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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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KASH N' KARRY FOOD STORES, INC.
(Name of Subject Company)
KASH N' KARRY FOOD STORES, INC.
(Name of Person(s) Filing Statement)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(INCLUDING THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
(Title of Class of Securities)
48577P
((CUSIP) Number of Class of Securities)
RONALD E. JOHNSON
KASH N' KARRY FOOD STORES, INC.
6422 HARNEY ROAD
TAMPA, FLORIDA 33610
TELEPHONE: (813) 621-0200
(Name, address and telephone number of person authorized to receive notice
and communications on behalf of the person(s) filing statement)
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Copies to:
Lawrence Lederman, Esq.
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, New York 10005
(212) 530-5000
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ITEM 1. SECURITY AND SUBJECT COMPANY.
The name of the subject company is Kash n' Karry Food Stores, Inc., a
Delaware corporation (the "Company"), and the address of its principal executive
offices is 6422 Harney Road, Tampa, Florida 33610. The title of the class of
equity securities to which this statement relates is Common Stock, par value
$0.01 per share, of the Company (the "Shares"), including the associated rights
(the "Associated Rights") to purchase shares of Series A Junior Participating
Preferred Stock, par value $0.01 per share, of the Company issued pursuant to
the Rights Agreement, dated April 13, 1995 and as amended on June 13, 1995 and
October 30, 1996, between the Company and Fleet National Bank, as Rights Agent
(the "Rights Agreement"). Unless the context otherwise requires, all references
herein to the Shares include the Associated Rights.
ITEM 2. TENDER OFFER OF THE BIDDER.
This statement relates to the tender offer disclosed in a Tender Offer
Statement on Schedule 14D-1, dated November 15, 1996 (the "Schedule 14D-1"), of
KK Acquisition Corp., a Delaware corporation ("Purchaser") and an indirect
wholly-owned subsidiary of Food Lion, Inc., a North Carolina corporation
("Parent"), to purchase all of the issued and outstanding Shares at a price of
$26.00 per Share (or any greater amount paid per Share pursuant to the Offer (as
defined below)) net to the seller in cash (the "Per Share Amount"), upon the
terms and subject to the conditions set forth in the Offer to Purchase, dated
November 15, 1996 and any supplement thereto (the "Offer to Purchase"), and the
related Letter of Transmittal and any supplement thereto (which together
constitute the "Offer").
The Offer is being made pursuant to an Agreement and Plan of Merger among
Parent, Purchaser and the Company, dated as of October 31, 1996 (the "Merger
Agreement"), which provides that the Company has the right to require that
Purchaser commence the Offer no later than five (5) business days after the date
of the Company's exercise of its right to require that the Offer be commenced
(the "Tender Option"). The Company exercised the Tender Option on November 8,
1996. The Merger Agreement provides that, following the consummation of the
Offer and the satisfaction or waiver of certain conditions, Purchaser will be
merged with and into the Company (the "Merger"), with the Company continuing as
the surviving corporation (the "Surviving Corporation"). In the Merger, each
outstanding Share (other than Shares held in the treasury of the Company, or by
Parent, Purchaser or any other wholly-owned subsidiary of Parent, which Shares
will be cancelled, and other than Shares, if any, held by stockholders who
perfect appraisal rights under the General Corporation Law of the State of
Delaware (the "DGCL")), will, by virtue of the Merger and without any action by
the holder thereof, be converted into the right to receive the Per Share Amount.
According to the Schedule 14D-1, the address of the principal executive
offices of Parent and Purchaser are located at 2110 Executive Drive, P.O. Box
1330, Salisbury, North Carolina 28145-1330.
ITEM 3. IDENTITY AND BACKGROUND.
(a) The name and business address of the Company, which is the person filing
this statement, are set forth in Item 1 above, which information is incorporated
herein by reference.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company and certain of its executive officers, directors and
affiliates are described in Schedule I attached hereto.
(b)(2) Parent, Purchaser and the Company have entered into the Merger
Agreement, a copy of which is filed herewith as Exhibit (c)(1), and certain
stockholders of the Company have entered into a Stockholders Agreement dated as
of October 31, 1996 with the Company, Parent and Purchaser (the "Stockholders
Agreement"), a copy of which is filed herewith as Exhibit (c)(2). Pursuant to
the Stockholders Agreement, stockholders owning in the aggregate approximately
67% of the outstanding Shares have, among other things, agreed to tender their
Shares pursuant to the Offer and to vote their Shares to approve the Merger
Agreement and in favor of the Merger and granted Purchaser an irrevocable option
(the "Stock Option") to purchase their Shares at the highest price paid for
Shares pursuant to the Offer or
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the Merger. The description of the terms of the Merger Agreement and the
Stockholders Agreement contained in the Offer to Purchase under the headings
"BACKGROUND OF THE OFFER; CONTACTS WITH THE COMPANY; THE STOCKHOLDERS AGREEMENT;
THE MERGER AGREEMENT-- THE STOCKHOLDERS AGREEMENT" and "--THE MERGER AGREEMENT"
are incorporated herein by reference. In May 1996, Parent and the Company
entered into reciprocal confidentiality agreements which are described in
greater detail in Item 4(b)(1) below, which information is incorporated herein
by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION.
(a) RECOMMENDATIONS OF THE BOARD OF DIRECTORS.
At a meeting of the Board of Directors of the Company (the "Company Board")
held on October 29, 1996, the Company Board, by unanimous vote of all directors
present, (i) determined that the Merger Agreement and the transactions
contemplated thereby, including the Offer and the Merger, taken together, are
fair to and in the best interests of the stockholders of the Company, (ii)
approved and adopted the Merger Agreement and the Stockholders Agreement and the
transactions contemplated thereby, (iii) recommended that the stockholders of
the Company accept the Offer and, if required by the DGCL, vote in favor of the
Merger, (iv) amended the Rights Agreement to provide, among other things, that
(a) none of the Merger Agreement, the Stockholders Agreement, the delivery of
irrevocable proxies pursuant thereto, the Offer or the exercise of the Tender
Option will cause (A) Parent, Purchaser or any of their affiliates or associates
to have beneficial ownership of any Shares solely as a result of any such event,
(B) Parent or Purchaser or any of their affiliates or associates to be deemed an
"Acquiring Person" under the Rights Agreement or (C) the "Shares Acquisition
Date" or the "Distribution Date" under the Rights Agreement to occur upon any
such event, and (b) the "Rights" (each of the above as defined in the Rights
Agreement) will expire immediately prior to the earlier of (A) the acceptance
for payment and payment for Shares pursuant to the Offer, (B) the closing of the
purchase of Shares pursuant to the exercise of the Stock Option or (C) the
effective time of the Merger, and (v) exempted the Offer, the Merger, the Merger
Agreement and the Stockholders Agreement from the provisions of Section 203 of
the DGCL. ACCORDINGLY, THE COMPANY BOARD RECOMMENDS THAT THE STOCKHOLDERS OF THE
COMPANY TENDER THEIR SHARES PURSUANT TO THE OFFER. Copies of press releases
announcing the Merger Agreement and the transactions contemplated thereby and
the Company's exercise of the Tender Option and of a letter to the stockholders
of the Company communicating the Company Board's recommendation are filed
herewith as Exhibits (a)(3), (a)(4) and (a)(5), respectively, and are
incorporated herein by reference.
(b)(1) BACKGROUND.
In September 1995, the Company Board decided to contact potential purchasers
to determine whether indications of interest for an acquisition of the Company
could be obtained. To that end, on September 8, 1995, the Company engaged
PaineWebber Incorporated ("PaineWebber") to act as its exclusive financial
advisor to assist the Company in connection with any proposed sale transaction.
Thereafter, the Company, acting through PaineWebber, entered into
confidentiality agreements with, provided certain information to, and sought
indications of interest from, a number of potential strategic and financial
buyers. Parent was not contacted during, and did not participate in, this
process. No formal offers for a purchase of the Company were received by the
Company or PaineWebber, and no indications of interest were transmitted to the
Company that were deemed by the Company Board to merit further consideration.
Accordingly, in October, the Company Board decided not to seek further
indications of interest or to proceed with an auction of the Company at that
time.
On May 13, 1996, Tom E. Smith, Chairman of the Board, President and Chief
Executive Officer of Parent, other members of senior management of Parent and
representatives of Parent's financial advisor, Chase Securities Inc. ("Chase"),
held preliminary discussions with Ronald E. Johnson, Chairman of the Board,
President and Chief Executive Officer of the Company, concerning a possible
acquisition of the
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Company by Parent. On May 16, 1996, the Company Board authorized Mr. Johnson and
the Company's financial and legal advisors to continue the discussions with
Parent. Discussions followed between representatives of Parent and the Company
and their legal and financial advisors concerning a proposed structure for the
transaction, including Parent's requirement that the Company's principal
stockholders enter into an agreement with Parent to support any transaction
agreed to by Parent and the Company at the time of the signing of a definitive
agreement by Parent and the Company.
On May 20 and May 21, 1996, Parent and the Company entered into reciprocal
confidentiality agreements. Pursuant to the May 20th agreement, the Company
granted Parent a 45-day exclusivity period during which the Company agreed to
refrain from engaging in certain actions to solicit or encourage any business
combination transaction with any person other than Parent. Also pursuant to the
May 20th agreement, Parent agreed, for a period of two years, to refrain from
acquiring or seeking or proposing to acquire the Company or any of its
securities, or engaging in the solicitation of proxies respecting the Company's
securities or otherwise seeking or proposing to control the Company Board. The
foregoing summary of the reciprocal confidentiality agreements between Parent
and the Company is qualified in its entirety by reference to the full texts
thereof which are incorporated herein by reference and copies of which are filed
herewith as Exhibits (c)(3) and (c)(4), respectively.
During the course of the next several weeks, representatives of Parent and
the Company circulated and negotiated drafts of a merger agreement and a
stockholders agreement and held discussions concerning various legal, accounting
and employee benefit issues. Representatives of Parent also continued their
legal and financial due diligence investigation during this period. The Company
Board met on several occasions during this period to receive reports on the
status of the negotiations between the Company and Parent. In early August, the
parties decided to terminate discussions concerning the proposed transaction
and, on August 9, 1996, the Company issued a press release announcing that the
discussions between the companies had been terminated and that the companies had
decided not to proceed with a transaction.
During September and early October, the financial advisors and certain
representatives of the companies held informal discussions and exchanged
additional information. No formal proposals were made during that period. On
October 24, 1996, Chase, acting on behalf of Parent, contacted PaineWebber to
formally renew the negotiations for Parent to acquire the Company. Following
further discussions between representatives of the two companies and their
financial and legal advisors, it was agreed that, subject to obtaining Company
Board approval and the agreement of Company stockholders owning a majority of
the Shares to support the transaction, and to the execution of definitive
agreements satisfactory to both companies, Parent would acquire the Company and
that the stockholders of the Company would receive a cash payment of $26.00 in
exchange for each of their Shares.
At a meeting of the Company Board held on October 29, 1996, the terms and
conditions of the proposed Merger Agreement were discussed, including Parent's
requirement that certain of the Company's stockholders enter into the proposed
Stockholders Agreement. Representatives of PaineWebber made a presentation to
the Company Board and delivered its oral opinion (which was subsequently
confirmed in writing) to the effect that, as of such date, the $26.00 per Share
cash consideration to be received by the Company's stockholders pursuant to the
Offer and the Merger was fair, from a financial point of view, to such
stockholders. By unanimous vote of all directors present, the Company Board
determined that the terms of the proposed transactions were fair to, and in the
best interests of, the Company's stockholders and authorized the Company's
officers to sign the Merger Agreement and the Stockholders Agreement on behalf
of the Company, subject to receipt of PaineWebber's written fairness opinion. On
October 31, 1996, PaineWebber delivered its written fairness opinion to the
Company; the Company, Parent and Purchaser signed the Merger Agreement; such
parties and stockholders owning in the aggregate approximately 67% of the
outstanding Shares signed the Stockholders Agreement; and the parties issued a
press release announcing the Merger.
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On November 8, 1996, the Company exercised its Tender Option under the
Merger Agreement to require Parent and Purchaser to commence the Offer.
(b)(2) REASONS FOR THE RECOMMENDATION.
