he or she does not so relocate) or (C) his
or her target bonus opportunity in the aggregate under all applicable
annual cash bonus plans in which he or she then participates is less than
80% of the amount of such opportunity as of the date hereof under the bonus
plans of Abacus in which he or she participates as of the date hereof, and,
in each case, the Participant is otherwise entitled to a termination
allowance under the Allowance Plan.
(d) On or prior to the Effective Time, Abacus shall take all such
actions as are necessary to terminate its Employee Stock Purchase Plan at
or prior to the Effective Time. Abacus shall, in connection with such
termination, cause all participants in such plan not to be permitted to
have Abacus withhold any monies for investment in such plan after October
7, 1998 and, prior to the Effective Time, cause each such participant
either to receive previously invested cash or purchase Abacus Common Stock
pursuant to such plan.
(e) If and to the extent that participants in the Abacus
Performance Incentive Plan become entitled to receive restricted stock
thereunder after the Effective Time, such stock shall be shares of Alphabet
Common Stock rather than Abacus Common Stock, and if the number of shares
of restricted stock to which participants are entitled is determined based
upon the value of Abacus Common Stock before the Effective Time, the number
of shares of Alphabet Common Stock to be so issued shall be determined
using the Exchange Ratio. The foregoing does not in any way limit
Alphabet's or its Subsidaries' ability after the Effective Time to amend in
any manner or terminate the Abacus Performance Incentive Plan.
Section 6.13 Alphabet Board of Directors. As of the Effective Time,
Alphabet shall increase the size of its Board of Directors by adding five
directorships. As of the Effective Time, the five individuals listed in the
Abacus Disclosure Letter shall be elected to the Board of Directors of
Alphabet, and each such individual shall become a member of that class of
the Board of Directors of Alphabet that is specified for such member in the
Abacus Disclosure Letter. In the event that any of such individuals shall
be unable or unwilling to serve as a member of the Board of Directors of
Alphabet as of the Effective Time, his or her replacement shall be selected
by Abacus, provided that any such replacement shall be reasonably
acceptable to Alphabet.
Section 6.14 Affiliates. (a) Not less than 45 days prior to the
Effective Time, each Party (i) shall have delivered to the other Party a
letter identifying all Persons who, in the opinion of the Party delivering
such letter, may be, as of the date this Agreement is submitted for
adoption by such Party's stockholders, its "affiliates" for purposes of
Rule 145 under the Securities Act or SEC Accounting Series Releases 130 and
135, and (ii) shall use its reasonable best efforts to cause each Person
who is identified as an "affiliate" of it in such letter to deliver, as
promptly as practicable but in no event later than 30 days prior to the
Closing (or after such later date as the Parties may agree), a signed
agreement, in the case of affiliates of Abacus, to Abacus and Alphabet
substantially in the form customary for transactions of this type, and in
the case of affiliates of Alphabet, to Alphabet substantially in the form
customary for transactions of this type. Each Party shall notify each other
Party from time to time after the delivery of the letter described in the
prior sentence of any Person not identified on such letter who then is, or
may be, such an "affiliate" and use its reasonable best efforts to cause
each additional Person who is identified as an "affiliate" to execute a
signed agreement as set forth in this Section 6.14(a).
(b) Shares of Alphabet Common Stock and shares of Abacus Common
Stock beneficially owned by each such "affiliate" of Alphabet or Abacus who
is not provided a signed agreement in accordance with Section 6.14(a) shall
not be transferable during any period prior to and after the Effective Time
if, as a result of such transfer during any such period, taking into
account the nature, extent and timing of such transfer and similar
transfers by all other "affiliates" of Alphabet and Abacus, such transfer
will, in the reasonable judgment of accountants of Alphabet, interfere
with, or prevent the Merger from being accounted for, as a
pooling-of-interests. Neither Alphabet or Abacus shall register, or allow
its transfer agent to register, on its books the transfer of any shares of
Alphabet Common Stock or Abacus Common Stock of any affiliate of Abacus or
Alphabet who has not provided a signed agreement in accordance with Section
6.14(a) unless the transfer is made in compliance with the foregoing. The
restrictions on the transferability of shares held by Persons who execute
an agreement pursuant to Section 6.14(a) shall be as provided in those
agreements.
Section 6.15 Pooling-of-Interests. Each of the Parties will use its
reasonable best efforts to cause the Merger to be accounted for as a
pooling-of-interests in accordance with GAAP and the rules and regulations
of the SEC.
Section 6.16 Tax-Free Reorganization. Each of the Parties will use its
reasonable best efforts to cause the Merger to qualify as a tax-free
"reorganization" under Section 368 of the Code.
Section 6.17 Accountant's Comfort Letters. Each Party shall use its
reasonable best efforts to cause to be delivered to the other Party two
letters from its independent public accountants, one dated a date within
two business days before the date on which the Form S-4 shall become
effective and one dated the Closing Date, in form and substance reasonably
satisfactory to recipient and customary in scope and substance for comfort
letters delivered by independent accountants in connection with
registration statements similar to the Form S-4.
Section 6.18 Accountant's Pooling Letters. Abacus shall use its
reasonable best efforts to cause to be delivered to Alphabet from Ernst &
Young LLP ("E&Y") (or any other independent public accounting firm
reasonably satisfactory to Alphabet) two letters each addressed to Alphabet
and Deloitte & Touche LLP ("Deloitte") (or any other independent public
accounting firm selected by Alphabet), one dated the date upon which the
Form S-4 becomes effective and one dated the Closing Date, stating that as
of the respective dates of its letters, E&Y is not aware of any conditions
that exist that would preclude Abacus' ability to be a party in a business
combination to be accounted for as a pooling of interests. Alphabet shall
use its reasonable best efforts to cause to be delivered to Abacus from
Deloitte (or any other independent public accounting firm reasonably
satisfactory to Abacus) two letters, each addressed to Abacus and E&Y (or
any other independent public accounting firm selected by Abacus), one dated
the date upon which the Form S-4 becomes effective and one dated the
Closing Date, stating that accounting for the Merger as a pooling of
interests under Opinion 16 of the Accounting Principles Board and
applicable SEC rules and regulations is appropriate if the Merger is closed
and consummated as contemplated by this Agreement.
ARTICLE VII
Section 7.1 Conditions to Obligations of the Parties to Consummate the
Merger. The respective obligation of each party to consummate the Merger
shall be subject to the satisfaction of each of the following conditions:
(a) Stockholder Approval. This Agreement and the Merger shall
have been approved and adopted by the requisite vote of the stockholders of
Abacus and the issuance of shares of Alphabet Common Stock in connection
with the Merger shall have been approved by the requisite vote of the
stockholders of Alphabet, in each case in accordance with the DGCL or the
rules and regulations of the NYSE, as applicable.
(b) Legality. No order, decree or injunction shall have been
entered or issued by any Governmental Entity which is in effect and has the
effect of making the Merger illegal or otherwise prohibiting consummation
of the Merger. Each Party agrees that, in the event that any such order,
decree or injunction shall be entered or issued, it shall use its
reasonable best efforts to cause any such order, decree or injunction to be
lifted or vacated.
(c) HSR Act. The waiting period (or extension thereof) under the
HSR Act applicable to the Merger shall have expired or been terminated.
(d) Registration Statement Effective. The Form S-4 shall have
become effective prior to the mailing by each of the Parties of the Proxy
Statement/Prospectus to its respective stockholders and no stop order
suspending the effectiveness of the Form S-4 shall then be in effect;
(e) Stock Exchange Listing. The shares of Alphabet Common Stock
to be issued pursuant to the Merger shall have been duly approved for
listing on the NYSE, subject to official notice of issuance.
Section 7.2 Additional Conditions to Obligations of Alphabet and
Abacus Holdings. The obligations of Alphabet and Abacus Holdings to
consummate the Merger shall also be subject to the satisfaction or waiver
of each of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Abacus contained in this Agreement that are qualified by
Abacus Material Adverse Effect shall be true and correct on and as of the
Closing Date (except to the extent such representations and warranties
shall have been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date and (ii) the representations and warranties of Alphabet Abacus
Holdings contained in this Agreement that are not qualified as to Abacus
Material Adverse Effect shall be true and correct on and as of the Closing
Date (except to the extent such representations and warranties shall have
been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date, except to the extent that any failures of such
representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in an Abacus Material Adverse Effect.
(b) Agreements and Covenants. Abacus shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by it on or
before the Effective Time.
(c) Certificates. Alphabet shall have received a certificate of
an executive officer of Abacus that the conditions set forth in paragraphs
(a) and (b) above have been satisfied.
(d) Consents. Except as set forth in the Abacus Disclosure
Letter, Abacus shall have obtained all consents, approvals, releases or
authorizations ("Consents") from, and Abacus shall have made all filings
and registrations ("Filings") to or with, any Person, including without
limitation any Governmental Entity, necessary to be obtained or made in
order for Alphabet and Abacus Holdings to consummate the Merger or issue
shares of Alphabet Common Stock pursuant thereto, as applicable, unless the
failure to obtain such Consents or make such Filings would not,
individually or in the aggregate, reasonably be expected to have an Abacus
Material Adverse Effect.
(e) Tax Opinion. Alphabet shall have received an opinion of
Fried, Frank, Harris, Shriver & Jacobson (or, in the event Fried, Frank,
Harris, Shriver & Jacobson fails to provide such opinion, the opinion of
Wachtell, Lipton, Rosen & Katz), dated as of the Closing Date, in form and
substance reasonably satisfactory to it, substantially to the effect that,
on the basis of the facts and assumptions described in the opinion, the
Merger constitutes a tax-free reorganization under Section 368 of the Code.
In rendering such opinion, counsel may require and rely upon
representations and covenants including those contained in this Agreement
or in certificates of officers of the Parties and others; and
(f) Accountants Letters. Alphabet shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 hereof to be
received by it.
Section 7.3 Additional Conditions to Obligations of Abacus. The
obligations of Abacus to consummate the Merger shall also be subject to the
satisfaction or waiver of each of the following conditions:
(a) Representations and Warranties. (i) The representations and
warranties of Alphabet and Abacus Holdings contained in this Agreement that
are qualified by Alphabet Material Adverse Effect shall be true and correct
on and as of the Closing Date (except to the extent such representations
and warranties shall have been expressly made as of an earlier date, in
which case such representations and warranties shall have been true and
correct as of such earlier date) with the same force and effect as if made
on and as of the Closing Date, and (ii) the representations and warranties
of Alphabet and Abacus Holdings contained in this Agreement that are not
qualified as to Alphabet Material Adverse Effect shall be true on and as of
the Closing Date (except to the extent such representations and warranties
shall have been expressly made as of an earlier date, in which case such
representations and warranties shall have been true and correct as of such
earlier date) with the same force and effect as if made on and as of the
Closing Date, except to the extent that any failures of such
representations and warranties to be so true and correct (determined
without regard to materiality qualifiers or limitations contained therein),
individually or in the aggregate, would not reasonably be expected to have
resulted in an Alphabet Material Adverse Effect;
(b) Agreements and Covenants. Each of Alphabet and Abacus
Holdings shall have performed or complied in all material respects with all
agreements and covenants required by this Agreement to be performed or
complied with by it on or before the Effective Time.
