<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
-----------------------------------
(Mark One)
[ X ] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the Quarterly Period Ended September 27, 1998
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 For the transition period from to
Commission File Number 1-12116
CARR-GOTTSTEIN FOODS CO.
(Exact name of registrant as specified in its charter)
Delaware 920135158
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
6411 A Street
Anchorage, Alaska 99518
(Address of principal executive offices)
Registrant's telephone number, including area code: (907) 561-1944
Indicate by check mark whether the registrant (1) has filed all documents
and reports required to be filed by Sections 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for shorter period that
the registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
Yes [ X ] No [ ]
The number of shares of the registrant's Common Stock outstanding at
November 9, 1998 was 8,243,752 shares.
EXHIBIT INDEX
APPEARS AT PAGE 19
Page 1 of 21
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<PAGE>
CARR-GOTTSTEIN FOODS CO.
AND SUBSIDIARIES
FORM 10-Q
For the Quarterly Period Ended September 27, 1998
INDEX
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
<S> <C> <C>
Item 1. Financial Statements
a) Consolidated Balance Sheets
as of September 27, 1998 (unaudited) and December 28, 1997 1
b) Consolidated Statements of Operations for the 13 weeks and
39 weeks ended September 27, 1998 (unaudited) and
September 28, 1997 (unaudited) 2
c) Consolidated Statements of Cash Flows for the 39 weeks
ended September 27, 1998 (unaudited) and September 28,
1997 (unaudited) 3
d) Notes to Consolidated Financial Statements (unaudited) 4
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations (unaudited) 13
PART II. OTHER INFORMATION 17
SIGNATURES 18
</TABLE>
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
- --------------------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
- --------------------------------------------------------------------------------------------------------------------------
September 27, December 28,
1998 1997
- --------------------------------------------------------------------------------------------------------------------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 14,879 $ 11,081
Accounts receivable, net 11,267 11,513
Income taxes receivable 749 949
Inventories 54,415 51,471
Deferred taxes 2,690 2,690
Prepaid expenses and other current assets 1,835 2,380
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 85,835 80,084
Property, plant and equipment, at cost, net of accumulated depreciation 127,148 134,090
Intangible assets, net of accumulated amortization 89,799 88,973
Deferred taxes 783 783
Other assets 16,344 11,535
- --------------------------------------------------------------------------------------------------------------------------
$ 319,909 $ 315,465
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 41,730 $ 37,187
Accrued expenses 23,842 22,797
Income taxes payable 1,696 -
Note payable 257 -
Current maturities of long-term debt 8,416 12,220
- --------------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT LIABILITIES 75,941 72,204
Long-term debt, excluding current maturities 211,066 215,420
Note payable 2,641 -
Other liabilities 3,559 3,527
- --------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 293,207 291,151
- --------------------------------------------------------------------------------------------------------------------------
Stockholders' equity:
Common stock, $.01 par value, authorized 25,000 shares,
Issued 9,680 shares 97 97
Additional paid in capital 51,006 52,088
Deficit (14,756) (16,149)
- --------------------------------------------------------------------------------------------------------------------------
36,347 36,036
Less treasury stock, 1,438 and 1,741 shares, at cost 9,645 11,722
- --------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 26,702 24,314
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Commitments and contingencies
- --------------------------------------------------------------------------------------------------------------------------
$ 319,909 $ 315,465
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
1
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF OPERATIONS
- -------------------------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS (EXCEPT PER SHARE DATA)
- -------------------------------------------------------------------------------------------------------------------------------
13 Weeks Ended 39 Weeks Ended
------------------------ -------------------------
Sept. 27, Sept. 28, Sept. 27, Sept. 28,
1998 1997 1998 1997
- -------------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
SALES $ 155,427 $ 152,007 $ 440,769 $ 445,503
Cost of merchandise sold, including warehousing
and transportation expenses 110,295 108,576 312,028 317,380
- -------------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT 45,132 43,431 128,741 128,123
Operating and administrative expenses 36,108 35,467 105,665 107,154
Non-recurring charge - - - 8,949
- -------------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 9,024 7,964 23,076 12,020
Other (expense) income:
Interest expense, net (6,266) (6,687) (19,274) (20,102)
Other income (expense) 8 (218) 35 (218)
- -------------------------------------------------------------------------------------------------------------------------------
Total other expense (6,258) (6,905) (19,239) (20,320)
- -------------------------------------------------------------------------------------------------------------------------------
Net income (loss) before taxes 2,766 1,059 3,837 (8,300)
Income tax (expense) benefit (1,421) (720) (2,444) 2,545
- -------------------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 1,345 $ 339 $ 1,393 $ (5,755)
- -------------------------------------------------------------------------------------------------------------------------------
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Basic income (loss) per common share $ 0.16 $ 0.04 $ 0.17 $ (0.73)
Diluted income (loss) per common share 0.16 0.04 0.16 (0.73)
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
Weighted avg. common shares outstanding-basic 8,242 7,935 8,201 7,918
Weighted avg. common shares outstanding-diluted 8,558 8,671 8,517 7,918
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
2
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
- ------------------------------------------------------------------------------------------------------------------------
AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------------
39 weeks Ended
------------------------------
Sept. 27, Sept. 28,
1998 1997
- ------------------------------------------------------------------------------------------------------------------------
(unaudited) (unaudited)
----------- -----------
<S> <C> <C>
OPERATING ACTIVITIES:
Net income (loss) $ 1,393 $ (5,755)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 10,082 10,235
Amortization of intangibles 2,288 2,143
Amortization of loan fees and discounts 976 1,016
Gain on disposal of property and equipment (34) (40)
(Increase) decrease in assets:
Income tax receivable 200 (911)
Receivables 246 (113)
Inventories (3,819) (1,008)
Prepaid expenses 545 (34)
Deferred taxes - (2,374)
Other assets (5,785) (85)
(Decrease) increase in liabilities:
Accounts payable 4,543 1,349
Accrued expenses 1,332 9,195
Income taxes payable 1,696 (298)
Other liabilities 2,745 253
- ------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 16,407 13,573
- ------------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Additions to property and equipment (5,593) (3,192)
Additions to intangibles (2,239) -
Proceeds from sale of property 2,487 588
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES (5,345) (2,604)
- ------------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Payments on long-term debt (8,158) (7,104)
Payments on note payable (102) -
Short term borrowings, net - (5,000)
Issuance of treasury stock 995 321
- ------------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (7,265) (11,783)
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 3,798 (814)
Cash and cash equivalents at beginning of period 11,081 8,655
- ------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 14,879 $ 7,841
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for:
Interest $ 15,816 $ 16,083
Income taxes 748 956
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</TABLE>
SEE ACCOMPANYING NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.
3
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
(1) During interim periods, Carr-Gottstein Foods Co. and subsidiaries (the
"Company") follows the accounting policies set forth in its audited
financial statements included in its Annual Report for the fiscal year
ended December 28, 1997 filed with the Securities Exchange Commission.
These consolidated interim financial statements should be read in
conjunction with such audited consolidated financial statements and notes
thereto. Management believes that the accompanying interim financial
statements reflect all adjustments, which are necessary for a fair
statement of the results of the interim period, presented. All adjustments
made in the accompanying interim financial statements are of a normal
recurring nature.
(2) Statement Financial Accounting Standard No. 128 (SFAS 128), Earnings Per
Share, which supersedes APB Opinion No. 15, Earnings Per Share, specifies
the computation, presentation, and disclosure requirements for earnings per
share (EPS) for entities with publicly held common stock or potential
common stock. The statement replaces Primary EPS and Fully Diluted EPS with
Basic EPS and Diluted EPS, respectively. Basic EPS, unlike Primary EPS,
excludes all dilution while Diluted EPS, like Fully Diluted EPS, reflects
the potential dilution that could occur if securities or other contracts to
issue common stock were exercised or converted into common stock or
resulted in the issuance of common stock that then shared in the earnings
of the entity. The Company has adopted the provisions of SFAS No. 128 and
has restated all prior period EPS amounts accordingly.
(3) On August 6, 1998, the Company announced that it had signed a definitive
agreement (the "Merger Agreement"), with Safeway Inc. ("Safeway") and ACG
Merger Sub, Inc., a wholly-owned subsidiary of Safeway, pursuant to which
Safeway would acquire all outstanding shares of the Company's Common Stock
("Common Stock") at a purchase price of $12.50 per share. In addition,
Safeway will assume approximately $220 million of debt and will account for
the transaction as a purchase. The Board of Directors of the Company
approved the Merger Agreement. The consummation of the transaction
contemplated by the Merger Agreement, which is subject to certain
conditions, including approval of the Company's stockholders, clearance
from certain regulatory authorities and receipt of certain consents, is
expected to occur in the first quarter of 1999. Financing is not a
condition to complete the transaction.
In connection with the Merger Agreement, Green Equity Investors, L.P. (an
affiliate of Leonard Green & Associates, L.P.), the Company's largest
stockholder, executed an agreement with Safeway (the "Stockholder Support
Agreement") in which it agreed to vote its 2,869,592 shares of Common
Stock, which represented 34.8% of the Company's outstanding stock at the
time of the execution of the agreement, in favor of approval of the Merger
Agreement and the transaction contemplated thereby.
The Merger Agreement provides for payment to Safeway of a termination fee
and reimbursement of expenses, under certain circumstances, including if
the Board, in the exercise of its fiduciary responsibilities, withdraws or
modifies its recommendation to the stockholders of the transaction
contemplated by the Merger Agreement.
4
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
(4) CONDENSED CONSOLIDATING FINANCIAL INFORMATION
The Company issued $100,000,000 of senior subordinated unsecured notes on
November 15, 1995. CGF Properties, Inc. has not guaranteed the unsecured notes
and financial information for this wholly-owned subsidiary is presented
separately. All of the Company's other direct and indirect subsidiaries, AOL
Express, Inc., APR Forwarders, Inc., Oaken Keg Spirit Shops, Inc. and Alaska
Advertisers, Inc. are wholly-owned and have fully and unconditionally guaranteed
the unsecured notes on a joint and several basis and, accordingly, are presented
on a combined basis. Parent company only information is presented for
Carr-Gottstein Foods Co., which reflects only its business activity and its
wholly-owned subsidiaries accounted for using the equity method. Separate
financial statements and other disclosures for the guarantor subsidiaries are
not presented because in the opinion of management such information is not
material.
The following are condensed consolidating balance sheets:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
SEPTEMBER 27, 1998 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
ASSETS
<S> <C> <C> <C> <C> <C>
Inventories $ - $ 3,656 $ 50,759 $ - $ 54,415
Other current assets 7,965 82,047 (586) (58,006) 31,420
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 7,965 85,703 50,173 (58,006) 85,835
Property, plant and equipment, net 62,546 2,511 62,091 - 127,148
Intangible, net - - 89,799 - 89,799
Investments in subsidiaries - - 113,946 (113,946) -
Other assets - 673 16,454 - 17,127
- -----------------------------------------------------------------------------------------------------------------------
$ 70,511 $ 88,887 $ 332,463 $ (171,952) $ 319,909
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 1,068 $ 3,850 $ 129,029 $ (58,006) $ 75,941
Long-term debt, excluding current
maturities 40,534 - 170,532 - 211,066
Other liabilities - - 6,200 - 6,200
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 41,602 3,850 305,761 (58,006) 293,207
- -----------------------------------------------------------------------------------------------------------------------
Common stock 10 44 97 (54) 97
Additional paid-in capital 28,966 39,381 51,006 (68,347) 51,006
Retained earnings (deficit) (67) 45,612 (14,756) (45,545) (14,756)
- -----------------------------------------------------------------------------------------------------------------------
28,909 85,037 36,347 (113,946) 36,347
Less treasury stock - - 9,645 - 9,645
TOTAL STOCKHOLDERS' EQUITY 28,909 85,037 26,702 (113,946) 26,702
- -----------------------------------------------------------------------------------------------------------------------
$ 70,511 $ 88,887 $ 332,463 $ (171,952) $ 319,909
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
5
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
BALANCE SHEET NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
DECEMBER 28, 1997 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
ASSETS
Inventories $ - $ 3,837 $ 47,634 $ - $ 51,471
Other current assets 8,323 74,760 5,230 (59,700) 28,613
- -----------------------------------------------------------------------------------------------------------------------
TOTAL CURRENT ASSETS 8,323 78,597 52,864 (59,700) 80,084
Property, plant and equipment, net 62,671 4,951 66,468 - 134,090
Intangible, net - - 88,973 - 88,973
Investments in subsidiaries - - 108,207 (108,207) -
Other assets 32 573 11,713 - 12,318
- -----------------------------------------------------------------------------------------------------------------------
$ 71,026 $ 84,121 $ 328,225 $ (167,907) $ 315,465
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities $ 1,591 $ 4,276 $ 126,037 $ (59,700) $ 72,204
Long-term debt, excluding current
maturities 41,073 - 174,347 - 215,420
Other liabilities - - 3,527 - 3,527
- -----------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 42,664 4,276 303,911 (59,700) 291,151
- -----------------------------------------------------------------------------------------------------------------------
Common stock 10 44 97 (54) 97
Additional paid-in capital 28,966 39,381 52,088 (68,347) 52,088
Retained earnings (deficit) (614) 40,420 (16,149) (39,806) (16,149)
- -----------------------------------------------------------------------------------------------------------------------
28,362 79,845 36,036 (108,207) 36,036
Less treasury stock - - 11,722 - 11,722
- -----------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 28,362 79,845 24,314 (108,207) 24,314
- -----------------------------------------------------------------------------------------------------------------------
$ 71,026 $ 84,121 $ 328,225 $ (167,907) $ 315,465
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
6
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following are condensed consolidating statements of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- ------------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
13 WEEKS ENDED SEPT. 27, 1998 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 21,227 $ 155,293 $ (21,093) $ 155,427
Cost of merchandise sold, including
warehousing and transportation
expenses - 15,411 115,977 (21,093) 110,295
- ------------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 5,816 39,316 - 45,132
Operating and administrative
(income) expenses (1,447) 2,537 35,018 - 36,108
- ------------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,447 3,279 4,298 - 9,024
Interest expense, net (1,093) - (5,173) - (6,266)
Other income - - 8 - 8
Equity in subsidiary earnings - - 2,144 (2,144) -
- ------------------------------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX 354 3,279 1,277 (2,144) 2,766
Income tax (expense) benefit (145) (1,344) 68 - (1,421)
- ------------------------------------------------------------------------------------------------------------------------
NET INCOME $ 209 $ 1,935 $ 1,345 $ (2,144) $ 1,345
- ------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------
</TABLE>
7
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following are condensed consolidating statements of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
39 WEEKS ENDED SEPT. 27, 1998 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 60,347 $ 410,986 $ (30,564) $ 440,769
Cost of merchandise sold, including
warehousing and transportation
expenses - 43,912 298,680 (30,564) 312,028
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 16,435 112,306 - 128,741
Operating and administrative
(income) expenses (4,221) 7,635 102,251 - 105,665
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 4,221 8,800 10,055 - 23,076
Interest expense, net (3,294) - (15,980) - (19,274)
Other income - - 35 - 35
Equity in subsidiary earnings - - 5,739 (5,739) -
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX 927 8,800 (151) (5,739) 3,837
Income tax (expense) benefit (380) (3,608) 1,544 - (2,444)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 547 $ 5,192 $ 1,393 $ (5,739) $ 1,393
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
8
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following are condensed consolidating statements of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
13 WEEKS ENDED SEPT. 28, 1997 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 20,447 $ 142,662 $ (11,102) $ 152,007
Cost of merchandise sold, including
warehousing and transportation
expenses - 15,132 104,546 (11,102) 108,576
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 5,315 38,116 - 43,431
Operating and administrative
expenses (1,360) 2,785 34,042 - 35,467
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 1,360 2,530 4,074 - 7,964
Interest expense, net (1,112) - (5,575) - (6,687)
Other expense - - (218) - (218)
Equity in subsidiary earnings - - 1,639 (1,639) -
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX 248 2,530 (80) (1,639) 1,059
Income tax (expense) benefit (102) (1,037) 419 - (720)
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME $ 146 $ 1,493 $ 339 $ (1,639) $ 339
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
9
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following are condensed consolidating statements of operations:
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF OPERATIONS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
39 WEEKS ENDED SEPT. 28, 1997 CGF PROPERTIES (COMBINED) ONLY ELIMINATION CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Sales $ - $ 58,227 $ 418,115 $ (30,839) $ 445,503
Cost of merchandise sold, including
warehousing and transportation
expenses - 42,424 305,795 (30,839) 317,380
- -----------------------------------------------------------------------------------------------------------------------
GROSS PROFIT - 15,803 112,320 - 128,123
Operating and administrative
(income) expenses (4,029) 8,315 102,868 - 107,154
Non-recurring charge - - 8,949 - 8,949
- -----------------------------------------------------------------------------------------------------------------------
OPERATING INCOME 4,029 7,488 503 - 12,020
Interest expense, net (3,424) - (16,678) - (20,102)
Other expense - - (218) - (218)
Equity in subsidiary earnings - - 4,775 (4,775) -
- -----------------------------------------------------------------------------------------------------------------------
INCOME (LOSS) BEFORE INCOME TAX 605 7,488 (11,618) (4,775) (8,300)
Income tax (expense) benefit (249) (3,069) 5,863 - 2,545
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 356 $ 4,419 $ (5,755) $ (4,775) $ (5,755)
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
10
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following is condensed consolidating cash flow information. The consolidated
Company's cash and cash equivalents is positive at each balance sheet date so
negative balances for individual subsidiaries are not classified as liabilities.
The net cash provided by operating activities fluctuates due to changes in
intercompany receivables and payables from the transfer of cash to and from the
parent company.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
39 WEEKS ENDED SEPT. 27, 1998 CGF PROPERTIES (COMBINED) ONLY CONSOLIDATED
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES $ 2,359 $ (1,754) $ 15,803 $ 16,408
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Addition to property and equipment (1,815) (60) (3,718) (5,593)
Proceeds from sale of property and equipment - 1,814 673 2,487
Additions to intangible assets - - (2,239) (2,239)
- -----------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED BY (USED IN) INVESTING ACTIVITIES (1,815) 1,754 (5,284) (5,345)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (543) - (7,615) (8,158)
Payments on note payable - - (102) (102)
Issuance of treasury stock - - 995 995
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (543) - (6,722) (7,265)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 1 - 3,797 3,798
Cash and cash equivalents at beginning of period 53 106 10,922 11,081
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 54 $ 106 $ 14,719 $ 14,879
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) - CONTINUED
The following is condensed consolidating cash flow information. The consolidated
Company's cash and cash equivalents is positive at each balance sheet date so
negative balances for individual subsidiaries are not classified as liabilities.
The net cash provided by operating activities fluctuates due to changes in
intercompany receivables and payables from the transfer of cash to and from the
parent company.
<TABLE>
<CAPTION>
AMOUNTS IN THOUSANDS
- -----------------------------------------------------------------------------------------------------------------------
STATEMENT OF CASH FLOWS NON-GUARANTOR GUARANTOR PARENT
SUBSIDIARY SUBSIDIARIES COMPANY
39 WEEKS ENDED SEPT. 28, 1997 CGF PROPERTIES (COMBINED) ONLY CONSOLIDATED
- -----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NET CASH PROVIDED BY OPERATING ACTIVITIES $ 490 $ 12 $ 13,071 $ 13,573
- -----------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Addition to property and equipment - (12) (3,180) (3,192)
Proceeds from sale of property and equipment - - 588 588
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN INVESTING ACTIVITIES - (12) (2,592) (2,604)
- -----------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Payments on long-term debt (488) - (6,616) (7,104)
Short term payments - - (5,000) (5,000)
Issuance of treasury stock - - 321 321
- -----------------------------------------------------------------------------------------------------------------------
NET CASH USED IN FINANCING ACTIVITIES (488) - (11,295) (11,783)
- -----------------------------------------------------------------------------------------------------------------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 2 - (816) (814)
Cash and cash equivalents at beginning of period 53 106 8,496 8,655
- -----------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 55 $ 106 $ 7,680 $ 7,841
- -----------------------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------------------
</TABLE>
12
<PAGE>
CARR-GOTTSTEIN FOODS CO. AND SUBSIDIARIES
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The following discussion should be read in conjunction with the unaudited
financial statements and related notes included elsewhere in this Form 10-Q.
GENERAL
Carr-Gottstein Foods Co. is the leading retail and wholesale food
company in Alaska operating full-service supermarkets and wine and liquor stores
as well as the only full-line food warehouse and distribution center (under the
J.B. Gottstein name) in the state.
RESULTS OF OPERATIONS
13 WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO 13 WEEKS ENDED SEPTEMBER 28, 1997
SALES. Sales for the 13 weeks ended September 27, 1998 were $155.4
million compared to $152.0 million for the 13 weeks ended September 28, 1997.
The 2.25% increase was due primarily to improvements at the retail locations
partially offset by the reduction in sales due to the closure of YES Foods,
which closed in the third quarter of 1997. Excluding the impact of YES Foods,
sales improved by $7.9 million, or 5.3%. Retail comparable store sales for the
13 weeks of 1998 improved 3.7% compared to the 13 week period in 1997.
GROSS PROFIT. Gross profit for the 13 weeks ended September 27, 1998
was $45.1 million compared to $43.4 million for the 13 weeks ended September 28,
1997. The improvement in gross margin dollars is primarily attributable to the
increase in sales at the retail locations as compared to the prior year. As a
percentage of sales, gross profit was 29.0% for the 13 weeks 1998 compared to
28.6% for the 13 weeks 1997. Gross profit as a percentage of sales for the 13
weeks 1998 increased primarily due to the closure of YES Foods, which was
operating at lower average gross margins during the 1997 period.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for the 13 weeks ended September 27, 1998 were $36.1 million compared
to $35.5 million for the 13 weeks ended September 28, 1997. The increase in
dollar amount of operating expenses in the 1998 quarter corresponded to the
increase in sales. Operating and administrative expenses as a percentage of
sales were 23.2% for the 13 weeks 1998 compared to 23.3% for the 13 weeks 1997.
OPERATING INCOME. Operating income for the 13 weeks ended September 27,
1998 increased $1.0 million from $8.0 million in the third quarter of 1997 to
$9.0 million in the third quarter of 1998. The increase in operating income was
due to improvements in gross profit and effective expense control.