In making the determinations and recommendations set forth in Item 4(a)
above, the Company Board considered a number of factors including, without
limitation, the following:
(i) The historical and recent market prices of the Shares and the fact
that the cash offer price of $26.00 per Share provided for in the Merger
Agreement represented a premium of approximately 30% over the trading prices
of the Shares prior to the renewal of the negotiations with Parent.
(ii) The presentation and oral opinion of PaineWebber delivered on
October 29, 1996 that, as of such date and based upon its review and
analysis and subject to the limitations set forth therein, the $26.00 per
Share cash consideration to be received by the Company's stockholders
pursuant to the Merger Agreement in the Offer and the Merger was fair, from
a financial point of view, to such stockholders. A copy of the written
opinion dated October 31, 1996 of PaineWebber, which sets forth the
procedures followed, matters considered, assumptions made and limitations of
the review undertaken by PaineWebber in rendering its opinion, is attached
as Exhibit (a)(7) hereto and is incorporated herein by reference.
STOCKHOLDERS ARE URGED TO READ THE OPINION OF PAINEWEBBER CAREFULLY IN ITS
ENTIRETY.
(iii) The terms and conditions of the Merger Agreement and, in
particular, the facts that Parent was unwilling to enter into any agreement
for the acquisition of the Company unless Parent was able to simultaneously
therewith enter into the Stockholders Agreement and that the Company could
require Parent and Purchaser to commence the Offer as soon as the fifteenth
day following the date of signing of the Merger Agreement. The Company Board
was aware that the Stockholders Agreement and the provisions of the Merger
Agreement would preclude the ability of the Company Board to terminate the
transaction in the event of a higher offer. The Company Board concluded that
Parent's insistence on these conditions had allowed the Company to negotiate
a higher price for the Offer.
(iv) The Company Board's familiarity with the Company's business,
prospects, financial condition, results of operations and current business
strategy and its belief that the price per Share offered pursuant to the
Merger Agreement reflects the values inherent in the Company.
(v) The Company's need to raise additional financing to complete the
capital expenditures that would be required for the Company to maintain or
improve its competitive position in the markets served by the Company if the
proposed Merger with Parent is not accomplished.
(vi) The fact that no satisfactory indications of interest to acquire
the Company were forthcoming in September 1995 when the Company first
retained PaineWebber to identify potential purchasers, and that no offers to
acquire the Company had been received since that time or since the August 9,
1996 announcement of the termination of the discussions with Parent, other
than Parent's offer.
(vii) Parent's ability to finance the acquisition and the absence of any
financing condition in the Merger Agreement.
(viii) The willingness of stockholders of the Company owning a
substantial majority of the Shares to enter into the Stockholders Agreement,
pursuant to which such stockholders would agree to tender their Shares
pursuant to the Offer, vote their Shares in favor of the Merger and grant
Parent an option to purchase their Shares at the highest price offered
pursuant to the Offer and the Merger.
In view of the variety of factors considered in connection with its
evaluation of the Merger Agreement, the Company Board did not find it
practicable to, and did not, quantify or otherwise assign relative weights to
the specific factors considered in reaching its determination. In addition,
individual members of the Company Board may have given different weights to
different factors.
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ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
On September 8, 1995, the Company engaged PaineWebber to act as the
Company's exclusive financial advisor in connection with any proposed sale
transaction involving the Company and another party (the "Advisory Agreement").
On June 5, 1996, the Company engaged PaineWebber to render a fairness opinion to
the Company Board in connection with a proposed transaction with Parent (the
"Fairness Opinion Agreement").
Pursuant to the Advisory Agreement, if during the period of the engagement
the Company enters into a definitive agreement with a purchaser, the Company has
agreed to pay PaineWebber a transaction fee of 0.69% of the purchase price of
the transaction, payable in cash upon the closing of such transaction. The
Company also has agreed, in the event a sale transaction is consummated with a
purchaser within eighteen (18) months after the term of PaineWebber's engagement
with the Company, to pay the same transaction fee of 0.69% upon the closing of
such transaction, PROVIDED that PaineWebber identified such purchaser, advised
the Company respecting such purchaser or discussed with the Company a sale
transaction with such purchaser (in any such case during the term of the
engagement). Such fee will be payable upon consummation of the Merger.
Pursuant to the Fairness Opinion Agreement, the Company has agreed to pay
PaineWebber a fee of $250,000, payable in cash on the date PaineWebber delivers
its fairness opinion with respect to the transactions contemplated by the Merger
Agreement, regardless of the conclusion set forth in such opinion. Pursuant to
the Advisory Agreement, the fee paid with respect to the fairness opinion will
be deducted from any transaction fee to which PaineWebber becomes entitled under
the Advisory Agreement in connection with the Merger.
The Company also has agreed in the Advisory Agreement and the Fairness
Opinion Agreement to reimburse PaineWebber for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of legal counsel, and to
indemnify PaineWebber and certain related persons against certain liabilities in
connection with PaineWebber's engagement thereunder, including liabilities under
federal securities laws.
An affiliate of PaineWebber owns 553,601 Shares, representing approximately
11.8% of the outstanding Shares. PaineWebber is a party to the Stockholders
Agreement with Parent and Purchaser and has thereby agreed to tender its Shares
pursuant to the Offer. Peter Zurkow is a Managing Director of the Principal
Transactions Group of PaineWebber and also serves as a director of the Company
and a member of the Compensation and Nominating Committees of the Company Board.
The Company has not employed, retained or compensated any other person to
make solicitations or recommendations on its behalf to security holders with
respect to the Offer or the Merger.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES.
(a) There have been no transactions in Shares which were effected during the
past sixty (60) days by the Company or any of its subsidiaries or, to the best
of the Company's knowledge, any executive officer, director or affiliate of the
Company, except that on October 25, 1996, Green Equity Investors, L.P., which at
the time beneficially owned approximately 27.7% of the Shares, distributed its
Shares to its partners in accordance with their proportionate interests.
(b) To the best of the Company's knowledge, each of its executive officers
and directors presently intends to tender his or her Shares pursuant to the
Offer. As described above, stockholders of the Company owning in the aggregate
approximately 67% of the outstanding Shares have agreed in the Stockholders
Agreement to tender their Shares pursuant to the Offer.
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ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY.
(a) Except as set forth in Items 3(b) and Item 4 above, the Company is not
engaged in any negotiation in response to the Offer which relates to or would
result in (i) an extraordinary transaction such as a merger or reorganization,
involving the Company or any subsidiary of the Company; (ii) a purchase, sale or
transfer of a material amount of assets by the Company or any subsidiary of the
Company; (iii) a tender offer for or other acquisition of securities by or of
the Company; or (iv) any material change in the present capitalization or
dividend policy of the Company.
(b) Except as described in Item 3(b) above, there are no transactions, board
resolutions, agreements in principle or signed contracts in response to the
Offer which relate to or would result in one or more of the matters referred to
in Item 7(a) above.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED.
Reference is hereby made to the Offer to Purchase and the related Letter of
Transmittal, which are attached as Exhibits (a)(1) and (a)(2) hereto,
respectively, and are incorporated herein by reference in their entirety.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
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(a)(1)*+ Offer to Purchase dated November 15, 1996.
(a)(2)*+ Letter of Transmittal.
(a)(3) Text of press release issued by Parent and the Company dated October 31, 1996
(Incorporated by reference to Exhibit (99) to the Company's Current Report on
Form 8-K, dated October 31, 1996).
(a)(4) Text of press release issued by Parent and the Company dated November 8, 1996
(Incorporated by reference to Exhibit (99) to the Company's Current Report on
Form 8-K, dated November 8, 1996).
(a)(5)* Letter to stockholders of the Company dated November 15, 1996.
(a)(6)+ Form of Summary Advertisement dated November 15, 1996.
(a)(7)* Fairness Opinion of PaineWebber Incorporated dated October 31, 1996.
(c)(1) Agreement and Plan of Merger dated as of October 31, 1996 by and among Food
Lion, Inc., KK Acquisition Corp. and Kash n' Karry Food Stores, Inc.
(Incorporated by reference to Exhibit (2) to the Company's Current Report on
Form 8-K, dated October 31, 1996).
(c)(2) Stockholders Agreement dated as of October 31, 1996 by and among Food Lion,
Inc., KK Acquisition Corp., Kash n' Karry Food Stores, Inc. and the
stockholders named therein (Incorporated by reference to Exhibit (10) to the
Company's Current Report on Form 8-K, dated October 31, 1996).
(c)(3) Confidentiality Agreement dated May 20, 1996 between PaineWebber Incorporated
on behalf of Kash n' Karry Food Stores, Inc. and Food Lion, Inc.
(c)(4) Confidentiality Agreement dated May 21, 1996 between Kash n' Karry Food Stores,
Inc. and Food Lion, Inc.
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* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated November 15, 1996 and incorporated herein by reference.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: November 15, 1996
KASH N' KARRY FOOD STORES, INC.
By: /s/ RONALD E. JOHNSON
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Name: Ronald E. Johnson
Title: Chairman of the Board,
President and Chief
Executive Officer
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SCHEDULE I
KASH N' KARRY FOOD STORES, INC.
6422 HARNEY ROAD
TAMPA, FLORIDA 33610
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE ACT OF 1934
AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about November 15, 1996 as
part of the Solicitation/ Recommendation Statement on the Schedule 14D-9
("Schedule 14D-9") of Kash n' Karry Food Stores, Inc. (the "Company") to the
holders of record as of the close of business on October 31, 1996, of shares of
Common Stock, par value $.01 per share, including the associated rights (the
"Rights" and, together with the Common Stock, the "Shares") to purchase Series A
Junior Participating Preferred Stock, par value $.01 per share, of the Company.
You are receiving this Information Statement in connection with the possible
election of persons designated by Food Lion, Inc., a North Carolina corporation
("Parent"), to at least a majority of the seats on the Board of Directors of the
Company (the "Board").
On October 31, 1996, the Company, Parent and KK Acquisition Corp., a
Delaware corporation ("Purchaser") and an indirect wholly-owned subsidiary of
Parent, entered into an Agreement and Plan of Merger (the "Merger Agreement").
In accordance with the terms and subject to the conditions of the Merger
Agreement, on November 15, 1996 Parent commenced a tender offer (the "Offer")
for all outstanding Shares at a price of $26 per share, net to the seller in
cash. The Offer is scheduled to expire at 12:00 midnight, New York City time, on
Friday, December 13, 1996, unless the Offer is extended.
The Merger Agreement provides that, following the consummation of the Offer
and the satisfaction or waiver of certain conditions, Purchaser will be merged
with and into the Company (the "Merger"). As a result of the Offer and the
Merger, the Company will become a wholly-owned subsidiary of Parent.
Certain stockholders of the Company have entered into a Stockholders
Agreement dated as of October 31, 1996 among the Company, Parent, Purchaser and
such stockholders (the "Stockholders Agreement"). Pursuant to the Stockholders
Agreement, stockholders owning in the aggregate approximately 67% of the
outstanding Shares have, among other things, agreed to tender their Shares
pursuant to the Offer and to vote their shares to approve the Merger Agreement
and in favor of the Merger and granted to Purchaser an irrevocable option to
purchase their Shares at the highest price paid for Shares pursuant to the Offer
or the Merger.
The Merger Agreement requires that the Company use its best efforts, at
Parent's request, to take all lawful action necessary to cause Parent's
designees to be elected to the Board under the circumstances described in the
Merger Agreement. See "BOARD OF DIRECTORS AND EXECUTIVE OFFICERS-- Right to
Designate Directors; The Parent Designees" below.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Schedule 14D-9.
The information contained in this Information Statement concerning Parent,
Purchaser and the Parent Designees (hereinafter defined) has been furnished to
the Company by Parent, and the Company assumes no responsibility for the
accuracy or completeness of such information.
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BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
GENERAL
The Shares are the only class of voting securities of the Company
outstanding. Each Share has one vote. As of October 31, 1996, there were
4,674,314 Shares outstanding. The Board currently consists of nine members and
each member serves for a one year term. The number of Directors may be
determined from time to time by resolution of the Board. Vacancies in the Board
may be filled by the Board, and any Director chosen to fill a vacancy will hold
office until the next election of Directors.