(c) Certificates. Abacus shall have received a certificate of an
executive officer of Alphabet that the conditions set forth in paragraphs
(a) and (b) above have been satisfied;
(d) Consents. Except as set forth in the Alphabet Disclosure
Letter, Alphabet shall have obtained all Consents from, and Alphabet shall
have made all Filings to or with, any Person, including without limitation
any Governmental Entity, necessary to be obtained or made in order for
Abacus to consummate the Merger, unless the failure to obtain such Consents
or make such Filings would not, individually or in the aggregate, be
reasonably expected to have an Alphabet Material Adverse Effect.
(e) Tax Opinion. Abacus shall have received an opinion of
Wachtell, Lipton, Rosen & Katz (or other counsel reasonably satisfactory to
it), dated as of the Closing Date, in form and substance reasonably
satisfactory to it, substantially to the effect that, on the basis of the
facts and assumptions described in the opinion, the Merger constitutes a
tax-free reorganization under Section 368 of the Code. In rendering such
opinion, counsel may require and rely upon representations and covenants
including those contained in this Agreement or in certificates of officers
of the Parties and others; and
(f) Accountants Letters. Abacus shall have received each of the
accountants' letters contemplated by Sections 6.17 and 6.18 hereof to be
received by it.
ARTICLE VIII
Section 8.1 Termination. This Agreement may be terminated at any time
before the Effective Time (except as otherwise provided) as follows:
(a) by mutual written consent of each of Alphabet and Abacus;
(b) by any Party, if the Effective Time shall not have occurred
on or before June 30, 1999 (the "Termination Date"); provided, however,
that the right to terminate this Agreement under this Section 8.1(b) shall
not be available to any Party whose failure to fulfill any obligation under
this Agreement has been the cause of, or resulted in, the failure of the
Effective Time to occur on or before the Termination Date;
(c) by any Party, if a Governmental Entity shall have issued an
order, decree or injunction having the effect of making the Merger illegal
or permanently prohibiting the consummation of the Merger, and such order,
decree or injunction shall have become final and nonappealable (but only if
such Party shall have used its reasonable best efforts to cause such order,
decree or injunction to be lifted or vacated);
(d) by either Abacus or Alphabet, if (x) there shall have been a
material breach by the other of any of its representations, warranties,
covenants or agreements contained in this Agreement, which breach would
result in the failure to satisfy one or more of the conditions set forth in
Section 7.2(a) or (b) (in the case of a breach by Abacus) or Section 7.3(a)
or (b) (in the case of a breach by Alphabet), and such breach shall be
incapable of being cured or, if capable of being cured, shall not have been
cured within 30 days after written notice thereof shall have been received
by the Party alleged to be in breach.
(e) (i) by Alphabet, if the Board of Directors of Abacus or any
committee of the Board of Directors of Abacus (w) shall withdraw or modify
in any manner adverse to Alphabet, its approval or recommendation of this
Agreement and the Merger, (x) shall fail to reaffirm such approval or
recommendation within 15 days of Alphabet's request, which request may only
be made with respect to any Abacus Acquisition Proposal on a single
occasion, after (1) any Abacus Acquisition Proposal shall have been made to
Abacus and made known to Abacus' stockholders generally or shall have been
made directly to its stockholders generally or (2) any Person shall have
publicly announced an intention (whether or not conditional) to make an
Alphabet Acquisition Proposal (y) shall approve or recommend any Abacus
Acquisition Proposal or Abacus Acquisition Transaction or (z) shall resolve
to take any of the actions specified in clauses (w), (x) or (y) above; or
(ii) by Abacus, if the Board of Directors of Alphabet or any
committee of the Board of Directors of Alphabet (w) shall withdraw or
modify in any manner adverse to Abacus, its approval or recommendation of
the issuance of shares of Alphabet Common Stock pursuant to the Merger, (x)
shall fail to reaffirm such approval or recommendation within 15 days of
Abacus' request, which request may only be made with respect to any
Alphabet Acquisition Proposal on a single occasion, after (1) any Alphabet
Acquisition Proposal shall have been made to Alphabet and made known to
Alphabet's stockholders generally or shall have been made directly to its
stockholders generally or (2) any Person shall have publicly announced an
intention (whether or not conditional) to make an Alphabet Acquisition
Proposal, (y) shall approve or recommend any Alphabet Acquisition Proposal
or Alphabet Transaction or (z) shall resolve to take any of the actions
specified in clauses (w), (x) or (y) above.
(f) by either Party, if the required approvals of the
stockholders of the other Party shall not have been obtained at a duly held
stockholders' meeting, including any adjournments or postponements thereof;
and
(g) if the Board of Directors of Abacus shall conclude in good
faith, after considering applicable state law, after consulting with
outside counsel, that in light of an Abacus Superior Proposal such action
is required to act in a manner consistent with its fiduciary duties under
applicable law, Abacus may (only after Abacus has made such payments as are
provided for in Section 8.2 and only prior to the approval of this
Agreement by Abacus' stockholders) terminate this Agreement solely in order
to concurrently enter into a definitive acquisition agreement or similar
agreement with respect to any Abacus Superior Proposal; provided, however,
Abacus may not terminate the Agreement pursuant to this clause (g) until
after the second business day following the delivery to Alphabet of written
notice advising Alphabet that the Board of Directors of Abacus is prepared
to enter into a definitive acquisition agreement with respect to an Abacus
Superior Proposal and only if, during such two-business day period, Abacus
and its Representatives shall, if requested by Alphabet, have negotiated in
good faith with Alphabet to make such adjustments to the terms and
conditions of this Agreement as would enable Abacus to proceed with the
Merger on such adjusted terms.
(h) if the Board of Directors of Alphabet shall conclude in good
faith, after considering applicable state law, and after consultation with
outside counsel, that in light of an Alphabet Superior Proposal such action
is required in order to act in a manner consistent with its fiduciary
duties under applicable law, Alphabet may (only after Alphabet has made
such payments as are provided for in Section 8.2 and only prior to the
approval of the issuance of Alphabet Common Stock pursuant to this
Agreement by Alphabet stockholders) terminate this Agreement solely in
order to concurrently enter into a definitive acquisition agreement or
similar agreement with respect to an Alphabet Superior Proposal; provided,
however, Alphabet may not terminate this Agreement pursuant to this clause
(h) until after the second business day following the delivery to Abacus of
written notice advising Abacus that the Board of Directors of Alphabet is
prepared to enter into a definitive acquisition agreement with respect to
an Alphabet Superior Proposal and only if, during such two-business-day
period, Alphabet and its Representatives shall, if requested by Abacus,
have negotiated in good faith with Abacus to make such adjustments to the
terms and conditions of this Agreement as would enable Alphabet to proceed
with the Merger in such adjusted terms.
Section 8.2 Effect of Termination and Abandonment. (a) In the event of
termination of this Agreement pursuant to this Article VIII, this Agreement
(other than as set forth in Section 9.1) shall become void and of no effect
with no liability on the part of any party hereto (or of any of its
Representatives); provided, however, no such termination shall relieve any
party hereto from (x) any liability for damages resulting from any willful
and intentional breach of this Agreement or (y) any obligation to provide
reimbursement for or pay the Abacus Termination Fee (defined below) or the
Alphabet Termination Fee (defined below) (each a "Termination Fee"), or
Fees and Expenses (as defined below) pursuant to this Section 8.2;
(b) In the event that Abacus terminates this Agreement pursuant
to Section 8.1(g), simultaneously with such termination, Abacus shall pay
to Alphabet a fee equal to $177,000,000 (the "Abacus Termination Fee"). In
the event that Alphabet terminates this Agreement pursuant to Section
8.1(h), simultaneously with such termination, Alphabet shall pay to Abacus
a fee equal to $240,000,000 (the "Alphabet Termination Fee").
(c) (i) In the event that an Abacus Business Combination Proposal
(defined below) shall have been made to Abacus and made known to its
stockholders generally or shall have been made directly to its stockholders
generally or any Person shall have publicly announced an intention (whether
or not conditional) to make an Abacus Business Combination Proposal prior
to the meeting of Abacus' stockholders duly convened and held to vote in
respect of this Agreement and the Merger and thereafter (i) this Agreement
is terminated pursuant to Section 8.1(f) by reason of the failure of the
stockholders of Abacus to approve this Agreement or the Merger at such
meeting and (ii) within six months of the termination of this Agreement,
Alphabet enters into an agreement with any Person with respect to an Abacus
Business Combination Proposal or an Abacus Business Combination Proposal is
consummated. Abacus shall, upon the occurrence of the event described in
clause (ii) above, pay to Alphabet the Abacus Termination Fee.
(ii) In the event that an Alphabet Business Combination
Proposal (defined below) shall have been made to Alphabet and made known to
its stockholders generally or shall have been made directly to its
stockholders generally or any Person shall have publicly announced an
intention (whether or not conditional) to make an Alphabet Business
Combination Proposal prior to the meeting of Alphabet's stockholders duly
convened and held to vote in respect to the issuance of shares pursuant to
this Agreement and thereafter (i) this Agreement is terminated pursuant to
Section 8.1(f) by reason of the failure of the stockholders of Alphabet to
approve such issuance at such meeting and (ii) within six months of the
termination of this Agreement, Alphabet enters into an agreement with any
Person with respect to an Alphabet Business Combination Proposal or an
Alphabet Business Combination Proposal is consummated. Alphabet shall, upon
the occurrence of the event described in clause (ii) above, pay to Abacus
the Alphabet Termination Fee.
(d) In the event that this Agreement is terminated pursuant to
Section 8.1(f) by reason of the failure of any Party's stockholders to
approve this Agreement or the Merger at a meeting of stockholders duly
convened and held to vote in respect of this Agreement and the Merger or
the issuance of shares pursuant thereto, such Party shall promptly upon
such termination (following receipt of a statement therefor) reimburse the
other Party for all fees and expenses (including, without limitation, fees
and expenses of counsel, financial advisors, accountants, consultants and
other advisors and Representatives) incurred by it in connection with this
Agreement and the Merger ("Fees and Expenses").
(e) In the event that this Agreement is terminated as a result of
Abacus' Board of Directors taking any of the actions described in Section
8.1(e)(i), Abacus shall promptly after such termination pay to Alphabet the
Abacus Termination Fee. In the event that this Agreement is terminated as a
result of Alphabet's Board of Directors taking any of the actions described
in Section 8.1 (e) (ii), Alphabet shall promptly after such termination pay
to Abacus the Alphabet Termination Fee.