OTHER INCOME AND EXPENSE. Net interest expense was $6.3 million for the
13 weeks ended September 27, 1998 compared to $6.7 million for the 13 weeks
ended September 28, 1997. The decrease in interest expense was due primarily to
lower average debt balances in the quarter versus the prior year's period.
INCOME TAXES. Income tax expense for the 13 weeks ended September 27,
1998 was $1.4 million compared to $0.7 million for the 13 weeks ended September
28, 1997.
NET INCOME. Net income for the 13 weeks ended September 27, 1998 was
$1.3 million, or $0.16 per share, versus net income of $0.3 million, or $0.04
per share for the 13 weeks ended September 28, 1997.
13
<PAGE>
39 WEEKS ENDED SEPTEMBER 27, 1998 COMPARED TO 39 WEEKS ENDED SEPTEMBER 28, 1997
SALES. Sales for the 39 weeks ended September 27, 1998 were $440.8
million compared to $445.5 million for the 39 weeks ended September 28, 1997.
The decrease in sales for the 39 weeks of 1998 reflects the elimination of sales
attributable to YES Foods, offset by an increase of 1.4% in total retail
comparable store sales.
GROSS PROFIT. Gross profit for the 39 weeks ended September 27, 1998
was $128.7 million compared to $128.1 million for the 39 weeks ended September
28, 1997. The increase in gross margin dollars is partially attributable to the
increased sales at the retail locations. As a percentage of sales, gross profit
was 29.2% for the 39 weeks 1998 compared to 28.8% for the 39 weeks 1997.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating and administrative
expenses for the 39 weeks ended September 27, 1998 were $105.7 million compared
to $107.2 million for the 39 weeks ended September 28, 1997. Operating and
administrative expenses as a percentage of sales were 24.0% for the 39 weeks
1998 compared to 24.1% for the 39 weeks 1997. The decrease in operating expense
dollars is due primarily to the reduction in expenses from the closure of YES
Foods.
OPERATING INCOME. Operating income for the 39 weeks ended September 27,
1998 increased $11.1 million from $12.0 million, or 2.7 % of sales, in 1997 to
$23.1 million, or 5.2 % of sales in 1998. This increase in operating income was
due to improvements in gross profit margin, effective expense control and the
$8.9 million non-recurring pre-tax charge taken in the second quarter of 1997
for expenses primarily associated with the closure of YES Foods and the
discontinuance of service to a Russian export business.
OTHER INCOME AND EXPENSE. Net interest expense was $19.3 million for
the 39 weeks ended September 27, 1998 compared to $20.1 million for the 39 weeks
ended September 28, 1997. The decrease in interest expense is due primarily to
lower average debt balances during 1998.
INCOME TAXES. The Company recognized an income tax expense for the 39
weeks ended September 27, 1998 of $2.4 million compared to a $2.5 million
benefit for the 39 weeks ended September 28, 1997.
NET INCOME (LOSS). Net income for the 39 weeks ended September 27, 1998
was $1.4 million or $0.17 per share, versus a net loss of $5.8 million, or $0.73
per share for the 39 weeks ended September 28, 1997.
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary sources of liquidity are cash flows from
operations and its working capital revolving credit facility, which are
considered to be adequate for anticipated cash needs. Primary uses are capital
expenditures, debt service, and lease payments.
Net cash provided by operating activities was $16.4 million for the 39
weeks ended September 27, 1998 compared to net cash provided by operating
activities of $13.6 million for the same period in 1997. The change in the 39
weeks 1998 compared to 1997 was due primarily to the increased net earnings
recorded during the 1998 period.
Capital expenditures for the 39 weeks ending September 27, 1998 were
$7.8 million. Capital expenditures are expected to range between $8.0 and $12.0
million for fiscal 1998. It is anticipated that the balance of 1998 capital
expenditures will be funded out of cash provided by operations and borrowings
under the working capital revolver.
Net cash used by financing activities for the 39 weeks ending September
27, 1998 was $7.3 million. During this time period, the Company had no increased
borrowings under its revolving line of credit and
14
<PAGE>
made payments against its long-term debt in the amount of $8.2 million. At
September 27, 1998 there were no borrowings outstanding on the revolving debt.
The Company had available unused credit of $35.0 million. Funds borrowed under
the revolving credit portion of the Company's credit facility are restricted to
working capital and general corporate purposes. The level of borrowings under
the Company's revolving debt is dependent primarily upon cash flows from
operations, the timing of disbursements, long-term borrowing activity and
capital expenditure requirements.
On April 9, 1998 the Company completed a transaction whereby it
purchased the fixtures, equipment and inventory of the three retail locations of
Market Basket, Inc. located in Fairbanks and North Pole, Alaska. The transaction
also included the purchase of certain real estate in Fairbanks. As part of the
agreement, the Company entered into a long-term lease for the store in North
Pole, Alaska.
On April 17, 1998 the Company amended its Senior Credit Agreement. The
amendment reduced the Company's borrowing rates by 50 basis points on its $35.0
million working capital revolver and $23.0 million Term A facilities, and by 75
basis points on its $58.8 million Term B facility. The amendment also modified
certain financial covenants and restrictions.
YEAR 2000 ISSUE
The year 2000 issues stems from the fact that many computer programs
were written using two, rather than four, digits to identify the applicable
year. As a result, computer programs with time-sensitive software may recognize
a two-digit code for any year in the next century as related to this century.
For example, "00" entered in a date-filed for the year 2000, may be interpreted
as the year 1900, resulting in system failures or miscalculations and
disruptions of operations, including, among other things, a temporary inability
to process transactions or engage in other normal business activities.
In order to improve operating efficiencies and to help streamline the
Company's administrative operations, the Company installed its new purchasing
and financial system, Project Fusion, in 1996. An ancillary benefit of Project
Fusion is that the majority of the resulting systems are Year 2000 compliant.
Based upon a recent assessment, the Company has determined that the incremental
cost of ensuring that its remaining computer systems are Year 2000 compliant is
not expected to have a material adverse effect on the Company. The Company has
completed a preliminary assessment of each of its operations and their Year 2000
readiness, believes that appropriate actions are being taken, and expects to
complete its overall Year 2000 remediation prior to any anticipated impact on
its operations. The Company believes that, with modifications to existing
software and conversions to new systems, the Year 2000 issue will not pose
significant operational problems for its computer systems and that costs
associated with Year 2000 remediation will not be material. However, if such
modifications and conversions are not made, or are not completed timely, the
Year 2000 issue could have a material impact on the operations of this Company.
The potential impact of the Year 2000 issue on significant customers, vendors
and suppliers has not yet been assessed and cannot be reasonably estimated at
this time. Further, while the Company has initiated formal communications with a
number of its significant suppliers to determine the extent to which the
Company's interface systems are vulnerable to those third parties' failure to
remediate their own Year 2000 issues, and will initiate similar communication
with the balance of its major suppliers in 1998, there is no guarantee that the
systems of other companies on which the Company's systems rely will be timely
converted and would not have an adverse effect on the Company's systems.
RECENT EVENTS
On August 6, 1998, the Company announced that it had signed a
definitive agreement (the "Merger Agreement"), with Safeway Inc. ("Safeway") and
ACG Merger Sub, Inc., a wholly-owned subsidiary of Safeway, pursuant to which
Safeway would acquire all outstanding shares of the Company's Common Stock
("Common Stock") at a purchase price of $12.50 per share. In addition, Safeway
will assume approximately $220 million of debt and will account for the
transaction as a purchase. The Board of Directors of the
15
<PAGE>
Company approved the Merger Agreement. The consummation of the transaction
contemplated by the Merger Agreement, which is subject to certain conditions,
including approval of the Company's stockholders, clearance from certain
regulatory authorities and receipt of certain consents, is expected to occur in
the first quarter of 1999. Financing is not a condition to complete the
transaction.
In connection with the Merger Agreement, Green Equity Investors, L.P.
(an affiliate of Leonard Green & Associates, L.P.), the Company's largest
stockholder, executed an agreement with Safeway (the "Stockholder Support
Agreement") in which it agreed to vote its 2,869,592 shares of Common Stock,
which represented 34.8% of the Company's outstanding stock at the time of the
execution of the agreement in favor of approval of the Merger Agreement.
The Merger Agreement provides for payment to Safeway of a termination
fee and reimbursement of expenses, under certain circumstances, including if the
Board, in the exercise of its fiduciary responsibilities, withdraws or modifies
its recommendation to the stockholders of the transaction contemplated by the
Merger Agreement.
On September 18, 1998, the Company received a request from the Federal
Trade Commission (the "FTC") requesting additional information with respect to
the merger filing under the Hart-Scott-Rodino Antitrust Improvements Act. The
Company expects to complete its response before the end of November.
On October 27, 1998 the Alaska Public Interest Research Group
("AKPIRG"), an Alaska consumer group, filed a suit in state court, seeking to
block the impending merger. The lawsuit claims that the merger would
substantially reduce competition in certain areas of the state. The Company
believes that the filing of this lawsuit is without merit or substance and
intends to vigorously defend against it. It is the Company's intention to
continue to fully comply with the review being performed by the Office of the
Alaska Attorney General and the FTC.
ITEM 2. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable
16
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings - None.
Item 2. Changes in Securities - None
Item 3. Defaults Upon Senior Securities - None.
Item 4. Submission of Matters to a Vote of Security Holders - None
Item 5. Other Information - None
Item 6. Exhibits and Reports on Form 8-K
(a) The exhibits set forth in the Exhibit Index on page 19
hereof are filed with this quarterly report on Form 10-Q.
(b) A report on Form 8-K was filed on August 19, 1998 regarding
the announced Agreement and Plan of Merger dated August 6,
1998 among Carr Gottstein Foods Co., Safeway Inc.
("Safeway") and ACG Merger Sub, Inc. a Delaware corporation
and a wholly owned subsidiary of Safeway.
17
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CARR-GOTTSTEIN FOODS CO.
By: s/s Lawrence H. Hayward
----------------------------
Lawrence H. Hayward
President and
Chief Executive Officer
Date: November 9, 1998
By: s/s Donald J. Anderson
----------------------------
Donald J. Anderson
Senior Vice-President and
Chief Financial Officer
Date: November 9, 1998
18
<PAGE>
CARR-GOTTSTEIN FOODS CO.
Exhibit Index
The following exhibits are attached as indicated:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- --------------------------------
<S> <C>
2.1 Agreement and Plan of Merger Among Carr Gottstein Foods Co., Safeway
Inc. and ACG Merger Sub , Inc.
10.104 Amendment to the Carr-Gottstein 1991 Stock Option Plan
10.105 Amendment to the Carr-Gottstein 1994 Stock Option Plan
10.106 1998 Severance Plan
10.107 Amendment to Employment Agreement - Lawrence H. Hayward
10.108 Amendment to Employment Agreement - Donald J. Anderson
10.109 Amendment to Employment Agreement - Jeff L. Philipps
10.110 1998 Special Bonus Plan
27 Financial Data Schedule
27.1 Restated Financial Data Schedule
27.2 Restated Financial Data Schedule
</TABLE>
19
<PAGE>
EXECUTION COPY
- -------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
DATED AS OF AUGUST 6, 1998
AMONG
CARR-GOTTSTEIN FOODS CO.,
SAFEWAY INC.
AND
ACG MERGER SUB, INC.
- -------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 1 THE MERGER.........................................................1
SECTION 1.1. The Merger............................................1
SECTION 1.2. Effective Time........................................1
SECTION 1.3. Closing of the Merger.................................1
SECTION 1.4. Effects of the Merger.................................2
SECTION 1.5. Certificate of Incorporation and Bylaws...............2
SECTION 1.6. Directors.............................................2
SECTION 1.7. Officers..............................................2
SECTION 1.8. Conversion of Shares..................................2
SECTION 1.9. Appraisal Rights......................................3
SECTION 1.10. Payment of Merger Consideration......................3
SECTION 1.11. Stock Options.......................................4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY......................5
SECTION 2.1. Organization and Qualification; Subsidiaries..........5
SECTION 2.2. Capitalization of the Company and its Subsidiaries....5
SECTION 2.3. Authority Relative to this Agreement;
Recommendation......................................6
SECTION 2.4. SEC Reports; Financial Statements.....................7
SECTION 2.5. Information Supplied..................................7
SECTION 2.6. Consents and Approvals; No Violations.................8
SECTION 2.7. No Default............................................8
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes........9
SECTION 2.9. Litigation...........................................10
SECTION 2.10. Compliance with Applicable Law......................10
SECTION 2.11. Employee Benefit Plans; Labor Matters...............11
SECTION 2.12. Environmental Laws and Regulations..................12
SECTION 2.13. Taxes...............................................15
SECTION 2.14. Intellectual Property; Software.....................16
SECTION 2.15. Vote Required.......................................17
SECTION 2.16. Opinion of Financial Adviser........................17
SECTION 2.17. Brokers.............................................17
SECTION 2.18. Related Party Transactions..........................17
SECTION 2.19. Assets..............................................18
SECTION 2.20. Contracts...........................................18
SECTION 2.21. Shared Appreciation Agreement.......................19
SECTION 2.22. Payments............................................20
i
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION.........20
SECTION 3.1. Organization ........................................20
SECTION 3.2. Authority Relative to this Agreement.................20
SECTION 3.3. SEC Reports; Financial Statements....................21
SECTION 3.4. Information Supplied.................................21
SECTION 3.5. Consents and Approvals; No Violations................21
SECTION 3.6. No Default...........................................22
SECTION 3.7. Litigation...........................................22
SECTION 3.8. Brokers..............................................22
SECTION 3.9. No Prior Activities..................................22
SECTION 3.10. Financing...........................................22
ARTICLE 4 COVENANTS.........................................................23
SECTION 4.1. Conduct of Business..................................23
SECTION 4.2. Preparation of the Proxy Statement...................25
SECTION 4.3. Other Potential Acquirers............................25
SECTION 4.4. Comfort Letter.......................................26
SECTION 4.5. Meeting of Stockholders..............................27
SECTION 4.6. Access to Information................................27
SECTION 4.7. Additional Agreements; Commercially Reasonable
Efforts.............................................27
SECTION 4.8. Employee Benefits....................................28
SECTION 4.9. Public Announcements.................................28
SECTION 4.10. Indemnification.....................................29
SECTION 4.11 Resignation of Officers and Directors................30
SECTION 4.12 Notice of Certain Events.............................30
SECTION 4.13 SAA..................................................30
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER..........................31
SECTION 5.1. Conditions to Each Party's Obligations to Effect the
Merger..............................................31
SECTION 5.2. Conditions to the Obligations of the Company.........31
SECTION 5.3. Conditions to the Obligations of Parent and
Acquisition.........................................32
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER....................................33
SECTION 6.1. Termination..........................................33
SECTION 6.2. Effect of Termination................................34
SECTION 6.3. Fees and Expenses....................................34
SECTION 6.4. Amendment............................................34
SECTION 6.5. Extension; Waiver....................................34
ii
<PAGE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE 7 MISCELLANEOUS.....................................................35
SECTION 7.1. Nonsurvival of Representations and Warranties........35
SECTION 7.2. Entire Agreement; Assignment.........................35
SECTION 7.3. Validity.............................................35
SECTION 7.4. Notices..............................................35
SECTION 7.5. Governing Law........................................36
SECTION 7.6. Descriptive Headings.................................36
SECTION 7.7. Parties in Interest..................................36
SECTION 7.8. Certain Definitions..................................36
SECTION 7.9. Personal Liability...................................37
SECTION 7.10. Counterparts........................................38
</TABLE>
iii
<PAGE>
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SCHEDULE TITLE
- -------- -----
<S> <C>
1.11 Amendment to Company Plans
2.1 Company Subsidiaries
2.2 Limitations or Restrictions on Transfer of Subsidiary Stock
2.6 Consents and Approvals; Conflicts
2.7 Defaults
2.8 Undisclosed Liabilities; Absence of Changes
2.9 Litigation
2.11 Employee Benefit Plans; Labor Matters
2.12 Environmental Matters
2.18 Related Party Transactions
2.19 Real Property; Leases
2.20 Contracts
4.1 Conduct of Business
</TABLE>
iv
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
Cross Reference
Term In Agreement Page
- ---- --------------- ----
<S> <C> <C>
1991 Stock Option ...................Section 1.11......................... 5
1991 Stock Options ..................Section 1.11......................... 5
1994 Stock Option ...................Section 1.11......................... 5
1994 Stock Options ..................Section 1.11......................... 5
Acquisition Board ...................Section 3.2.......................... 22
Acquisition .........................Preamble............................. 1
affiliate ...........................Section 7.8(a)....................... 38
beneficial owner ....................Section 7.8(b)....................... 38
beneficial ownership ................Section 7.8(b)....................... 38
business day ........................Section 7.8(c)....................... 38
capital stock .......................Section 7.8(d)....................... 38
Certificates ........................Section 1.10(b)...................... 4
Closing Date ........................Section 1.3.......................... 2
Closing .............................Section 1.3.......................... 2
Code ................................Section 7.8(e)....................... 38
Company Board .......................Section 2.3(a)....................... 7
Company Disclosure Schedule .........Section 1.11......................... 5
Company Financial Adviser ...........Section 2.16......................... 18
Company Intellectual Property .......Section 2.14(a)...................... 17
Company Permits .....................Section 2.10......................... 11
Company Plans .......................Section 1.11......................... 5
Company .............................Preamble............................. 1
Company SEC Reports .................Section 2.4(a)....................... 7
Company Securities ..................Section 2.2(a)....................... 6
Company Stock Options ...............Section 1.11......................... 5
Contracts ...........................Section 2.20......................... 19
Current Premium .....................Section 4.10(b)...................... 31
D&O Insurance .......................Section 4.10(b)...................... 31
DCMI ................................Section 2.2(c)....................... 7
DGCL ................................Section 1.1.......................... 1
Dissenting Shares ...................Section 1.9.......................... 3
Effective Time ......................Section 1.2.......................... 2
Employee Plans ......................Section 2.11(a)...................... 12
ERISA Affiliate .....................Section 2.11(a)...................... 12
ERISA ...............................Section 2.11(a)...................... 12
Exchange Act ........................Section 2.4(a)....................... 7
Facility ............................Section 2.12(b)...................... 14
Facility ............................Section 2.19(b)...................... 19
Form 10-K ...........................Section 3.3.......................... 22
v
<PAGE>
<CAPTION>
Cross Reference
Term In Agreement Page
- ---- --------------- ----
<S> <C> <C>
Governmental Entity .................Section 2.6.......................... 8
HSR Act .............................Section 2.6.......................... 8
Indemnified Liabilities .............Section 4.10(a)...................... 30
Indemnified Persons .................Section 4.10(a)...................... 30
IRS .................................Section 2.11(a)...................... 12
knowledge ...........................Section 7.8(f)....................... 38
known ...............................Section 7.8(f)....................... 38
LGA .................................Section 5.3(f)....................... 34
Lien ................................Section 2.2(b)....................... 6
Material Adverse Effect .............Section 2.1(b)....................... 6
Material Adverse Effect .............Section 3.1(b)....................... 21
Merger Certificate ..................Section 1.2.......................... 1
Merger Consideration ................Section 1.8(a)....................... 3
Merger Fund .........................Section 1.10(a)...................... 3
Merger ..............................Section 1.1.......................... 1
MSA .................................Section 5.3(f)....................... 34
officer .............................Section 7.8(g)....................... 38
Parent Board ........................Section 3.2.......................... 22
Parent Disclosure Schedule ..........Section 3............................ 21
Parent ..............................Preamble............................. 1
Parent SEC Reports ..................Section 3.3.......................... 22
Payment Agent .......................Section 1.10(a)...................... 3
Permitted Liens .....................Section 7.8(h)....................... 38
person ..............................Section 7.8(i)....................... 39
Property ............................Section 2.19(b)...................... 19
Proxy Statement .....................Section 2.5.......................... 8
Related Parties .....................Section 2.18......................... 18
reporting tail coverage .............Section 4.10(b)...................... 31
SAA .................................Section 2.21......................... 20
SEC .................................Section 2.4(a)....................... 7
Securities Act ......................Section 2.4(a)....................... 7
Share ...............................Section 1.8(a)....................... 2
Shares ..............................Section 1.8(a)....................... 2
Stockholder .........................Preamble............................. 1
subsidiaries ........................Section 7.8(j)....................... 39
subsidiary ..........................Section 7.8(j)....................... 39
Superior Proposal ...................Section 4.3(b)....................... 27
Surviving Corporation ...............Section 1.1.......................... 1
Tax Return ..........................Section 2.13(a)(ii).................. 16
Taxes ...............................Section 2.13(a)(i)................... 16
Third Party Acquisition .............Section 4.3(b)....................... 27
Third Party .........................Section 4.3(b)....................... 27
</TABLE>
vi
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AGREEMENT AND PLAN OF MERGER
THIS AGREEMENT AND PLAN OF MERGER (this "Agreement") dated as of
August 6, 1998, is among CARR-GOTTSTEIN FOODS CO., a Delaware corporation (the
"Company"), SAFEWAY INC., a Delaware corporation ("Parent"), and ACG MERGER SUB,
INC., a Delaware corporation and a wholly owned subsidiary of Parent
("Acquisition").
WHEREAS the Boards of Directors of the Company, Parent and Acquisition
have each (i) determined that the Merger (as defined below) is fair and in the
best interests of their respective stockholders and (ii) approved the Merger in
accordance with this Agreement; and
WHEREAS, as a condition of Parent's entering into this Agreement and
incurring the obligations set forth herein, concurrently with the execution and
delivery of this Agreement, Parent is entering into a Stockholder Support
Agreement with Green Equity Investors, L.P., a Delaware limited partnership (the
"Stockholder"), pursuant to which, among other things, the Stockholder has
agreed, subject to the terms thereof, to vote all shares of capital stock owned
by it in favor of this Agreement, the Merger and the transactions contemplated
thereby;
NOW, THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained and
intending to be legally bound hereby, the Company, Parent and Acquisition hereby
agree as follows:
ARTICLE 1
THE MERGER
SECTION 1.1. THE MERGER. At the Effective Time (as defined below) and
upon the terms and subject to the conditions of this Agreement and in accordance
with the Delaware General Corporation Law (the "DGCL"), Acquisition shall be
merged with and into the Company (the "Merger"). Following the Merger, the
Company shall continue as the surviving corporation (the "Surviving
Corporation") and the separate corporate existence of Acquisition shall cease.