RIGHT TO DESIGNATE DIRECTORS; THE PARENT DESIGNEES
The Merger Agreement provides that, subject to compliance with applicable
law, promptly upon the payment by Purchaser of Shares pursuant to the Offer or
acquisition by Purchaser of Shares purchased pursuant to the Stockholders
Agreement, and from time to time thereafter, Parent shall be entitled to
designate such number of directors, rounded up to the next whole number, as will
give Parent, subject to compliance with Section 14(f) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), representation on the Board equal
to the product of (x) the number of Directors on the Board (giving effect to any
increase in the number of Directors as described below) and (y) the percentage
that such number of Shares so purchased bears to the aggregate number of Shares
outstanding (such product, the "Board Percentage"). The Company shall, upon
request by Parent, promptly satisfy the Board Percentage by (i) increasing the
size of the Board or (ii) using reasonable efforts to secure the resignations
of, or failing that, to use its best efforts to remove, such number of Directors
as is necessary to enable those persons designated by Parent (the "Parent
Designees") to be elected or appointed to the Board and shall use best efforts
to cause the Parent Designees promptly to be so elected or appointed.
It is expected that the Parent Designees may assume office at any time
following the purchase by Purchaser of Shares pursuant to the Offer or the
Stockholders Agreement, which purchase may not be earlier than December 13,
1996, and that, upon assuming office, the Parent Designees will thereafter
constitute at least a majority of the Board.
PARENT DESIGNEES
Parent will choose the Parent Designees from among the individuals listed
below:
JOSEPH C. HALL, JR., age 46, is the Senior Vice President of Operations and
Chief Operating Officer of Parent, and has held those positions since July 1,
1995. Mr. Hall joined Parent in 1976 and has served as a Vice President since
1988. Mr. Hall has variously held the positions of Vice President of Purchasing,
Vice President of Marketing, Vice President of Operations-Southern Division and
Vice President of Operations-Central Division before assuming his current
position.
R. WILLIAM MCCANLESS, age 39, is the Senior Vice President of
Administration and Chief Administrative Officer of Parent. He has held the
position of Senior Vice President since July 6, 1995 and the position of Chief
Administrative Officer since September 12, 1996. Since 1990, Mr. McCanless has
variously held the positions of Legal and Tax Manager, Director of Legal and
Tax, and Vice President of Legal Affairs before assuming his present position.
TOM E. SMITH, age 55, is the President and Chief Executive Officer of
Parent and Chairman of the Board of Parent. He has held the position of
President since April 14, 1981 and the position of Chief Executive Officer since
January 1, 1986.
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DIRECTORS OF THE COMPANY
Set forth below is certain information regarding each Director (each, a
"Director") of the Company as of October 31, 1996:
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NAME AGE
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<S> <C>
Everett L. Buckardt..................................................................... 63
John G. Danhakl......................................................................... 40
John J. Delucca......................................................................... 53
Jennifer Holden Dunbar.................................................................. 33
Ben Evans............................................................................... 67
Thomas W. Harberts...................................................................... 52
Ronald E. Johnson....................................................................... 46
Robert Spiegel.......................................................................... 60
Peter Zurkow............................................................................ 42
</TABLE>
Ms. Dunbar, Mr. Evans and Mr. Zurkow comprise the Company's Compensation
Committee, its Stock Option Committee, and its Nominating Committee, and Mr.
Buckardt, Ms. Dunbar, Mr. Evans and Mr. Harberts comprise the Company's Audit
Committee.
BIOGRAPHICAL INFORMATION
EVERETT L. BUCKARDT has been a Director of the Company since December 29,
1994. Mr. Buckardt has been President and Chief Executive Officer of BEKS
Investments, Inc. since 1991. He also served as Chairman and Chief Executive
Officer of Warehouse Club, Inc. from 1993 to 1995. On February 3, 1995,
Warehouse Club, Inc. filed a voluntary petition for reorganization under Chapter
11 of the U.S. Bankruptcy Code. In 1992, Mr. Buckardt retired from a 33 year
career with Sears Roebuck and Company, where he served in various capacities,
most recently as President of Sears Catalog and Direct Marketing Division.
JOHN G. DANHAKL has been a Director of the Company since August 11, 1995.
Mr. Danhakl has been a general partner of Leonard Green & Associates, L.P. since
March 1995. He served as a Managing Director of Donaldson, Lufkin & Jenrette
Securities Corporation from 1990 to March 1995. Mr. Danhakl is a director of The
Arden Group.
JOHN J. DELUCCA has been a Director of the Company since December 29, 1994.
Mr. Delucca has been the Senior Vice President and Treasurer of RJR Nabisco
since October 1993. He served as Managing Director and Chief Financial Officer
of HASCO Associates, Inc., a Greenwich, Connecticut-based private holding
company, from 1991 to 1993, as President and Chief Financial Officer of the
Lexington Group, a workout and restructuring advisory group, from 1990 to 1991,
and as Senior Vice President of Finance and Managing Director of the Trump Group
from 1988 to 1990. Mr. Delucca is a director of Edison Controls Corp. and Enzo
Biochem, Inc.
JENNIFER HOLDEN DUNBAR has been a Director of the Company since November
1991. Ms. Dunbar has been a general partner of Leonard Green & Associates, L.P.
since 1994, and was a principal of Leonard Green & Partners, L.P. from January
1992 to January 1994 and an associate of Leonard Green & Partners, L.P. from
November 1989. Prior to that time, Ms. Dunbar was an associate of Gibbons,
Green, van Amerongen, L.P. and a financial analyst with Morgan Stanley & Co.,
Incorporated in its mergers and acquisitions department. Ms. Dunbar is a
director of Big 5 Holdings Inc., UMC Corporation, Thrifty Payless, Inc., and
Thrifty PayLess Holdings, Inc.
BEN EVANS has been a Director of the Company since December 29, 1994. Mr.
Evans has been a consultant for the firm of Ernst & Young in its financial
advisory services group since 1989. He is a director of Revco D.S., Inc.,
Jamesway Corporation and Megafoods Stores, Inc.
I-3
<PAGE>
THOMAS W. HARBERTS has been a Director of the Company since December 29,
1994. Mr. Harberts is the President and Chief Executive Officer of Cub Foods, a
single outlet retail food store in Oshkosh, Wisconsin. From 1970 to 1994, he
served in various capacities for Byerly's, an upscale retail food chain based in
Minnesota, most recently as its Chief Executive Officer.
RONALD E. JOHNSON has been Chairman of the Board of the Company since March
1995 and has been its President and Chief Executive Officer since January 1995.
Mr. Johnson served as Chief Operating Officer of Farm Fresh from December 1993
to January 1995 and as its Senior Vice President of Store Operations from 1990
to 1993. Mr. Johnson is a Director of Farm Fresh, Inc. and Jitney-Jungle Stores
of America, Inc.
ROBERT SPIEGEL has been a Director of the Company since December 29, 1994.
Mr. Spiegel, now a private investor, served as Chairman and Chief Executive
Officer of RJR Drug Distributors, a Louisville, Kentucky franchisee of Drug
Emporium, from 1984 to 1995. Mr. Spiegel is a director of Graham Field Health
Products, Inc., Hoenig Group, Inc. and Drug Emporium, Inc.
PETER ZURKOW has been a Director of the Company since December 29, 1994.
Mr. Zurkow has been employed by PaineWebber Incorporated since 1992, currently
serving as Managing Director of the Principal Transactions Group. He was an
Associate Managing Director and served as a portfolio manager in the risk
arbitrage department of Wertheim Schroder for more than six years prior to
joining PaineWebber Incorporated.
MEETINGS OF THE BOARD OF DIRECTORS AND COMMITTEES
During the fiscal year ended July 28, 1996, the Board held 12 meetings.
Except for John G. Danhakl and Jennifer Holden Dunbar, each incumbent Director
attended at least 75% of the total number of meetings held by the Board, and all
Board committees on which such Director served, during such Director's tenure on
the Board.
The Board has standing audit, compensation and nominating committees.
The Audit Committee, composed of Everett L. Buckardt, Jennifer Holden
Dunbar, Ben Evans and Thomas W. Harberts, held four meetings during the 1996
fiscal year. The Audit Committee reviews the scope and results of the audit by
independent auditors, approves the type of non-audit services performed by
independent auditors, and makes recommendations as to the selection of
independent auditors. It also reviews the scope of internal audits, systems of
internal controls, and accounting policies and procedures.
The Compensation Committee, composed of Jennifer Holden Dunbar, Ben Evans
and Peter Zurkow, held four meetings during the 1996 fiscal year. The
Compensation Committee determines the compensation payable to executive officers
and other key employees of the Company and makes recommendations to the Board
with respect to compensation plans applicable to employees of the Company.
Members of the Compensation Committee also serve on the Stock Option Committee.
The Nominating Committee, composed of Jennifer Holden Dunbar, Ben Evans and
Peter Zurkow, held no meetings during the 1996 fiscal year. The Nominating
Committee recommends qualified candidates to fill vacancies on the Board. The
Nominating Committee will consider nominees recommended by stockholders.
Stockholders desiring to suggest nominees for Directors may do so by submitting
names in writing to the Secretary of the Company, together with biographical
data and qualifications of the nominees.
I-4
<PAGE>
EXECUTIVE OFFICERS OF THE COMPANY WHO ARE NOT DIRECTORS
The following sets forth certain information as to each Executive Officer of
the Company who is not also a Director, including age as of October 31, 1996.
RICHARD D. COLEMAN, 42, has been Senior Vice President, Chief Financial
Officer, and Secretary of the Company since January 1996. Mr. Coleman previously
served as Vice President and Controller of the Company from 1988 through January
1996; and from 1988 to 1995, he also served as Secretary of the Company.
CLIFFORD C. SMITH, JR., 37, has been Senior Vice President of Marketing and
Merchandising of the Company since March 1996, and served as Senior Vice
President of Perishables Marketing from March 1995 to March 1996. Mr. Smith
served as the Director of Deli, Bakery and Food Service for Harris-Teeter from
1992 to March 1995, and as the Vice President of Deli, Bakery and Food Service
for Mayfair Supermarkets, Inc. from 1981 to 1992.
BJ MEHAFFEY, 42, has been Senior Vice President, Operations, of the Company
since July 1995. Mr. Mehaffey served as District Manager of the Grocery Stores
Division of Farm Fresh, Inc. from 1992 to 1995, and in various capacities with
Bi-Lo Incorporated from 1972 to 1992.
MARVIN H. SNOW, JR., 40, has been Vice President and Controller of the
Company since March 1996. Mr. Snow was employed by Eckerd Corporation in various
capacities from 1977 to March 1996, most recently serving as Assistant
Controller.
I-5
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
CERTAIN BENEFICIAL OWNERS
The following table sets forth, as of October 31, 1996, the name and address
of each person known by the Company to be the beneficial owner of more than five
percent of the outstanding Common Stock, and, based on information supplied to
the Company by such persons, the approximate number of shares and percentage
owned by each:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PERCENT
NAME AND ADDRESS OWNED OWNED
- ----------------------------------------------------------------------------------------- ------------ -----------
<S> <C> <C>
AMERICAN EXPRESS COMPANY
American Express Tower
World Financial Center
New York, NY 10285....................................................................... 992,000(1) 21.2
AMERICAN EXPRESS FINANCIAL CORPORATION
IDS Tower 10
Minneapolis, MN 55440.................................................................... 992,000(1) 21.2
IDS EXTRA INCOME FUND, INC.
IDS Tower 10
Minneapolis, MN 55440.................................................................... 822,430(1) 17.6
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA
Two Gateway Center
Floor 7
100 Mullberry Street
Newark, NJ 07102-3777.................................................................... 860,749(2) 18.4
PAINEWEBBER INCORPORATED
1285 Avenue of the Americas
New York, NY 10019....................................................................... 553,601 11.8
</TABLE>
- ------------------------
(1) American Express Company, American Express Financial Corporation and IDS
Extra Income Fund, Inc. share dispositive power over 822,430 shares, over
which IDS Extra Income Fund, Inc. has sole voting power. American Express
Company and American Express Financial Corporation also share dispositive
power with IDS Bond Fund, Inc. over an additional 149,570 shares, over which
IDS Bond Fund, Inc. has sole voting power, and with IDS Life Advantage Fund
over an additional 20,000 shares, over which IDS Life Advantage Fund has
sole voting power. American Express Company has advised the Company that it
disclaims beneficial ownership with respect to all 992,000 shares.