(f) (i) In the event that an Abacus Business Combination Proposal
shall have been made to Abacus and made known to its stockholders generally
or shall have been made directly to its stockholders generally, or any
Person shall have publicly announced an intention (whether or not
conditional) to make an Abacus Business Combination Proposal, and this
Agreement is subsequently terminated pursuant to Section 8.1(d) as a result
of an intentional breach by Abacus of its representations, warranties and
covenants by Abacus, and within six months after such termination, Abacus
shall enter into an agreement with any Person for an Abacus Business
Combination Proposal or an Abacus Business Combination Proposal is
consummated, simultaneously with its entering into such agreement or upon
such consummation, Abacus shall pay to Alphabet the Abacus Termination Fee.
(ii) In the event that an Alphabet Business Combination
Proposal shall have been made to Alphabet and made known to its
stockholders generally or shall have been made directly to its stockholders
generally, or any Person shall have publicly announced an intention
(whether or not conditional) to make an Alphabet Business Combination
Proposal, and this Agreement is subsequently terminated pursuant to Section
8.1(d) as a result of an intentional breach by Alphabet of its
representations, warranties and covenants by Alphabet, and within six
months after such termination, Alphabet shall enter into an agreement with
any Person for an Alphabet Business Combination Proposal or an Alphabet
Business Combination Proposal is consummated, simultaneously with its
entering into such agreement or upon such consummation, Alphabet shall pay
to Abacus the Alphabet Termination Fee.
(g) Reimbursements of Fees and Expenses hereunder and any
Termination Fee payable hereunder shall be payable by wire transfer of
immediately available funds.
The reimbursement of Fees and Expenses shall be credited against
any Termination Fee payable by such Party. In no event shall more than one
Termination Fee be payable by a Party. No Party which is in material breach
of its covenants, agreements or representations shall be entitled to
receive Fees and Expenses or a Termination Fee.
(h) The Parties acknowledge that the agreements contained in this
Section 8.2 are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Alphabet and Abacus would
not enter into this Agreement, and the fees payable as reimbursable
hereunder constitute liquidated damages and not a penalty; accordingly, if
either Party fails to pay promptly amount due pursuant to this Section 8.2,
and, in order to obtain such payment, the other Party commences a suit
which results in a judgment against such first Party for such amount (or
any portion thereof), such first Party shall pay the costs and expenses
(including attorneys fees) of the other party in connection with such suit,
together with interest on such amount in respect of the period from the
date such amount became due until paid at the prime rate of The Chase
Manhattan Bank in effect from time to time during such period.
(i) "Abacus Business Combination Proposal" shall mean (x) any
merger, consolidation or other business combination as a result of which
the stockholders of Abacus prior to such transaction would cease to hold at
least 66-2/3% of the voting securities of the entity surviving or resulting
from such transaction (or the ultimate parent entity thereof), (y) the
acquisition by a Person of at least 50% of the outstanding voting
securities of Abacus, or (z) the sale, lease, exchange or other disposition
of at least 50% of the assets of Abacus and its Subsidiaries taken as a
whole; provided, however, that, with respect to Section 8.2.(c)(i) and
8.2(f)(i), the reference in this definition to 66-2/3% shall be deemed to
be a reference to 80% if the Person (or an Affiliate of such Person) which
enters into an agreement with respect to, or consummates, an Abacus
Business Combination Proposal after the termination of this Agreement, had
made an Abacus Business Combination Proposal prior to the termination of
this Agreement.
(j) "Alphabet Business Combination Proposal" shall mean (x) any
merger, consolidation or other business combination as a result of which
the stockholders of Alphabet prior to such transaction would cease to hold
at least 66-2/3% of the voting securities of the entity surviving or
resulting from such transaction (or the ultimate parent entity thereof),
(y) the acquisition by a Person at least 50% of the outstanding voting
securities of Alphabet, or (z) the sale, lease, exchange or other
disposition of at least 50% of the assets of Alphabet and its Subsidiaries
taken as a whole; provided, however that, with respect to Section
8.2(c)(ii) and 8.2(f)(ii), the reference in this definition to 66-2/3%
shall be deemed to be a reference to 80% if the Person (or an Affiliate of
such Person) which enters into an agreement with respect to, or
consummates, an Alphabet Business Combination Proposal after the
termination of this Agreement, had made an Alphabet Business Combination
Proposal prior to the termination of this Agreement.
Section 8.3 Amendment. This Agreement may be amended at any time
before the Effective Time but only pursuant to a writing executed and
delivered by Alphabet and Abacus.
ARTICLE IX
Section 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this
Agreement shall terminate at the Effective Time or upon the termination of
this Agreement pursuant to Section 8.1, as the case may be, except that (a)
the agreements set forth in Sections 1.3, 6.11 and 6.12 shall survive the
Effective Time, and (b) the agreements set forth in Sections 6.7, 6.9(b)
and 8.2 shall survive termination indefinitely.
Section 9.2 Notices. All notices and other communications given or
made pursuant hereto shall be in writing and shall be deemed to have been
duly given or made as of the date of receipt and shall be delivered
personally or mailed by registered or certified mail (postage prepaid,
return receipt requested), sent by overnight courier or sent by telecopy,
to the applicable party at the following addresses or telecopy numbers (or
at such other address or telecopy number for a party as shall be specified
by like notice):
(a) if to Abacus:
American Stores Company
299 South Main Street
Salt Lake City, Utah 84111
Attention: Kathleen E. McDermott, Esq.
Telecopy No.: (801) 537-7808
with a copy to:
Wachtell, Lipton, Rosen & Katz
51 West 52nd Street
New York, New York 10019
Attention: Richard D. Katcher, Esq.
Eric S. Robinson, Esq.
Telecopy No.: (212) 403-2000
(b) if to Alphabet or Abacus Holdings:
Albertson's, Inc.
250 Parkcenter Blvd.
Boise, Idaho 83726
Attention: Thomas R. Saldin, Esq.
Telecopy No.: (208) 395-6225
with a copy to:
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, New York 10004
Attention: Sanford Krieger, Esq.
Jeffrey Bagner, Esq.
Telecopy No.: (212) 859-4000
Section 9.3 Certain Definitions; Interpretation. (a) For purposes of
this Agreement, the following terms shall have the following meanings:
(i) "Abacus Material Adverse Effect" means any change in or
effect (x) that is or will be materially adverse to the business, results
of operations, or financial condition of Abacus and its Subsidiaries taken
as a whole, or (y) that will prevent or materially impair Abacus' ability
to consummate the Merger, provided that an Abacus Material Adverse Effect
shall not include changes or effects (1) relating to economic conditions or
financial markets in general or the retail food and drug industry in
general, (2) resulting from the voluntary termination of employment by
employees of Abacus and its Subsidiaries between the date hereof and the
Closing Date or (3) resulting from actions required to be taken by the
terms of this Agreement. A decline in the stock market price of the shares
of Abacus Common Stock in and of itself shall not be deemed an "Abacus
Material Adverse Effect."
(ii) "Alphabet Material Adverse Effect" means any change in
or effect (x) that is or will be materially adverse to the business,
results of operations or financial conditions of Alphabet and its
Subsidiaries taken as a whole, or (y) that is or will prevent or materially
impair Alphabet's ability to consummate the Merger or to issue shares of
Alphabet Common Stock in accordance with the terms hereof, provided that an
Alphabet Material Adverse Effect shall not include changes or effects
relating to economic conditions or financial markets in general or the
retail food and drug industry in general or, (2) changes or effects
resulting from actions required to be taken by the terms of this Agreement.
A decline in the stock market price of the shares of Alphabet Common Stock
in and of itself shall not be deemed an "Alphabet Material Adverse Effect."
(iii) "affiliate" of a Person means a Person that directly
or indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned Person.
(iv) "control" (including the terms "controlled by" and
"under common control with") means the possession, direct or indirect, of
the power to direct or cause the direction of the management and policies
of a Person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise.
(v) "ERISA" means the Employee Retirement Income Security
Act of 1974, as amended and the rules and regulations promulgated
thereunder.
(vi) "knowledge" of any Party shall mean the actual
knowledge of the executive officers of that Party.
(vii) "Person" means an individual, corporation,
partnership, limited liability company, association, trust, unincorporated
organization, entity or group (as defined in the Exchange Act).
(viii) "Significant Subsidiary" shall have the meaning set
forth in Rule 1-02 of Regulation S-X of the SEC.
(ix) "Subsidiary," of a Person means any corporation or
other legal entity of which such Person (either alone or through or
together with any other Subsidiary or Subsidiaries) is the general partner
or managing entity or of which at least a majority of the stock or other
equity interests the holders of which are generally entitled to vote for
the election of the board of directors or others performing similar
functions of such corporation or other legal entity is directly or
indirectly owned or controlled by such Person (either alone or through or
together with any other Subsidiary or Subsidiaries).
(b) When a reference is made in this Agreement to Articles,
Sections, Disclosure Letters or Exhibits, such reference is to an Article
or a Section of, or an Exhibit to, this Agreement, unless otherwise
indicated. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be
understood to be followed by the words "without limitation."
Section 9.4 Headings. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
Section 9.5 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any Party. Upon a determination that
any term or other provision is invalid, illegal or incapable of being
enforced, the Parties shall negotiate in good faith to modify this
Agreement so as to effect the original intent of the Parties as closely as
possible in an acceptable manner to the end that the transactions
contemplated hereby are fulfilled to the maximum extent possible.
Section 9.6 Entire Agreement; No Third-Party Beneficiaries. This
Agreement and the Confidentiality Agreement constitute the entire agreement
and supersede any and all other prior agreements and undertakings, both
written and oral, among the parties hereto, or any of them, with respect to
the subject matter hereof and, except for Section 6.11 (Indemnification,
Directors' and Officers' Insurance), does not, and is not intended to,
confer upon any Person other than the parties hereto any rights or remedies
hereunder.
Section 9.7 Assignment. This Agreement shall not be assigned by any
party hereto by operation of law or otherwise without the express written
consent of each of the other parties.