SECTION 1.2. EFFECTIVE TIME. Subject to the terms and conditions set
forth in this Agreement, a Certificate of Merger (the "Merger Certificate")
shall be duly executed by the Company and thereafter delivered to the Secretary
of State of the State of Delaware for filing pursuant to the DGCL on the Closing
Date (as defined in Section 1.3). The Merger shall become effective at such time
as the Merger Certificate is duly filed with the Secretary of State of the State
of Delaware in accordance with the DGCL or such later time as Parent and the
Company may agree upon and set forth in the Merger Certificate (the time the
Merger becomes effective being referred to herein as the "Effective Time").
SECTION 1.3. CLOSING OF THE MERGER. The closing of the Merger (the
"Closing") will take place at a time and on a date (the "Closing Date") to be
specified by the parties, which shall be no later than the second business day
after satisfaction of the
1
<PAGE>
latest to occur of the conditions set forth in Section 5.1, and which shall be
held at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los
Angeles, California 90071, unless another time, date or place is agreed to in
writing by the parties hereto.
SECTION 1.4. EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the DGCL. Without limiting the generality of the foregoing and
subject thereto, at the Effective Time all the rights, privileges, powers,
franchises and properties of the Company and Acquisition shall vest in the
Surviving Corporation and all debts, liabilities and duties of each of the
Company and Acquisition shall become the debts, liabilities and duties of the
Surviving Corporation.
SECTION 1.5. CERTIFICATE OF INCORPORATION AND BYLAWS. The certificate
of incorporation of Acquisition in effect at the Effective Time shall be the
certificate of incorporation of the Surviving Corporation until amended in
accordance with applicable law. The bylaws of Acquisition in effect at the
Effective Time shall be the bylaws of the Surviving Corporation until amended in
accordance with applicable law.
SECTION 1.6. DIRECTORS. The directors of Acquisition at the Effective
Time shall be the initial directors of the Surviving Corporation, each to hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until such director's successor is duly elected or
appointed and qualified.
SECTION 1.7. OFFICERS. The officers of Acquisition at the Effective
Time shall be the initial officers of the Surviving Corporation, each to hold
office in accordance with the certificate of incorporation and bylaws of the
Surviving Corporation until such officer's successor is duly elected or
appointed and qualified.
SECTION 1.8. CONVERSION OF SHARES.
(a) At the Effective Time, each share of common stock, par value $.01
per share, of the Company (individually a "Share" and collectively the
"Shares")issued and outstanding immediately prior to the Effective Time (other
than (i) Shares held in the Company's treasury or by any of the Company's
subsidiaries, (ii) Shares held by Parent, Acquisition or any other subsidiary of
Parent and (iii) Dissenting Shares (as defined in Section 1.9)) shall, by virtue
of the Merger and without any action on the part of Acquisition, the Company or
the holder thereof, be converted into and represent the right to receive $12.50
in cash, without interest (the "Merger Consideration"). Notwithstanding the
foregoing, if between the date of this Agreement and the Effective Time, the
Shares shall have been changed into a different number of shares or a different
class by reason of any stock dividend, subdivision, reclassification,
recapitalization, split, combination or exchange of shares, then the Merger
Consideration contemplated by the Merger shall be correspondingly adjusted to
reflect such stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares.
(b) At the Effective Time, each outstanding share of the common
stock, par value $.01 per share, of Acquisition shall be converted into one
share of common stock, par value $.01 per share, of the Surviving Corporation.
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(c) At the Effective Time, each Share held in the treasury of the
Company and each Share held by Parent, Acquisition or any subsidiary of Parent,
Acquisition or the Company immediately prior to the Effective Time shall, by
virtue of the Merger and without any action on the part of Acquisition, the
Company or the holder thereof, be canceled and cease to exist
and no payment shall be made with respect thereto.
SECTION 1.9. APPRAISAL RIGHTS. Notwithstanding any provision of this
Agreement to the contrary, Shares with respect to which appraisal rights have
been demanded and perfected in accordance with Section 262(d) of the DGCL (the
"Dissenting Shares") shall not be converted into the right to receive the Merger
Consideration, and the holders thereof shall be entitled only to such rights as
are granted by the DGCL. Notwithstanding the preceding sentence, if any holder
of Shares who demands appraisal of such Shares under the DGCL shall effectively
withdraw such holder's demand for appraisal in accordance with Section 262(k) of
the DGCL or becomes ineligible for such appraisal through failure to perfect or
otherwise, then, as of the Effective Date or the occurrence of such event,
whichever last occurs, such holder's Dissenting Shares shall cease to be
Dissenting Shares and shall be converted into and represent the right to receive
the Merger Consideration. The Company shall give Parent prompt notice of any
written demands for appraisal and any other instrument received by the Company
in connection therewith, and Parent shall have the right to participate in all
negotiations and proceedings with respect to such demands. The Company shall
not, except with the prior written consent of Parent, make any payment with
respect to, or settle or offer to settle, any such demands.
SECTION 1.10. PAYMENT OF MERGER CONSIDERATION.
(a) Concurrent with the Effective Time, Parent shall deposit with
ChaseMellon Shareholder Services or such other agent or agents as may be
appointed by Parent and Acquisition (the "Payment Agent") for the benefit of the
holders of Shares cash in the aggregate amount necessary to pay the Merger
Consideration (such cash is hereinafter referred to as the "Merger Fund")
payable pursuant to Section 1.8 in respect of outstanding Shares.
(b) As soon as reasonably practicable after the Effective Time, the
Payment Agent shall mail to each holder of record of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Shares (the "Certificates") whose Shares were converted into the
right to receive the Merger Consideration pursuant to Section 1.8: (i) a letter
of transmittal (which shall specify that delivery shall be effected and risk of
loss and title to the Certificates shall pass only upon delivery of the
Certificates to the Payment Agent and shall be in such form and have such other
provisions as Parent and the Company may reasonably specify) and (ii)
instructions for use in effecting the surrender of the Certificates in exchange
for the Merger Consideration. Upon surrender of a Certificate for cancellation
to the Payment Agent together with such letter of transmittal duly executed, the
holder of such Certificate shall be entitled to receive in exchange therefor a
check representing the Merger Consideration which such holder has the right to
receive pursuant to the provisions of this Article I and the Certificate so
surrendered shall forthwith be canceled. In the event of a transfer of ownership
of Shares which is not registered in the transfer records of the Company,
payment of the Merger Consideration may be made to a transferee if the
Certificate representing such Shares is presented to the Payment Agent
accompanied by all documents required to evidence and effect such transfer and
by evidence that any applicable stock transfer taxes have been paid. Until
surrendered as contemplated by this
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Section 1.10, each Certificate shall be deemed at any time after the Effective
Time to represent only the right to receive upon such surrender the Merger
Consideration as contemplated by this Section 1.10.
(c) In the event that any Certificate for Shares shall have been
lost, stolen or destroyed, the Payment Agent shall issue in exchange therefor,
upon the making of an affidavit of that fact by the holder thereof, such Merger
Consideration as may be required pursuant to this Agreement; PROVIDED, HOWEVER,
that Parent or its Payment Agent may, in its discretion, require the delivery of
a suitable bond or indemnity.
(d) All Merger Consideration paid upon the surrender for exchange of
Shares in accordance with the terms hereof shall be deemed to have been paid in
full satisfaction of all rights pertaining to such Shares, and there shall be no
further registration of transfers on the stock transfer books of the Surviving
Corporation of the Shares which were outstanding immediately prior to the
Effective Time. If after the Effective Time Certificates are presented to the
Surviving Corporation for any reason they shall be canceled and
exchanged as provided in this Article I.
(e) Any portion of the Merger Fund that remains unclaimed by the
holders of Shares six months after the Effective Time shall be returned to
Parent, upon demand, and any such holder who has not exchanged such holder's
Shares for the Merger Consideration in accordance with this Section 1.10 prior
to that time shall thereafter look only to Parent for payment of the Merger
Consideration in respect of such holder's Shares. Notwithstanding the foregoing,
Parent shall not be liable to any holder of Shares for any amount paid to a
public official pursuant to applicable abandoned property laws. Any amounts
remaining unclaimed by holders of Shares two years after the Effective Time (or
such earlier date immediately prior to such time as such amounts would otherwise
escheat to or become property of any Governmental Entity) shall, to the extent
permitted by applicable law, become the property of Parent free and clear of any
claims or interest of any person previously entitled thereto.
(f) Parent shall have the right to demand that the Payment Agent
return to Parent such portion of the Merger Fund that represents the Merger
Consideration payable for Shares for which appraisal rights have been perfected
and for which payment has been made pursuant to Section 262 of the DGCL.
SECTION 1.11. STOCK OPTIONS. On the business day following the
Effective Time, each outstanding option to purchase Shares (a "1994 Stock
Option" or collectively "1994 Stock Options") issued pursuant to the Company's
1994 Outside Directors Stock Option Plan as amended as of August 5, 1998 to the
extent vested in accordance with its terms shall be canceled and the Company
shall pay to each holder of a 1994 Stock Option in exchange therefor cash in an
amount equal to the product of (x) the difference between the Merger
Consideration and the exercise price of such 1994 Stock Option, multiplied by
(y) the number of Shares subject to such 1994 Stock Option (subject to any tax
withholding obligations). Pursuant to the terms of the Company's 1991 Stock
Option Plan, each outstanding option to purchase Shares (a "1991 Stock Option"
and collectively, the "1991 Stock Options") issued pursuant to the 1991 Stock
Option Plan or any amendment thereto shall remain outstanding after the
Effective Time and shall be exercisable for the Merger Consideration the holder
would have received had such 1991 Stock Option been exercised prior to the
Effective Time. In connection with the transactions contemplated by this
Agreement, the Company will use its commercially
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reasonable efforts to obtain consent from each holder of a 1991 Stock Option to
the cancellation of such 1991 Stock Option on the business day following the
Effective Time and the payment by the Company to each such holder of a 1991
Stock Option cash in an amount equal to the product of (x) the difference
between the Merger Consideration and the exercise price of such 1991 Stock
Option, multiplied by (y) the number of Shares subject to such 1991 Stock Option
(subject to any tax withholding obligations). The 1991 Stock Options and the
1994 Stock Options are referred to collectively as the "Company Stock Options."
The 1991 Stock Option Plan and the 1994 Outside Directors Stock Option Plan are
referred to collectively as the "Company Plans." Prior to the Effective Time,
the Company shall cause to be effected amendments to the Company Plans
consistent with Section 1.11 of the Disclosure Schedule delivered by the Company
to Parent concurrently with the execution and delivery of this Agreement (the
"Company Disclosure Schedule").
ARTICLE 2
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent
and Acquisition as follows:
SECTION 2.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Section 2.1 of the Company Disclosure Schedule identifies each
subsidiary of the Company as of the date hereof and its respective jurisdiction
of incorporation or organization, as the case may be. Each of the Company and
its subsidiaries is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation or organization and has all
requisite power and authority to own, lease and operate its properties and to
carry on its businesses as now being conducted. The Company has heretofore
delivered to Acquisition or Parent accurate and complete copies of the
certificate of incorporation and bylaws (or similar governing documents),
as currently in effect, of the Company and its subsidiaries.
(b) Each of the Company and its subsidiaries is duly qualified or
licensed and in good standing to do business in each jurisdiction in which the
property owned, leased or operated by it or the nature of the business conducted
by it makes such qualification or licensing necessary, except in such
jurisdictions where the failure to be so duly qualified or licensed and in good
standing would not individually or in the aggregate have a Material Adverse
Effect (as defined below) on the Company. When used in connection with the
Company or its subsidiaries, the term "Material Adverse Effect" means any change
or effect (i) that is or is reasonably likely to be materially adverse to the
business, assets, results of operations or financial condition of the Company
and its subsidiaries, taken as a whole, other than any change or effect arising
out of general economic conditions unrelated to any businesses in which the
Company is engaged, or (ii) that would, or would be reasonably likely to, impair
or materially delay the ability of the Company to consummate the transactions
contemplated hereby.
SECTION 2.2. CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES.
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(a) The authorized capital stock of the Company consists of
25,000,000 Shares, of which, as of June 20, 1998, 8,241,152 Shares were issued
and outstanding and 1,439,094 Shares were held as treasury stock, and 10,000,000
shares of preferred stock, par value $.01 per share, no shares of which are
outstanding. All of the outstanding Shares have been validly issued and are
fully paid, nonassessable and free of preemptive rights. As of June 20, 1998,
909,270 Shares were reserved for issuance and issuable upon or otherwise
deliverable in connection with the exercise of outstanding Company Stock Options
issued pursuant to the Company Plans. Since June 20, 1998 no shares of the
Company's capital stock have been issued other than pursuant to Company Stock
Options already in existence on such date, and since June 20, 1998 no stock
options have been granted. Except as set forth above, as of the date hereof
there are outstanding (i) no shares of capital stock of the Company, (ii) no
securities of the Company or its subsidiaries convertible into or exchangeable
for shares of capital stock of the Company, (iii) no options or other rights to
acquire from the Company or its subsidiaries and no obligations of the Company
or its subsidiaries to issue any capital stock or securities convertible into or
exchangeable for capital stock of the Company and (iv) no equity equivalent
interests in the ownership or earnings of the Company or its subsidiaries or
other similar rights (collectively "Company Securities"). There are no
outstanding obligations of the Company or its subsidiaries to repurchase, redeem
or otherwise acquire any Company Securities. There are no stockholder
agreements, voting trusts or other agreements or understandings to which the
Company is a party or by which it is bound relating to the voting or
registration of any shares of capital stock of the Company or any preemptive
rights with respect thereto.
(b) Except as set forth in Section 2.2 of the Company Disclosure
Schedule, all of the outstanding capital stock of the Company's subsidiaries is
owned by the Company, directly or indirectly, free and clear of any Lien (as
defined below) or any other limitation or restriction (including any restriction
on the right to vote or sell the same except as may be provided as a matter of
law). For purposes of this Agreement, "Lien" means, with respect to any asset
(including without limitation any security), any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such
asset.
(c) The Company owns 10,000 shares of common stock of Denali
Commercial Management Inc., an Alaska corporation ("DCMI"), representing 33-1/3%
of the outstanding shares of DCMI. The owner of the remaining shares of capital
stock of DCMI is identified on Section 2.2 of the Company Disclosure Schedule.
Except as set forth on Section 2.2 of the Company Disclosure Schedule, there are
no stockholder agreements, voting trusts or other agreements to which the
Company or any of its subsidiaries is a party relating to DCMI or obligations or
liabilities of the Company or any of its subsidiaries to DCMI.
SECTION 2.3. AUTHORITY RELATIVE TO THIS AGREEMENT; RECOMMENDATION.
(a) The Company has all necessary corporate power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by the Board of Directors of the Company (the "Company Board") and no
other corporate proceedings on the part of the Company are necessary to
authorize this Agreement or to consummate the transactions contemplated hereby
except the approval and adoption of this Agreement by the holders of a majority
of the outstanding Shares. The Company Board has taken all
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necessary corporate actions to render the provisions of Section 203 of the DGCL
inapplicable to this Agreement, the Merger, the Stockholder Support Agreement
and the other transactions contemplated hereby and thereby. This Agreement has
been duly and validly executed and delivered by the Company and constitutes a
valid, legal and binding agreement of the Company enforceable against the
Company in accordance with its terms, except (i) as rights to indemnity
hereunder may be limited by federal or state securities laws or the public
policies embodied therein, (ii) as such enforceability may be limited by
bankruptcy, insolvency, moratorium, reorganization or similar laws affecting the
enforcement of creditors' rights generally, and (iii) as the remedy of specific
performance and other forms of injunctive relief may be subject to equitable
defenses and to the discretion of the court before which any proceeding therefor
may be brought.
(b) The Company Board has resolved to recommend that the stockholders
of the Company approve and adopt this Agreement, the Merger and the other
transactions contemplated hereby.
SECTION 2.4. SEC REPORTS; FINANCIAL STATEMENTS.
(a) The Company has filed all required forms, reports and documents
("Company SEC Reports") with the Securities and Exchange Commission (the "SEC")
since January 1, 1995, each of which has complied in all material respects with
all applicable requirements of the Securities Act of 1933, as amended (the
"Securities Act"), and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations thereunder each as in effect on
the dates such forms, reports and documents were filed. None of such Company SEC
Reports, including, without limitation, any financial statements or schedules
included or incorporated by reference therein, contained when filed any untrue
statement of a material fact or omitted to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein in light of the circumstances under which they were made not
misleading. The audited consolidated financial statements and unaudited
consolidated interim financial statements of the Company included or
incorporated by reference in the Company SEC Reports are in accordance with the
books and records of the Company and its subsidiaries and fairly present in
conformity with generally accepted accounting principles applied on a consistent
basis (except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as permitted by Form 10-Q of the SEC),
the consolidated financial position of the Company and its consolidated
subsidiaries as of the dates thereof and their consolidated results of
operations, changes in stockholders' equity and cash flows for the periods then
ended (subject to normal year-end adjustments in the case of any unaudited
interim financial statements which would not be material in amount or effect).
(b) The Company has heretofore made available or promptly will make
available to Acquisition or Parent a complete and correct copy of any amendments
or modifications to any Company SEC Reports filed prior to the date hereof which
are required to be filed with the SEC but have not yet been filed
with the SEC.
SECTION 2.5. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by the Company for inclusion or incorporation by reference in the
proxy statement relating to the meeting of the Company's stockholders to be held
in connection with the Merger (including any amendments and supplements thereto,
the "Proxy Statement") will, at the date mailed to stockholders of the Company
and at the time of the
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meeting of stockholders of the Company to be held in connection with the Merger,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein in light of the circumstances under which they are made not misleading.
The Proxy Statement will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations thereunder.
SECTION 2.6. CONSENTS AND APPROVALS; NO VIOLATIONS. Except as set
forth in Schedule 2.6 of the Company Disclosure Schedule and for filings,
permits, authorizations, consents and approvals as may be required under and
other applicable requirements of the Exchange Act, state securities or blue sky
laws, the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the filing and recordation of the Merger Certificate as required
by the DGCL, no filing with or notice to and no permit, authorization, consent
or approval of any court or tribunal, or federal, state or local administrative,
governmental or regulatory body, agency or authority (a "Governmental Entity")
is necessary for the execution and delivery by the Company of this Agreement or
the consummation by the Company of the transactions contemplated hereby, except
where the failure to obtain such permits, authorizations, consents or approvals
or to make such filings or give such notice would not, individually or in the
aggregate, have a Material Adverse Effect on the Company. Assuming compliance
with the matters referred to in the preceding sentence, neither the execution,
delivery and performance of this Agreement by the Company nor the consummation
by the Company of the transactions contemplated hereby will (i) conflict with or
result in any breach of any provision of the respective certificate of
incorporation or bylaws (or similar governing documents) of the Company or any
of its subsidiaries, (ii) except as set forth in Section 2.6 of the Company
Disclosure Schedule, result in a violation or breach of or constitute (with or
without due notice or lapse of time or both) a default (or give rise to any
right of termination, amendment, cancellation or acceleration or Lien) under any
of the terms, conditions or provisions of any note, bond, mortgage, indenture,
lease, license, contract, agreement or other instrument or obligation to which
the Company or any of its subsidiaries is a party or by which any of them or any
of their respective properties or assets may be bound, (iii) except as set forth
in Section 2.6 of the Company Disclosure Schedule, violate any order, writ,
injunction or decree applicable to the Company or any of its subsidiaries or any
of their respective properties or assets, or (iv) except as set forth in Section
2.6 of the Company Disclosure Schedule, violate any law, statute, rule or
regulation applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, including, without limitation, the Alaska
Takeover Bid Disclosure Act except, in the case of clause (ii) or (iv), for
violations, breaches or defaults which individually or in the aggregate would
not have a Material Adverse Effect on the Company.
SECTION 2.7. NO DEFAULT. None of the Company or its subsidiaries is in
breach, default or violation (and no event has occurred or not occurred through
the Company's action or inaction or, to the knowledge of the Company, through
the action or inaction of any third parties, which with notice or the lapse of
time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its certificate of incorporation or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which the
Company or any of its subsidiaries is now a party or by which any of them or any
of their respective properties or assets may be bound, (iii) any order, writ,
injunction or decree applicable to the Company or any of its subsidiaries or any
of their respective properties or assets, or (iv) any law, statute, rule or
regulation applicable to the Company or any of its subsidiaries or any of their
respective properties or assets, except,
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in the case of clause (ii) or (iv), for violations, breaches or defaults that,
individually or in the aggregate, would not have a Material Adverse Effect on
the Company.
SECTION 2.8. NO UNDISCLOSED LIABILITIES; ABSENCE OF CHANGES.
(a) Except as set forth on Schedule 2.8 of the Company Disclosure
Schedule, neither the Company nor any of its subsidiaries has any debts,
liabilities or obligations of any nature (whether accrued, absolute, contingent
or otherwise) that would be required to be reflected on, or disclosed or
reserved against in, a consolidated balance sheet of the Company and its
subsidiaries or in the notes thereto, prepared in accordance with generally
accepted accounting principles consistently applied, except for (i) debts,
liabilities and obligations that were so reserved on, or disclosed or reflected
in, the consolidated balance sheet of the Company and its subsidiaries as of
March 29, 1998 and the notes thereto, included in the Quarterly Report on Form
10-Q of the Company for the quarter then ended and (ii) debts, liabilities or
obligations arising in the ordinary course of business since March 29, 1998.