(2) Includes 27,855 shares beneficially owned by Prudential Property & Casualty
Company, 14,869 shares beneficially owned by The Prudential Life Insurance
Company of Arizona, and 11,606 shares beneficially owned by Pruco Life
Insurance Company.
I-6
<PAGE>
COMMON STOCK OWNERSHIP OF MANAGEMENT
The following table reflects, as of October 31, 1996, the Common Stock
ownership of each Director, and each executive officer and former executive
officer listed in the Summary Compensation Table, and all Directors and officers
as a group.
<TABLE>
<CAPTION>
SHARES PERCENT
NAME OWNED OF CLASS
- ---------------------------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Everett L. Buckardt..................................................................... 9,000(1) *
Richard D. Coleman...................................................................... 7,616(2) *
John G. Danhakl......................................................................... 18,000(1) *
Jennifer Holden Dunbar.................................................................. 18,376(3) *
John J. Delucca......................................................................... 9,000(1) *
Ben Evans............................................................................... 12,750(3) *
Thomas W. Harberts...................................................................... 9,000(1) *
Ronald E. Johnson....................................................................... 25,385(2) *
BJ Mehaffey............................................................................. 15,232(2) *
Clifford C. Smith, Jr................................................................... 15,232(2) *
Robert Spiegel.......................................................................... 24,000(3) *
Raymond P. Springer..................................................................... 0(4) 0
Peter Zurkow............................................................................ 9,000(1) *
All Directors and Officers as a group (14 persons) (1)-(3).............................. 154,591 *
</TABLE>
- ------------------------
* Less than 1%.
(1) The number of shares owned by Messrs. Buckardt, Delucca, Harberts and Zurkow
consists of shares that are subject to exercisable options granted under the
Company's 1995 Non-Employee Director Stock Option Plan. The number of shares
owned by Mr. Danhakl consists of shares that are subject to exercisable
options granted to Green Equity Investors, L.P., of which Leonard Green &
Associates, L.P. ("LGA"), is the sole general partner. Mr. Danhakl may be
deemed to be the beneficial owner of such shares by reason of his being a
general partner of LGA.
(2) The number of shares owned by Messrs. Coleman, Johnson, Mehaffey and Smith
consists of shares that are subject to exercisable options granted under the
Company's 1995 Key Employee Stock Option Plan. Pursuant to the Merger
Agreement, all of the outstanding options held by key employees of the
Company, including Messrs. Coleman, Johnson, Mehaffey and Smith, whether or
not exercisable, will be cancelled in exchange for a cash payment equal to
the difference between the Merger Price and the exercise price. The total
number of options (exercisable and unexercisable) held by such individuals
as of October 31, 1996 is 30,460 in the case of Mr. Coleman, 76,151 in the
case of Mr. Johnson, 45,698 in the case of Mr. Mehaffey, and 45,698 in the
case of Mr. Smith.
(3) The number of shares owned by Messrs. Evans and Spiegel includes 9,000
shares each that are subject to exercisable options granted under the
Company's 1995 Non-Employee Director Stock Option Plan. The number of shares
owned by Ms. Dunbar includes 18,000 shares that are subject to exercisable
options granted to Green Equity Investors, L.P., of which LGA is the sole
general partner. Ms. Dunbar may be deemed to be the beneficial owner of such
shares by reason of her being the controlling shareholder of a general
partner of LGA.
(4) Mr. Springer's employment with the Company ended in January 1996.
I-7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth compensation for the fiscal years ended July
28, 1996, July 30, 1995 and July 31, 1994, respectively, awarded to, earned by,
or paid to the Chief Executive Officer of the Company during the fiscal year
ended July 28, 1996, the other executive officers of the Company who were
serving as such as of July 28, 1996 (excluding executive officers whose total
annual salary and bonus for the fiscal year ended July 28, 1996 did not exceed
$100,000), and one individual who would have been among that group but for the
fact that he no longer served as an executive officer of the Company as of July
28, 1996 (collectively, the "Named Executive Officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
-------------
ANNUAL COMPENSATION NO. OF ALL
---------------------- SECURITIES OTHER
NAME AND PRINCIPAL SALARY BONUS UNDERLYING COMPENSATION
POSITION YEAR ($)(1) ($)(1) OPTIONS ($)(2)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Ronald E. Johnson.................................. 1996 $ 326,465 $ 121,875 25,378 $ 10,245
Chairman of the Board, 1995 167,691 84,144 50,773 49,355
President and Chief 1994 0 0 0 0
Executive Officer
Richard D. Coleman................................. 1996 126,476 38,352 7,616 81,088
Senior Vice President, 1995 106,701 40,000 15,232 3,016
Administration and 1994 100,000 0 0 2,574
Secretary
Clifford C. Smith, Jr.............................. 1996 131,425 48,750 15,235 4,158
Senior Vice President, 1995 43,967 30,500 30,463 0
Marketing and 1994 0 0 0 0
Merchandising
BJ Mehaffey........................................ 1996 116,060 43,125 15,235 3,369
Senior Vice President, 1995 7,077 3,938 30,463 0
Operations 1994 0 0 0 0
Raymond P. Springer(3)............................. 1996 100,698 33,750 0 46,233
Former Senior Vice 1995 181,046 100,000 45,696 10,394
President, Administration 1994 177,298 0 0 11,910
and Secretary
</TABLE>
- ------------------------
(1) Includes amounts deferred at the election of the Named Executive Officers
under the Company's Retirement Estates 401(k) Plan (the "KKRE"), a trusteed
defined contribution plan, the Company's nonqualified unfunded supplemental
salary deferral plan (the "KESP"), and the Company's nonqualified unfunded
bonus deferral compensation plan.
(2) Information provided for 1996 represents: (i) matching contributions by the
Company under its KKRE for the benefit of Messrs. Coleman, Smith and
Springer in the amounts of $888, $150 and $1,256, respectively; (ii)
matching allocations by the Company under its KESP for the benefit of
Messrs. Johnson, Coleman, Smith, Mehaffey and Springer in the amounts of
$9,825, $3,649, $3,930, $3,302 and $3,572, respectively; (iii) above-market
interest recorded by the Company under its KESP and bonus deferral
compensation plan for the benefit of Messrs. Johnson, Coleman, Smith,
Mehaffey and Springer in the amounts of $420, $1,552, $78, $67 and $2,613,
respectively; (iv) a special bonus allocation by the Company under its KESP
for the benefit of Mr. Coleman in the amount of $75,000; and (v) severance
payments to Mr. Springer in the amount of $38,792.
(3) Raymond P. Springer's employment with the Company ended in January 1996.
I-8
<PAGE>
STOCK OPTION GRANTS IN LAST FISCAL YEAR
In March 1995, the Board adopted a Key Employee Stock Option Plan (the "Key
Employee Plan"). See "Executive Compensation; Employment Contracts and
Termination of Employment and Change of Control Arrangements; 1995 Key Employee
Stock Option Plan." The following table sets forth certain information with
respect to options granted pursuant to the Key Employee Plan to the Named
Executive Officers during the 1996 fiscal year:
<TABLE>
<CAPTION>
% OF TOTAL
NUMBER OF OPTIONS POTENTIAL REALIZABLE
SECURITIES GRANTED VALUE AT ASSUMED
UNDER- TO EM- ANNUAL RATES OF STOCK
LYING PLOYEES EXER- EXPIRATION PRICE APPRECIATION
OPTIONS IN CISE DATE FOR OPTION TERM
GRANTED FISCAL PRICE IN ----------------------
NAME (#) YEAR ($/SH) 2006 5% 10%
- ----------------------------------------------------- ----------- ------------- --------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Ronald E. Johnson.................................... 25,378 32.3% $ 22.00 5/1 $ 336,228 $ 863,075
Richard D. Coleman................................... 7,616 9.7 22.63 4/23 103,863 266,541
Clifford C. Smith, Jr................................ 15,235 19.4 22.00 5/1 201,845 518,124
BJ Mehaffey.......................................... 15,235 19.4 22.00 5/1 201,845 518,124
Raymond P. Springer.................................. 0 0.0 0.00 -- 0 0
</TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR END OPTION
VALUES
The following table sets forth information concerning each exercise of stock
options by the Named Executive Officers during the 1996 fiscal year and the
value of the unexercised options granted under the Key Employee Plan held by the
Named Executive Officers as of July 28, 1996:
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES VALUE OF
UNDERLYING UNEXERCISED
UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
SHARES FISCAL YEAR FISCAL YEAR
ACQUIRED VALUE END (#) END(1)($)
ON EXERCISE REALIZED EXERCISABLE/ EXERCISABLE/
NAME (#) ($) UNEXERCISABLE UNEXERCISABLE
- -------------------------------------------------------- ----------- --------- --------------- --------------------
<S> <C> <C> <C> <C>
Ronald E. Johnson....................................... 0 $ 0 25,385/50,766 $389,672/$657,473
Richard D. Coleman...................................... 0 0 7,616/15,232 42,833/83,745
Clifford C. Smith, Jr................................... 0 0 15,232/30,466 233,804/394,516
BJ Mehaffey............................................. 0 0 15,232/30,466 87,584/175,180
Raymond P. Springer..................................... 18,278 205,628 0/0 0/0
</TABLE>
- ------------------------
(1) As of July 28, 1996, the average of the high ask and low bid prices of the
underlying Common Stock was $27.75 per share, as reported on the NASDAQ
National Market.
DIRECTORS' COMPENSATION
Each Director receives $12,500 per year (payable quarterly), plus $2,500 for
each Board meeting, and $1,000 for each meeting of a committee to which such
Director is a member, not held on the same day as a Board meeting. In addition,
each Director is reimbursed for reasonable and necessary out-of-pocket expenses
incurred in connection with attending such meetings in person. The cash
compensation payable to directors affiliated with LGA is credited against the
annual management fee payable to LGA. See "Certain Relationships and Related
Transactions." As of October 31, 1996, Ms. Dunbar and Mr. Danhakl were the only
directors affiliated with LGA.
In March 1995, the Company adopted the 1995 Non-Employee Director Stock
Option Plan (the "Director Plan"). Pursuant to the Director Plan, the Company
may grant options to purchase up to 54,000 shares of Common Stock to eligible
Directors. Directors who are also employees of or consultants to the
I-9
<PAGE>
Company are not eligible to participate in the Director Plan. The Director Plan
is administered by the Stock Option Committee of the Board, and expires on March
8, 2005.
No options were granted pursuant to the Director Plan during the 1996 fiscal
year. However, on March 9, 1995, the Company granted to each of the incumbent
Directors, excluding John G. Danhakl, Jennifer Holden Dunbar and Ronald E.
Johnson, options to purchase 4,500 shares of Common Stock for $10.00 per share,
vesting on July 30, 1995, and options to purchase an additional 4,500 shares of
Common Stock for $13.33 per share, vesting on July 28, 1996. All of such options
expire on March 8, 2005, or earlier upon the occurrence of certain events.
In lieu of granting options to Ms. Dunbar and Mr. Danhakl under the Director
Plan, on March 9, 1995, the Company granted to Green Equity Investors, L.P.
options to purchase 9,000 shares of Common Stock for $10.00 per share, vesting
on July 30, 1995, and options to purchase an additional 9,000 shares of Common
Stock for $13.33 per share, vesting on July 28, 1996. The terms of the options
granted to Green Equity Investors, L.P. are substantially the same as the terms
of the options granted under the Director Plan.
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL
ARRANGEMENTS
EMPLOYMENT AGREEMENTS. The Company has entered into written employment
agreements with Ronald E. Johnson, Richard D. Coleman, Clifford C. Smith, Jr.
and BJ Mehaffey. The term of the agreements terminates in January 1998 in the
case of Messrs. Johnson, Coleman and Mehaffey, and in March 1998 in the case of
Mr. Smith. In the event of a change in control with respect to the Company (as
defined in the agreements) that occurs prior to such termination date, the term
of the agreements will not expire prior to the first anniversary of such change
in control (the second such anniversary in the case of Mr. Johnson). Each such
executive officer is entitled to a base salary (currently $325,000 for Mr.
Johnson, $150,000 for Mr. Coleman, $175,000 for Mr. Smith and $130,000 for Mr.