Section 9.8 Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of Delaware without
regard to the conflicts of laws provisions thereof. Each of the Parties
hereby irrevocably and unconditionally consents to submit to the exclusive
jurisdiction of the courts of the State of Delaware and the courts of the
United States of America located in the State of Delaware for any
litigation arising out of or relating to this Agreement or the Merger or
any of the other transactions contemplated hereby (and agrees not to
commence any litigation relating hereto except in such courts), and further
agrees that service of any process, summons, notice or document by U.S.
registered mail to its respective address set forth in Section 9.2 shall be
effective service of process for any litigation brought against it in any
such court. Each of the Parties hereby irrevocably and unconditionally
waives any objection to the laying of venue of any litigation arising out
of this Agreement or the Merger or any of the other transactions
contemplated hereby in the courts of the State of Delaware or the courts of
the United States of America located in the State of Delaware and hereby
further irrevocably and unconditionally waives and agrees not to plead or
claim in any such court that any such litigation brought in any such court
has been brought in an inconvenient forum. Each of the parties hereto
hereby irrevocably and unconditionally waives any right it may have to
trial by jury in connection with any litigation arising out of or relating
to this agreement, the stock option agreement, the merger or any of the
other transactions contemplated hereby or thereby.
Section 9.9 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties in separate counterparts,
each of which when executed shall be deemed to be an original, but all of
which shall constitute one and the same agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed as of the date first written above by their respective
officers thereunto duly authorized.
ALBERTSON'S, INC.
By: /s/ Michael F. Rueling
--------------------------
Name: Michael F. Rueling
Title: Executive Vice President,
Store Development
ABACUS HOLDINGS, INC.
By: /s/ Michael F. Reuling
--------------------------
Name: Michael F. Reuling
Title: Vice President
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
--------------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
EXHIBIT 2.1
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of August 2, 1998 (this
"Agreement"), between American Stores Company, a Delaware corporation
("Issuer"), and Albertson's, Inc., a Delaware corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly-owned subsidiary of
Grantee (the "Merger Sub") propose to enter into an Agreement and Plan of
Merger, to be dated as of the date hereof (the "Merger Agreement"),
pursuant to which Merger Sub is to merge with and into Issuer, with Issuer
continuing as the surviving corporation and a wholly owned subsidiary of
Grantee after such merger, and in such merger, each share of common stock,
par value $1.00 per share, of Issuer ("Common Stock") will be converted to
a right to receive shares of common stock, par value $1.00 per share, of
Grantee as provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness
to enter into the Merger Agreement and in consideration thereof, Issuer is
granting to Grantee, pursuant to the terms and subject to the conditions
contained in this Agreement, an option to purchase 19.9 % of the
outstanding shares of Common Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant
by Issuer to Grantee of the Option (defined below) pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and
subject to the conditions hereof, up to 54.5 million fully paid and
nonassessable shares of Common Stock at a price of $30.24 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares for which the Option is exercisable exceed 19.9 % of the shares of
Common Stock issued and outstanding at the time of exercise (without giving
effect to the shares of Common Stock issued or issuable under the Option).
The number of shares of Common Stock purchasable upon exercise of the
Option and the Option Price are subject to adjustment as set forth in this
Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person, including
Grantee, being referred to as "Holder") may exercise the Option, in whole
or in part, from time to time, and prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have
delivered a written notice as provided in Section 2(d) within 120 days of
the occurrence of a Triggering Event (as defined in Section 2(b)). The
right to exercise the Option shall terminate upon either (i) the occurrence
of the Effective Time (as defined in the Merger Agreement) or (ii) (A) if a
Notice Date (as defined in Section 2(d) hereof) has not previously
occurred, the close of business on the earlier of (x) the day that is 120
days after the date of a Triggering Event, (y) the date upon which the
Merger Agreement is terminated if no Termination Fee could be payable by
Issuer pursuant to the terms of the Merger Agreement upon the occurrence of
certain events or the passage of time, and (z) 270 days following the date
upon which the Merger Agreement is terminated, and (B) if the Notice Date
has previously occurred, 120 days after the Notice Date (the events in (i)
or (ii) being referred to as "Exercise Termination Events".)
(b) Triggering Event. A "Triggering Event" shall have occurred at
such time at which the Grantee becomes entitled to receive from Issuer a
Termination Fee pursuant to Section 8.2 of the Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event (it
being understood that the giving of the notice by Issuer shall not be a
condition to the right of Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and
desires to exercise the Option, in whole or in part, it shall send to
Issuer a written notice (any date on which such notice is given, in
accordance with Section 15 hereof, is referred to as a "Notice Date")
specifying (i) the total number of shares that Holder will purchase
pursuant to the exercise and (ii) a place and date (a "Closing Date") not
earlier than three business days nor later than 60 business days from the
Notice Date for the closing of the purchase (a "Closing"); provided, that
if a filing or any approval is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
such purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and
shall expeditiously process the same and the period of time referred to in
clause (ii) shall commence on the date on which all required notification
and waiting periods, if any, shall have expired or been terminated and all
required approvals, if any, shall have been obtained. Any exercise of the
Option shall be deemed to occur on the date of the Notice Date relating
thereto. Each of Holder and Issuer agrees to use its reasonable best
efforts to cooperate with and provide information to the other, for the
purpose of any required notice or application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At
each Closing, Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of the Option
in immediately available funds by a wire transfer to a bank account
designated by Issuer; provided, that failure or refusal of Issuer to
designate a bank account shall not preclude Holder from exercising the
Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the
aggregate purchase price by Holder, Issuer shall deliver to Holder a
certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall be exercised in part
only, a new Agreement providing for an Option evidencing the rights of
Holder to purchase the balance (as adjusted pursuant to Section l(b)) of
the shares then purchasable hereunder and the Holder shall deliver this
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable laws or the
provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in
paragraphs (i) and (ii) of this Section 2(e), Holder shall have the right
(a "Cashless Exercise Right") to direct the Issuer, in the written notice
of exercise referred to in Section 2(d), to reduce the number of shares of
Common Stock required to be delivered by Issuer to Holder at any Closing by
such number of shares of Common Stock that have an aggregate Market/Offer
Price (as defined in Section 9(a)) equal to the aggregate purchase price
payable at such Closing (but for this paragraph (iii)), or any portion
thereof, in lieu of Holder paying to the Issuer at such Closing such
aggregate purchase price or portion thereof, as the case may be. Any
exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii)
shall be referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered
at a Closing may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer, a copy of which agreement is on file at the
principal office of Issuer, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of the aforementioned
agreement will be mailed to the holder without charge promptly after
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Holder shall have delivered to
Issuer a copy of a letter from the staff of the Securities and Exchange
Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, the certificates shall bear any other legend as may be required
by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon
the giving by Holder to Issuer of the written notice of exercise referred
to in Section 2(d) and, except to the extent such notice relates to a
Cashless Exercise, the tender of the applicable purchase price in
immediately available funds, Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock shall
not have been actually delivered to Holder. Issuer shall pay all expenses,
and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by Issuer
and not to take any action which would cause any of its representations or
warranties not to be true; and
(c) Further Assurances. Promptly after the date hereof to take
all actions as may from time to time be required (including (i) complying
with all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Holder that Issuer has all requisite corporate
power and authority and has taken all corporate action necessary to
authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; and that
this Agreement has been duly and validly authorized, executed and delivered
by Issuer. Issuer hereby further represents and warrants to Holder that it
has taken all necessary corporate action to authorize and reserve for
issuance upon exercise of the Option the number of shares of Common Stock
equal to the maximum number of shares of Common Stock at any time or from
time to time issuable upon exercise of the Option and that all shares of
Common Stock, upon issuance pursuant to the Option, will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights. The execution and delivery of this Agreement, the grant of the
Option hereunder and the exercise in whole or in part of the Option in
accordance with this Agreement, will not (i) result in the occurrence of
any "Distribution Date," "Stock Acquisition Date" or "Triggering Event"
under any rights agreement of the Issuer, (ii) permit any Person to
exercise any rights issued under such rights agreement, or (iii) cause the
separation of any such rights from the shares of Common Stock to which they
are attached or such rights becoming exercisable. Issuer has taken all
action necessary to make inapplicable to Grantee any state takeover,
business combination, control share or other similar statute and any
charter provisions which would otherwise be applicable to Grantee or any
transaction involving Issuer and Grantee by reason of the grant of the
Option, the acquisition of beneficial ownership of shares of Common Stock
as a result of the grant of the Option, or the acquisition of shares of
Common Stock upon exercise of the Option, except for statutes or provisions
which by their terms cannot be waived or rendered inapplicable by any
action of Issuer or the Board of Directors of Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that Grantee has all requisite corporate
power and authority and has taken all corporate action necessary in order
to authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by
Grantee. Grantee represents and warrants to Issuer that any shares of
Common Stock acquired upon exercise of the Option will be acquired for
Grantee's own account, and will not be, and the Option is not being,
acquired by Grantee with a view to the distribution thereof in violation of
any applicable provision of the Securities Act. Grantee has such knowledge
and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the
merits and risks of an investment by Grantee in the Common Stock and
Grantee is able to bear the economic risks of any investment in the shares
of Common Stock which Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are
exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for
other Agreements providing for Options of different denominations entitling
the holder thereof to purchase on the same terms and subject to the same
conditions as set forth herein in the aggregate the same number of shares
of Common Stock purchasable at such time hereunder, subject to
corresponding adjustments in the number of shares of Common Stock
purchasable upon exercise so that the aggregate number of such shares under
all Agreements issued in respect of this Agreement shall not exceed 19.9 %
of the outstanding shares of Common Stock of the Issuer (without giving
effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used in this Agreement include any Agreements and related
options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of reasonably satisfactory evidence
of the loss, theft, destruction, or mutilation of this Agreement, (ii)
receipt by Issuer of reasonably satisfactory indemnification in the case of
loss, theft or destruction and (iii) surrender and cancellation of this
Agreement in the case of mutilation, Issuer will execute and deliver a new
Agreement of like tenor and date. Any new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by any person other than the
holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as follows:
In the event of any change in, or distribution in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions,
exchanges of shares or the like, the type (including, in the event of any
Major Transaction described in Section 9(d) hereof in which Issuer is not
the surviving or continuing corporation, to provide that the Option shall
be exercisable for shares of common stock of the surviving or continuing
corporation in such Major Transaction) and number of shares of Common Stock
purchasable upon exercise of the Option and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits contemplated hereby, and proper provision shall be made in the
agreements governing any such transactions to provide for such proper
adjustment and the full satisfaction of Issuer's obligation hereunder.