(b) Except as set forth in Section 2.8 of the Company Disclosure
Schedule or as expressly contemplated by this Agreement, since March
29, 1998 there has not been:
(i) any damage, destruction or loss to any of the assets or
properties of the Company or any of its subsidiaries that, individually or in
the aggregate, has a Material Adverse Effect on the Company;
(ii) any declaration, setting aside or payment of any dividend
or distribution or capital return in respect of any shares of the Company's
capital stock or any redemption, purchase or other acquisition by the Company or
any of its subsidiaries of any shares of the Company's capital stock;
(iii) any sale, assignment, transfer, lease or other
disposition or agreement to sell, assign, transfer, lease or otherwise dispose
of any of the assets of the Company or any of its subsidiaries for consideration
in the aggregate in excess of $500,000 or other than in the ordinary course of
business;
(iv) any acquisition (by merger, consolidation, or acquisition
of stock or assets) by the Company or any of its subsidiaries of any
corporation, partnership or other business organization or division thereof or
any equity interest therein for consideration or any loans or advances to any
people in excess of $50,000 in the aggregate;
(v) any incurrence of or guarantee with respect to any
indebtedness for borrowed money by the Company or any of its subsidiaries other
than pursuant to the Company's existing credit facilities in the ordinary course
of business;
(vi) any material change in any method of accounting or
accounting practice used by the Company or any of its subsidiaries, other than
such changes required by a change in law or generally accepted accounting
principles;
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(vii) any events with respect to the Company or its
subsidiaries which, individually or in the aggregate, have or which would
reasonably be expected to have, a Material Adverse Effect on the Company;
(viii) (A) any employment, deferred compensation, severance or
similar agreement entered into or amended by the Company or any of its
subsidiaries and any employee, (B) any increase in the compensation payable or
to become payable by it to any of its directors, officers or employees, (C) any
increase in the coverage or benefits available under any vacation pay, company
awards, salary continuation or disability, sick leave, deferred compensation,
bonus or other incentive compensation, insurance, pension or other employee
benefit plan, payment or arrangement made to, for or with such directors,
officers or employees or (D) severance pay arrangements made to, for or with
such directors, officers or employees other than, in the case of (B) and (C)
above, increases in the ordinary course of business consistent with past
practice and that in the aggregate have not resulted in a material increase in
the benefits or compensation expense of the Company or any of its subsidiaries;
(ix) revaluing in any material respect any of its assets,
including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business;
(x) any loan or advance made by the Company or any of its
subsidiaries to any officer or director of the Company or any of its
subsidiaries, other than loans and advances of the Company made in the ordinary
course of business consistent with past practices;
(xi) any material transaction with a Related Party (other
than compensation for services rendered in the ordinary course of business); or
(xii) any agreement to take any actions specified in this Section
2.8, except for this Agreement.
SECTION 2.9. LITIGATION. Except as disclosed in the Company SEC
Reports and as set forth in Section 2.9 of the Company Disclosure Schedule,
there is no suit, claim, action, proceeding or investigation pending or, to the
knowledge of the Company, threatened against the Company or any of its
subsidiaries or any of their respective properties or assets before any
Governmental Entity which individually or in the aggregate would reasonably be
expected to have a Material Adverse Effect on the Company or would reasonably be
expected to prevent or delay the consummation of the transactions contemplated
by this Agreement. Except as disclosed in the Company SEC Reports and as set
forth in Section 2.9 of the Company Disclosure Schedule, none of the Company or
its subsidiaries nor any of their respective properties is subject to any
outstanding order, writ, injunction or decree which individually or in the
aggregate insofar as can be reasonably foreseen in the future would reasonably
be expected to have a Material Adverse Effect on the Company or would reasonably
be expected to prevent or delay the consummation of the transactions
contemplated hereby.
SECTION 2.10. COMPLIANCE WITH APPLICABLE LAW. Except as disclosed in
the Company SEC Reports, the Company and its subsidiaries hold all permits,
licenses, variances, exemptions, orders and approvals of all Governmental
Entities necessary for
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the lawful conduct of their respective businesses (the "Company Permits"),
except in cases in which failures to hold such permits, licenses, variances,
exemptions, orders and approvals individually or in the aggregate would not have
a Material Adverse Effect on the Company. Except as disclosed in the Company SEC
Reports, the Company and its subsidiaries are in compliance with the terms of
the Company Permits, except where the failure so to comply individually or in
the aggregate would not have a Material Adverse Effect on the Company. Except as
disclosed in the Company SEC Reports, the businesses of the Company and its
subsidiaries are not being conducted in violation of any law, ordinance or
regulation of any Governmental Entity, except that no representation or warranty
is made in this Section 2.10 with respect to Environmental Laws (as defined in
Section 2.12 below) and except for violations which individually or in the
aggregate would not have a Material Adverse Effect on the Company. Except as
disclosed in the Company SEC Reports, no investigation or review by any
Governmental Entity with respect to the Company or its subsidiaries is pending
or, to the knowledge of the Company, threatened nor, to the knowledge of the
Company, has any Governmental Entity indicated an intention to conduct the same,
other than such investigations or reviews as would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
SECTION 2.11. EMPLOYEE BENEFIT PLANS; LABOR MATTERS.
(a) Section 2.11 of the Company Disclosure Schedule lists all
employee benefit plans (as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all bonus, stock option,
stock purchase, incentive, deferred compensation, supplemental retirement,
severance and other similar fringe or employee benefit plans, programs or
arrangements and any current or former employment or executive compensation or
severance agreements, written or otherwise, maintained or contributed to or with
respect to which there is any obligation or liability for the benefit of or
relating to any employee or former employee of the Company, any trade or
business (whether or not incorporated) which is a member of a controlled group
including the Company or which is under common control with the Company within
the meaning of Section 414 of the Code (an "ERISA Affiliate"), excluding former
agreements or plans under which the Company has no remaining obligations
(together, the "Employee Plans"). The Company has made available to Parent a
copy of (i) the most recent annual report on Form 5500 filed with the Internal
Revenue Service (the "IRS") for each disclosed Employee Plan where such report
is required, (ii) the documents and instruments governing each such Employee
Plan, and (iii) the latest determination letter from the IRS with respect to
each Employee Plan which is intended to be qualified under Section 401(a) of the
Code. No event has occurred, and to the Company's knowledge, there exists no
condition or set of conditions, in connection with which the Company or any of
its subsidiaries could be subject to any liability under the terms of any
Employee Plans, ERISA, the Code or any other applicable law, including, without
limitation, any liability under Title IV of ERISA, which would individually or
in the aggregate have a Material Adverse Effect on the Company. Except as set
forth in Section 2.11(a) of the Company Disclosure Schedule or as would not
reasonably be expected to have a Material Adverse Effect on the Company, (i) all
payments required to be made by or under any Employee Plan, any related trusts
or any collective bargaining agreement have been made or are being processed in
accordance with normal operating procedures, and all amounts required to be
reflected in the Company's financial statements have been properly accrued to
date as liabilities under or with respect to each Employee Plan, (ii) the
Company has performed all obligations required to be performed by it under any
Employee Plan, (iii) each Employee Plan has been administered in compliance with
its terms and the requirements of applicable law,
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(iv) each Employee Plan which is intended to be qualified within the meaning of
Section 401(a) of the Code has been determined by the IRS to be so qualified and
the Company knows of no fact which would adversely affect the qualified status
of any such Employee Plan, and (v) if as of the Effective Time the Company were
to suffer a "complete withdrawal" under all Employee Plans which are
"multiemployer plans" as defined in Section 3(37) of ERISA, the Company would
not incur a material liability until Title IV of ERISA.
(b) Section 2.11 of the Company Disclosure Schedule sets forth a list
of (i) all employment agreements with employees of the Company; (ii) all
agreements with consultants obligating the Company to make annual cash payments
in an amount exceeding One Hundred Thousand Dollars ($100,000) or that have a
remaining term in excess of one year or are not cancelable (without material
penalty, cost or other liability) within one year; (iii) all severance
agreements, programs and policies of the Company with or relating to its
employees except programs and policies required to be maintained by law; and
(iv) all plans, programs, agreements and other arrangements of the Company with
or relating to its employees which contain change in control provisions. The
Company has made available to Parent copies (or descriptions in detail
reasonably satisfactory to Parent) of all such agreements, plans, programs and
other arrangements.
(c) Except as disclosed in Section 2.11 of the Company Disclosure
Schedule, there will be no payment, accrual of additional benefits, acceleration
of payments or vesting in any benefit under any Employee Plan or any agreement
or arrangement disclosed under this Section 2.11 solely by reason of the
Company's entering into this Agreement or in connection with the
transactions contemplated by this Agreement.
(d) No Employee Plan that is a welfare benefit plan within the
meaning of Section 3(1) of ERISA provides benefits to former employees of the
Company or its ERISA Affiliates other than pursuant to Section 4980B of the
Code.
(e) There are no controversies pending or, to the knowledge of the
Company, threatened between the Company or any of its subsidiaries and any of
their respective employees, which controversies have or would reasonably be
expected to have a Material Adverse Effect on the Company. Neither the Company
nor any of its subsidiaries is a party to any collective bargaining agreement or
other labor union contract applicable to persons employed by the Company or its
subsidiaries except as disclosed in Section 2.11 of the Company Disclosure
Schedule. There are no strikes, slowdowns, work stoppages, lockouts or, to the
Company's knowledge, threats thereof by or with respect to any employees of the
Company or any of its subsidiaries.
(f) There are no pending or, to the knowledge of the Company,
threatened charges or complaints against the Company or its subsidiaries by
the National Labor Relations Board or any comparable state agency which, if
adversely determined, would have a Material Adverse Effect on the Company.
SECTION 2.12. ENVIRONMENTAL LAWS AND REGULATIONS.
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(a) DEFINITIONS. The following terms, when used in this Section 2.12,
shall have the following meanings. Any of these terms may, unless the context
otherwise requires, be used in the singular or the plural depending
on the reference.
(i) "COMPANY." For purposes of this Section 2.12, the term
"Company" shall include all of its subsidiaries.
(ii) "RELEASE" means any spilling, leaking, pumping, pouring,
emitting, emptying, discharging, injecting, escaping, leaching, dumping or
disposing into the environment of any Hazardous Substance, and as otherwise
defined in any Environmental Law.
(iii) "HAZARDOUS SUBSTANCE" means any pollutant, contaminant,
chemical, waste and any toxic, infectious, carcinogenic, reactive, corrosive,
ignitable or flammable chemical or chemical compound or hazardous substance,
material or waste, whether solid, liquid or gas, including, without limitation,
any quantity of asbestos in any form, urea formaldehyde, PCBs, radon gas, crude
oil or any fraction thereof, all forms of natural gas, petroleum products or
by-products or derivatives. radioactive substance or material, pesticide waste
waters, sludges, slag and any other substance, material or waste that is subject
to regulation, control or remediation under any Environmental Laws.
(iv) "ENVIRONMENTAL LAWS" means all laws, statutes, ordinances,
regulations, rules, notice requirements, agency guidelines and orders of any
foreign, federal, state or local government and any governmental department or
agency which regulate or relate to the protection or clean-up of the
environment, the use, treatment, storage, transportation, generation,
manufacture, processing, distribution, handling or disposal of, or emission,
discharge or other release or threatened release of, Hazardous Substances or
otherwise dangerous substances, wastes, pollution or materials (whether, gas,
liquid or solid), the preservation or protection of waterways, groundwater,
drinking water, air, wildlife, plants or other natural resources. Environmental
Laws shall include, without limitation, the Federal Insecticide, Fungicide, and
Rodenticide Act, Resource Conservation and Recovery Act, Clean Water Act, Safe
Drinking Water Act, Atomic Energy Act, Toxic Substances Control Act, Clean Air
Act, Comprehensive Environmental Response, Compensation and Liability Act,
Emergency Planning and Community Right-to-Know Act, Hazardous Materials
Transportation Act and all analogous or related federal, state or local laws,
each as amended.
(iv) "ENVIRONMENTAL CONDITIONS" means the introduction
into the environment of any pollution, including, without limitation, any
contaminant, irritant or pollutant or other Hazardous Substance (whether or not
upon any Facility or former Facility or other property and whether or not such
pollution constituted at the time thereof a violation of any Environmental Law)
as a result of which the Company has or may become liable to any person or by
reason of which any Facility, former Facility or any of the Company's assets may
suffer or be subjected to any lien, whether under any Environmental Law or
common law.
(b) FACILITIES. Except as disclosed in Schedule 2.12 of the Company
Disclosure Schedule, in the Company SEC Reports or in the reports referred to in
paragraph (d) of this Section 2.12, each store, office, plant or warehouse
currently owned, operated or leased by the Company (a "Facility") is, and at all
times while owned, operated or leased by the Company, has been, and each
Facility formerly owned, operated
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or leased by the Company was, at all times when so owned, operated or leased,
owned, leased and operated in compliance with all applicable Environmental Laws
and in a manner that will not give rise to liability under any applicable
Environmental Laws or common law, except in any such case which would not,
individually or in the aggregate, have a Material Adverse Effect on the Company.
Without limiting the foregoing, except as set forth in Section 2.12(b) of the
Company Disclosure Schedule, in the Company SEC Reports or in the audits and
assessments referred to in paragraph (d) of this Section 2.12, during such times
as the Company owned, leased or operated the Facilities or Facilities formerly
owned, operated or leased by the Company, (i) there is not and has not been any
Hazardous Substance used, generated, created, stored, transported, disposed of
at, or handled on, under, or about any Facility or any Facility formerly owned,
operated or leased by the Company, except for quantities of any such Hazardous
Substances stored or otherwise held on, under or about any such Facility in
compliance with all applicable Environmental Laws, (ii) the Company has at all
times used, generated, treated, stored, transported, disposed of or otherwise
handled Hazardous Substances in compliance with all applicable Environmental
Laws and in a manner that will not result in liability of the Company under any
Environmental Law or common law, and (iii) there is not now and has not been at
any time in the past during the Company's ownership, operation or tenancy any
underground or above-ground storage tank or pipeline at any Facility or Facility
formerly owned, operated or leased by the Company where the installation, use,
maintenance, repair, testing, closure or removal of such tank or pipeline was
not in compliance with all applicable Environmental Laws, except in the case of
each of clauses (i), (ii) or (iii) which would not, individually or in the
aggregate, have a Material Adverse Effect on the Company.
(c) NOTICE OF VIOLATION. Except as disclosed in Schedule 2.12 of the
Company Disclosure Schedule, in the Company SEC Reports or in the reports
referred to in paragraph (d) of this Section 2.12, (i) since July 31, 1993 the
Company has not received any written notice of alleged, actual or potential
responsibility for, or any written inquiry or investigation regarding any
Release or threatened Release of any Hazardous Substance at any Facilities or
any Facilities formerly owned, operated or leased by the Company or at any
offsite location where Hazardous Substances generated by the Company have been
disposed, which notice, investigation or inquiry has not been withdrawn or
terminated and (ii) the Company has received no written notice of any other
claim, demand or action by any individual or entity alleging any actual or
threatened injury or damage to any person, property, natural resource or the
environment arising from or relating to any Release or threatened Release of any
Hazardous Substances at, on, under, in, to or from any Facilities or any
Facilities formerly owned, operated or leased by the Company, or in connection
with any operations or activities of the Company, except in the case of each of
clauses (i) and (ii) which would not, individually or in the aggregate, have a
Material Adverse Effect on the Company.
(d) ENVIRONMENTAL AUDITS OR ASSESSMENTS. True, complete and correct
copies of the written reports of all environmental audits or assessments which
have been conducted since January 1, 1993 at any Facility or any Facility
formerly owned, operated or leased by the Company on behalf of the Company and
which are in the possession or control of the Company have been delivered to
Parent and Acquisition, and a list of all such reports is set forth in Section
2.12 of the Company Disclosure Schedule.
(e) ENVIRONMENTAL CONDITIONS. Except as disclosed in Schedule 2.12 of
the Company Disclosure Schedule, in the Company SEC Reports or in the reports
referred to in paragraph (d) of this Section 2.12, there are no present or past
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Environmental Conditions in any way relating to the Company's business or, to
the Company's knowledge, at any Facility or former Facility, except in any such
case which would not, individually or in the aggregate, have a Material
Adverse Effect.
(f) RELEASES OR WAIVERS. The Company has not released any other
person from any claim under any Environmental Law or waived any rights
concerning any Environmental Condition, except in any such case which would not,
individually or in the aggregate, have a Material Adverse Effect.
SECTION 2.13 TAXES.
(a) DEFINITIONS. For purposes of this Agreement:
(i) the term "Tax" (including "Taxes") means all federal,
state, local, foreign and other net income, net worth, gross income, gross
receipts, value added, sales, use, ad valorem, transfer and gains, capital
stock, franchise, profits, license, lease, service, service use, withholding,
payroll, employment, social security, workers or unemployment compensation,
excise, severance, stamp, utility, occupation, premium, real or personal
property, windfall profits, customs, duties or other taxes, fees, assessments or
charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts with respect thereto; and
(ii) the term "Tax Return" means any return, declaration,
report, statement, information statement and other document required to be filed
with any Tax authority or agency.
(b) The Company and its subsidiaries have accurately prepared and
timely filed all Tax Returns they are required to have filed (after giving
effect to any filing extension properly granted by a Governmental Entity having
authority to do so). Such Tax Returns are true and correct in all material
respects and do not contain a disclosure statement under Section 6662 of the
Code (or any predecessor provision or comparable provision of state, local or
foreign law). The Company and its subsidiaries have paid all Taxes due in
connection with or with respect to the periods or transactions covered by such
Tax Returns and have paid all other material Taxes as are due from the Company
and its subsidiaries or for which they could be liable (whether to taxing
authorities or to other persons or entities), except Taxes that are being
contested in good faith by appropriate proceedings and for which the Company has
established and is maintaining reserves to the extent currently required by
GAAP.
(c) No material claim for assessment or collection of Taxes is
presently being asserted against the Company or its subsidiaries and neither the
Company nor any of its subsidiaries is a party to any pending action,
proceeding, or investigation by any governmental or other taxing authority nor
does the Company have knowledge of any such threatened action, proceeding or
investigation. There are no other material Taxes that would be due from the
Company or its subsidiaries if assessed by a taxing authority, except Taxes with
respect to which the Company has established and is maintaining reserves to the
extent required by GAAP.
(d) Except as set forth in Schedule 2.13, neither the Company nor any
of its subsidiaries has (i) granted any waiver of any statute of limitations
with respect to,
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or any extension of a period for the assessment of, any Tax, or (ii) requested
any extension of time within which to file any federal income Tax Return or any
state income or franchise Tax Return, which Tax Return has not been filed as of
the date hereof,
(e) The Tax Returns of the Company and its subsidiaries have been
audited or settled or are closed to assessment for the periods and to the
extent set forth in Schedule 2.13(e).
(f) Neither the Company nor any of its subsidiaries (i) is a party to
or bound by (nor will it become a party to or become bound by) any Tax
indemnity, Tax sharing, Tax allocation or similar agreement or arrangement (or
administrative or accounting practice having substantially the same effect);
(ii) has filed a consent under section 341(f) of the Code (or any corresponding
provision of state, local or foreign income tax law) or agreed to have section
341(f) of the Code (or any corresponding provision of state, local, or foreign
income tax law) apply to any disposition of any asset owned by it; (iii) has
agreed to make or is required to make any material adjustment under section
481(a) of the Code; (iv) has been a member of an affiliated group of
corporations, within the meaning of Section 1504 of the Code (other than the
affiliated group of which the Company is the common parent corporation); (v)
owns material assets that directly; indirectly secure debt the interest on which
is tax-exempt under section 103(a) of the Code, (vi) is obligated under any
agreements in connection with industrial development bonds or other obligations
with respect to which the excludability from gross income of the holder for
federal or state income tax purposes would be affected by the transactions
contemplated hereunder, or (vii) owns any property of a character, the indirect
transfer of which pursuant to this Agreement, would give rise to any material
documentary, stamp or other transfer tax.
(g) Neither the Company nor any of its subsidiaries is, or has been,
a United States real property holding corporation (as defined in section
897(c)(2) of the Code) during the applicable period specified in section
897(c)(1)(A)(ii) of the Code, and, to the knowledge of the Company, no foreign
person directly or indirectly holds (within the meaning of section 897(c)(3) of
the Code) more than five percent of the stock of the Company.
(h) All material Taxes that the Company is required by law to
withhold and collect have been duly withheld or collected and have been timely
paid over to the appropriate governmental authorities to the extent due and
payable.
(i) Neither the Company nor any of its subsidiaries is a party to any
agreement, contract, arrangement or plan that has resulted or would result,
separately or in the aggregate, in connection with this Agreement or any change
of control of the Company or any of its subsidiaries, in the payment of any
material "excess parachute payments" within the meaning of Section 28OG of
the Code.
SECTION 2.14. INTELLECTUAL PROPERTY; SOFTWARE.
(a) Each of the Company and its subsidiaries owns or possesses
adequate licenses or other valid rights to use all existing United States and
foreign patents, trademarks, trade names, service marks, copyrights, trade
secrets and applications therefor (the "Company Intellectual Property Rights"),
except where the failure to own or
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possess valid rights to use such Company Intellectual Property Rights would not
have a Material Adverse Effect on the Company.
(b) The validity of the Company Intellectual Property Rights and the
title thereto of the Company or any subsidiary, as the case may be, is not being
questioned in any pending litigation proceeding to which the Company or any
subsidiary is a party nor, to the knowledge of the Company, is any such
litigation proceeding threatened. Except as would not, individually or in the
aggregate, reasonably be expected to have a Material Adverse Effect on the
Company and except as set forth in Section 2.14 of the Company Disclosure
Schedule, the conduct of the business of the Company and its subsidiaries as now
conducted does not, to the knowledge of the Company, infringe any valid patents,
trademarks, trade names, service marks or copyrights of others, and the
consummation of the transactions completed by this Agreement will not result in
the loss or impairment of any Company Intellectual Property Rights.
SECTION 2.15. VOTE REQUIRED. The affirmative vote of the holders of a
majority of the outstanding Shares is the only vote of the holders of any class
or series of the Company's capital stock necessary to approve and adopt this
Agreement.
SECTION 2.16. OPINION OF FINANCIAL ADVISER. Donaldson, Lufkin &
Jenrette Securities Corporation (the "Company Financial Adviser") has delivered
to the Company Board its written opinion dated the date of this Agreement to the
effect that as of such date the Merger Consideration is fair to the holders of
Shares from a financial point of view.
SECTION 2.17. BROKERS. No broker, finder or investment banker (other
than the Company Financial Advisor) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of the Company. The
Company has made available to Parent a true and complete copy of the letter
agreement dated March 20, 1998 between the Company and the Company Financial
Advisor, which is the only agreement pursuant to which the Company is obligated
to make payments to the Company Financial Advisor in connection with the
transactions contemplated by this Agreement.