Mehaffey) and to participate proportionally in all fringe benefit plans
available to the most senior executive officers of the Company from time to time
during the term. Except for the amount of base salary and term of employment,
the terms and conditions of the employment agreements are substantially the
same. Employment under the agreements may be terminated for cause or without
cause in certain circumstances (as defined therein), including the death or
disability of the executive officer. Upon a termination without cause, the
executive officer is entitled to continuation of salary through the term of the
employment agreement, and a prorated bonus through the termination date. Mr.
Johnson's agreement also provides that certain options granted to him under the
Key Employee Plan will become fully vested upon a termination of his employment
without cause and that certain other options granted to him will become fully
vested upon a termination of his employment without cause following a change in
control with respect to the Company (as defined in his employment agreement).
The agreements contain certain requirements of noncompetition, including a
requirement of noncompetition for a period of one year following a termination
of employment, other than a termination without cause.
SEPARATION, WAIVER AND RELEASE AGREEMENT. In January 1996, the Company
terminated Raymond P. Springer's employment. Pursuant to a Separation, Waiver
and Release Agreement dated as of January 31, 1996, Mr. Springer was entitled to
his current base compensation and current insurance benefits until he obtained
full-time employment or for 52 weeks, whichever first occurs; to participate pro
rata with other senior management in the bonus plan for the 1996 fiscal year;
and to accelerate the vesting of 20% of the options granted to him under the Key
Employee Option Plan. Mr. Springer also agreed to terminate his severance pay
agreement and to provide certain other obligations to the Company.
SEVERANCE PAY AGREEMENTS. The Company has severance pay agreements with
certain key employees of the Company. The severance pay agreements provide,
among other things, that if the employee is terminated without cause (as defined
therein) in connection with a change in control (as defined therein) then such
employee will be entitled to payment based on a certain percentage of that
employee's annual compensation.
I-10
<PAGE>
KASH N' KARRY RETIREMENT ESTATES.
The Company maintains the Kash n' Karry Retirement Estates ("KKRE"), a
trusteed defined contribution retirement plan. KKRE is a tax savings/profit
sharing plan maintained for the purpose of providing retirement income for
eligible employees of the Company. KKRE is qualified under Section 401(a) and
Section 401(k) of the Internal Revenue Code of 1986, as amended. Generally, all
employees who have attained the age of 21 years and complete one year of
participation service (as defined under KKRE) are eligible to participate in
KKRE. During the 1996 fiscal year, Messrs. Coleman, Smith and Springer were the
only Named Executive Officers who participated in KKRE.
KASH N' KARRY EXECUTIVE SUPPLEMENTAL RETIREMENT PLAN. Certain members of
senior management and other key employees participate in the Kash n' Karry
Executive Supplemental Retirement Plan ("KESP"), a non-qualified, unfunded
salary deferral plan. During the 1996 fiscal year, each of the Named Executive
Officers participated in KESP. Prior to the beginning of each plan year, a
participant may elect to defer an amount not to exceed 15% of such participant's
annual base compensation (as defined under KESP). The Company matches a certain
portion of the amount deferred by the participant, but the amount of the match
may not exceed 6% of such participant's annual base compensation. The Company
records income to the participant's account at an annual rate as determined by
the Board, but the rate of such income shall not be less than 8% per annum. The
vested percentage of the amounts recorded in the participant's account will be
paid to the participant upon the earlier of: (i) such participant's death,
disability, retirement or other separation of service from the Company; (ii) the
date the Plan is terminated; or (iii) the date that a change in control occurs
(as defined under KESP).
BONUS DEFERRAL COMPENSATION PLAN. Certain members of senior management and
other key employees also participate in the Company's Bonus Deferral
Compensation Plan, a non-qualified, unfunded salary deferral plan. With respect
to bonuses earned during the 1996 fiscal year, Mr. Coleman was the only Named
Executive Officer who participated in the Bonus Deferral Compensation Plan.
Prior to the end of each plan year, and at least 30 days prior to the actual
date of the ascertainment and grant of bonus compensation to a participant, a
participant may elect to defer a portion of the bonus compensation payable to
such participant for the plan year. The Company records income to the
participant's account at an annual rate as determined by the Board, but the rate
of such income shall not be less than 8% per annum. The amounts recorded in the
participant's account will be paid to the participant upon the earlier of: (i)
such participant's death, disability, retirement or other separation of service
from the Company; (ii) the date the plan is terminated; or (iii) the occurrence
of an unforeseeable emergency (as defined therein) with respect to a
participant.
1995 KEY EMPLOYEE STOCK OPTION PLAN. On March 9, 1995, the Board adopted a
Key Employee Stock Option Plan (the "Key Employee Plan"), which is administered
by the Stock Option Committee of the Board. Pursuant to the Key Employee Plan,
the Company may grant options to purchase up to 331,048 shares of Common Stock
to key employees of the Company designated by the Stock Option Committee from
time to time. The Stock Option Committee has the discretion to determine the
number of options to be granted to an eligible participant, the exercise price
per share, whether the options will be non-qualified stock options or incentive
stock options, and the vesting schedule applicable to a given option grant. The
Key Employee Plan expires on March 9, 2005.
As of October 31, 1996, options to purchase a total of 258,938 shares of
Common Stock had been granted pursuant to the Key Employee Plan and were
outstanding to certain of the Named Executive Officers and other key employees
of the Company. All of the outstanding options vest in serial increments in the
amount of 20% per year, on the last day of each fiscal year of the Company
commencing with the fiscal year in which the applicable option was granted.
However, upon the occurrence of a merger event or a change in control (as
defined in the Key Employee Plan), the outstanding options become 100% vested.
In addition, certain of Ronald E. Johnson's outstanding options become 100%
vested upon the termination of his employment without cause (as defined in his
employment agreement), and certain other options granted to him become fully
vested upon a termination of his employment without cause following a change in
control with respect to the Company (as defined in his employment agreement).
I-11
<PAGE>
The outstanding options expire, to the extent not exercised, on the tenth
anniversary of the date of grant. However, upon termination of an optionee's
employment with the Company, all unvested options lapse, and all vested options
expire 180 days after the termination of employment, if such termination is due
to the death, disability or retirement of the optionee, or 45 days after the
termination of employment, if such termination is due to any other reason, other
than a termination for cause. If a termination for cause occurs, all vested and
unvested options expire immediately.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Board has established a Compensation Committee and a Stock Option
Committee. The Compensation Committee approves compensation payable to the
executive officers and the Stock Option Committee administers the Company's
stock option plans. Currently, Jennifer Holden Dunbar, Ben Evans and Peter
Zurkow comprise both such committees.
Peter Zurkow is a Managing Director of the Principal Transactions Group of
PaineWebber Incorporated ("PaineWebber"). On September 8, 1995, the Company
engaged PaineWebber to act as the Company's exclusive financial advisor in
connection with any proposed sale transaction involving the Company and another
party (the "Advisory Agreement"). On June 5, 1996, the Company engaged
PaineWebber to render a fairness opinion to the Board in connection with a
proposed transaction with Parent (the "Fairness Opinion Agreement").
Pursuant to the Advisory Agreement, if, during the period of the engagement,
the Company enters into a definitive agreement with a purchaser, the Company has
agreed to pay PaineWebber a transaction fee of 0.69% of the purchase price of
the transaction, payable in cash upon the closing of such transaction. The
Company also has agreed, in the event a sale transaction is consummated with a
purchaser within eighteen (18) months after the term of PaineWebber's engagement
with the Company, to pay the same transaction fee of 0.69% upon closing of such
transaction, PROVIDED PaineWebber identified such purchaser, advised the Company
respecting such purchaser or discussed with the Company a sale transaction with
such purchaser (in any such case during the term of the engagement). Such fee
will be payable upon consummation of the Merger.
Pursuant to the Fairness Opinion Agreement, the Company has agreed to pay
PaineWebber a fee of $250,000, payable in cash on the date PaineWebber delivers
its fairness opinion with respect to the transactions contemplated by the Merger
Agreement, regardless of the conclusion set forth in such opinion. Such fee was
paid upon delivery of PaineWebber's fairness opinion to the Board. Pursuant to
the Advisory Agreement, the fee paid with respect to the fairness opinion will
be deducted from any transaction fee to which PaineWebber becomes entitled under
the Advisory Agreement in connection with the Merger.
The Company also has agreed in the Advisory Agreement and the Fairness
Opinion Agreement to reimburse PaineWebber for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of legal counsel, and to
indemnify PaineWebber and certain related persons against certain liabilities in
connection with PaineWebber's engagement thereunder.
As of October 31, 1996, PaineWebber owned approximately 11.9% of the
outstanding Common Stock of the Company. See "SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT; Certain Beneficial Owners." On October 31,
1996, PaineWebber entered into the Stockholders Agreement, pursuant to which
stockholders owning in the aggregate approximately 67% of the outstanding Shares
have, among other things, agreed to tender their Shares pursuant to the Offer
and to vote their shares to approve the Merger Agreement and in favor of the
Merger and granted to Purchaser an irrevocable option to purchase their Shares
at the highest price paid for Shares pursuant to the Offer or the Merger.
Jennifer Holden Dunbar is the controlling shareholder of a general partner
of LGA, and LGA is the general partner of GEI. Prior to October 25, 1996, GEI
owned approximately 27.8% of the outstanding Common Stock of the Company. On
December 29, 1994 the Company entered into a Management Services Agreement with
LGA. Pursuant to the Management Services Agreement, LGA agreed to provide
I-12
<PAGE>
to the Company management, consulting, financial planning and financial advisory
services for a two year term, in consideration for an annual fee of $200,000.
The amount of such fee was determined in the course of negotiations among LGA,
the Company and an unofficial bondholders' committee during the Company's 1994
financial restructuring. LGA is not required to spend a fixed number of hours of
service to the Company pursuant to the Management Services Agreement. During
fiscal 1996, the Company paid a total of $200,000 to LGA, and LGA expended
approximately fifty hours of service to the Company, in fulfillment of their
respective obligations under the Management Services Agreement.
On March 9, 1995, in lieu of granting options under the 1995 Non-Employee
Director Stock Option Plan to Jennifer Holden Dunbar and John G. Danhakl,
Directors of the Company affiliated with GEI, the Company granted to GEI options
to purchase 9,000 shares of Common Stock for $10.00 per share, vesting on July
30, 1995, and options to purchase an additional 9,000 shares of Common Stock for
$13.33 per share, vesting on July 28, 1996. The terms of the options granted to
GEI are substantially the same as the terms of the options granted under the
Company's 1995 Non-Employee Director Stock Option Plan.
BOARD COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Company, whose members are listed below,
is composed entirely of non-employee Directors. Actions by the Compensation
Committee are reported to the Board and, in appropriate cases, ratified by the
Board prior to implementation. The Company's policy with respect to executive
compensation has been designed to: attract and retain qualified persons to serve
as executive officers of the Company; adequately and fairly compensate executive
officers in relation to their responsibilities, capabilities and contributions
to the Company and in a manner that is commensurate with compensation paid by
companies of comparable size or within the Company's industry; reward executive
officers for the achievement of short-term operating goals; and align the
interests of executive officers with those of the Company's stockholders with
respect to short-term and long-term operating results.
The primary components of compensation paid by the Company to its executive
officers are base salary, annual incentive compensation, and stock options. The
relationship of each component is discussed below.
BASE SALARY. The base salary component of executive compensation is
designed to reflect the overall responsibility, the position's risk/reward
profile, market place salary trends and the performance of the incumbent within
the position. Each year the Compensation Committee reviews and approves the base
salaries to be paid by the Company during the following year to members of
senior management, based on recommendations proposed by the Chief Executive
Officer. Annual adjustments to base salaries are determined based on a number of
factors, including the Company's performance and the executives' contributions
to the Company's performance. As is typical for most companies, payment of base
salary amounts generally is not conditioned upon the achievement of any specific
pre-determined performance targets.
ANNUAL INCENTIVE COMPENSATION. The annual incentive compensation component
of executive compensation consists of a cash bonus, with award opportunities
tied to the position's potential contribution to performance against
predetermined performance goals. The performance goals, which are adjusted
annually, consist of an objective portion based on the Company's performance in
relation to annual budgets approved by the Board, and a subjective portion based
on the individual's achievement of personal development and customer service
goals determined by the individual and his or her supervisor. An additional
bonus may be granted to an executive officer for exceptional services to the
Company as approved by the Compensation Committee.