8. Registration. At any time after a Triggering Event occurs and
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(d), and, with respect to the first demand registration as
to which Grantee exercises its demand rights under this Section 8,
delivered no later than 90 days following such Triggering Event, as
promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its reasonable best efforts
to cause such registration statement to become effective and remain current
in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of the Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee; provided,
however, that Issuer may postpone filing a registration statement relating
to a registration request by Grantee under this Section 8 for a period of
time (not in excess of 90 days) if in Grantee's judgment such filing would
require the disclosure of material information that Issuer has a bona fide
business purpose for preserving as confidential. Issuer will use its
reasonable best efforts to cause such registration statement first to
become effective and then to remain effective for 365 days after the day
the registration statement first becomes effective or such shorter time as
is reasonably appropriate to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
requested by Holder in connection with such registration, Issuer shall (x)
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements
(in each case reasonably acceptable to Issuer) customarily made by issuers
in such underwriting agreements, and (y) use its reasonable best efforts to
take all further actions which shall be reasonably necessary to effect such
registration and sale (including participating in road-show presentations
and causing to be delivered customary certificates, opinions of counsel and
"comfort letters"). Notwithstanding anything to the contrary contained
herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 8 by reason of the fact that there
shall be more than one Grantee as a result of any assignment or division of
this Agreement. Upon the effectiveness of a registration statement demanded
pursuant to this Section 8, the Holder of the Option Shares that are the
subject of such registration may not thereafter require the Issuer to
repurchase such Option Shares so long as such registration statement
remains effective as required hereby.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event prior to an Exercise Termination Event, (i) at the request
of Holder, delivered in writing within 120 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required
notice or application or in Section 10), Issuer shall repurchase the Option
from Holder, in whole or in part, at a price (the "Option Repurchase
Price") equal to the number of shares of Common Stock then purchasable upon
exercise of the Option (or such lesser number of shares as may be
designated in the Repurchase Notice (as defined in Section 9(b)))
multiplied by the amount by which the Market/Offer Price (as defined below)
exceeds the Option Price or (ii) at the request of any owner of Option
Shares (an "Owner") delivered in writing within 120 days of such occurrence
(or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase
such number of Option Shares from such Owner as such Owner shall designate
in the Repurchase Notice at a price (the "Option Share Repurchase Price")
equal to the number of shares designated multiplied by the Market/Offer
Price. The term "Market/Offer Price" shall mean the highest of (x) the
price per share of Common Stock at which a tender or exchange offer for
Common Stock either has been consummated, or at which a Person has publicly
announced its intention to commence a tender or exchange offer, after the
date of this Agreement and prior to the delivery of the Repurchase Notice,
and which offer either has been consummated and not withdrawn or terminated
as of the date payment of the Repurchase Price is made, or has been
publicly announced and such intention to make a tender or exchange offer
has not been withdrawn as of the date payment of the Repurchase Price is
made, (y) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer for a merger, share exchange,
consolidation or reorganization entered into after the date hereof and on
or prior to the delivery of the Repurchase Notice and (z) the average
closing price for shares of Common Stock on the New York Stock Exchange
(the "NYSE") (or, if the Common Stock is not then listed on the NYSE, any
other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted) for the twenty consecutive
trading days immediately preceding the delivery of the Repurchase Notice.
In the event that a tender or exchange offer is made for the Common Stock
or an agreement is entered into for a merger, share exchange, consolidation
or reorganization involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by Issuer and Holder or Owner, as
the case may be.
(b) Method of Repurchase. Holder or Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Option, in whole
or in part, and/or any Option Shares then owned by Holder or Owner pursuant
to this Section 9 by surrendering for this purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder
or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each
such notice, a "Repurchase Notice"). Within four business days after the
surrender of the Agreement for the Option and/or certificates representing
Option Shares and the receipt of the Repurchase Notice, Issuer shall
deliver or cause to be delivered to Holder or Owner of Option Shares, as
the case may be, the applicable Option Repurchase Price and/or the Option
Share Repurchase Price or, in either case, the portion that Issuer is not
then prohibited under applicable law and regulation from so delivering in
immediately available funds by a wire transfer to a bank account designated
by grantee. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to the
Option at the time of delivery of the Repurchase Notice minus the number of
shares of Common Stock represented by that portion of the Option then being
repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase.
To the extent that, upon or following the delivery of a Repurchase Notice,
Issuer is prohibited under applicable law or regulation from repurchasing
the Option (or a portion thereof) and/or any Option Shares subject to such
Repurchase Notice (and Issuer hereby undertakes to use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish this
repurchase), Issuer shall promptly so notify Holder or Owner, as the case
may be, in writing and thereafter deliver or cause to be delivered, from
time to time, to Holder or Owner, as the case may be, the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer
is no longer prohibited from delivering, within four business days after
the date on which it is no longer so prohibited; provided, however, that
upon notification by Issuer in writing of this prohibition, Holder or
Owner, as the case may be, may, within 5 days of receipt of this
notification from Issuer, revoke in writing its Repurchase Notice, whether
in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to Holder or Owner, as the case may
be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
(a) deliver to Holder with respect to the Option, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the Repurchase Notice less the number of shares as to which the
Option Repurchase Price has theretofore been delivered to Holder, and/or
(b) deliver to the owner of Option Shares, with respect to its Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to such owner.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, the time limitations on the exercise of the Option,
Holder may exercise the Option at least until 120 days after such date upon
which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the
occurrence of an Exercise Termination Event, Issuer shall not enter into or
agree to enter into any agreement for a Major Transaction (defined below)
unless the other party or parties thereto agree to assume in writing
Issuer's obligations under this Agreement. "Major Transaction" shall mean
any merger or consolidation involving the Issuer and any transaction
involving a sale, transfer or other disposition of a majority of the assets
or shares of capital stock of the Issuer. 10. Extension of Exercise
Periods. The 120 and 270 day periods for exercise of certain rights under
Sections 2 and 9 shall be extended in each such case at the request of
Holder or Owner to the extent necessary to avoid liability by a Holder or
Owner under Section 16(b) of the Securities Exchange Act of 1934, as
amended, by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights
or obligations under this Agreement or the Option to any other person
without the express written consent of the other party except that Holder
or Owner may assign its rights in whole or in part to any of its affiliates
and, in the event that a Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event, Holder or Owner may within 90
days following such Triggering Event assign the Option or any of its other
rights hereunder, in whole or in part to one or more third parties,
provided that the affiliate and any such third party shall execute this
Agreement and agree to become subject to its terms. Any attempted
assignment in contravention of the preceding sentence shall be null and
void.
12. Filings; Other Actions. Each party hereto will use its
reasonable best efforts to make all filings with, and to obtain consents
of, all third parties and govern mental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either
party and that the obligations of the parties shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for
any reason a court or regulatory agency determines that Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 9, any portion of the Option or the full number of shares of Common
Stock provided in Section l(a) hereof (as adjusted pursuant Section 1(b)
and 7 hereof), it is the express intention of the parties to allow Holder
to acquire or to require Issuer to repurchase such lesser portion of the
Option or number of shares as may be permissible, without any amendment or
modification of this Agreement.
15. Notices. All notices, requests, instructions, or other
documents to be given hereunder shall be furnished in accordance with
Section 9.2 of the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this
Agreement or in the Merger Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring the expense, including fees
and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral,
between the parties, with respect to the subject matter of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties, and their
respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision
of this Agreement, in no event shall the Total Profit (as hereinafter
defined) plus any Liquidation Amounts (as defined below) exceed in the
aggregate $265 million, and, if it otherwise would exceed this amount, the
Grantee, at its sole election, shall either (i) reduce the number of shares
of Common Stock subject to this Option, (ii) deliver to the Issuer for
cancellation Option Shares previously purchased by Grantee or any other
Holder or Owner, (iii) pay to the Issuer cash or refund in cash Liquidation
Amounts previously paid or reduce or waive the amount of any Liquidation
Amount payable pursuant to Section 8.2, or (iv) any combination thereof, so
that Grantee's realized Total Profit, when aggregated with any Liquidation
Amounts so paid or payable to Grantee, shall not exceed $265 million after
taking into account the foregoing actions.
As used herein the term "Liquidation Amounts" means the aggregate
amount of all Fees and Expenses, and Termination Fees, payable or paid to
Grantee and its assigns pursuant to Section 8.2 of the Merger Agreement
(and not repaid or refunded to the Issuer pursuant to this Section 18 or
otherwise).
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) which,
together with any Liquidation Amount theretofore paid or then payable to
Grantee (and not repaid or refunded to the Issuer pursuant to this Section
18 or otherwise), would exceed $265 million provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean
the aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee, any other Holder and any Owner pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares
pursuant to Section 9, less, in the case of any repurchase of Option
Shares, (y) the Grantee's, any other Holder's and any Owner's purchase
price for such Option Shares, as the case may be, (ii) (x) the net cash
amounts (and the fair market value of any other consideration) received by
Grantee, any other Holder and any Owner pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted
or exchanged) to any unaffiliated party, less (y) the Grantee's (or any
other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or
any portion thereof) to any unaffiliated party. In the case of clauses
(ii)(x) and (iii) above, the Grantee and each Holder and Owner agrees to
furnish as promptly as reasonably practicable after any disposition of all
or a portion of the Option or Option Shares a complete and correct
statement, certified by a responsible executive officer or partner of
Grantee, Holder or Owner, as applicable, of the net cash amounts (and the
fair market value of any other consideration) received in connection with
any sale or transfer of the Option or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee and any other
Holder may propose to exercise the Option shall be the Total Profit
determined as of the date of such proposal (taking into account the
provision of Section 18(a) hereof) assuming that the Option were exercised
on such date for such number of shares and assuming that such shares,
together with all other Option Shares held by Grantee and any other Holders
and Owners and their respective affiliates as of such date were sold for
cash at the closing market price for the Common Stock on the New York Stock
Exchange Composite Transaction Tape as of the close of business on the
preceding trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this
Agreement are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of
the provisions of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which
when exercised shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From
and after the date of exercise of the Option in whole or part, and for as
long as Grantee owns shares of Common Stock acquired pursuant to the
exercise of the Option:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not
permit any of its Affiliates (as defined in Section 23) to:
(i) acquire or agree, offer, seek or propose to acquire,
ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of more than 20% of
any class of Voting Securities (as defined in Section
23), or any rights or options to acquire such ownership
(including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise
acquire all or a substantial portion of the assets of
the Issuer;
(iv) seek or propose to influence or control the management
or policies of the Issuer or to obtain representation
on the Issuer's Board of Directors, or solicit or
participate in the solicitation of any proxies or
consents with respect to the securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements
or understandings with any third party with respect to
any of the foregoing; or
(vi) seek or request permission to do any of the foregoing
or seek any permission to make any public announcement
with respect to any of the foregoing.
The provisions of this Section 21 shall not apply to actions
taken pursuant to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in,
pledge, hypothecate or otherwise dispose of any Voting Securities at any
time except as follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a
sale of all or substantially all of the Issuer's
assets; or
(ii) pursuant to a registered public offering under Section
8; or
(iii)in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act (or any similar
successor rule); and
(c) (i) Grantee agrees to be present in person or to be
represented by proxy at all stockholder meetings of Issuer so that all
shares of Voting Securities beneficially owned by it or its Affiliates may
be counted for the purpose of determining the presence of a quorum at such
meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately with
the votes cast by all other stockholders present and voting.