SECTION 2.18. RELATED PARTY TRANSACTIONS. Except as set forth in the
Company SEC Reports or Section 2.18 of the Company Disclosure Schedule, no
beneficial owner of 5% or more of the Company's outstanding capital stock or
officer or director of the Company or any person (other than the Company) in
which any such beneficial owner owns any beneficial interest (other than a
publicly held corporation whose stock is traded on a national securities
exchange or in the over-the-counter market and less than 1% of the stock of
which is beneficially owned by all such persons) (collectively, "Related
Parties") has any interest in: (i) any contract, arrangement or understanding
with, or relating to, the business or operations of, the Company or any of its
subsidiaries; (ii) any loan, arrangement, understanding. agreement or contract
for or relating to indebtedness of the Company or any of its subsidiaries; or
(iii) any property (real, personal or mixed), tangible or intangible, used in
the business or operations of the Company or any of its subsidiaries, excluding
any such contract, arrangement, understanding or agreement constituting an
Employee Plan. Following the Effective Time, except for obligations set forth in
this Agreement, neither the Company nor any of its subsidiaries will have any
obligations to any Related Party except for (i) accrued salary for the pay
period commencing immediately prior to the Effective Time and (ii) the
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obligations set forth in the Company SEC Reports and Section 2.18 of the Company
Disclosure Schedule.
SECTION 2.19. ASSETS.
(a) The assets and properties of the Company and its subsidiaries,
considered as a whole, constitute all of the assets and properties which are
reasonably required for the business and operations of the Company and its
subsidiaries as presently conducted. The Company and its subsidiaries have good
and marketable title to or a valid leasehold estate in (i) all personal
properties and assets reflected on the Company's balance sheet at March 29, 1998
(except for properties or assets subsequently sold in the ordinary course of
business consistent with past practice), except as would not, individually or in
the aggregate, have a Material Adverse Effect on the Company, and (ii) (A) all
Carrs Quality Centers (other than the Carrs Quality Center located in Kenai),
(B) the distribution center owned by the Company located in Anchorage, Alaska
and (C) other stores operated by the Company and its subsidiaries which
accounted for not less than 90% of the revenues generated by all such other
stores for the twelve month period ended June 30, 1998, in each case, free and
clear of all Liens (other than Permitted Liens and rights, obligations and
encumbrances arising under the SAA).
(b) Section 2.19 of the Company Disclosure Schedule sets forth (i) a
complete and accurate list of each improved and unimproved real property (a
"Property") and Facility owned or leased by the Company or any of its
subsidiaries, and the current use of such Property or Facility and indicating
whether the Property or Facility is owned or leased, (ii) a complete and
accurate list of all leases pursuant to which the Company or any of its
subsidiaries lease personal property and which require an annual expenditure by
the Company or any of its subsidiaries individually in excess of $250,000 or
which are not cancelable (without material penalty, cost or other liability)
within one year and (iii) with respect to each lease for real property, the term
(including renewal options) and current fixed rent.
(c) There are no pending or, to the knowledge of the Company,
threatened condemnation or similar proceedings relating to any of the Properties
or Facilities of the Company and its subsidiaries, except for such proceedings
which would not, individually or in the aggregate, have a Material Adverse
Effect on the Company.
SECTION 2.20. CONTRACTS. Section 2.20 of the Company Disclosure
Schedule contains a complete and accurate list of all contracts (written or
oral), undertakings, commitments or agreements (other than contracts,
undertakings, commitments or agreements for employee benefit matters set forth
in Section 2.11 of the Company Disclosure Schedule and real property leases set
forth in Section 2.19 of the Company Disclosure Schedule) of the following
categories to which the Company or any of its subsidiaries is a party or by
which any of them is bound (collectively, and together with the contracts,
undertakings, commitments or agreements for employee benefit matters set forth
in Section 2.11 of the Company Disclosure Schedule and the real property leases
set forth in Section 2.19 of the Company Disclosure Schedule, the "Contracts"):
(a) Contracts made in the ordinary course of business requiring
annual expenditures by or liabilities of the Company and its subsidiaries in
excess of $500,000 which have a remaining term in excess of one hundred eighty
(180) days or are not
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cancelable (without material penalty, cost
or other liability) within one hundred eighty (180) days;
(b) promissory notes, loans, agreements, indentures, evidences of
indebtedness or other instruments relating to the lending of money, whether as
borrower, lender or guarantor, in excess of $250,000.
(c) Contracts containing covenants limiting the freedom of the
Company or any of its subsidiaries to engage in any line of business or compete
with any person or operate at any location;
(d) joint venture or partnership agreements or joint development or
similar agreements pursuant to which any third party is entitled to develop any
Property and/or Facility on behalf of the Company or its subsidiaries;
(e) Contracts with any federal, state or local government which have
a remaining term in excess of one year or are not cancelable (without material
penalty, cost or other liability) within one year; and
(f) any other Contract that is material to the Company and its
subsidiaries, taken as a whole.
Except as set forth in Schedule 2.20 of the Company Disclosure
Schedule, true and complete copies of the written Contracts and descriptions of
verbal Contracts, if any, have been delivered or made available to Parent. Each
of the Contracts is a valid and binding obligation of the Company and, to the
Company's knowledge without any investigation, the other parties thereto,
enforceable against the Company in accordance with its terms, except as
enforcement may be limited by bankruptcy, insolvency, moratorium,
reorganization, arrangement or similar laws affecting creditors' rights
generally and by general principles of equity. To the knowledge of the Company,
except for the execution of this Agreement and the Stockholder Support Agreement
and the consummation of the transactions contemplated hereby and thereby, no
event has occurred which would, on notice or lapse of time or both, entitle the
holder of any indebtedness issued pursuant to a Contract identified in Schedule
2.20 of the Company Disclosure Schedule in response to paragraph (b) above to
accelerate, or which does accelerate, the maturity of any such indebtedness.
Section 2.21. SHARED APPRECIATION AGREEMENT.
(a) The Company has delivered to Parent a true and complete copy of
the Shared Appreciation Agreement (the "SAA") referred to in the Company SEC
Reports and has made available to Parent books and records of the Company
reflecting the information required by Section 1.3 of the SAA and the draft
appraisals prepared in 1994, which are the most recent appraisals undertaken on
behalf of the Company with respect to the Properties (as defined in the SAA).
(b) Neither the Company nor its Affiliates (as defined in the SAA)
has paid or has been obligated to pay any amounts pursuant to Section 1.2 of the
SAA and no
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amount shall be due or payable pursuant to Section 1.2 of the SAA as a result of
consummation of the transactions contemplated by this Agreement.
SECTION 2.22. PAYMENTS. Neither the Company nor any of its
subsidiaries, nor, to the knowledge of the Company, any of their respective
representatives acting on their behalf, have paid or delivered any fee,
commission or other sum of money or property to any finder, agent, government
official or other party, in the United States or any other country which the
Company has any reason to believe to have been illegal under any federal, state
or local laws of the United States or to the Company's knowledge, any other
country having jurisdiction. Neither the Company nor any of its subsidiaries
nor, to the knowledge of the Company, any of their respective representatives
acting on their behalf, have accepted or received any unlawful contributions,
payments, gifts or expenditures. Neither the Company nor any of its subsidiaries
have participated in any boycotts.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
SECTION 3.1. ORGANIZATION AND QUALIFICATION; SUBSIDIARIES.
(a) Each of Parent and Acquisition is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
incorporation and has all requisite power and authority to own, lease and
operate its properties and to carry on its businesses as now being conducted.
Parent has heretofore delivered to the Company accurate and complete copies of
the certificate of incorporation and bylaws (or similar governing document) as
currently in effect of Parent and Acquisition.
(b) Each of Parent and Acquisition is duly qualified or licensed and
in good standing to do business in each jurisdiction in which the property
owned, leased or operated by it or the nature of the business conducted by it
makes such qualification or licensing necessary, except in such jurisdictions
where the failure to be so duly qualified or licensed and in good standing would
not have a Material Adverse Effect on Parent. When used in connection with
Parent or Acquisition the term "Material Adverse Effect" means any change or
effect that (i) is or is reasonably likely to be materially adverse to the
business, assets, results of operations or financial condition of Parent and its
subsidiaries, taken as a whole, other than any change or effect arising out of
general economic conditions unrelated to any business in which Parent,
Acquisition or Parent's other subsidiaries are engaged or (ii) that would, or
would be reasonably likely to, impair or materially delay the ability
of Parent and/or Acquisition to consummate the transactions contemplated hereby.
SECTION 3.2. AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Acquisition has all necessary corporate power and authority to execute and
deliver this Agreement and to consummate the transactions contemplated hereby.
The execution and delivery of this Agreement and the consummation of the
transactions contemplated
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hereby have been duly and validly authorized by the boards of directors of
Parent (the "Parent Board") and Acquisition (the "Acquisition Board") and by
Parent (or a wholly owned subsidiary of Parent) as the sole stockholder of
Acquisition and no other corporate proceedings on the part of Parent or
Acquisition are necessary to authorize this Agreement or to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
executed and delivered by each of Parent and Acquisition and constitutes a
valid, legal and binding agreement of each of Parent and Acquisition
enforceable against each of Parent and Acquisition in accordance with its
terms, except (i) as rights to indemnity hereunder may be limited by federal
or state securities laws or the public policies embodied therein, (ii) as
such enforceability may be limited by bankruptcy, insolvency, moratorium,
reorganization or similar laws affecting the enforcement of creditors' rights
generally, and (iii) as the remedy of specific performance and other forms of
injunctive relief may be subject to equitable defenses and to the discretion
of the court before which any proceeding therefor may be brought.
SECTION 3.3. SEC REPORTS; FINANCIAL STATEMENTS. Parent's most recent
annual report on Form 10-K (the "Form 10-K" ) filed with the SEC, including,
without limitation, any financial statements or schedules included or
incorporated by reference therein, did not contain when filed any untrue
statement of a material fact or omit to state a material fact required to be
stated or incorporated by reference therein or necessary in order to make the
statements therein in light of the circumstances under which they were made not
misleading. The audited consolidated financial statements of Parent included in
the Form 10-K fairly present in conformity with generally accepted accounting
principles applied on a consistent basis (except as may be indicated in the
notes thereto) the consolidated financial position of Parent and its
consolidated subsidiaries as of the date thereof and their consolidated results
of operations and changes in financial position for the period then ended.
SECTION 3.4. INFORMATION SUPPLIED. None of the information supplied or
to be supplied by Parent or Acquisition for inclusion or incorporation by
reference to the Proxy Statement will, at the date mailed to stockholders and at
the times of the meeting or meetings of stockholders of the Company to be held
in connection with the Merger, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary in
order to make the statements therein in light of the circumstances under which
they are made not misleading.
SECTION 3.5. CONSENTS AND APPROVALS; NO VIOLATIONS. Except for
filings, permits, authorizations, consents and approvals as may be required
under and other applicable requirements of the Exchange Act, state securities or
blue sky laws, the HSR Act and the filing and recordation of the Merger
Certificate as required by the DGCL, no filing with or notice to, and no permit,
authorization, consent or approval of, any Governmental Entity is necessary for
the execution and delivery by Parent or Acquisition of this Agreement or the
consummation by Parent or Acquisition of the transactions contemplated hereby,
except where the failure to obtain such permits, authorizations, consents or
approvals or to make such filings or give such notice would not, individually or
in the aggregate, have a Material Adverse Effect on Parent. Neither the
execution, delivery and performance of this Agreement by Parent or Acquisition
nor the consummation by Parent or Acquisition of the transactions contemplated
hereby will (i) conflict with or result in any breach of any provision of the
respective certificate of incorporation or bylaws (or similar governing
documents) of Parent or Acquisition, (ii) to the knowledge of the Parent, result
in a violation or breach of or constitute (with or without due notice or lapse
of time or both) a default (or give rise to any right of
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termination, amendment, cancellation or acceleration or Lien) under any of the
terms, conditions or provisions of any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent
or Acquisition is a party or by which any of them or any of their respective
properties or assets may be bound or (iii) violate any order, writ, injunction,
decree, law, statute, rule or regulation applicable to Parent or Acquisition or
any of their respective properties or assets except, in the case of clause (ii)
or (iii), for violations, breaches or defaults which would not, individually or
in the aggregate, have a Material Adverse Effect on Parent.
SECTION 3.6. NO DEFAULT. None of Parent, Acquisition, or any of
Parent's other subsidiaries is in breach, default or violation (and, to the
knowledge of the Parent, no event has occurred which with notice or the lapse of
time or both would constitute a breach, default or violation) of any term,
condition or provision of (i) its certificate of incorporation or bylaws (or
similar governing documents), (ii) any note, bond, mortgage, indenture, lease,
license, contract, agreement or other instrument or obligation to which Parent,
Acquisition, or any of Parent's other subsidiaries is now a party or by which
any of them or any of their respective properties or assets may be bound or
(iii) any order, writ, injunction, decree, law, statute, rule or regulation
applicable to Parent, Acquisition, or any of Parent's other subsidiaries or any
of their respective properties or assets, except for violations, breaches or
defaults that do not and would not, or would not be reasonably likely to,
individually or in the aggregate, impair or materially delay the ability of
Parent and/or Acquisition to consummate the transactions contemplated hereby.
SECTION 3.7. LITIGATION. Except as disclosed in the Parent SEC
Reports, there is no suit, claim, action, proceeding or investigation pending
or, to the knowledge of Parent, threatened against Parent, Acquisition, or any
of Parent's other subsidiaries or any of their respective properties or assets
before any Governmental Entity which individually or in the aggregate would
reasonably be expected to prevent or delay the consummation of the transactions
contemplated by this Agreement. Except as disclosed in the Parent SEC Reports,
none of Parent, Acquisition, or Parent's other subsidiaries is subject to any
outstanding order, writ, injunction or decree which insofar as can be reasonably
foreseen in the future would reasonably be expected to prevent or delay the
consummation of the transactions contemplated hereby.
SECTION 3.8. BROKERS. No broker, finder or investment banker is
entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by or on behalf of Parent or Acquisition.
SECTION 3.9. NO PRIOR ACTIVITIES. Except for obligations incurred in
connection with its incorporation or organization of the negotiation and
consummation of this Agreement and the transactions contemplated hereby,
Acquisition has neither incurred any obligation or liability nor engaged in any
business or activity of any type or kind whatsoever or entered into any
agreement or arrangement with any person.
SECTION 3.10. FINANCING. Parent or Acquisition has sufficient
capital resources to enable Acquisition to effect the Merger as contemplated
herein at the Effective Time.
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ARTICLE 4
COVENANTS
SECTION 4.1. CONDUCT OF BUSINESS. Except as contemplated by this
Agreement or as described in Section 4.1 of the Company Disclosure Schedule,
during the period from the date hereof to the Effective Time the Company will
and will cause each of its subsidiaries to conduct its operations in the
ordinary course of business consistent with past practice and seek to preserve
its relationships with customers, suppliers and others having business dealings
with it. Without limiting the generality of the foregoing, except as otherwise
expressly provided in this Agreement, or as described in Section 4.1 of the
Company Disclosure Schedule, prior to the Effective Time, neither the Company
nor any of its subsidiaries will, without the prior written consent of Parent
and Acquisition:
(a) amend its certificate of incorporation or bylaws (or
other similar governing instrument);
(b) authorize for issuance, issue, sell, deliver or agree or
commit to issue, sell or deliver (whether through the issuance or granting of
options, warrants, commitments, subscriptions, rights to purchase or otherwise)
any stock of any class or any other securities (except bank loans) or equity
equivalents (including, without limitation, any stock options or stock
appreciation rights) except for the issuance and sale of Shares pursuant to
options previously granted under the Company Plans;
(c) split, combine or reclassify any shares of its capital
stock, declare, set aside or pay any dividend or other distribution or capital
return (whether in cash, stock or property or any combination thereof) in
respect of its capital stock, make any other actual, constructive or deemed
distribution in respect of its capital stock or otherwise make any payments to
stockholders in their capacity as such, or redeem or otherwise acquire any of
its securities or any securities of any of subsidiaries;
(d) adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or other
reorganization of the Company or any of its subsidiaries (other than the
Merger);
(e) alter through merger, liquidation, reorganization,
restructuring or any other fashion the corporate structure of ownership of any
subsidiary;
(f) (A) incur or assume any long-term or short-term debt or
issue any debt securities except for borrowings under the Company's existing
credit facilities in the ordinary course of business; (B) assume, guarantee,
endorse or otherwise become liable or responsible (whether directly,
contingently or otherwise) for the obligations of any other person (other than
obligations of subsidiaries of the Company incurred in the ordinary course of
business) except pursuant to existing credit facilities; (C) make any loans,
advances or capital contributions to or investments in any other person (other
than to subsidiaries of the Company in the ordinary course of business
consistent with past practice); (D) pledge or otherwise encumber shares of
capital stock of the Company or any of its subsidiaries; or (E) mortgage or
pledge any of its material
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assets, tangible or intangible, or create or suffer to exist any Lien thereupon
(other than Tax Liens for Taxes not yet due);
(g) except as may be required by law, enter into, adopt or
amend or terminate any bonus, profit sharing, compensation, severance,
termination, stock option, stock appreciation right, restricted stock,
performance unit, stock equivalent, stock purchase agreement, pension,
retirement, deferred compensation, employment, severance or other employee
benefit agreement, trust, plan, fund or other arrangement for the benefit or
welfare of any director, officer or employee or increase in any manner the
compensation or fringe benefits payable or to become payable to any director,
officer or employee, or increase the coverage or benefits available under any
severance pay, termination pay, vacation pay, salary continuation or disability,
sick leave, deferred compensation, bonus or other incentive compensation,
insurance, pension or other employee benefit plan, payment or arrangement made
to, for or with such directors, officers or employees, or pay any benefit not
required by any plan and arrangement as in effect as of the date hereof
(including, without limitation, the granting of stock appreciation rights or
performance units); PROVIDED, HOWEVER, that this paragraph (g) shall not prevent
the Company or any of its subsidiaries from (A) entering into employment
agreements with new officers hired to replace departing employees, provided that
any such new officer, upon termination of employment, shall be entitled only to
the benefits provided under the Carr-Gottstein Foods Co. 1998 Severance Plan or
(B) increasing annual compensation and/or providing for or amending bonus
arrangements for employees in connection with promotions or advancements of such
employees or the assumption by such employees of significant additional
responsibilities, in each case in amounts consistent with past practice;
(h) sell, assign, transfer, lease or dispose of any assets in
any single transaction or series of related transactions for consideration
individually in excess of Two Hundred Fifty Thousand Dollars
($250,000), other than in the ordinary course of business;
(i) except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the accounting
principles or practices used by it;
(j) revalue in any material respect any of its assets
including without limitation writing down the value of inventory or writing off
notes or accounts receivable other than in the ordinary course of business;
(k) (A) acquire (by merger, consolidation or acquisition
of stock or assets) any corporation, partnership or other business organization
or division thereof or any equity interest therein; (B) enter into any contract
or agreement which requires annual expenditures by the Company or its
subsidiaries in excess of Five Hundred Thousand Dollars ($500,000) or which has
a term in excess of one year or is not cancelable (without material penalty cost
or liability) within one year; (C) enter into or renew, without the prior
consent of Parent which shall not be unreasonably withheld, or amend or modify,
any agreement with any collective bargaining agent relating to its business,
except for agreements with respect to routine employee grievance matters in the
ordinary course of business; (D) make any material amendments or modifications
to any Contract (other than collective bargaining agreements, which shall be
covered by clause (k)(C)), any agreement with a Related Party or other agreement
filed as an exhibit
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to any of the Company SEC Reports; (E) make any payment to a Related Party,
except in accordance with the terms of any contract or compensation to employees
in the ordinary course of business; or (F) authorize any new capital expenditure
or expenditures which in the aggregate are in excess of Five Million Dollars
($5,000,000); PROVIDED that the capital expenditures shall be consistent with
the capital plans set forth on Section 4.1 of the Company Disclosure Schedule;
and PROVIDED FURTHER that the foregoing shall not limit any capital expenditure
required pursuant to existing contracts or purchase orders;
(l) make any tax election or settle or compromise any income
tax liability which involves cost or liability to the Company in excess of
$250,000;
(m) settle or compromise any pending or threatened suit,
action or claim (A) which relates to the transactions contemplated by this
Agreement, (B) is listed on Section 2.9 of the Company Disclosure Schedule or
(C) the settlement or compromise of which could have a Material Adverse Effect
on the Company; or
(n) take or agree in writing or otherwise to take any of the
actions described in Sections 4.1(a) through 4.1(m) or any action which would
make any of the representations or warranties of the Company contained in
this Agreement untrue or incorrect.
SECTION 4.2. PREPARATION OF THE PROXY STATEMENT. The Company shall
promptly prepare and file with the SEC the Proxy Statement. Parent and
Acquisition agree to cooperate in such preparation and to provide promptly to
the Company all information with respect to Parent, Acquisition and the
transactions contemplated by this Agreement required to be included or
incorporated by reference therein. The Company will use its reasonable best
efforts to have cleared by the SEC and thereafter mail to its stockholders as
promptly as practicable the Proxy Statement and all other proxy materials for
the meeting of its stockholders to consider and vote upon this Agreement. Parent
shall have a right to review and comment on the Company Proxy Statement and
other proxy materials before filing with the SEC. Each of the Company and Parent
shall notify each other after the receipt by it of any written or oral comments
of the SEC, and shall promptly supply the other with copies of all
correspondence between it or any of its representatives and the SEC with respect
to any of the foregoing filings.
SECTION 4.3. OTHER POTENTIAL ACQUIRERS.
(a) The Company agrees that neither it nor any of its subsidiaries,
nor any officer, director or employee of the Company or its subsidiaries shall,
and that it shall direct and use its best efforts to cause its and its
subsidiaries' agents and representatives (including investment bankers,
attorneys or accountants) not to, directly or indirectly, encourage, solicit,
initiate, enter into or conduct discussions or negotiations with or provide any
non-public information to any person or group (other than Parent and Acquisition
or any designees of Parent and Acquisition) concerning any Third Party
Acquisition (as defined in Section 4.3(b)); PROVIDED, HOWEVER, that (i) nothing
herein shall prevent the Company Board from taking and disclosing to the
Company's stockholders a position contemplated by Rules 14d-9 and 14e-2
promulgated under the Exchange Act with regard to any tender offer and otherwise
complying with such rules, PROVIDED that the Company Board shall not recommend
that the stockholders of the Company tender their Shares in connection with such
tender offer unless the Company Board by a majority vote determines in good
faith, after consultation with and based upon the advice
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of legal counsel that there is a substantial likelihood that it is required to
do so in order to comply with its fiduciary duties; and (ii) if the Company
Board by a majority vote determines in good faith, after consultation with and
based upon the advice of legal counsel, that there is a substantial likelihood
that it is required to do so in order to comply with its fiduciary duties, the
Company Board may, and may authorize or permit any of its or its subsidiaries'
respective officers, directors, employees, representatives or agents to respond
to inquiries from, discuss with, negotiate with, and provide non-public
information to, any other person concerning a Third Party Acquisition. The
Company shall promptly notify Parent in the event it receives any proposal or
inquiry concerning a Third Party Acquisition including the terms and conditions
thereof and the identity of the party submitting such proposal.