I-13
<PAGE>
STOCK OPTIONS. In early 1995, the Company engaged Houlihan, Lokey, Howard &
Zukin to recommend a stock option plan to align the interests of the key
employees with those of the Company's stockholders with respect to short-term
and long-term operating results. Based upon the report issued by Houlihan,
Lokey, the Board adopted the 1995 Key Employee Stock Option Plan, pursuant to
which options to purchase Common Stock of the Company may be granted to certain
key employees, including executive officers. The Stock Option Committee (whose
members consist of the members of the Compensation Committee) has the discretion
to set the exercise price of options granted under the plan. During fiscal 1996,
options to purchase a total of 78,699 shares of Common Stock were granted to key
employees, of which options to purchase a total of 63,464 shares were granted to
executive officers. The average exercise price per share of options granted in
1996 was $22.06. The options vest 20% per year over a five year period.
OTHER COMPONENTS OF EXECUTIVE COMPENSATION. In addition to the base salary,
annual incentive compensation, and stock options, the Company's executive
officers are eligible to participate in its 401(k) plan (upon their attainment
of one year of service to the Company), its unfunded nonqualified supplemental
retirement plan, its unfunded nonqualified bonus compensation deferral plan, and
certain other employee benefit plans offered to employees of the Company
generally. Each of the executive officers are also entitled to automobile
allowances and other perquisites. To encourage the retention of executive
officers, several of them participate in a severance pay plan adopted in 1994,
which provides certain benefits to the participants in the event that their
employment is terminated within a certain period of time before or after a
change of control of the Company. Several other executive officers, including
the Chief Executive Officer, are parties to employment agreements having terms
expiring in 1998; provided, however, if a change in control with respect to the
Company (as defined in such employment agreements) occurs prior to such
expiration date, the term will not expire prior to the first anniversary of the
change in control (the second anniversary in the case of the Chief Executive
Officer). Those employment agreements provide for salary continuation through
the end of the term in the event their employment is terminated without cause.
CEO COMPENSATION. The compensation of the Chief Executive Officer for the
last fiscal year was based on the foregoing factors.
TAX DEDUCTIBILITY OF EXECUTIVE COMPENSATION. Legislation enacted in 1993
imposes new limits on the tax deductibility of executive compensation. The
Compensation Committee's policy is to maximize the tax deductibility of
executive compensation to the extent consistent with its responsibility to
effectively compensate executives based on performance.
This report is submitted by the members of the Compensation Committee:
MEMBERS OF THE COMPENSATION COMMITTEE
Jennifer Holden Dunbar
Ben Evans
Peter Zurkow
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<PAGE>
STOCK PERFORMANCE GRAPH
The following graph provides a comparison of the nineteen month cumulative
total return for the Company, the Russell 2000 Index, and a peer group of five
companies.(1) The comparison covers the period from the effective date of the
Company's financial restructuring pursuant to its confirmed plan of
reorganization (December 29, 1994) through and including the last trading day of
the Company's fiscal year ended July 28, 1996 (July 26, 1996). The comparison
assumes that $100 was invested at the beginning of the period, and also assumes
reinvestment of dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
NINETEENTH MONTH COMPARISON
<S> <C> <C> <C>
Kash n' Karry Food Stores,
Inc. Russell 2000 Index Peer Group (1)
12/29/1994 $100.00 100.00 100.00
7/28/1995 $227.50 121.22 116.21
7/26/1996 $277.50 127.41 176.39
</TABLE>
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(1) The selected peer group consists of the following companies: Eagle Food
Centers, Buttrey Food and Drug Co., Delchamps, Inc., Marsh Supermarkets,
Inc. and Ingles Markets.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On September 8, 1995, the Company engaged PaineWebber Incorporated
("PaineWebber") to act as the Company's exclusive financial advisor in
connection with any proposed sale transaction involving the Company and another
party (the "Advisory Agreement"). On June 5, 1996, the Company engaged
PaineWebber to render a fairness opinion to the Board in connection with a
proposed transaction with Parent (the "Fairness Opinion Agreement").
Pursuant to the Advisory Agreement, if, during the period of the engagement,
the Company enters into a definitive agreement with a purchaser, the Company has
agreed to pay PaineWebber a transaction fee of 0.69% of the purchase price of
the transaction, payable in cash upon the closing of such transaction. The
Company also has agreed, in the event a sale transaction is consummated with a
purchaser within eighteen (18) months after the term of PaineWebber's engagement
with the Company, to pay the same transaction fee of 0.69% upon closing of such
transaction, PROVIDED PaineWebber identified such purchaser, advised the Company
respecting such purchaser or discussed with the Company a sale transaction with
such purchaser (in any such case during the term of the engagement). Such fee
will be payable upon consummation of the Merger.
Pursuant to the Fairness Opinion Agreement, the Company has agreed to pay
PaineWebber a fee of $250,000, payable in cash on the date PaineWebber delivers
its fairness opinion with respect to the transactions contemplated by the Merger
Agreement, regardless of the conclusion set forth in such opinion. Such fee was
paid upon delivery of PaineWebber's fairness opinion to the Board. Pursuant to
the Advisory Agreement, the fee paid with respect to the fairness opinion will
be deducted from any transaction fee to which PaineWebber becomes entitled under
the Advisory Agreement in connection with the Merger.
I-15
<PAGE>
The Company also has agreed in the Advisory Agreement and the Fairness
Opinion Agreement to reimburse PaineWebber for its reasonable out-of-pocket
expenses, including reasonable fees and disbursements of legal counsel, and to
indemnify PaineWebber and certain related persons against certain liabilities in
connection with PaineWebber's engagement thereunder.
As of October 31, 1996, PaineWebber Incorporated owned approximately 11.9%
of the outstanding Common Stock of the Company. See "SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT; Certain Beneficial Owners." On October
31, 1996, PaineWebber entered into the Stockholders Agreement, pursuant to which
stockholders owning in the aggregate approximately 67% of the outstanding Shares
have, among other things, agreed to tender their Shares pursuant to the Offer
and to vote their shares to approve the Merger Agreement and in favor of the
Merger and granted to Purchaser an irrevocable option to purchase their Shares
at the highest price paid for Shares pursuant to the Offer or the Merger.
Peter Zurkow, who is a director of the Company and a member of the
Compensation and Nominating Committees of the Board, is the Managing Director of
the Principal Transactions Group of PaineWebber Incorporated.
On December 29, 1994 the Company entered into a Management Services
Agreement with Leonard Green & Associates, L.P. ("LGA"). LGA is the general
partner of Green Equity Investors, L.P. Prior to October 25, 1996, GEI owned
approximately 27.8% of the outstanding Common Stock of the Company. Pursuant to
the Management Services Agreement, LGA agreed to provide to the Company
management, consulting, financial planning and financial advisory services for a
two year term, in consideration for an annual fee of $200,000. The amount of
such fee was determined in the course of negotiations among LGA, the Company and
an unofficial bondholders' committee during the Company's 1994 financial
restructuring. LGA is not required to spend a fixed number of hours of service
to the Company pursuant to the Management Services Agreement. During fiscal
1996, the Company paid a total of $200,000 to LGA, and LGA expended
approximately fifty hours of service to the Company, in fulfillment of their
respective obligations under the Management Services Agreement.
On March 9, 1995, in lieu of granting options under the 1995 Non-Employee
Director Stock Option Plan to Jennifer Holden Dunbar and John G. Danhakl,
Directors of the Company affiliated with GEI, the Company granted to GEI options
to purchase 9,000 shares of Common Stock for $10.00 per share, vesting on July
30, 1995, and options to purchase an additional 9,000 shares of Common Stock for
$13.33 per share, vesting on July 28, 1996. The terms of the options granted to
GEI are substantially the same as the terms of the options granted under the
Company's 1995 Non-Employee Director Stock Option Plan.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires directors and certain officers of
the Company, as well as persons who own more than 10% of a registered class of
the Company's equity securities ("Reporting Persons") to file reports of
ownership and changes of ownership on Forms 3, 4 and 5 with the Securities and
Exchange Commission and NASDAQ.
Based solely upon a review of the copies of such forms furnished to the
Company, or written representations that no Form 5 filings were required, the
Company believes that during the period from July 31, 1995 through July 28, 1996
all Section 16(a) filing requirements applicable to its Reporting Persons were
complied with.
I-16
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT NO. DESCRIPTION PAGE
- ------------ -------------------------------------------------------------------------------------------- ---------
<S> <C> <C>
(a)(1)*+ Offer to Purchase dated November 15, 1996...................................................
(a)(2)*+ Letter of Transmittal.......................................................................
(a)(3) Text of press release issued by Parent and the Company dated
October 31, 1996 (Incorporated by reference to Exhibit (99)
to the Company's Current Report on Form 8-K, dated
October 31, 1996).........................................................................
(a)(4) Text of press release issued by Parent and the Company dated
November 8, 1996 (Incorporated by reference to Exhibit (99)
to the Company's Current Report on Form 8-K, dated
November 8, 1996).........................................................................
(a)(5)* Letter to stockholders of the Company dated November 15, 1996...............................
(a)(6)+ Form of Summary Advertisement dated November 15, 1996.......................................
(a)(7)* Fairness Opinion of PaineWebber Incorporated dated October 31, 1996.........................
(c)(1) Agreement and Plan of Merger dated as of October 31, 1996
by and among Food Lion, Inc., KK Acquisition Corp. and
Kash n' Karry Food Stores, Inc. (Incorporated by reference to
Exhibit (2) to the Company's Current Report on Form 8-K,
dated October 31, 1996) ..................................................................
(c)(2) Stockholders Agreement dated as of October 31, 1996 by and among
Food Lion, Inc., KK Acquisition Corp., Kash n' Karry Food Stores, Inc.
and the stockholders named therein (Incorporated by reference to
Exhibit (10) to the Company's Current Report on Form 8-K,
dated October 31, 1996)...................................................................
(c)(3) Confidentiality Agreement dated May 20, 1996 between
PaineWebber Incorporated on behalf of Kash n' Karry Food Stores, Inc.
and Food Lion, Inc. ......................................................................
(c)(4) Confidentiality Agreement dated May 21, 1996 between Kash n' Karry
Food Stores, Inc. and Food Lion, Inc. ....................................................
</TABLE>
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* Included in materials delivered to stockholders of the Company.
+ Filed as an exhibit to Purchaser's Tender Offer Statement on Schedule 14D-1
dated November 15, 1996 and incorporated herein by reference.
<PAGE>
EXHIBIT (a)(5)
[KASH N' KARRY FOOD STORES, INC. LETTERHEAD]
November 15, 1996
Dear Fellow Stockholder:
I am pleased to inform you that on October 31, 1996, Kash n' Karry Food
Stores, Inc. ("Kash n' Karry") entered into an Agreement and Plan of Merger (the
"Merger Agreement") with Food Lion, Inc. ("Food Lion") and its wholly-owned
subsidiary, KK Acquisition Corp. ("Purchaser"), pursuant to which Purchaser is
commencing a cash tender offer (the "Offer") to purchase all of the issued and
outstanding shares of Common Stock of Kash n' Karry, including the associated
preferred stock purchase rights, at a purchase price of $26.00 per share in
cash. Following the successful completion of the Offer, in accordance with the
terms of the Merger Agreement, Purchaser will merge with and into Kash n' Karry
(the "Merger") and Kash n' Karry will continue as the surviving corporation
wholly owned by Food Lion. Each share of Kash n' Karry Common Stock not
purchased in the Offer will be converted in the Merger into the right to receive
$26.00 per share (or any greater amount paid in the Offer) in cash, without
interest. Concurrent with the execution of the Merger Agreement, Kash n' Karry
stockholders owning in the aggregate approximately 67% of the shares outstanding
entered into a Stockholders Agreement with Kash n' Karry, Food Lion and
Purchaser pursuant to which they have agreed to tender their shares in the
Offer.
YOUR BOARD OF DIRECTORS HAS DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, TAKEN
TOGETHER, ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE STOCKHOLDERS OF KASH N'
KARRY, AND RECOMMENDS THAT ALL STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
In arriving at its recommendation, the Board of Directors gave careful
consideration to a number of factors which are described in the enclosed
Schedule 14D-9, including, among other things, the opinion of PaineWebber
Incorporated to the effect that the $26.00 per share cash consideration to be
received by Kash n' Karry stockholders pursuant to the Offer and the Merger is
fair, from a financial point of view, to such stockholders.