(iii) The provisions of this Section 21 shall terminate at
such time as (x) Grantee beneficially owns more than 50% of the outstanding
Common Stock of Issuer or (y) the Option granted hereby expires without
having been exercised in whole or part.
22. Governing Law. This Agreement shall be governed by and
continued in accordance with the internal law of the State of Delaware
23. Definitions. For the purposes of this Agreement the following
terms shall have the meanings specified with respect thereto below:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies,
whether through ownership or securities or partnership or other ownership
interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock,
preferred stock and any other securities of Issuer entitled to vote
generally for the election of directors or any other securities (including,
without limitation, rights and options), convertible into, exchangeable
into or exercisable for, any of the foregoing (whether or not presently
exercisable, convertible or exchangeable).
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the
date first written above.
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
----------------------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
ALBERTSON'S, INC.
By: /s/ Michael F. Reuling
----------------------------------
Name: Michael F. Reuling
Title: Executive Vice President,
Store Development
EXHIBIT 2.2
THE TRANSFER OF THIS AGREEMENT IS SUBJECT
TO CERTAIN PROVISIONS CONTAINED HEREIN
AND TO RESALE RESTRICTIONS UNDER THE
SECURITIES ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of August 2, 1998 (this
"Agreement"), between Albertson's, Inc., a Delaware corporation ("Issuer"),
and American Stores Company, a Delaware corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly-owned subsidiary of Issuer
(the "Merger Sub") propose to enter into an Agreement and Plan of Merger,
to be dated as of the date hereof (the "Merger Agreement"), pursuant to
which Merger Sub is to merge with and into Issuer, with Grantee continuing
as the surviving corporation and a wholly owned subsidiary of Issuer after
such merger, and in such merger, each share of common stock, par value
$1.00 per share, of Grantee ("Common Stock") will be converted to a right
to receive shares of common stock, par value $1.00 per share, of Issuer as
provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness
to enter into the Merger Agreement and in consideration thereof, Issuer is
granting to Grantee, pursuant to the terms and subject to the conditions
contained in this Agreement, an option to purchase 19.9% of the
outstanding shares of Common Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant
by Issuer to Grantee of the Option (defined below) pursuant to this
Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth in this Agreement and in the Merger
Agreement, the parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and
subject to the conditions hereof, up to 48.8 million fully paid and
nonassessable shares of Common Stock at a price of $48 per share (the
"Option Price"); provided, however, that in no event shall the number of
shares for which the Option is exercisable exceed 19.9% of the shares of
Common Stock issued and outstanding at the time of exercise (without giving
effect to the shares of Common Stock issued or issuable under the Option).
The number of shares of Common Stock purchasable upon exercise of the
Option and the Option Price are subject to adjustment as set forth in this
Agreement.
2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other
person that shall become a holder of all or a part of the Option in
accordance with the terms of this Agreement (each such person, including
Grantee, being referred to as "Holder") may exercise the Option, in whole
or in part, from time to time, and prior to the occurrence of an Exercise
Termination Event (as defined below), provided that the Holder shall have
delivered a written notice as provided in Section 2(d) within 120 days of
the occurrence of a Triggering Event (as defined in Section 2(b)). The
right to exercise the Option shall terminate upon either (i) the occurrence
of the Effective Time (as defined in the Merger Agreement) or (ii) (A) if a
Notice Date (as defined in Section 2(d) hereof) has not previously
occurred, the close of business on the earlier of (x) the day that is 120
days after the date of a Triggering Event, (y) the date upon which the
Merger Agreement is terminated if no Termination Fee could be payable by
Issuer pursuant to the terms of the Merger Agreement upon the occurrence of
certain events or the passage of time, and (z) 270 days following the date
upon which the Merger Agreement is terminated, and (B) if the Notice Date
has previously occurred, 120 days after the Notice Date (the events in (i)
or (ii) being referred to as "Exercise Termination Events".)
(b) Triggering Event. A "Triggering Event" shall have occurred at
such time at which the Grantee becomes entitled to receive from Issuer a
Termination Fee pursuant to Section 8.2 of the Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify
Grantee promptly in writing of the occurrence of any Triggering Event (it
being understood that the giving of the notice by Issuer shall not be a
condition to the right of Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and
desires to exercise the Option, in whole or in part, it shall send to
Issuer a written notice (any date on which such notice is given, in
accordance with Section 15 hereof, is referred to as a "Notice Date")
specifying (i) the total number of shares that Holder will purchase
pursuant to the exercise and (ii) a place and date (a "Closing Date") not
earlier than three business days nor later than 60 business days from the
Notice Date for the closing of the purchase (a "Closing"); provided, that
if a filing or any approval is required under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), or prior
notification to or prior approval from any regulatory authority is required
under any other law, statute, rule or regulation (including applicable
rules and regulations of national securities exchanges) in connection with
such purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and
shall expeditiously process the same and the period of time referred to in
clause (ii) shall commence on the date on which all required notification
and waiting periods, if any, shall have expired or been terminated and all
required approvals, if any, shall have been obtained. Any exercise of the
Option shall be deemed to occur on the date of the Notice Date relating
thereto. Each of Holder and Issuer agrees to use its reasonable best
efforts to cooperate with and provide information to the other, for the
purpose of any required notice or application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At
each Closing, Holder shall pay to Issuer the aggregate purchase price for
the shares of Common Stock purchased pursuant to the exercise of the Option
in immediately available funds by a wire transfer to a bank account
designated by Issuer; provided, that failure or refusal of Issuer to
designate a bank account shall not preclude Holder from exercising the
Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the
aggregate purchase price by Holder, Issuer shall deliver to Holder a
certificate or certificates representing the number of shares of Common
Stock purchased by Holder and, if the Option shall be exercised in part
only, a new Agreement providing for an Option evidencing the rights of
Holder to purchase the balance (as adjusted pursuant to Section l(b)) of
the shares then purchasable hereunder and the Holder shall deliver this
Agreement and a letter agreeing that the Holder will not offer to sell or
otherwise dispose of such shares in violation of applicable laws or the
provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in
paragraphs (i) and (ii) of this Section 2(e), Holder shall have the right
(a "Cashless Exercise Right") to direct the Issuer, in the written notice
of exercise referred to in Section 2(d), to reduce the number of shares of
Common Stock required to be delivered by Issuer to Holder at any Closing by
such number of shares of Common Stock that have an aggregate Market/Offer
Price (as defined in Section 9(a)) equal to the aggregate purchase price
payable at such Closing (but for this paragraph (iii)), or any portion
thereof, in lieu of Holder paying to the Issuer at such Closing such
aggregate purchase price or portion thereof, as the case may be. Any
exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii)
shall be referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered
at a Closing may be endorsed with a restrictive legend that shall read
substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer, a copy of which agreement is on file at the
principal office of Issuer, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of the aforementioned
agreement will be mailed to the holder without charge promptly after
receipt by Issuer of a written request therefor."
It is understood and agreed that: (i) the reference to the resale
restrictions of the Securities Act of 1933, as amended (the "Securities
Act"), in the above legend shall be removed by delivery of substitute
certificate(s) without such reference if Holder shall have delivered to
Issuer a copy of a letter from the staff of the Securities and Exchange
Commission, or a written opinion of counsel, in form and substance
reasonably satisfactory to Issuer, to the effect that such legend is not
required for purposes of the Securities Act; (ii) the reference to the
provisions of this Agreement in the above legend shall be removed by
delivery of substitute certificate(s) without such reference if the shares
have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, the certificates shall bear any other legend as may be required
by applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon
the giving by Holder to Issuer of the written notice of exercise referred
to in Section 2(d) and, except to the extent such notice relates to a
Cashless Exercise, the tender of the applicable purchase price in
immediately available funds, Holder shall be deemed to be the holder of
record of the shares of Common Stock issuable upon such exercise,
notwithstanding that the stock transfer books of Issuer shall then be
closed or that certificates representing such shares of Common Stock shall
not have been actually delivered to Holder. Issuer shall pay all expenses,
and any and all United States federal, state and local taxes and other
charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of
Holder or its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and
covenants herein, Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from
preemptive rights, sufficient authorized but unissued or treasury shares of
Common Stock so that the Option may be fully exercised without additional
authorization of Common Stock after giving effect to all other options,
warrants, convertible securities and other rights of third parties to
purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by
charter amendment or through reorganization, consolidation, merger,
issuance of rights, dissolution or sale of assets, or by any other
voluntary act) the observance or performance of any of the covenants,
agreements or conditions to be observed or performed hereunder by Issuer
and not to take any action which would cause any of its representations or
warranties not to be true; and
(c) Further Assurances. Promptly after the date hereof to take
all actions as may from time to time be required (including (i) complying
with all applicable premerger notification, reporting and waiting period
requirements under the HSR Act and (ii) in the event that any other prior
approval of or notice to any regulatory authority is necessary under any
applicable federal, state or local law before the Option may be exercised,
cooperating fully with Holder in preparing and processing the required
applications or notices) in order to permit Holder to exercise the Option
and purchase shares of Common Stock pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby
represents and warrants to Holder that Issuer has all requisite corporate
power and authority and has taken all corporate action necessary to
authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby; and that
this Agreement has been duly and validly authorized, executed and delivered
by Issuer. Issuer hereby further represents and warrants to Holder that it
has taken all necessary corporate action to authorize and reserve for
issuance upon exercise of the Option the number of shares of Common Stock
equal to the maximum number of shares of Common Stock at any time or from
time to time issuable upon exercise of the Option and that all shares of
Common Stock, upon issuance pursuant to the Option, will be delivered free
and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement) and not subject to any preemptive
rights. The execution and delivery of this Agreement, the grant of the
Option hereunder and the exercise in whole or in part of the Option in
accordance with this Agreement, will not (i) result in the occurrence of
any "Distribution Date," "Stock Acquisition Date" or "Triggering Event"
under the Alphabet Rights Agreement (as defined in the Merger Agreement)
(ii) permit any Person to exercise any rights issued under any rights
agreements of Issuer, or (iii) cause the separation of any such rights from
the shares of Common Stock to which they are attached or such rights
becoming exercisable. Issuer has taken all action necessary to make
inapplicable to Grantee any state takeover, business combination, control
share or other similar statute and any charter provisions which would
otherwise be applicable to Grantee or any transaction involving Issuer and
Grantee by reason of the grant of the Option, the acquisition of beneficial
ownership of shares of Common Stock as a result of the grant of the Option,
or the acquisition of shares of Common Stock upon exercise of the Option,
except for statutes or provisions which by their terms cannot be waived or
rendered inapplicable by any action of Issuer or the Board of Directors of
Issuer.