(b) Except as set forth in this Section 4.3(b), the Company Board
shall not withdraw its recommendation of the transactions contemplated hereby or
approve or recommend, or cause the Company to enter into any agreement with
respect to, any Third Party Acquisition. Notwithstanding the foregoing, if the
Company Board by a majority vote determines in good faith, after consultation
with and based upon the advice of legal counsel that there is a substantial
likelihood that it is required to do so in order to comply with its fiduciary
duties, the Company Board may withdraw its recommendation of the transactions
contemplated hereby or approve or recommend a Superior Proposal; PROVIDED,
HOWEVER, that the Company shall not be entitled to enter into any agreement with
respect to a Superior Proposal unless and until this Agreement is terminated
pursuant to Section 6.1 and the Company has paid all amounts due pursuant to
Section 6.3. For the purposes of this Agreement, "Third Party Acquisition" means
the occurrence of any of the following events: (i) the acquisition of the
Company by merger or otherwise by any person (which includes a "person" as such
term is defined in Section 13(d)(3) of the Exchange Act) other than Parent,
Acquisition or any affiliate thereof (a "Third Party"); (ii) the acquisition by
a Third Party of more than 35% of the total assets of the Company and its
subsidiaries taken as a whole; (iii) the acquisition by a Third Party of
beneficial ownership of 35% or more of the outstanding Shares; (iv) the adoption
by the Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; (v) the repurchase by the Company or any of its
subsidiaries of more than 35% of the outstanding Shares; or (vi) the acquisition
by the Company or any subsidiary by merger, purchase of stock or assets, joint
venture or otherwise of a direct or indirect ownership interest or investment in
any business the annual revenues, net income or assets of which is equal or
greater than 35% of the annual revenues, net income or assets of the Company.
For purposes of this Agreement a "Superior Proposal" means any bona fide
proposal to acquire directly or indirectly for consideration consisting of cash
and/or securities more than 50% of the Shares then outstanding or all or
substantially all the assets of the Company and otherwise on terms which the
Company Board by a majority vote determines in its good faith judgment (taking
into consideration advice of a financial adviser of nationally recognized
reputation) to be more favorable to the Company's stockholders than the Merger.
SECTION 4.4. COMFORT LETTER. The Company shall use all reasonable
efforts to cause KPMG Peat Marwick LLP to deliver a letter dated not more than
five days prior to the date on which the Proxy Statement shall be mailed to the
stockholders of the Company and addressed to itself and Parent and their
respective boards of directors in form and substance reasonably satisfactory to
Parent and customary in scope and substance for agreed-upon procedures letters
delivered by independent public accountants in connection with proxy statements
similar to the Proxy Statement.
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SECTION 4.5. MEETING OF STOCKHOLDERS. The Company shall take all
action necessary in accordance with the DGCL and its certificate of
incorporation and bylaws to duly call, give notice of, convene and hold a
meeting of its stockholders as promptly as practicable to consider and vote upon
the adoption and approval of this Agreement and the transactions contemplated
hereby. The stockholder vote required for the adoption and approval of this
Agreement is the affirmative vote of a majority of the outstanding Shares. The
Company will, through the Company Board, recommend to its stockholders approval
of such matters; PROVIDED, HOWEVER, that the Company Board may withdraw its
recommendation in accordance with the provisions of Section 4.3(b).
SECTION 4.6. ACCESS TO INFORMATION.
(a) Between the date hereof and the Effective Time, the Company will
give Parent and its authorized representatives reasonable access to plants,
offices, warehouses and other facilities upon reasonable notice and to all books
and records of itself and its subsidiaries, will permit the Parent to make such
inspections as the Parent may reasonably require and will cause its officers and
those of its subsidiaries to furnish the Parent with such financial and
operating data and other information with respect to the business and properties
of the Company and its subsidiaries as the Parent may from time to time
reasonably request; PROVIDED, HOWEVER, the parties hereto agree that no such
data or other information shall be made available to Parent or Acquisition to
the extent that it is competitively sensitive or the exchange of such
information between competitors would result in a violation of any applicable
law, rule or regulation.
(b) Parent and Acquisition will hold and will cause their consultants
and advisers to hold in confidence all documents and information furnished to
them by or on behalf of the Company in connection with the transactions
contemplated by this Agreement in accordance with the terms of that certain
letter agreement regarding confidentiality from the Company Financial Advisor
dated April 8, 1998 and executed by Parent on April 9, 1998 (the
"Confidentiality Agreement"), provided that obligations regarding public
disclosures with respect to the transactions contemplated by this Agreement
shall be governed by Section 4.9 hereof and Parent, Acquisition and their
consultants and advisors may communicate directly with the Company's Chief
Executive Officer, Chief Financial Officer and Senior Vice President-Store
Operations. The Company will hold and will cause its consultants and advisors to
hold in confidence all documents and information furnished to it by or on behalf
of Parent in connection with the transactions contemplated by this Agreement, to
the extent such documents and information would constitute "Evaluation Material"
(as defined in the Confidentiality Agreement) of Parent, in the same manner in
which Parent and Acquisition are required to treat Evaluation Material of the
Company.
SECTION 4.7. ADDITIONAL AGREEMENTS; COMMERCIALLY REASONABLE EFFORTS.
(a) Subject to the terms and conditions herein provided, each of the
parties hereto agrees to use commercially reasonable efforts to take or cause to
be taken all action and to do or cause to be done all things necessary, proper
or advisable under applicable laws and regulations to consummate and make
effective the transactions contemplated by this Agreement, including, without
limitation, (i) cooperating in the preparation and filing of the Proxy
Statement, any filings that may be required under the HSR Act and any amendments
to any thereof; (ii) obtaining consents of all third parties
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necessary, proper or advisable for the consummation of the transactions
contemplated by this Agreement, estoppel certificates from lessors of the
Company and its subsidiaries and the quitclaim deed contemplated by Section 2.9
of the SAA and a certificate in form and substance reasonably satisfactory to
Parent with respect to the SAA; PROVIDED THAT neither party shall incur any
significant expense or liability or agree to any significant modification to any
contractual arrangement to obtain such consents, certificates or deed; (iii)
obtaining consents of any Governmental Entities necessary, proper or advisable
for the consummation of the transactions contemplated by this Agreement; (iv)
contesting any legal proceeding relating to the Merger and (v) executing any
additional instruments necessary to consummate the transactions contemplated
hereby. Subject to the terms and conditions of this Agreement, the Company,
Parent and Acquisition agree to use commercially reasonable efforts to cause the
Effective Time to occur as soon as practicable after the Company stockholder
vote with respect to the Merger. If at any time after the Effective Time any
further action is necessary to carry out the purposes of this Agreement, the
proper officers and directors of each party hereto shall take all such necessary
action.
(b) Between the date hereof and the Effective Time, the
Company shall cooperate with Parent's efforts to negotiate and enter into
written agreements affecting Company's real estate, as Parent may deem necessary
or desirable, including, without limitation, modifications and extensions of
real estate leases and other agreements; PROVIDED, HOWEVER, that no such
agreements shall be binding on the Company prior to the Effective Time; and
provided, further, that Parent's obtaining any such modifications, extensions
and agreements shall not be a condition to the obligations of Parent and
Acquisition to consummate the Merger and the other transactions contemplated by
this Agreement. Parent will, from time to time, upon request of the Company,
advise the Company of all material agreements or arrangements entered into in
connection with the negotiation of any such modifications, extensions or
agreements.
SECTION 4.8. EMPLOYEE BENEFITS. As of the Closing, employees of the
Company will become employees of Parent or a subsidiary of Parent. Parent will
or will cause such subsidiary to provide the eligible employees of the Company
and its subsidiaries from the Effective Time until the first anniversary of the
Effective Time with compensation and employee benefits of the type described in
Section 2.11 of this Agreement (other than stock option or other plans involving
the potential issuance or purchase on the open market of securities of the
Company or of Parent) which, in the aggregate, are at least as favorable as
those currently provided by Parent and its subsidiaries, as the case may be, to
their respective employees in the markets in which the Company and its
subsidiaries operate. Parent agrees and will cause the Surviving Corporation to
agree that all obligations of the Company or any subsidiary under any "change of
control" or similar provisions relating to employees contained in any existing
contracts and all termination or severance agreements with executive officers
identified in Section 2.11 of the Company Disclosure Schedule (subject to
Section 1.11 hereof) will be honored in accordance with their terms as of the
date hereof. Notwithstanding the foregoing, except as provided in the preceding
sentence nothing contained herein shall be construed as requiring Parent or the
Surviving Corporation to continue any specific employee benefit plans or to
continue the employment of any specific person.
SECTION 4.9. PUBLIC ANNOUNCEMENTS. Parent, Acquisition and the
Company, as the case may be, will consult with one another before issuing any
press release or otherwise making any public statements with respect to the
transactions contemplated by this Agreement, including, without limitation, the
Merger, and shall not
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issue any such press release without the prior written consent of the other
parties, which consent shall not be unreasonably withheld, or make any such
public statement prior to consultation, except in each case as may be required
by applicable law or by obligations pursuant to any listing agreement with the
NYSE as determined by Parent, Acquisition or the Company, as the case may be
(provided that such party has used reasonable efforts to consult with and, where
necessary, seek the consent of, the other party and allow such other party to
comment thereon).
SECTION 4.10. INDEMNIFICATION.
(a) After the Effective Time, the Surviving Corporation shall
indemnify and hold harmless (and shall also advance expenses as incurred to the
fullest extent permitted under applicable law to, upon receipt of an undertaking
to repay such advances as required by the DGCL) each person who is now or has
been prior to the date hereof or who becomes prior to the Effective Time an
officer or director of the Company or any of the Company's subsidiaries (the
"Indemnified Persons") against (i) all losses, claims, damages, costs, expenses
(including, without limitation, reasonable counsel fees and expenses),
settlement payments or liabilities arising out of or in connection with any
claim, demand, action, suit, proceeding or investigation based in whole or in
part on or arising in whole or in part out of the fact that such person is or
was an officer or director of the Company or any of its subsidiaries whether or
not pertaining to any matter existing or occurring at or prior to the Effective
Time and whether or not asserted or claimed prior to or at or after the
Effective Time ("Indemnified Liabilities") and (ii) all Indemnified Liabilities
based in whole or in part on or arising in whole or in part out of or pertaining
to this Agreement or the transactions contemplated hereby, in each case to the
fullest extent required or permitted under applicable law or under the Surviving
Corporation's certificate of incorporation or bylaws. This Section 4.10 shall
not limit or otherwise adversely affect any rights any Indemnified Person may
have under any agreement with the Company or under the Company's certificate of
incorporation or bylaws and from and after the Effective Time, the Surviving
Corporation shall fulfill, assume and honor in all respects the obligations of
the Company pursuant to the Company's certificate of incorporation, bylaws and
any indemnification agreement between the Company and any of the Company's
directors and officers existing and in force as of the date of this Agreement,
to the extent permitted under applicable law. The Surviving Corporation shall
not be liable for any settlement effected without its written consent, which
consent shall not be unreasonably withheld. The Indemnified Persons as a group
may retain only one law firm to represent them with respect to any single action
unless there are one or more defenses available to an Indemnified Person which
may be inconsistent with those of any other Indemnified Person or there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Persons,
in which case this limitation shall not apply. The Surviving Corporation shall
not be liable for any settlement effected without its written consent, which
consent shall not be unreasonably withheld. Parent hereby guarantees the payment
and performance of the Surviving Corporation's obligations in this Section 4.10.
Each Indemnified Person (and their respective heirs and estates) is intended to
be a third party beneficiary of this Section 4.10 and may specifically enforce
its terms.
(b) Parent or the Surviving Corporation shall purchase a six-year
extended reporting period endorsement ("reporting tail coverage") under the
Company's existing directors' and officers' liability insurance coverage (or as
much coverage as can be obtained for a total not in excess of 150% of the
Current Premium), PROVIDED THAT such reporting tail coverage shall extend the
director and officer liability coverage in force as
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of the date hereof from the Effective Time on terms, that in all material
respects, are no less advantageous to the intended beneficiaries thereof than
the existing officers' and directors' liability insurance. "Current Premium"
shall mean the last annual premium paid prior to the date hereof for the
existing officers' and directors' liability insurance.
(c) If the Parent or the Surviving Corporation or any of its
successors or assigns (i) shall consolidate with or merge into any other
corporation or entity and shall not be the continuing or surviving corporation
or entity of such consolidation or merger or (ii) shall transfer all or
substantially all of its properties and assets to any individual, corporation or
other entity, then, and in each such case, proper provisions shall be made so
that the respective successors and assigns of Parent and the Surviving
Corporation shall assume all of the obligations set forth in this Section.
SECTION 4.11 RESIGNATION OF OFFICERS AND DIRECTORS. Each of the
directors and officers of the Company and its subsidiaries shall tender their
resignations effective on or before the Effective Time.
SECTION 4.12 NOTICE OF CERTAIN EVENTS. Each of Parent and the
Company shall promptly notify each other of:
(a) any notice or other communication from any person alleging that
the consent of such person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency in connection with the transactions contemplated by this
Agreement;
(c) any actions, suits, claims, investigations or proceedings
commenced or, to the best of its knowledge, threatened against, relating to or
involving or otherwise affecting such party which, if pending on the date of
this Agreement, would have been required to have been disclosed pursuant to
Section 2.9 or Section 3.8, as the case may be, or which relate to the
consummation of the transactions contemplated by this Agreement; or
(d) the occurrence or nonoccurrence of any event which would
reasonably be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect; provided that the
delivery of any notice pursuant to this Section 4.13 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 4.13. SAA. The Company will comply with the terms,
conditions and provisions of the SAA prior to the Effective Time. In connection
therewith, the Company will (a) select appraisers for the Properties (as defined
in the SAA) that are reasonably acceptable to Parent, (b) provide Parent with
copies of preliminary appraisals no later than 60 days prior to the Closing, and
(c) consult with Parent regarding the contents of the appraisals prior to
finalizing such appraisals in order to assure the accuracy, completeness and
reasonableness thereof. The Company and Parent will promptly deliver to each
other copies of any written communications and reports of any non-written
communications received between the date hereof and the
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Effective Time by the Company or any of its Affiliates on the one hand (as
defined in the SAA) or Parent or any of its affiliates on the other hand
relating to the SAA.
ARTICLE 5
CONDITIONS TO CONSUMMATION OF THE MERGER
SECTION 5.1. CONDITIONS TO EACH PARTY'S OBLIGATIONS TO EFFECT THE
MERGER. The respective obligations of each party hereto to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) this Agreement shall have been approved and adopted by the
requisite vote of the stockholders of the Company;
(b) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, entered, promulgated or enforced by any
court or Governmental Entity which prohibits, restrains, enjoins or restricts
the consummation of the Merger, and no legal proceeding shall be pending in
which a Governmental Entity seeks to prohibit, restrain, enjoin or restrict the
consummation of the Merger; and
(c) any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired and any other governmental or regulatory
notices or approvals required with respect to the transactions contemplated
hereby shall have been either filed or received.
SECTION 5.2. CONDITIONS TO THE OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) the representations and warranties of Parent and Acquisition
contained in this Agreement or in any other document delivered pursuant hereto
shall be true and correct at and as of the Effective Time (except to the extent
such representations specifically related to an earlier date, in which case such
representations shall be true and correct as of such earlier date) and, at the
Closing, Parent and Acquisition shall have delivered to the Company a
certificate to that effect;
(b) each of the covenants and obligations of Parent and Acquisition
to be performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, Parent and Acquisition
shall have delivered to the Company a certificate to that effect;
(c) Parent shall have obtained the consent or approval of each person
whose consent or approval shall be required in connection with the transactions
contemplated hereby under any loan or credit agreement, note, mortgage,
indenture, lease, license or other agreement or instrument, except those for
which failure to obtain such consents and approvals would not, in the reasonable
opinion of the Company, individually or in the aggregate, have a
Material Adverse Effect on Parent.
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SECTION 5.3. CONDITIONS TO THE OBLIGATIONS OF PARENT AND ACQUISITION.
The respective obligations of Parent and Acquisition to effect the Merger are
subject to the satisfaction at or prior to the Effective Time of the following
conditions:
(a) the representations of the Company contained in this Agreement or
in any other document delivered pursuant hereto shall be true and correct at and
as of the Effective Time with the same effect as if made at and as of the
Effective Time (except to the extent such representations specifically related
to an earlier date, in which case such representations shall be true and correct
as of such earlier date) and, at the Closing, the Company shall have delivered
to Parent and Acquisition a certificate to that effect;
(b) each of the covenants and obligations of the Company to be
performed at or before the Effective Time pursuant to the terms of this
Agreement shall have been duly performed in all material respects at or before
the Effective Time and, at the Closing, the Company shall have delivered to
Parent and Acquisition a certificate to that effect;
(c) the Company shall have obtained the consent or approval of each
person whose consent or approval shall be required in order to permit the
succession by the Surviving Corporation pursuant to the Merger to any
obligation, right or interest of the Company or any subsidiary of the Company
under any loan or credit agreement, note, mortgage, indenture, lease, license or
other agreement or instrument, except for those for which failure to obtain such
consents and approvals would not, in the reasonable opinion of Parent,
individually or in the aggregate, have a Material Adverse Effect on the Company;
PROVIDED THAT with respect to real property leases, this condition shall be
deemed satisfied only if the Company shall have obtained landlord consents for
real property leases with respect to (i) all leased Carrs Quality Centers (other
than the Carrs Quality Center located in Kenai) and (ii) other leased stores
operated by the Company and its subsidiaries which, together with other owned
stores, account for not less than 90% of the revenues generated by all such
other stores, based on the twelve month period ended as of the date of the most
recent quarter-end as of the date of determination;
(d) the Stockholder Support Agreement shall be in full force and
effect;
(e) the Management Services Agreement (the "MSA") between the Company
and Leonard Green & Associates ("LGA") shall be terminated concurrent with the
Effective Time and the Company shall have no liability or obligation of any
nature, whether or not accrued, contingent or otherwise under the MSA or
otherwise to LGA, or any of its affiliates, except for the unpaid pro rata
portion of the annual $450,000 fee payable under the MSA through the Effective
Time; and
(f) since the date of this Agreement, there shall not have occurred
any change, event, occurrence, development or circumstance which, individually
or in the aggregate, has had, or would reasonably be expected to have, a
Material Adverse Effect on the Company.
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ARTICLE 6
TERMINATION; AMENDMENT; WAIVER
SECTION 6.1. TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time whether
before or after approval and adoption of this Agreement by the Company's
stockholders:
(a) by mutual written consent of Parent, Acquisition and the Company;
(b) by Parent and Acquisition or the Company if (i) there shall be
any law or regulation that makes consummation of the Merger illegal or otherwise
prohibited; (ii) any court of competent jurisdiction or other Governmental
Entity shall have issued a final order, decree or ruling or taken any other
final action restraining, enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action is or shall have become nonappealable; or
(iii) the Merger has not been consummated by January 31, 1999 (or, if as of
January 31, 1999, all necessary approvals or consents of Governmental Entities
under the HSR Act or any other antitrust statute, law, rule or regulation
required for the consummation of the transactions contemplated by this Agreement
have not been obtained, May 31, 1999); PROVIDED that no party may terminate this
Agreement pursuant to this clause (b)(iii) if such party's failure to fulfill
any of its obligations under this Agreement shall have been the reason that the
Merger shall not have been consummated on or before said date;
(c) by the Company if (i) there shall have been a material breach of
any representation or warranty on the part of Parent or Acquisition set forth in
this Agreement or if any representation or warranty of Parent or Acquisition
shall have become untrue in any material respect, in either case such that the
conditions set forth in Section 5.2(a) would be incapable of being satisfied by
January 31, 1999 (or such other date to which the date set forth in Section
6.1(b)(iii) may be extended) or (ii) there shall have been a breach by Parent or
Acquisition of any of their respective covenants or agreements hereunder having
a Material Adverse Effect on Parent or materially adversely affecting (or
materially delaying) the consummation of the Merger, and, if such breach is
capable of being cured, Parent or Acquisition, as the case may be, has not cured
such breach within twenty business days after written notice by the Company
thereof; PROVIDED that the Company has not breached any of its obligations
hereunder in any material respect;
(d) by the Company, if the Company Board by a majority vote
determines in its good faith judgment, after consultation with and taking into
consideration the advice of legal counsel, that it is likely to be required to,
in order to comply with its fiduciary duties, and does, withdraw its
recommendation of the transactions contemplated hereby or approve or recommend a
Superior Proposal as provided in Section 4.3(b) of this Agreement; or
(e) by Parent and Acquisition if (i) there shall have been a breach
of any representation or warranty on the part of the Company set forth in this
Agreement or if any representation or warranty of the Company shall have become
untrue in any material respect in either case such that the conditions set forth
in Section 5.3(a) would be
33
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incapable of being satisfied by January 31, 1999 (or such other date to which
the date set forth in Section 6.1(b)(iii) may be extended), (ii) there shall
have been a breach by the Company of its covenants or agreements hereunder
having a Material Adverse Effect on the Company or materially adversely
affecting (or materially delaying) the consummation of the Merger, and, if such
breach is capable of being cured, the Company has not cured such breach within
twenty business days after written notice by Parent or Acquisition thereof,
PROVIDED that neither Parent nor Acquisition has breached any of their
respective obligations hereunder in any material respect, (iii) the Company
Board shall have recommended to the Company's stockholders a Superior Proposal,
(iv) the Company Board shall have withdrawn, modified or changed its approval or
recommendation of this Agreement or the Merger or shall not have opposed a Third
Party Acquisition in a Schedule 14D-9 filing, (v) the Company shall have entered
into a definitive agreement with respect to a Third Party Acquisition, or (vi)
the Company shall have convened a meeting of its stockholders to vote upon the
Merger and shall have failed to obtain the requisite vote of its stockholders.
SECTION 6.2. EFFECT OF TERMINATION. In the event of the termination
and abandonment of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and have no effect without any liability on the part of
any party hereto or its affiliates, directors, officers or stockholders other
than the provisions of this Section 6.2 and Section 4.6(b). Nothing contained in
this Section 6.2 shall relieve any party from liability for any breach of this
Agreement.