In addition to the attached Schedule 14D-9 relating to the Offer, enclosed
is the Offer to Purchase, dated November 15, 1996, of Purchaser, together with
related materials, including a Letter of Transmittal, to be used for tendering
your shares of Common Stock. These documents set forth the terms and conditions
of the Offer and the Merger and provide instructions as to how to tender your
shares. I urge you to read the enclosed materials carefully.
On behalf of your Board of Directors, I thank you for your continued
support.
Sincerely yours,
Ronald E. Johnson
CHAIRMAN OF THE BOARD, PRESIDENT
AND CHIEF EXECUTIVE OFFICER
<PAGE>
EXHIBIT (a)(7)
[PaineWebber Letterhead]
October 31, 1996
Board of Directors
Kash n' Karry Food Stores, Inc.
6422 Harney Road
Tampa, Florida 33610
Madame and Gentlemen:
Kash n' Karry Food Stores, Inc. (the "Company") proposes to enter into an
Agreement and Plan of Merger (the "Agreement") with Food Lion, Inc. ("Parent")
and KK Acquisition Corp., a wholly owned subsidiary of Parent (the "Purchaser").
Pursuant to the Agreement: (i) Purchaser will be merged with and into the
Company (the "Merger"), pursuant to which each issued and outstanding share of
common stock, par value $0.01 per share ("Common Stock"), of the Company (other
than shares held as treasury stock and shares owned by Parent, Purchaser or any
other wholly owned subsidiary of Parent) will be converted into the right to
receive the Consideration (as hereinafter defined) and (ii) at the option of the
Company as specified in the Agreement, prior to the Merger, Purchaser will make
a tender offer (the "Offer" and together with the Merger, the "Transaction") for
all of the outstanding shares of Common Stock at a price of $26.00 per share in
cash (the "Consideration").
You have asked us whether or not, in our opinion, the Consideration is fair,
from a financial point of view, to the holders of Common Stock.
In arriving at the opinion set forth below, we have, among other things:
(1) Reviewed the Company's Annual Reports, Forms 10-K and related
financial information for the four fiscal years ended July 28, 1996;
(2) Reviewed certain information, including financial forecasts,
relating to the business, earnings, cash flow, assets and prospects of the
Company furnished to us by the Company;
(3) Conducted discussions with members of senior management of the
Company concerning its businesses and prospects;
(4) Reviewed the historical market prices and trading activity for the
Common Stock and compared them with those of certain publicly-traded
companies which we deemed relevant;
(5) Compared the results of operations of the Company with those of
certain publicly-traded companies which we deemed relevant;
(6) Compared the proposed financial terms of the Transaction with the
financial terms of certain other business combinations which we deemed
relevant;
(7) Reviewed the Agreement dated October 31, 1996; and
<PAGE>
Board of Directors
Kash n' Karry Food Stores, Inc.
October 31, 1996
Page 2
(8) Reviewed such other financial studies and analyses and performed
such other investigations and took into account such other matters as we
deemed necessary, including our assessment of general economic, market and
monetary conditions.
In preparing our opinion, we have relied on the accuracy and completeness of
all information that was publicly available or supplied or otherwise made
available to us by or on behalf of the Company, and we have not independently
verified such information. With respect to the financial forecasts examined by
us, we have assumed that they were reasonably prepared on bases reflecting the
best currently available estimates good faith judgments of the Company's
management as to the future performance of the Company. We have not undertaken,
and have not been provided with, an independent evaluation or appraisal of the
assets or liabilities (contingent or otherwise) of the Company and have assumed
that all assets or liabilities (contingent or otherwise, known or unknown) of
the Company are as set forth in its respective consolidated financial
statements. During the course of our engagement, we have, at the request of the
Company, solicited third party indications of interest with respect to the
acquisition of the Company. Our opinion is based upon the regulatory, general
economic, market and monetary conditions existing on the date hereof.
Our opinion is directed to the Board of Directors and does not constitute a
recommendation to any shareholder of the Company as to whether or not any such
shareholder should tender his or her shares pursuant to the Offer or approve the
Merger. Our opinion does not address the relative merits of the Transaction and
any other transactions or business strategies discussed by the Board of
Directors of the Company as alternatives to the Transaction or the decision of
the Board of Directors of the Company to proceed with the Transaction.
This opinion has been prepared at the request and for the use of the Board
of Directors of the Company and shall not be reproduced, summarized, described
or referred to, or given to any other person or otherwise made public without
the prior written consent of PaineWebber Incorporated ("PaineWebber"); provided,
however, that this letter may be reproduced in full in the Proxy Statement or
Schedule 14D-9 to be filed with the Securities and Exchange Commission in
connection with the Merger and Offer.
PaineWebber is currently acting as financial advisor to the Company in
connection with the Transaction and will receive a fee upon delivery of this
opinion and upon consummation of the Merger. In addition, a representative of
PaineWebber is a member of the Board of Directors of the Company.
In the ordinary course of our business, we may trade the securities of the
Company for our own account and for the accounts of our customers and,
accordingly, may at any time hold long or short positions in such securities. In
addition, an affiliate of PaineWebber holds approximately 553,600 shares of
Common Stock.
On the basis of, and subject to the foregoing, we are of the opinion that
the Consideration is fair, from a financial point of view, to the holders of
Common Stock.
Very truly yours,
PAINEWEBBER INCORPORATED
<PAGE>
May 20, 1996
Food Lion, Inc. Exhibit (c)(3)
P.O. Box 1330
2110 Executive Drive
Salisbury, NC 28145-1330
Ladies and Gentlemen:
We have advised you that PaineWebber Incorporated ("PaineWebber") is acting
as exclusive financial advisor to Kash n' Karry Foods Stores, Inc. (the
"Company"), a Delaware corporation, to explore a possible transaction relating
to the business and assets of the Company (a "Transaction"). You have requested
certain information relating to the Company in connection with your
consideration of a possible negotiated Transaction between the Company and/or
its stockholders and you.
As a condition to the furnishing of the requested information to you and
your Representatives (as defined below), you agree that (i) all information
relating to the Company furnished by or on behalf of the Company and its
Representatives to you or your Representatives, whether prior to or after your
acceptance of this letter and irrespective of the form of communication, or
learned by you in connection with visits to the Company's facilities, in
connection with your consideration of a Transaction (such information, together
with notes, memoranda, summaries, analyses, compilations and other writings
relating thereto or based thereon prepared by you or your Representatives being
referred to herein as the "Evaluation Material") will be kept strictly
confidential, and (ii) the Evaluation Material will be used solely for the
purpose of determining the desirability of Transaction; PROVIDED, HOWEVER, that
the Evaluation Material may be disclosed to any of your Representatives who need
to know such information for the purpose of assisting you in evaluating a
Transaction (it being understood that such Representatives will be informed by
you of the contents of this agreement and that, by receiving such information,
such Representatives are agreeing to be bound by this agreement). The term
"Evaluation Material" does not include information which is or becomes available
to you or any of your Representatives, on a non-confidential basis from a source
other than the Company or its affiliates or Representatives, PROVIDED that
neither you nor any of your Representatives is aware that such source is under
an obligation (whether contractual, legal or fiduciary) to the Company to keep
such information confidential. For purposes hereof, the "Representatives" of any
entity means such entity's directors, officers, employees, legal and financial
advisers, accountants and other agents and representatives. You will be
responsible for any breach of this agreement by any of your Representatives and
agree to take all reasonable measures to restrain your Representatives from
prohibited or unauthorized disclosure or use of Evaluation Material.
In addition, each of the parties hereto agrees that, except with the prior
written consent of the other party hereto or as required or permitted by this
agreement, such party will not, and will direct is Representatives not to, make
any release to the press or other public disclosure concerning either (i) the
existence of this letter or that the Evaluation Material has been made available
to you or (ii) in the event that the Company or any of its Representatives
engages in discussions or negotiations with you or your Representatives, the
fact that discussions or negotiations are taking place concerning a possible
Transaction, or any of the terms, conditions or other facts with respect to any
such possible Transaction, including the stats thereof, except for such public
disclosure as may be necessary, in the written opinion of such party's outside
counsel, for such party not to be in violation of or default under any
applicable law, regulation or governmental order. If either party hereto
proposes to make any disclosure based upon such an opinion, such party will
deliver a copy of such opinion to the other party hereto together with the text
of the proposed disclosure as far in advance of its disclosure as is
practicable, and will in good faith consult with and consider the suggestions of
the other party hereto and its Representatives concerning the nature and scope
of the information proposed to be disclosed.
<PAGE>
If you or any of your Representatives are requested in any judicial or
administrative proceeding or by any governmental or regulatory authority to
disclose any Evaluation Material, you will (i) give the Company prompt notice of
such requeSt so that it may seek an appropriate protective order and (ii)
consult with the Company as to the advisability of taking legally available
steps to resist or narrow such a request. You will cooperate fully with the
Company in obtaining such an order. If in the absence of a protective order you
are nonetheless compelled to disclose Evaluation Material, the Company agrees
that you may make such disclosure without liability hereunder, PROVIDED that you
give the Company written notice of the information to be disclosed as far in
advance of its disclosure as is practicable and, upon the Company's request and
at its expense, use your best efforts to obtain reasonable assurances that
confidential treatment will be accorded to such information.
If at any time you decide that you do not wish to proceed with a Transaction
or, if earlier, upon the Company's request (which request may not be given prior
to June 10, 1996), you will promptly (and in no event later than five (5)
business days after such request) redeliver or cause to be redelivered to the
Company all copies of the Evaluation Material furnished to you by or on behalf
of the Company and destroy or cause to be destroyed all Evaluation Material
prepared by you or any of your Representatives. Notwithstanding the return or
destruction of the Evaluation Material, you and your Representatives will
continue to be bound by your obligations hereunder.
Although the Company will endeavor to include in the Evaluation Material
information it believes to be relevant to the evaluation of a Transaction, you
hereby acknowledge that neither the Company nor any of its Representatives or
affiliates makes any representation or warranty, express or implied, as to the
accuracy or completeness of any of the Evaluation Material. You agree that
neither the Company nor any of its Representatives or affiliates will have any
liability to you or your representatives resulting from use of any of the
Evaluation Material.
You hereby acknowledge that you are aware (and that your Representatives who
have been apprised of this agreement and your consideration of a Transaction
have been, or upon becoming so apprised will be, advised) of the restrictions
imposed by Federal and state securities laws on a person possessing material
nonpublic information about a company. In this regard, you hereby agree that
while you are in possession of material nonpublic information with respect to
the Company, you will not purchase or sell any securities of the Company, or
communicate such information to any third party, in violation of any such laws.
In consideration for access to the Evaluation Material which you have
requested, you agree not to initiate or maintain contact (other than in the
ordinary course of business) with any officer, director, employee or agent of
the Company regarding its business, operations, prospects, finances or any other
matter pertaining to the Company or to any proposed Transaction, other than by
contacting PaineWebber or Ronald E. Johnson or his designee(s) first. It is
understood that PaineWebber will arrange for appropriate contacts for due
diligence purposes. It is further understood that all (i) communications
regarding a possible Transaction, (ii) requests for additional information,
(iii) requests for facility tours or management meetings and (iv) discussions or
questions regarding procedures, will be submitted or directed first to
PaineWebber or Ronald E. Johnson or his designee(s).