5. Representations and Warranties of Grantee. Grantee hereby
represents and warrants to Issuer that Grantee has all requisite corporate
power and authority and has taken all corporate action necessary in order
to authorize, execute, deliver and perform its obligations under this
Agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly and validly authorized, executed and delivered by
Grantee. Grantee represents and warrants to Issuer that any shares of
Common Stock acquired upon exercise of the Option will be acquired for
Grantee's own account, and will not be, and the Option is not being,
acquired by Grantee with a view to the distribution thereof in violation of
any applicable provision of the Securities Act. Grantee has such knowledge
and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the
merits and risks of an investment by Grantee in the Common Stock and
Grantee is able to bear the economic risks of any investment in the shares
of Common Stock which Grantee may acquire upon exercise of the Option.
6. Exchange; Replacement. This Agreement and the Option are
exchangeable, without expense, at the option of Holder, upon presentation
and surrender of this Agreement at the principal office of Issuer, for
other Agreements providing for Options of different denominations entitling
the holder thereof to purchase on the same terms and subject to the same
conditions as set forth herein in the aggregate the same number of shares
of Common Stock purchasable at such time hereunder, subject to
corresponding adjustments in the number of shares of Common Stock
purchasable upon exercise so that the aggregate number of such shares under
all Agreements issued in respect of this Agreement shall not exceed 19.9%
of the outstanding shares of Common Stock of the Issuer (without giving
effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement"
and "Option" as used in this Agreement include any Agreements and related
options for which this Agreement (and the Option granted hereby) may be
exchanged. Upon (i) receipt by Issuer of reasonably satisfactory evidence
of the loss, theft, destruction, or mutilation of this Agreement, (ii)
receipt by Issuer of reasonably satisfactory indemnification in the case of
loss, theft or destruction and (iii) surrender and cancellation of this
Agreement in the case of mutilation, Issuer will execute and deliver a new
Agreement of like tenor and date. Any new Agreement executed and delivered
shall constitute an additional contractual obligation on the part of
Issuer, whether or not the Agreement so lost, stolen, destroyed or
mutilated shall at any time be enforceable by any person other than the
holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock
purchasable upon the exercise of the Option and the Option Price shall be
subject to adjustment from time to time as follows:
In the event of any change in, or distribution in respect
of, the outstanding shares of Common Stock by reason of stock dividends,
split-ups, mergers, recapitalizations, combinations, subdivisions,
conversions, exchanges of shares or the like, the type (including, in the
event of any Major Transaction described in Section 9(d) hereof in which
Issuer is not the surviving or continuing corporation, to provide that the
Option shall be exercisable for shares of common stock of the surviving or
continuing corporation in such Major Transaction) and number of shares of
Common Stock purchasable upon exercise of the Option and the Option Price
shall be appropriately adjusted in such manner as shall fully preserve the
economic benefits contemplated hereby, and proper provision shall be made
in the agreements governing any such transactions to provide for such
proper adjustment and the full satisfaction of Issuer's obligation
hereunder.
8. Registration. At any time after a Triggering Event occurs and
prior to an Exercise Termination Event, Issuer shall, at the request of
Grantee delivered in the written notice of exercise of the Option provided
for in Section 2(d), and, with respect to the first demand registration as
to which the Grantee exercises its demand rights under this Section 8,
delivered no later than 90 days following such Triggering Event, as
promptly as practicable prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its reasonable best efforts
to cause such registration statement to become effective and remain current
in order to permit the sale or other disposition of any shares of Common
Stock issued upon total or partial exercise of the Option ("Option Shares")
in accordance with any plan of disposition requested by Grantee; provided,
however, that Issuer may postpone filing a registration statement relating
to a registration request by Grantee under this Section 8 for a period of
time (not in excess of 90 days) if in Grantee's judgment such filing would
require the disclosure of material information that Issuer has a bona fide
business purpose for preserving as confidential. Issuer will use its
reasonable best efforts to cause such registration statement first to
become effective and then to remain effective for 365 days after the day
the registration statement first becomes effective or such shorter time as
is reasonably appropriate to effect such sales or other dispositions.
Grantee shall have the right to demand two such registrations. In
connection with any such registration, Issuer and Holder shall provide each
other with representations, warranties, indemnities and other agreements
customarily given in connection with such registrations. To the extent
requested by Holder in connection with such registration, Issuer) shall (x)
become a party to any underwriting agreement relating to the sale of such
shares, but only to the extent of obligating Issuer in respect of
representations, warranties, indemnities, contribution and other agreements
(in each case reasonably acceptable to Issuer) customarily made by issuers
in such underwriting agreements, and (y) use its reasonable best efforts to
take all further actions which shall be reasonably necessary to effect such
registration and sale (including participating in road-show presentations
and causing to be delivered customary certificates, opinions of counsel and
"comfort letters"). Notwithstanding anything to the contrary contained
herein, in no event shall Issuer be obligated to effect more than two
registrations pursuant to this Section 8 by reason of the fact that there
shall be more than one Grantee as a result of any assignment or division of
this Agreement. Upon the effectiveness of a registration statement demanded
pursuant to this Section 8, the Holder of the Option Shares that are the
subject of such registration may not thereafter require the Issuer to
repurchase such Option Shares so long as such registration statement
remains effective as required hereby.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a
Triggering Event prior to an Exercise Termination Event, (i) at the request
of Holder, delivered in writing within 120 days of such occurrence (or such
later period as provided in Section 2(d) with respect to any required
notice or application or in Section 10), Issuer shall repurchase the Option
from Holder, in whole or in part, at a price (the "Option Repurchase
Price") equal to the number of shares of Common Stock then purchasable upon
exercise of the Option (or such lesser number of shares as may be
designated in the Repurchase Notice (as defined in Section 9(b)))
multiplied by the amount by which the Market/Offer Price (as defined below)
exceeds the Option Price or (ii) at the request of any owner of Option
Shares (an "Owner") delivered in writing within 120 days of such occurrence
(or such later period as provided in Section 2(d) with respect to any
required notice or application or in Section 10), Issuer shall repurchase
such number of Option Shares from such Owner as such Owner shall designate
in the Repurchase Notice at a price (the "Option Share Repurchase Price")
equal to the number of shares designated multiplied by the Market/Offer
Price. The term "Market/Offer Price" shall mean the highest of (x) the
price per share of Common Stock at which a tender or exchange offer for
Common Stock either has been consummated, or at which a Person has publicly
announced its intention to commence a tender or exchange offer, after the
date of this Agreement and prior to the delivery of the Repurchase Notice,
and which offer either has been consummated and not withdrawn or terminated
as of the date payment of the Repurchase Price is made, or has been
publicly announced and such intention to make a tender or exchange offer
has not been withdrawn as of the date payment of the Repurchase Price is
made, (y) the price per share of Common Stock to be paid by any third party
pursuant to an agreement with Issuer for a merger, share exchange,
consolidation or reorganization entered into after the date hereof and on
or prior to the delivery of the Repurchase Notice and (z) the average
closing price for shares of Common Stock on the New York Stock Exchange
(the "NYSE") (or, if the Common Stock is not then listed on the NYSE, any
other national securities exchange or automated quotation system on which
the Common Stock is then listed or quoted) for the twenty consecutive
trading days immediately preceding the delivery of the Repurchase Notice.
In the event that a tender or exchange offer is made for the Common Stock
or an agreement is entered into for a merger, share exchange, consolidation
or reorganization involving consideration other than cash, the value of the
securities or other property issuable or deliverable in exchange for the
Common Stock shall be determined in good faith by a nationally recognized
investment banking firm mutually selected by Issuer and Holder or Owner, as
the case may be.
(b) Method of Repurchase. Holder or Owner, as the case may be,
may exercise its right to require Issuer to repurchase the Option, in whole
or in part, and/or any Option Shares then owned by Holder or Owner pursuant
to this Section 9 by surrendering for this purpose to Issuer, at its
principal office, this Agreement or certificates for Option Shares, as
applicable, accompanied by a written notice or notices stating that Holder
or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each
such notice, a "Repurchase Notice"). Within four business days after the
surrender of the Agreement for the Option and/or certificates representing
Option Shares and the receipt of the Repurchase Notice, Issuer shall
deliver or cause to be delivered to Holder or Owner of Option Shares, as
the case may be, the applicable Option Repurchase Price and/or the Option
Share Repurchase Price or, in either case, the portion that Issuer is not
then prohibited under applicable law and regulation from so delivering in
immediately available funds by a wire transfer to a bank account designated
by grantee. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Agreement evidencing the right of the Holder to
purchase that number of shares of Common Stock purchasable pursuant to the
Option at the time of delivery of the Repurchase Notice minus the number of
shares of Common Stock represented by that portion of the Option then being
repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase.
To the extent that, upon or following the delivery of a Repurchase Notice,
Issuer is prohibited under applicable law or regulation from repurchasing
the Option (or a portion thereof) and/or any Option Shares subject to such
Repurchase Notice (and Issuer hereby undertakes to use its reasonable best
efforts to obtain all required regulatory and legal approvals and to file
any required notices as promptly as practicable in order to accomplish this
repurchase), Issuer shall promptly so notify Holder or Owner, as the case
may be, in writing and thereafter deliver or cause to be delivered, from
time to time, to Holder or Owner, as the case may be, the portion of the
Option Repurchase Price and the Option Share Repurchase Price that Issuer
is no longer prohibited from delivering, within four business days after
the date on which it is no longer so prohibited; provided, however, that
upon notification by Issuer in writing of this prohibition, Holder or
Owner, as the case may be, may, within 5 days of receipt of this
notification from Issuer, revoke in writing its Repurchase Notice, whether
in whole or to the extent of the prohibition, whereupon, in the latter
case, Issuer shall promptly (i) deliver to Holder or Owner, as the case may
be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii)
(a) deliver to Holder with respect to the Option, a new Agreement
evidencing the right of Holder to purchase that number of shares of Common
Stock for which the surrendered Agreement was exercisable at the time of
delivery of the Repurchase Notice less the number of shares as to which the
Option Repurchase Price has theretofore been delivered to Holder, and/or
(b) deliver to the owner of Option Shares, with respect to its Option
Shares, a certificate for the Option Shares as to which the Option Share
Repurchase Price has not theretofore been delivered to such owner.
Notwithstanding anything to the contrary in this Agreement, including,
without limitation, the time limitations on the exercise of the Option,
Holder may exercise the Option at least until 120 days after such date upon
which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the
occurrence of an Exercise Termination Event, Issuer shall not enter into or
agree to enter into any agreement for a Major Transaction (defined below)
unless the other party or parties thereto agree to assume in writing
Issuer's obligations under this Agreement. "Major Transaction" shall mean
any merger or consolidation involving the Issuer and any transaction
involving a sale, transfer or other disposition of a majority of the assets
or shares of capital stock of the Issuer.