SECTION 6.3. FEES AND EXPENSES.
(a) In the event that this Agreement shall be terminated pursuant to
Section 6.1(d) or Section 6.1(e)(iii), (e)(iv), (e)(v) or, if another bona fide
proposal to acquire directly or indirectly for consideration consisting of cash
and/or securities more than 50% of the Shares then outstanding or all or
substantially all the assets of the Company is outstanding on the date of the
stockholder meeting referred to in Section 6.1(e)(vi), (e)(vi), the Company
shall pay to Parent a termination fee in the amount of Four Million Dollars
($4,000,000) within five (5) business days of such a termination and, within
five business days of presentation of statements therefor, Parent's reasonable
out-of-pocket-expenses incurred in connection with the transactions contemplated
by this Agreement, PROVIDED that no such amount shall be payable if Parent shall
have materially breached its obligations hereunder.
(b) Except as otherwise provided in Section 6.3(a), each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 6.4. AMENDMENT. This Agreement may be amended by action taken
by the Company, Parent and Acquisition at any time before or after approval of
the Merger by the stockholders of the Company but, after any such approval, no
amendment shall be made which requires the approval of such stockholders under
applicable law without such approval. This Agreement (including the schedules
hereto) may be amended only by an instrument in writing signed on behalf of the
parties hereto.
SECTION 6.5. EXTENSION; WAIVER. At any time prior to the Effective
Time, each party hereto may (i) extend the time for the performance of any of
the obligations or other acts of the other party, (ii) waive any inaccuracies in
the
34
<PAGE>
representations and warranties of the other party contained herein or in any
document, certificate or writing delivered pursuant hereto or (iii) waive
compliance by the other party with any of the agreements or conditions contained
herein. Any agreement on the part of any party hereto to any such extension or
waiver shall be valid only if set forth in an instrument, in writing, signed on
behalf of such party. The failure of any party hereto to assert any of its
rights hereunder shall not constitute a waiver of such rights.
ARTICLE 7
MISCELLANEOUS
SECTION 7.1. NONSURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties made herein shall not survive beyond the
Effective Time or a termination of this Agreement. This Section 7.1 shall not
limit any covenant or agreement of the parties hereto which by its terms
requires performance after the Effective Time.
SECTION 7.2. ENTIRE AGREEMENT; ASSIGNMENT. This Agreement (including
the schedules hereto) (a) constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral, between the parties with
respect to the subject matter hereof and (b) shall not be assigned by operation
of law or otherwise; PROVIDED, HOWEVER, that Acquisition may assign any or all
of its rights and obligations under this Agreement to any subsidiary of Parent,
but no such assignment shall relieve Acquisition of its obligations hereunder if
such assignee does not perform such obligations.
SECTION 7.3. VALIDITY. If any provision of this Agreement or the
application thereof to any person or circumstance is held invalid or
unenforceable the remainder of this Agreement and the application of such
provision to other persons or circumstances shall not be affected thereby and to
such end the provisions of this Agreement are agreed to be severable.
SECTION 7.4. NOTICES. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly given upon receipt) by delivery in person, by
facsimile, by a national overnight delivery service (E.G., Federal Express) or
by registered or certified mail (postage prepaid, return receipt requested) to
each other party as follows:
if to the Company to: CARR-GOTTSTEIN FOODS, CO.
6411 A Street
Anchorage, Alaska 99518
Telecopier: (907) 565-6026
Attention: President and
Chief Executive Officer
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with a copy to: Gibson, Dunn & Crutcher LLP
333 South Grand Avenue
Los Angeles, California 90071
Telecopier: (213) 229-7520
Attention: Karen E. Bertero, Esq.
if to Parent or Acquisition to: SAFEWAY INC.
5918 Stoneridge Mall Road
Pleasanton, California 94588-3229
Telecopier: (925) 467-3231
Attention: Senior Vice President and
General Counsel
with a copy to: LATHAM & WATKINS
505 MONTGOMERY STREET
SUITE 1900
SAN FRANCISCO, CALIFORNIA 94111
Telecopier: (415) 395-8095
Attention: Scott R. Haber, Esq.
or to such other address as the person to whom notice is given may have
previously furnished to the others in writing in the manner set forth above.
SECTION 7.5. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware without regard to
the principles of conflicts of law thereof.
SECTION 7.6. DESCRIPTIVE HEADINGS. The descriptive headings herein
are inserted for convenience of reference only and are not intended to be part
of or to affect the meaning or interpretation of this Agreement.
SECTION 7.7. PARTIES IN INTEREST. This Agreement shall be binding upon
and inure solely to the benefit of each party hereto and its successors and
permitted assigns and, except as provided in Sections 4.8, 4.10 and 7.2, nothing
in this Agreement express or implied is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 7.8. CERTAIN DEFINITIONS. For the purposes of this Agreement
the term:
(a) "affiliate" means a person that, directly or indirectly, through
one or more intermediaries controls, is controlled by or is under common control
with the first-mentioned person;
(b) "beneficial owner" or "beneficial ownership" shall have the
meaning set forth in Rule 13d-3 promulgated under the Exchange Act;
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(c) "business day" means any day other than a day on which the New
York Stock Exchange is closed;
(d) "capital stock" means common stock, preferred stock, partnership
interests, limited liability company interests or other ownership interests
entitling the holder thereof to vote with respect to matters involving the
issuer thereof;
(e) "Code" means the Internal Revenue Code of 1986, as amended;
(f) "knowledge" or "known" means, with respect to any matter in
question, the actual knowledge of an officer of the Company or Parent, as the
case may be;
(g) "officer" means the director of human resources, the director of
distribution, the director of the Eagle Stores and any person holding the title
of vice president or any title senior thereto;
(h) "Permitted Liens" means any lien resulting from (i) all statutory
or other liens for Taxes or assessments which not yet due or delinquent or the
validity of which are being contested in good faith by appropriate proceedings
for which adequate reserves are being maintained in accordance with GAAP; (ii)
all cashiers', workers' and repairers' liens, and other similar liens imposed by
law, incurred in the ordinary course of business, (iii) all laws and
governmental rules, regulations, ordinances and restrictions; (iv) all leases,
subleases, licenses, concessions or service contracts to which the Company or
any of its subsidiaries is a party; (v) liens identified on title policies or
preliminary title reports delivered or made available for inspection to Parent
prior to the date hereof, (vi) liens and encumbrances arising under the SAA,
(vii) liens or mortgages that secure indebtedness described in the Company
Disclosure Schedule, and (viii) all other liens, mortgages, covenants,
imperfections in title, charges, easements, restrictions and other Liens which
do not materially detract from or materially interfere with the value or present
use of the asset subject thereto or affected thereby;
(i) "person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization or other
legal entity; and
(j) "subsidiary" or "subsidiaries" of the Company, Parent, the
Surviving Corporation or any other person means any corporation, partnership,
limited liability company, association, trust, unincorporated association or
other legal entity of which the Company, Parent, the Surviving Corporation or
any such other person, as the case may be (either alone or through or together
with any other subsidiary), owns, directly or indirectly, 50% or more of the
capital stock the holders of which are generally entitled to vote for the
election of the board of directors or other governing body of such corporation
or other legal entity.
SECTION 7.9. PERSONAL LIABILITY. This Agreement shall not create or be
deemed to create or permit any personal liability or obligation on the part of
any direct or indirect stockholder of the Company or Parent or any officer,
director, employee, agent, representative or investor of any party hereto.
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SECTION 7.10. COUNTERPARTS. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and the same agreement.
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IN WITNESS WHEREOF, each of the parties has caused this
Agreement to be duly executed on its behalf as of the day and year first above
written.
CARR-GOTTSTEIN FOODS CO.
By: /s/ Lawrence H. Hayward
-----------------------------------
Name: Lawrence H. Hayward
Title: President and Chief Executive Officer
SAFEWAY INC.
By: /s/ Michael C. Ross
-----------------------------------
Name: Michael C. Ross
Title: Senior Vice President and
General Counsel
ACG MERGER SUB, INC.
By: /s/ Michael C. Ross
-----------------------------------
Name: Michael C. Ross
Title: Vice President and Secretary
39
<PAGE>
AMENDMENT NO. 1 TO CARR-GOTTSTEIN FOODS CO.
1991 STOCK OPTION PLAN
WHEREAS, Carr-Gottstein Foods Co. (the "Company") has adopted that certain
Carr-Gottstein Foods Co. 1991 Stock Option Plan (the "Plan"); and
WHEREAS, the Company desires to amend the Plan to remove the prohibition on
the acceleration of exercisability of stock options granted under the Plan
within the six month period following the date of grant of such stock options.
NOW, THEREFORE, the Company hereby amends the Plan as follows:
Section 2. AMENDMENT OF SECTION 3.4 OF THE PLAN. Section 3.4 of the Plan
shall be amended and restated in its entirety to read as follows:
"3.4 EXERCISE OF OPTIONS.
Except as otherwise provided in Section 4.4., an Option may
become exercisable, in whole or in part, on the date or dates
specified in the Award Agreement and thereafter shall remain
exercisable until the expiration or earlier termination of the
Participant's Option. The Committee may, at any time after grant of
the Option and from time to time, increase the number of shares
purchasable at any time so long as the total number of shares subject
to the Option is not increased. No Option shall be exercisable except
in respect of whole shares, and fractional share interests shall be
disregarded. Not less than 100 shares of Common Stock or such other
amount as is set forth in the Award Agreement, may be purchased at one
time unless the number purchased is the total number at the time
available for purchase under the terms of the Option."
Section 3. EFFECTIVENESS. The Plan shall remain in full force and effect,
as modified by this Amendment No. 1 to Carr-Gottstein Foods Co. 1991 Stock
Option Plan (the "Amendment").
Section 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Alaska without regard to
conflicts of laws provisions thereof.
<PAGE>
AMENDMENT NO. 1 TO CARR-GOTTSTEIN FOODS CO.
1994 OUTSIDE DIRECTORS STOCK OPTION PLAN
WHEREAS, Carr-Gottstein Foods Co. (the "Company") has adopted that certain
Carr-Gottstein Foods Co. 1994 Outside Directors Stock Option Plan (the "Plan");
and
WHEREAS, the Company desires to amend the Plan to allow the Board of
Directors of the Company to provide for the treatment of outstanding options
under the Plan in the event of a reorganization, merger or consolidation of the
Company as a result of which the outstanding securities of the class then
subject to outstanding stock options under the Plan are exchanged for or
converted into cash, property and/or securities not issued by the Company.
NOW, THEREFORE, the Company hereby amends the Plan as follows:
Section 2. AMENDMENT OF SECTION 8(B)(1)(ii) OF THE PLAN. Section
8(b)(1)(ii) of the Plan shall be amended and restated in its entirety to read as
follows:
"(ii) a reorganization, merger or consolidation of the Company (other
than a reorganization, merger or consolidation the sole purpose of
which is to change the Company's domicile solely within the United
States) as a result of which the outstanding securities of the class
then subject to such outstanding Options are exchanged for or
converted into cash, property and/or securities not issued by the
Company unless (A) such reorganization, merger or consolidation shall
have been affirmatively recommended to the shareholders of the Company
by the Board of Directors and the terms of such reorganization, merger
or consolidation shall provide that such Options shall continue in
effect thereafter and shall be exercisable to acquire the number and
type of securities or other consideration to which the Outside
Directors would have been entitled had they exercised such Options
prior to such reorganization, merger or consolidation or (B) the Board
of Directors otherwise provides."
Section 3. EFFECTIVENESS. The Plan shall remain in full force and effect,
as modified by this Amendment No. 1 to Carr-Gottstein Foods Co. 1994 Outside
Directors Stock Option Plan (the "Amendment").
Section 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Alaska without regard to
conflicts of laws provisions thereof.
<PAGE>
CARR-GOTTSTEIN FOODS CO.
1998 SEVERANCE PLAN
ARTICLE 1
PURPOSE
The purpose of this Plan is to provide severance bonuses to certain
employees of Carr-Gottstein Foods Co. (the "Company") whose employment with the
Company is terminated by reason of the acquisition of the Company described in
that certain Merger Agreement, dated as of August 6, 1998, among the Company,
Safeway Inc. and ACG Merger Sub, Inc. (the "Acquisition"), as described more
fully herein. This instrument shall serve as both a plan description and
summary plan description for purposes of Title I of ERISA.
ARTICLE 2
EFFECTIVE DATE
All of the Company's policies and practices regarding severance, or similar
payments upon employment termination, with respect to Eligible Employees are
hereby superseded by this Plan which shall be known as the Carr-Gottstein Foods
Co. 1998 Severance Plan, effective as of August 5, 1998.
ARTICLE 3
DEFINITIONS
3.1 "Committee" means the administrative committee consisting of one or
more members, appointed by either the Board of Directors of the Company or its
chief executive officer, to administer the Plan.
3.2 "Effective Date" means the date the Acquisition is consummated.
3.3 "Eligible Employee" means any Employee (other than hourly
(non-salaried) employees) who is not a party to a written employment agreement
with the Company that includes provision for severance benefits and who is
either (a) notified by the Company on or before the Effective Date that his or
her employment will be terminated other than for Cause or he or she will not be
retained in a "comparable" position with the Company or its parent or
subsidiaries, in each case effective on or after the Effective Date and on or
before the first anniversary of the Effective Date, (b) terminated by the
Company or its parent or subsidiaries other than for Cause on or after the
Effective Date and on or before the first anniversary of the Effective Date or
(c) not retained in a "comparable" position with the Company or its parent or
subsidiaries [during the period subsequent to the Effective Date and before the
first anniversary
<PAGE>
of the Effective Date]. For purposes of this Plan, a position is comparable if
it is reasonably equivalent in responsibility, compensation and at a geographic
location within 50 miles of the geographic location of the Employee's position
immediately prior to the Acquisition.
3.4 "Employee" means any active or disabled, full-time or part-time,
non-temporary, exempt or non-exempt (for purposes of the Fair Labor Standards
Act) employee of the Company.
3.5 "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
3.6 "Participant" means an Eligible Employee who is entitled, based on the
provisions of Section 4.2 hereof, to the severance bonus payment.
3.7 "Plan" means the Carr-Gottstein Foods Co. 1998 Severance Plan, as set
forth in this instrument as it may be amended from time to time.
ARTICLE 4
AMOUNT AND PAYMENT OF SEVERANCE BONUS
4.1 SEVERANCE BONUS. A Participant who meets the departure conditions
described in Section 4.2 shall receive after he or she timely returns the signed
Release Form described in Section 4.2 a severance bonus as follows:
(a) If the Participant is an officer, he or she shall receive a
bonus equal to twice his or her annual base salary as of departure
(or, if greater, the Participant's 1998 annual base salary);
(b) If the Participant is a director, he or she shall receive a
bonus equal to his or her annual base salary as of departure (or, if
greater, the Participant's 1998 annual base salary) plus the target
bonus payable in 1998.
(c) If the Participant is a manager, he or shall receive a bonus
equal to one half of his or her annual base salary as of departure
(or, if greater, the Participant's 1998 annual base salary).
(d) If the Participant is any other salaried employee, he or she
shall receive a bonus equal to one week of his or her annual base
salary (or, if greater, the Participant's 1998 annual base salary) per
full year of service as of departure, but not less than ten weeks of
such annual base salary.
The severance shall be paid in one lump sum cash payment. Notwithstanding, the
foregoing in no event shall an Employee receive any bonus hereunder if he or she
quits voluntarily without Good Reason (as defined herein), is terminated for any
reason prior to the Effective Date and such termination is not the result of the
Acquisition or is terminated for Cause (as defined herein). For purposes of
this Plan, "Cause" shall mean:
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<PAGE>
(i) fraud, misappropriation, embezzlement or other act of
material misconduct against the Company;
(ii) conviction of a felony;
(iii) willful and knowing violation of any rules or regulations
of any governmental or regulatory body which results in a material
adverse effect on the Company; or
(iv) a material breach of the terms of the Employee's
employment which has a material adverse effect on the Company, or a
breach of Employee's duty not to engage in any transaction that
represents, directly or indirectly, self-dealing with the Company or
any of the Company's affiliates, which has not been approved by the
Company.
For purposes of this Plan, "Good Reason" shall mean diminution of the Employee's
duties, responsibilities or compensation or a transfer of the Employee to a
geographic location that is more than 50 miles from the geographic location of
the Employee's position immediately prior to the Acquisition; failure by the
Company to comply with the provisions hereof; or conduct that would cause the
Employee to commit fraudulent acts or otherwise expose the Employee to civil or
criminal liability.
4.2 DEPARTURE AND ENTITLEMENT PROCEDURE. As a condition to receiving the
severance bonus, the Participant must deliver to the Director of Human Resources
or his or her designee a signed Release Form within one week of the Eligible
Employee's separation date. The Release Form is attached as Exhibit A and is
incorporated herein by reference. Employees shall receive the Release Form upon
the distribution of this Plan document and are advised to consult an attorney
before completing and returning the Release Form. In addition, the Participant
must return all Company property that the Participant may not rightfully keep.
4.3 OFFSETS. All bonus payments under this Plan shall be subject to legal
deductions and the Company reserves the right to offset the benefits payable
under this Plan by any advanced monies the Participant owes the Company.
ARTICLE 5
ADMINISTRATION
5.1 The Company shall be the administrator of the Plan for purposes of
Section 3(16) of ERISA and shall have responsibility for complying with any
reporting and disclosure rules applicable to the Plan under ERISA. In all other
respects, except as provided herein, the Plan shall be administered and operated
by the Committee. The Committee is empowered to construe and interpret the
provisions of the Plan and to decide all questions of eligibility for benefits
under this Plan and shall make such determinations in its sole and absolute
discretion. The Committee may at any time delegate to any other named person or
body, or reassume therefrom, any of its fiduciary responsibilities or
administrative duties with respect to this Plan.
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<PAGE>
5.2 The members of the Committee shall be the named fiduciaries with
respect to this Plan for purposes of Section 402 of ERISA.
5.3 The Committee may contract with one or more persons to render advice
with regard to any responsibility it has under this Plan.
5.4 Subject to the limitations of this Plan, the Committee shall from time
to time establish such rules for the administration of this Plan as the
Committee may deem desirable.
5.5 The Company shall, to the extent permitted by law, by the purchase of
insurance or otherwise, indemnify and hold harmless each member of the Committee
and each other fiduciary with respect to this Plan for liabilities or expenses
they and each of them incur in carrying out their respective duties under the
Plan, other than for any liabilities or expenses arising out of such fiduciary's
gross negligence or willful misconduct. A fiduciary shall not be responsible
for any breach of responsibility of any other fiduciary except to the extent
provided in Section 405 of ERISA.
5.6 If any claim for benefits under this Plan is denied, in whole or in
part, the claimant shall be so notified by the Committee within thirty (30)
calendar days of the date such person's claim is delivered to the Committee (or
such person designated in writing by the Committee). At the same time, the
Committee shall notify the claimant of his or her right to a review by the
Committee and shall set forth, in a manner calculated to be understood by the
claimant, specific reasons for such decision, specific references to pertinent
Plan provisions on which the decision is based, a description of any additional
material or information necessary for the claimant to perfect his or her request
for review, an explanation of why such material or information is necessary, and
an explanation of the Plan's review procedure.
Any person or a duly authorized representative may appeal from such
decision by submitting to the Committee within sixty (60) calendar days after
receiving a notice of the Committee's decision a written statement:
(a) Requesting a review of the claim for benefits by the
Committee;
(b) Setting forth all of the grounds upon which the request
for review is based and any facts in support thereof; and
(c) Setting forth any issues or comments which the claimant
deems relevant to the claim. The Committee shall act upon such appeal
within sixty (60) calendar days after the latter of receipt of the
claimant's request for review by the Committee or receipt of all
additional materials reasonably requested by the Committee from such
claimant.
The Committee shall make a full and fair review of an appeal and all
written materials submitted by the claimant in connection therewith and may
require the claimant to submit, within ten (10) calendar days of written notice
by the Committee therefor, such additional facts, documents or other evidence as
the Committee, in its sole discretion, deems necessary or
4
<PAGE>
advisable in making such a review. On the basis of its review, the Committee
shall make an independent determination of the claimant's eligibility for an
allowance and the amount of such allowance, if any, under this Plan. The
decision of the Committee on any appeal shall be final and conclusive upon all
persons if supported by substantial evidence in the record.
If the Committee denies a claim in whole or in part, the Committee shall
give written notice of its decision to the claimant setting forth, in a manner
calculated to be understood by the claimant, the specific reasons for such
denial and specific references to the pertinent Plan provisions on which the
Committee's decision was based.
ARTICLE 6
GENERAL
6.1 Payments to and benefits under this Plan are not assignable since they
are primarily for the support and maintenance of the Participants.
6.2 The benefits and costs of this Plan shall be paid by the Company out
of its general assets.
6.3 This Plan is intended to be an employee welfare benefit plan, as
defined in Section 3(1), Subtitle A of Title 1 of ERISA. The Plan will be
interpreted to effectuate this intent.
6.4 The masculine pronoun shall include the feminine pronoun and the
feminine pronoun shall include the masculine pronoun and the singular pronoun
shall include the plural pronoun and the plural pronoun shall include the
singular pronoun, unless the context clearly indicates otherwise.
6.5 The Plan shall be construed according to the laws of the State of
Alaska, except to the extent such laws are preempted by federal law.
6.6 ERISA RIGHTS. An employee of the Company eligible to participate in
the Plan has certain rights and protections under ERISA which entitle him or her
to:
(1) examine, without charge, at the Plan administrator's office,
all Plan documents and copies of all documents filed by the
Plan with the U.S. Department of Labor, such as detailed
annual reports and Plan descriptions.
(2) Obtain copies of all Plan documents and other Plan information
upon written request to the Plan administrator. The Plan
administrator may make a reasonable charge for copies.
5
<PAGE>
(3) Receive a summary of the Plan's annual financial report. The
Plan administrator is required by law to furnish each
Participant with a copy of this summary financial report.
In addition to creating rights for Plan participants, ERISA imposes duties
upon the people who are responsible for the operation of the Plan. The people
who operate the Plan, called "fiduciaries" of the Plan, have a duty to do so
prudently and in the interest of Eligible Employees and beneficiaries.
No one, including the Company, or any other person, may fire any person or
otherwise discriminate against him or her in any way to prevent him or her from
obtaining a benefit or exercising rights under ERISA.