As a further condition to the furnishing of the Evaluation Material, unless
specifically requested in writing in advance by or on behalf of the Company,
neither you nor any of your affiliates or associates (as such terms are defined
in Rule 12b-2 under the Securities Exchange Act of 1934, as amended (the "1934
Act")) will, and you and they will not assist or encourage others (including by
providing financing) to, directly or indirectly, for a period of two (2) years
from the date of this agreement (i) acquire or agree, offer, seek or propose
(whether publicly or otherwise) to acquire ownership (including but not limited
to beneficial ownership (as defined in Rule 13d-3 under the 1934 Act) of (x) the
Company or any of its assets or businesses, (y) any securities issued by the
Company or (z) any rights or options to acquire such ownership (including from a
person other than the Company), whether by means of a negotiated purchase of
securities or assets, tender or exchange offer, merger or other business
combination, recapitalization, restructuring or other extraordinary transaction
(a "Business Combination Transaction"), (ii) engaged in any "solicitation" of
"proxies" (as such terms are used in the proxy rules promulgated under the 1934
Act, but disregarding clause (iv) of Rule 14a-1(l)(2) and including any exempt
solicitation pursuant to
<PAGE>
Rule 14a-2(b)(1) or (2)), or form, join or in any way participate in a "group"
(as defined under the 1934 Act), with respect to any securities issued by the
Company, (iii) otherwise seek or propose to control the Board of Directors,
management or policies of the Company, (iv) take any action that could
reasonably be expected to force the Company to make a public announcement
regarding any of the types of matters referred to in clause (i), (ii) or (iii)
above, or (v) enter into any discussions, negotiations, agreements, arrangements
or understandings with any third party with respect to any of the foregoing. You
also agree during such period not to request the Company or any of its
representatives to amend or waive any provision of this paragraph (including
this sentence). You hereby acknowledge that neither you nor any of your
affiliates or associates is on the date hereof the beneficial owner of any
shares of capital stock of the Company. Notwithstanding the foregoing, you shall
be entitled to make a non-public offer to engage in a merger transaction with
the Company at any time prior to June 10, 1996 by delivery of such an offer to
PaineWebber or to Ronald E. Johnson.
You further agree that, for a period of 18 months from the date hereof,
neither you nor any of your affiliates will solicit, either directly or
indirectly through recruiters or other agents, to employ any officer or
management employee of the Company above the store level, so long as they are
employed by the Company, without obtaining the prior written consent of the
Company. The term "solicit to employ" does not include general solicitations of
employment not specifically directed towards employees of the Company.
The Company hereby undertakes and agrees that, for the period from the date
hereof through and including July 3, 1996 (the "Exclusivity Period"), the
Company will not, nor will the Company authorize or permit any of its
Representatives to take, directly or indirectly, any action to initiate, or to
assist, solicit, receive, negotiate, encourage or accept, any offer or inquiry
from any person to engage in any Business Combination Transaction. In the event
that the Company shall receive an inquiry or offer relating to any Business
Combination Transaction during the Exclusivity Period, it shall promptly notify
you thereof, identifying the party making such inquiry or offer and, if an offer
has been received, describing the material terms thereof, except to the extent
that such notification would, in the written opinion of the Company's outside
counsel (a copy of which shall be delivered to you), cause the Company or its
Board of Directors to be in violation of any applicable law, regulation or
governmental order. The Company represents that neither the Company nor any of
its Representatives is currently a party to any negotiations, agreements,
discussions or transactions relating to any Business Combination Transaction,
except as contemplated by this agreement.
It is expressly understood by the parties hereto that this agreement is not
intended to, and does not, constitute an agreement to consummate a Transaction
or to enter into a definitive Transaction agreement, and neither the Company nor
you will have any rights or obligations of any kind whatsoever with respect to a
Transaction by virtue of this agreement or any other written or oral expression
by either party hereto or their respective Representatives unless and until a
definitive agreement relating thereto between the Company and you is executed
and delivered, other than for the matters specifically agreed to herein. You
further acknowledge that (i) following the Exclusivity Period, the Company and
its Representatives shall be free to negotiate with any other person and enter
into a definitive agreement with regard to a Transaction without prior notice to
you or any other person, (ii) the Company reserves the right to reject any and
all proposals made by you or any of your Representatives with regard to a
possible Transaction and to terminate any discussions or negotiations with you
at any time and (iii) neither the Company nor any of its affiliates or
Representatives nor any third party with whom the Company enters into any
agreement for, or completes, a Business Combination Transaction shall have any
liability to you arising out of or relating to such a Business Combination
Transaction (other than any liability arising under a definitive Transaction
agreement with you in accordance with the terms thereof).
You hereby acknowledge and agree that this agreement is for the benefit of
the Company and its successors and assigns and Representatives, and that they
shall be entitled to enforce the provisions hereof as though parties hereto. You
acknowledge and agree that money damages would not be a sufficient remedy for
any breach of any provision of this agreement by you, and that in addition to
all other remedies which the Company may have, the Company will be entitled to
specific performance and injunctive or other equitable relief as a remedy for
any such breach. No failure or delay by the Company in exercising
<PAGE>
any right, power or privilege hereunder will operate as a waiver thereof, nor
will any single or partial exercise thereof preclude any other or further
exercise thereof or the exercise of any other right, power or privilege
hereunder.
This agreement contains the sole and entire agreement between the parties
with respect to the subject matter hereof. This agreement may be amended,
modified or waived only by a separate written instrument duly executed by or on
behalf of the Company and you. This agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the conflicts of laws principles thereof.
Except to the extent that any provision of this agreement by its terms
terminates sooner, this agreement shall terminate on the second anniversary of
the date hereof.
If the foregoing correctly, sets forth our agreement with respect to the
matters set forth herein, please so indicate by signing two copies of this
agreement and returning such signed copies to us for our signatures, whereupon
this agreement will constitute a binding agreement with respect to the matters
set forth herein.
Very truly yours,
PAINEWEBBER INCORPORATED
on behalf of Kash n' Karry
Food Stores, Inc.
By: /s/ DAVID M. REED, JR.
------------------------------------------
Name: David M. Reed, Jr.
Title: Managing Director
Accepted and agreed to
as of the date first
written above:
FOOD LION, INC.
By: /s/ R. WILLIAM MCCANLESS
--------------------------
Name: R. William McCanless
Title: Senior Vice
President of
Administration
KASH N' KARRY FOOD STORES, INC.
By: /s/ RONALD E. JOHNSON
-------------------------
Name:
Title:
<PAGE>
Exhibit (c)(4)
May 21, 1996
Kash N' Karry Food Stores, Inc.
6422 Harney Road
Tampa, Florida 33610
Ladies and Gentlemen:
We have agreed to provide to you certain information relating to Food Lion,
Inc. (the "Company") in connection with the Company's possible negotiated
transaction relating to your business and assets (a "Transaction").
As a condition to the furnishing of the requested information to you, you
agree that: (i) all information relating to the Company furnished by or on
behalf of the Company to you, whether prior to or after your acceptance of this
letter and irrespective of the form of communication, or learned by you in
connection with visits to the Company's facilities (such information, together
with notes, memoranda, summaries, analyses, compilations and other writings
relating thereto or based thereon prepared by you, being referred to herein as
the "Evaluation Material"), will be kept strictly confidential and not disclosed
to any person or entity (including your Representatives (as defined below),
agents or employees or officers) other than those designated on Schedule 1
hereto (the "Designated Recipients"); and (ii) the Evaluation Material will be
used solely for the purpose of discussions with the Company relating to a
Transaction. The term "Evaluation Material" does not include information which
is or becomes available to you on a non-confidential basis from a source other
than the Company or its affiliates or Representatives, provided that you are not
aware that such source is under an obligation (whether contractual, legal or
fiduciary) to the Company to keep such information confidential. For purposes
hereof, the "Representatives" of any entity mean such entity's directors,
officers, employees, legal and financial advisers, accountants and other agents
and representatives. You will be responsible for any breach of this agreement by
the Designated Recipients and agree to take all reasonable measures to restrain:
(i) your Representatives (other than the Designated Recipients) from obtaining
any Evaluation Material; and (ii) the Designated Recipients from disclosing or
using the Evaluation Material. You shall advise the Designated Recipients of the
existence of this Agreement and their obligations hereunder.
In addition, each of the parties hereto agree that, except with the prior
written consent of the other party hereto or as required or permitted by this
agreement, such party will not, and will direct its Representatives not to, make
any release to the press or other public disclosure concerning the existence of
this letter or that the Evaluation Material has been made available to you,
except for such public disclosure as may be necessary, in the written opinion of
such party's outside counsel, for such party not to be in violation of or
default under any applicable law, regulation or governmental order. If either
party hereto proposes to make any disclosure based upon the opinion, such party
will deliver a copy of such opinion to the other party hereto together with the
text of the proposed disclosure as far in advance of its disclosure as is
practicable, and will in good faith consult with and consider the suggestions of
the other party hereto and its Representatives concerning the nature and scope
of the information proposed to be disclosed.
If you or any of your Representatives are requested in any judicial or
administrative proceeding or by any governmental or regulatory authority to
disclose any Evaluation Material, you will (i) give the Company prompt written
notice of such request so that it may seek an appropriate protective order, and
(ii) consult with the Company as to the advisability of taking legally available
steps to resist or narrow such a request. You will cooperate fully with the
Company in obtaining such an order. If, in the absence of a protective order,
you are nonetheless compelled to disclose Evaluation Material, the Company
agrees that you may make such disclosure without liability hereunder, provided
that you give the Company written notice of the information to be disclosed as
far in advance of its disclosure as is practicable and, upon the Company's
request and at its expense, use your best efforts to obtain reasonable assurance
that confidential treatment will be accorded to such information.
At any time, upon the Company's request, you will promptly (and in no event
later than five (5) business days after such request) redeliver or cause to be
redelivered to the Company all copies of the Evaluation Material furnished to
you by or on behalf of the Company and destroy or cause to destroyed all
<PAGE>
Evaluation Material prepared by you. Notwithstanding the return or destruction
of the Evaluation Material, you will continue to be bound by your obligations
hereunder.
You hereby acknowledge that you are aware of the restrictions imposed by
Federal and state securities laws on a person possessing material nonpublic
information about a company. In this regard, you hereby agree that, while you
are in possession of material nonpublic information with respect to the Company,
you will not purchase or sell any securities of the Company, or communicate such
information to any third party, in violation of such laws.
In consideration for access to the Evaluation Material which you have
requested, you agree not to initiate or maintain contact with any officer,
director, employee or agent of the company regarding its business, operations,
prospects, finances or any other matter pertaining to the Company, other than
the contacting R. William McCanless or his designee(s) first.
You further agree that, for period of eighteen (18) months from the date
hereof, neither you nor any of your affiliates will solicit, either directly or
indirectly through recruiters or other agents, to employ any officer or
management employee of the Company above the store level, so long as they are
employed by the Company, without obtaining the prior written consent of the
Company. The term "solicit to employ" does not include general solicitations of
employment not specifically directed towards employees of the Company.
Neither the Company nor you will have any rights or obligations of any kind
whatsoever with respect to a Transaction by virtue of this agreement.
You hereby acknowledge and agree that this agreement is for the benefit of
the Company and its successors and assigns, and that they shall be entitled to
enforce the provisions hereof as though parties hereto. You acknowledge and
agree that money damages would not be a sufficient remedy for any breach of any
provision of this agreement by you, and that, in addition to all other remedies
which the Company may have, the Company will be entitled to specific performance
and injunctive or other equitable relief as a remedy for any such breach. No
failure or delay by the Company in exercising any right, power or privilege
hereunder will operate as a waiver thereof, nor will any single or partial
exercise thereof preclude any other or further exercise thereof or the exercise
of any other right, power or privilege hereunder.
This agreement contains the sole and entire agreement between the parties
with respect to the subject matter hereof. This agreement may be amended,
modified or waived only by a separate written instrument duly executed by or on
behalf of the Company and you. This agreement shall be governed by and construed
in accordance with the laws of the State of New York without giving effect to
the conflicts of laws or principles thereof.
Except to the extent that any provision of this agreement by its terms
terminates sooner, this agreement shall terminate on the second anniversary of
the date hereof.
<PAGE>
If the foregoing correctly sets forth our agreement with respect to the
matters set forth herein, please so indicate by signing two copies of this
agreement and returning one such signed copies to us, whereupon this agreement
will constitute a binding agreement with respect to the matters set forth
herein.
Very truly yours,
FOOD LION, INC.
By: /s/ R. WILLIAM MCCANLESS
-----------------------------------------
Name: R. William McCanless
Title: Senior Vice President
ACCEPTED AND AGREED AS OF THE
DATE FIRST WRITTEN ABOVE:
KASH N' KARRY FOOD STORES, INC.
By: /s/ RONALD E. JOHNSON
-------------------------
Name: Ronald E. Johnson
Title: President
<PAGE>
SCHEDULE 1
Ronald E. Johnson
Richard D. Coleman
Clifford C. Smith, Jr.
B.J. Mehaffey
Bruce Talvy
David Heuermann