10. Extension of Exercise Periods. The 120 and 270 day periods
for exercise of certain rights under Sections 2 and 9 shall be extended in
each such case at the request of Holder or Owner to the extent necessary to
avoid liability by a Holder or Owner under Section 16(b) of the Securities
Exchange Act of 1934, as amended, by reason of such exercise.
11. Assignment. Neither party hereto may assign any of its rights
or obligations under this Agreement or the Option to any other person
without the express written consent of the other party except that Holder
or Owner may assign its rights in whole or in part to any of its affiliates
and, in the event that a Triggering Event shall have occurred prior to the
occurrence of an Exercise Termination Event, Holder or Owner may within 90
days following such Triggering Event assign the Option or any of its other
rights hereunder, in whole or in part to one or more third parties,
provided that the affiliate and any such third party shall execute this
Agreement and agree to become subject to its terms. Any attempted
assignment in contravention of the preceding sentence shall be null and
void.
12. Filings; Other Actions. Each party hereto will use its
reasonable best efforts to make all filings with, and to obtain consents
of, all third parties and govern mental authorities necessary for the
consummation of the transactions contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages
would be an inadequate remedy for a breach of this Agreement by either
party and that the obligations of the parties shall be specifically
enforceable through injunctive or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or
restriction contained in this Agreement is held by a court or a federal or
state regulatory agency of competent jurisdiction to be invalid, void, or
unenforceable, the remainder of the terms, provisions, covenants, and
restrictions contained in this Agreement shall remain in full force and
effect, and shall in no way be affected, impaired, or invalidated. If for
any reason a court or regulatory agency determines that Holder is not
permitted to acquire, or Issuer is not permitted to repurchase pursuant to
Section 9, any portion of the Option or the full number of shares of Common
Stock provided in Section l(a) hereof (as adjusted pursuant Section 1(b)
and 7 hereof), it is the express intention of the parties to allow Holder
to acquire or to require Issuer to repurchase such lesser portion of the
Option or number of shares as may be permissible, without any amendment or
modification of this Agreement.
15. Notices. All notices, requests, instructions, or other
documents to be given hereunder shall be furnished in accordance with
Section 9.2 of the Merger Agreement.
16. Expenses. Except as otherwise expressly provided in this
Agreement or in the Merger Agreement, all costs and expenses incurred in
connection with this Agreement and the transactions contemplated by this
Agreement shall be paid by the party incurring the expense, including fees
and expenses of its own financial consultants, investment bankers,
accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement
constitute the entire agreement, and supersede all other prior agreements,
understandings, representations and warranties, both written and oral,
between the parties, with respect to the subject matter of this Agreement.
The terms and conditions of this Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective successors and
permitted assigns. Nothing in this Agreement, expressed or implied, is
intended to confer upon any party, other than the parties, and their
respective successors and permitted assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision
of this Agreement, in no event shall the Total Profit (as hereinafter
defined) plus any Liquidation Amounts (as defined below) exceed in the
aggregate $360 million and, if it otherwise would exceed this amount, the
Grantee, at its sole election, shall either (i) reduce the number of shares
of Common Stock subject to this Option, (ii) deliver to the Issuer for
cancellation Option Shares previously purchased by Grantee or any other
Holder or Owner, (iii) pay to the Issuer cash or refund in cash Liquidation
Amounts previously paid or reduce or waive the amount of any Liquidation
Amount payable pursuant to Section 8.2, or (iv) any combination thereof, so
that Grantee's realized Total Profit, when aggregated with any Liquidation
Amounts so paid or payable to Grantee, shall not exceed $360 million after
taking into account the foregoing actions.
As used herein the term "Liquidation Amounts" means the aggregate
amount of all Fees and Expenses, and Termination Fees, payable or paid to
Grantee and its assigns pursuant to Section 8.2 of the Merger Agreement
(and not repaid or refunded to the Issuer pursuant to Section 18 or
otherwise).
(b) Notwithstanding any other provision of this Agreement, the
Option may not be exercised for a number of shares as would, as of the date
of exercise, result in a Notional Total Profit (as defined below) which,
together with any Liquidation Amount theretofore paid or then payable to
Grantee (and not repaid or refunded to the Issuer pursuant to Section 18 or
otherwise), would exceed $360 million provided, that nothing in this
sentence shall restrict any exercise of the Option permitted hereby on any
subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean
the aggregate amount (before taxes) of the following: (i) (x) the amount
received by Grantee, any other Holder and any Owner pursuant to Issuer's
repurchase of the Option (or any portion thereof) or any Option Shares
pursuant to Section 9, less, in the case of any repurchase of Option
Shares, (y) the Grantee's, any other Holder's and any Owner's purchase
price for such Option Shares, as the case may be, (ii) (x) the net cash
amounts (and the fair market value of any other consideration) received by
Grantee, any other Holder and any Owner pursuant to the sale of Option
Shares (or any other securities into which such Option Shares are converted
or exchanged) to any unaffiliated party, less (y) the Grantee's (or any
other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or
any portion thereof) to any unaffiliated party. In the case of clauses
(ii)(x) and (iii) above, the Grantee and each Holder and Owner agrees to
furnish as promptly as reasonably practicable after any disposition of all
or a portion of the Option or Option Shares a complete and correct
statement, certified by a responsible executive officer or partner of
Grantee, Holder or Owner, as applicable, of the net cash amounts (and the
fair market value of any other consideration) received in connection with
any sale or transfer of the Option or Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit"
with respect to any number of shares as to which Grantee and any other
Holder may propose to exercise the Option shall be the Total Profit
determined as of the date of such proposal (taking into account the
provision of Section 18(a) hereof) assuming that the Option were exercised
on such date for such number of shares and assuming that such shares,
together with all other Option Shares held by Grantee and any other Holders
and Owners and their respective affiliates as of such date were sold for
cash at the closing market price for the Common Stock on the New York Stock
Exchange Composite Transaction Tape as of the close of business on the
preceding trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this
Agreement are for convenience of reference only, do not constitute part of
this Agreement and shall not be deemed to limit or otherwise affect any of
the provisions of this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which
when exercised shall be deemed to be an original, but all of which shall
constitute one and the same agreement.
21. Restrictions on Certain Actions; Covenants of Grantee. From
and after the date of exercise of the Option in whole or part, and for as
long as Grantee owns shares of Common Stock acquired pursuant to the
exercise of the Option:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not
permit any of its Affiliates (as defined in Section 23) to:
(i) acquire or agree, offer, seek or propose to acquire,
ownership (including, but not limited to, beneficial
ownership as defined in Rule 13d-3 under the Securities
Exchange Act of 1934, as amended) of more than 20% of
any class of Voting Securities (as defined in Section
23), or any rights or options to acquire such ownership
(including from a third party);
(ii) propose a merger, consolidation or similar transaction
involving the Issuer;
(iii)offer, seek or propose to purchase, lease or otherwise
acquire all or a substantial portion of the assets of
the Issuer;
(iv) seek or propose to influence or control the management
or policies of the Issuer or to obtain representation
on the Issuer's Board of Directors, or solicit or
participate in the solicitation of any proxies or
consents with respect to the securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements
or understandings with any third party with respect to
any of the foregoing; or
(vi) seek or request permission to do any of the foregoing
or seek any permission to make any public announcement
with respect to any of the foregoing.
The provisions of this Section 21 shall not apply to actions
taken pursuant to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in,
pledge, hypothecate or otherwise dispose of any Voting Securities at any
time except as follows:
(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a
sale of all or substantially all of the Issuer's
assets; or
(ii) pursuant to a registered public offering under Section
8; or
(iii)in compliance with Rule 144 of the General Rules and
Regulations under the Securities Act (or any similar
successor rule); and
(c) (i) Grantee agrees to be present in person or to be
represented by proxy at all stockholder meetings of Issuer so that all
shares of Voting Securities beneficially owned by it or its Affiliates may
be counted for the purpose of determining the presence of a quorum at such
meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates proportionately with
the votes cast by all other stockholders present and voting.
(iii) The provision of this Section 21 shall terminate at
such time as (x) Grantee beneficially owns more than 50% of the outstanding
Common Stock of Issuer or (y) the Option granted hereby expires without
having been exercised in whole or part.
22. Governing Law. This Agreement shall be governed by and
continued in accordance with the internal law of the State of Delaware
23. Definitions. For the purposes of this Agreement the following
terms shall have the meanings specified with respect thereto below:
"Affiliate" shall mean, as to any Person, any other Person
which directly or indirectly controls, or is under common control with, or
is controlled by, such Person. As used in this definition, "control"
(including, with its correlative meanings, "controlled by" and "under
common control with") shall mean the possession, directly or indirectly, of
the power to direct or cause the direction of management or policies,
whether through ownership or securities or partnership or other ownership
interest, by contract or otherwise).
"Voting Securities" means the shares of Common Stock,
preferred stock and any other securities of Issuer entitled to vote
generally for the election of directors or any other securities (including,
without limitation, rights and options), convertible into, exchangeable
into or exercisable for, any of the foregoing (whether or not presently
exercisable, convertible or exchangeable).
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officers of the parties hereto as of the
date first written above.
ALBERTSON'S, INC.
By: /s/ Michael F. Reuling
----------------------------------
Name: Michael F. Reuling
Title: Executive Vice President,
Store Development
AMERICAN STORES COMPANY
By: /s/ Victor L. Lund
----------------------------------
Name: Victor Lund
Title: Chairman and Chief Executive
Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND> Yes
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ALBERTSON'S
QUARTERLY REPORT TO STOCKHOLDERS FOR THE 26 WEEKS ENDED JULY 30, 1998, AND IS
QUALIFIED IN ITS ENTIREETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> JAN-28-1999
<PERIOD-START> JAN-30-1998
<PERIOD-END> JUL-30-1998
<CASH> 50,462
<SECURITIES> 0
<RECEIVABLES> 124,952
<ALLOWANCES> 1,200
<INVENTORY> 1,295,697
<CURRENT-ASSETS> 1,579,726
<PP&E> 5,632,035
<DEPRECIATION> 2,000,714
<TOTAL-ASSETS> 5,553,042
<CURRENT-LIABILITIES> 1,194,048
<BONDS> 1,410,761
0
0
<COMMON> 245,508
<OTHER-SE> 2,315,593
<TOTAL-LIABILITY-AND-EQUITY> 5,553,042
<SALES> 7,843,305
<TOTAL-REVENUES> 7,843,305
<CGS> 5,749,491
<TOTAL-COSTS> 5,749,491
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 51,110
<INCOME-PRETAX> 382,431
<INCOME-TAX> 143,412
<INCOME-CONTINUING> 239,019
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 239,019
<EPS-PRIMARY> 0.97
<EPS-DILUTED> 0.97
</TABLE>