If a claim for a benefit is denied in whole or in part, the claimant must
receive a written explanation of the reason for denial. A claimant has the
right to have the claim reviewed as outlined above. Under ERISA, there are
steps an employee can take to enforce the above rights. For instance, if an
Employee requests materials from the Plan and does not receive them within
thirty (30) days, he or she may file suit in a federal court. In such a case,
the court may require the Plan administrator to provide the materials and pay up
to $100 a day until he or she receives the materials, unless the materials were
not sent because of reasons beyond the control of the Plan administrator.
If any Employee has a claim for benefits which is denied or ignored, in
whole or in part, he or she may file suit in a state or federal court. If it
should happen that Plan fiduciaries misuse the Plan's money, or if an Employee
is discriminated against for asserting ERISA rights, he or she may seek
assistance from the U.S. Department of Labor, or file suit in a federal court.
The court will decide who should pay court costs and legal fees. If he or she
is successful, the court may order the person sued to pay these costs and fees.
If he or she loses, the court may order such person to pay these costs and fees.
If such person loses, the court may order him or her to pay these costs and
fees, for example, if it finds the claim is frivolous.
If an Employee has any questions about the Plan, he or she should contact
the Committee at the address shown below in Section 6.7. An Employee with any
questions about this statement or about rights under ERISA should contact the
nearest Area Office of the U.S. Labor-Management Service Administration,
Department of Labor.
6.7 The Plan sponsor, Plan administrator, and agent for the service of
legal process is:
Plan Sponsor and Administrator:
Carr-Gottstein Foods Co.
Agent for Service of Process:
Carr-Gottstein Foods Co.
The Company's Employer Identification Number is 92-0135158. The Plan
Number is 503.
6
<PAGE>
ARTICLE 7
AMENDMENT AND TERMINATION
This Plan may not be amended or terminated for any reason at any time prior
to June 30, 1999, except as may be required by law. Thereafter the Plan may be
amended or terminated by the Company, except that no such amendment or
termination shall diminish benefits otherwise available under this Plan to any
Employee.
IN WITNESS WHEREOF, this instrument, evidencing the terms of the
Carr-Gottstein Foods Co. 1998 Severance Plan, is executed this 5th day of
August, 1998.
CARR-GOTTSTEIN FOODS CO.
By:
--------------------------------
7
<PAGE>
EXHIBIT A
RELEASE AND WAIVER OF CLAIMS
In consideration of the severance bonus to be provided to me under the
Carr-Gottstein Foods Co. 1998 Severance Plan (the "Plan"), I
________________________________, the Employee (for Employee, Employee's agents,
(Print or type name)
heirs, successors, assigns, executors and/or administrators) does hereby and
forever release and discharge Carr-Gottstein Foods Co. and its affiliates,
divisions and other related entities (collectively, the "Company"), as well as
the successors, shareholders, officers, directors, heirs, predecessors, assigns,
agents, employees, attorneys and representatives of each of them, past or
present, from any and all causes of action, actions, judgments, liens, debts,
contracts, indebtedness, damages, losses, claims, liabilities, rights, interests
and demands of whatsoever kind or character, known or unknown, suspected to
exist or not suspected to exist, anticipated or not anticipated, whether or not
heretofore brought before any state or federal court or before any state or
federal agency or other governmental entity, which Employee has or may have
against the Company and any other released person or entity by reason of any and
all acts, omissions, events or facts occurring or existing prior to the date
hereof, including, without limitation, all claims attributable to the employment
of Employee by the Company and any of its affiliates, all claims attributable to
the termination of Employee's employment by the Company, and all claims arising
under any federal, state or other governmental statute, regulation or ordinance
or common law, such as, for example and without limitation, those laws
prohibiting age, sex, race, national origin or any other forms of
discrimination.
Employee specifically acknowledges being advised to consult legal counsel
before executing this Release and Waiver of Claims and that this Release and
Waiver of Claims is being executed voluntarily and free of any coercion or undue
influence on the part of any person.
Employee acknowledges that this Release and Waiver of Claims becomes
irrevocable upon execution and delivery hereof.
- ----------------------------- --------------------------------------
Date Signature
8
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
CARR-GOTTSTEIN FOODS CO.
LAWRENCE H. HAYWARD
This Amendment No. 1 to Employment Agreement (this "Amendment") is entered
into by and between Carr-Gottstein Foods Co. ("CGF") and Lawrence H. Hayward
("Mr. Hayward"), and is dated as of _____________ __, 1998.
WHEREAS, CGF and Mr. Hayward have entered into that certain Employment
Agreement (the "Original Employment Agreement"), made as of August 7, 1996; and
WHEREAS, CGF and Mr. Hayward desire to amend the severance provisions of
the Original Employment Agreement and add provisions to the Original Employment
Agreement confirming payment of accrued salary and bonus upon termination of
employment.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained and intending to be legally bound hereby, CGF and
Mr. Hayward hereby agree as follows:
Section 1. AMENDMENT OF SECTION 3(f) OF THE ORIGINAL EMPLOYMENT AGREEMENT.
Section 3(f) of the Original Employment Agreement shall be amended as follows:
a. The following sentences shall be added immediately after the heading
"f. SEVERANCE":
"If, within twelve (12) months after the consummation of a Change of
Control, CGF terminates Mr. Hayward's employment with CGF for any
reason other than for Just Cause or Mr. Hayward terminates his
employment with CGF for any reason, CGF shall pay to Mr. Hayward as
severance pay a cash payment in an amount equal to the Severance
Amount. The Severance Amount shall be payable within two (2) business
days of the termination of employment. For purposes of this section
3(f), "Severance Amount" means the difference between (i) two (2)
times the amount of the annual salary Mr. Hayward was entitled to
receive immediately prior to the consummation of the Change of Control
(the "Annual Salary") and (ii) the portion of the Annual Salary earned
by Mr. Hayward between the date of the consummation of the Change of
Control and the date of the termination of employment. For purposes
of this section 3(f), "Change of Control" means the consummation of
any of the following events on or before June 30, 1999: (i) any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets or the outstanding common stock of CGF
and its subsidiaries, on a consolidated basis, in one transaction or a
series of related transactions; (ii) the acquisition by any "Person"
or "group" (as such terms
<PAGE>
are used for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, whether or not applicable) of beneficial
ownership of 35% of outstanding shares of common stock of CGF; or (iii) a
reorganization, merger (not including a merger to effectuate a
reincorporation of CGF) or consolidation of CGF as a result of which the
outstanding securities of CGF are exchanged for or converted into cash,
property and/or securities not issued by CGF."
b. The first sentence of Section 3(f) of the Original Employment
Agreement shall be amended to delete the word "If" at the beginning of such
sentence and to add the following phrase to the beginning of such sentence:
"If, twelve (12) or more months after the consummation of a Change in
Control or at any time on or after June 30, 1999 if no Change of
Control has occurred,"
c. The phrase "the Company" in the last sentence of Section 3(f) shall be
replaced with the term "CGF" in each instance in which such phrase occurs.
Section 2. AMENDMENT OF ORIGINAL EMPLOYMENT AGREEMENT TO NEW SECTION 11.
The Original Employment Agreement shall be amended to add a new Section 11 to
read as follows:
"11. PAYMENT OF ACCRUED BONUS AND SALARY UPON TERMINATION.
Notwithstanding anything in this Agreement to the contrary and in
addition to Severance Amounts, if any, that are payable pursuant to
this Agreement, upon termination of Mr. Hayward's employment with CGF,
Mr. Hayward shall be entitled to receive the sum of (A) the accrued
bonus amounts due under CGF's Incentive Bonus Program through the date
of termination of employment plus (B) the accrued but unpaid portion
of the Annual Salary earned by Mr. Hayward through the date of
termination of employment, payable at the end of the pay period
following termination of employment."
Section 3. EFFECTIVENESS. The Original Employment Agreement shall remain
in full force and effect, as modified by this Amendment.
Section 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Alaska without regard to
conflicts of laws provisions thereof.
Section 5. BINDING NATURE. This Amendment shall be binding upon and shall
inure to the sole and exclusive benefit of parties hereto and their separate and
respective heirs, personal representatives, successors and assigns.
2
<PAGE>
Section 6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment as
of the day and year first above written.
CARR-GOTTSTEIN FOODS CO.
By:
-----------------------------------
Name:
Title:
LAWRENCE H. HAYWARD
Name:
-----------------------------------
3
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
CARR-GOTTSTEIN FOODS CO.
DONALD J. ANDERSON
This Amendment No. 1 to Employment Agreement (this "Amendment") is entered
into by and between Carr-Gottstein Foods Co. ("CGF") and Donald J. Anderson
("Mr. Anderson"), and is dated as of ______________, 1998.
WHEREAS, CGF and Mr. Anderson have entered into that certain Employment
Agreement (the "Original Employment Agreement"), made as of December 2, 1996;
and
WHEREAS, CGF and Mr. Anderson desire to amend the severance provisions of
the Original Employment Agreement and add provisions to the Original Employment
Agreement confirming payment of accrued salary and bonus upon termination of
employment.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained and intending to be legally bound hereby, CGF and
Mr. Anderson hereby agree as follows:
Section 1. AMENDMENT OF SECTION 3(d) OF THE ORIGINAL EMPLOYMENT AGREEMENT.
Section 3(d) of the Original Employment Agreement shall be amended as follows:
a. The following sentences shall be added immediately after the heading
"d. SEVERANCE":
"If, within twelve (12) months after the consummation of a Change of
Control, CGF terminates Mr. Anderson's employment with CGF for any
reason other than for Just Cause or Mr. Anderson terminates his
employment with CGF for any reason, CGF shall pay to Mr. Anderson as
severance pay a cash payment in an amount equal to the Severance
Amount. The Severance Amount shall be payable within two (2) business
days of the termination of employment. For purposes of this section
3(d), "Severance Amount" means the difference between (i) two (2)
times the amount of the annual salary Mr. Anderson was entitled to
receive immediately prior to the consummation of the Change of Control
(the "Annual Salary") and (ii) the portion of the Annual Salary earned
by Mr. Anderson between the date of the consummation of the Change of
Control and the date of the termination of employment. For purposes
of this section 3(d), "Change of Control" means the consummation of
any of the following events on or before June 30, 1999: (i) any sale,
transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets or the outstanding common stock of CGF
and its subsidiaries, on a consolidated basis, in one transaction or a
series of related
<PAGE>
transactions; (ii) the acquisition by any "Person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, whether or not applicable) of beneficial
ownership of 35% of outstanding shares of common stock of CGF; or (iii) a
reorganization, merger (not including a merger to effectuate a
reincorporation of CGF) or consolidation of CGF as a result of which the
outstanding securities of CGF are exchanged for or converted into cash,
property and/or securities not issued by CGF."
b. The first sentence of Section 3(d) of the Original Employment
Agreement shall be amended to delete the word "If" at such beginning of such
sentence and to add the following phrase to the beginning of such sentence:
"If, twelve (12) or more months after the consummation of a
Change in Control or at any time on or after June 30, 1999 if no
Change of Control has occurred,"
c. The phrase "the Company" in the last sentence of Section 3(f) shall be
replaced with the term "CGF" in each instance in which such phrase occurs.
Section 2. AMENDMENT OF ORIGINAL EMPLOYMENT AGREEMENT TO ADD NEW
SECTION 10. The Original Employment Agreement shall be amended to add a new
Section 10 to read as follows:
"10. PAYMENT OF ACCRUED BONUS AND SALARY UPON TERMINATION.
Notwithstanding anything in this Agreement to the contrary and in
addition to Severance Amounts, if any, that are payable pursuant to
this Agreement, upon termination of Mr. Anderson's employment with
CGF, Mr. Anderson shall be entitled to receive the sum of (A) the
accrued bonus amounts due under CGF's Incentive Bonus Program through
the date of termination of employment plus (B) the accrued but unpaid
portion of the Annual Salary earned by Mr. Anderson through the date
of termination of employment, payable at the end of the pay period
following termination of employment."
Section 3. EFFECTIVENESS. The Original Employment Agreement shall remain
in full force and effect, as modified by this Amendment.
Section 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Alaska without regard to
conflicts of laws provisions thereof.
Section 5. BINDING NATURE. This Amendment shall be binding upon and shall
inure to the sole and exclusive benefit of parties hereto and their separate and
respective heirs, personal representatives, successors and assigns.
2
<PAGE>
Section 6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment as
of the day and year first above written.
CARR-GOTTSTEIN FOODS CO.
By:
-----------------------------------
Name:
Title:
DONALD J. ANDERSON
-----------------------------------
Name:
3
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
CARR-GOTTSTEIN FOODS CO.
JEFFRY PHILIPPS
This Amendment No. 1 to Employment Agreement (this "Amendment") is entered
into by and between Carr-Gottstein Foods Co. ("CGF") and Jeffry Philipps
("Philipps"), and is dated as of _______________, 1998.
WHEREAS, CGF and Philipps have entered into that certain letter of
understanding (the "Original Employment Agreement"), dated as of January 22,
1997; and
WHEREAS, CGF and Philipps desire to amend the severance provisions of the
Original Employment Agreement and add provisions to the Original Employment
Agreement confirming payment of accrued salary and bonus upon termination of
employment.
NOW, THEREFORE, in consideration of the premises and the covenants and
agreements herein contained and intending to be legally bound hereby, CGF and
Philipps hereby agree as follows:
Section 1. AMENDMENT OF SUBHEADING "SEVERANCE" OF THE ORIGINAL EMPLOYMENT
AGREEMENT. The subheading "SEVERANCE" of the Original Employment Agreement
shall be amended as follows:
a. The following sentences shall be added immediately after the
subheading "SEVERANCE":
"If, within twelve (12) months after the consummation of a Change of
Control, Carr-Gottstein Foods Co. ("CGF") terminates your employment
with CGF for any reason other than for Just Cause or you terminate
your employment with CGF for any reason, CGF shall pay to you as
severance pay a cash payment in an amount equal to the Severance
Amount. The Severance Amount shall be payable within two (2) business
days of the termination of employment. For purposes of this
subheading, "Severance Amount" means the difference between
(i) two (2) times the amount of the annual salary you were entitled to
receive immediately prior to the consummation of the Change of Control
(the "Annual Salary") and (ii) the portion of the Annual Salary earned
by you between the date of the consummation of the Change of Control
and the date of the termination of employment. For purposes of this
subheading, "Change of Control" means the consummation of any of the
following events on or before June 30, 1999: (i) any sale, transfer
or other conveyance, whether direct or indirect, of all or
substantially all of the assets or the outstanding common stock of CGF
and its subsidiaries, on a consolidated basis, in
<PAGE>
one transaction or a series of related transactions; (ii) the acquisition
by any "Person" or "group" (as such terms are used for purposes of Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended, whether
or not applicable) of beneficial ownership of 35% of outstanding shares of
common stock of CGF; or (iii) a reorganization, merger (not including a
merger to effectuate a reincorporation of CGF) or consolidation of CGF as a
result of which the outstanding securities of CGF are exchanged for or
converted into cash, property and/or securities not issued by CGF. For the
purpose of this subheading, a termination for "Just Cause" shall mean a
termination of employment for any of the following reasons: (i) an
intentional or grossly negligent violation of any reasonable rule or
regulation of the Board of Directors of CGF that results in damage to CGF
or which, after notice to do so, the actor fails to correct within a
reasonable time; (ii) any willful misconduct or gross negligence in the
responsibilities assigned to the actor; (iii) any wrongful or illegal
conduct of the actor which has an adverse impact on CGF or which
constitutes a material misappropriation of CGF assets; or (iv) the
performance of services for any other company, entity, or person which
directly competes with CGF during the time the actor is employed by CGF,
without the written approval of the Board of Directors of CGF."
b. The first sentence of the subheading "SEVERANCE" of the Original
Employment Agreement shall be amended to delete the phrase "In the event of
termination without just cause" and to add the following phrase to the beginning
of such sentence:
"If, twelve (12) or more months after the consummation of a Change in
Control or at any time on or after June 30, 1999 if no Change of
Control has occurred, in the event of termination without Just Cause,"
Section 2. AMENDMENT OF ORIGINAL EMPLOYMENT AGREEMENT TO ADD NEW
SUBHEADING. The Original Employment Agreement shall be amended to add a new
subheading to the end of the Agreement to read as follows:
"PAYMENT OF ACCRUED BONUS AND SALARY UPON TERMINATION:
Notwithstanding anything in this agreement to the contrary and in
addition to Severance Amounts, if any, that are payable pursuant to
this Agreement, upon termination of your employment with CGF, you
shall be entitled to receive the sum of (A) the accrued bonus amounts
due to you under CGF's Incentive Bonus Program through the date of
termination of employment plus (B) the accrued but unpaid portion of
the Annual Salary earned by you through the date of termination of
employment, payable at the end of the pay period following termination
of employment."
Section 3. EFFECTIVENESS. The Original Employment Agreement shall remain
in full force and effect, as modified by this Amendment.
2
<PAGE>
Section 4. GOVERNING LAW. This Amendment shall be governed by and
construed in accordance with the laws of the State of Alaska without regard to
conflicts of laws provisions thereof.
Section 5. BINDING NATURE. This Amendment shall be binding upon and shall
inure to the sole and exclusive benefit of parties hereto and their separate and
respective heirs, personal representatives, successors and assigns.
Section 6. COUNTERPARTS. This Amendment may be executed in counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same agreement.
IN WITNESS WHEREOF, the undersigned parties have executed this Amendment as
of the day and year first above written.
CARR-GOTTSTEIN FOODS CO.
By:
-----------------------------------
Name:
Title:
JEFFRY PHILIPPS
-----------------------------------
Name:
3
<PAGE>
CARR-GOTTSTEIN FOODS CO. 1998 SPECIAL BONUS PLAN
The Carr-Gottstein Foods Co. 1998 Special Bonus Plan (the "Special
Bonus Plan") provides for the payment of cash bonuses (the "Cash Bonuses") to
certain executive officers (the "Key Executives") in the event a Change of
Control (as defined) of Carr-Gottstein Foods Co. (the "Company") is consummated
on or before June 30, 1999. In such event, the Cash Bonuses will be payable to
the Key Executives upon the consummation of such Change of Control.
Cash Bonuses payable under the Special Bonus Plan are as follows:
Lawrence H. Hayward: $225,000
Donald J. Anderson: $150,000
Jeffry L. Philipps: $150,000
For purposes of the Special Bonus Plan, "Change of Control" means the
consummation of any of the following events on or before June 30, 1999: (i) any
sale, transfer or other conveyance, whether direct or indirect, of all or
substantially all of the assets or the outstanding common stock of the Company
and its subsidiaries, on a consolidated basis, in one transaction or a series of
related transactions; (ii) the acquisition by any "Person" or "group" (as such
terms are used for purposes of Sections 13(d) and 14(d) of the Securities
Exchange Act of 1934, as amended, whether or not applicable) of beneficial
ownership of 35% of outstanding shares of common stock of the Company; or
(iii) a reorganization, merger (not including a merger to effectuate a
reincorporation of the Company) or consolidation of the Company as a result of
which the outstanding securities of the Company are exchanged for or converted
into cash, property and/or securities not issued by the Company.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> JAN-03-1999
<PERIOD-END> SEP-27-1998
<CASH> 14,879
<SECURITIES> 0
<RECEIVABLES> 12,367
<ALLOWANCES> 1,100
<INVENTORY> 54,415
<CURRENT-ASSETS> 85,835
<PP&E> 220,268
<DEPRECIATION> 93,120
<TOTAL-ASSETS> 319,909
<CURRENT-LIABILITIES> 75,941
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 26,605
<TOTAL-LIABILITY-AND-EQUITY> 319,909
<SALES> 440,769
<TOTAL-REVENUES> 440,769
<CGS> 312,028
<TOTAL-COSTS> 312,028
<OTHER-EXPENSES> 105,630
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 19,274
<INCOME-PRETAX> 3,837
<INCOME-TAX> 2,444
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,393
<EPS-PRIMARY> 0.17
<EPS-DILUTED> 0.16
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-28-1997
<PERIOD-START> DEC-30-1996
<PERIOD-END> SEP-28-1997
<CASH> 7,841
<SECURITIES> 0
<RECEIVABLES> 17,595
<ALLOWANCES> 832
<INVENTORY> 55,240
<CURRENT-ASSETS> 87,890
<PP&E> 216,517
<DEPRECIATION> 82,029
<TOTAL-ASSETS> 323,805
<CURRENT-LIABILITIES> 76,680
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 24,067
<TOTAL-LIABILITY-AND-EQUITY> 323,805
<SALES> 445,503<F1>
<TOTAL-REVENUES> 445,503<F1>
<CGS> 317,380<F1>
<TOTAL-COSTS> 317,380<F1>
<OTHER-EXPENSES> 116,321<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,102<F1>
<INCOME-PRETAX> (8,300)<F1>
<INCOME-TAX> (2,545)<F1>
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,755)<F1>
<EPS-PRIMARY> (0.73)<F1>
<EPS-DILUTED> (0.73)<F1><F2>
<FN>
<F1>Restated to be consistent with 1998 presentation.
<F2>Restated to reflect adoption in fourth quarter 1997 of FAS 128 which is a new
standard of computing and presenting both basic and diluted net income per
share.
</FN>
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<RESTATED>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-29-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> SEP-29-1996
<CASH> 4,309
<SECURITIES> 0
<RECEIVABLES> 21,694
<ALLOWANCES> 276
<INVENTORY> 57,181
<CURRENT-ASSETS> 87,558
<PP&E> 213,577<F1>
<DEPRECIATION> 68,574<F1>
<TOTAL-ASSETS> 336,460
<CURRENT-LIABILITIES> 74,595
<BONDS> 0
0
0
<COMMON> 97
<OTHER-SE> 30,199
<TOTAL-LIABILITY-AND-EQUITY> 336,460
<SALES> 462,268
<TOTAL-REVENUES> 462,268
<CGS> 334,055
<TOTAL-COSTS> 334,055<F1>
<OTHER-EXPENSES> 109,547<F1>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 20,819
<INCOME-PRETAX> (2,078)
<INCOME-TAX> 34
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (2,112)
<EPS-PRIMARY> (0.27)
<EPS-DILUTED> (0.27)<F2>
<FN>
<F1> Restated to be consistent with 1998 presentation.
<F2> Restated to reflect adoption in fourth quarter 1997 of FAS 128 which is a
new standard of computing and presenting both basic and diluted net income
per share.
</FN>
</TABLE>
