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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the
Securities Exchange Act of 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary Proxy Statement
/ / Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
/X/ Definitive Proxy Statement
/ / Definitive Additional Materials
/ / Soliciting Material Pursuant to 240.14a-11(c) or 240.14a-12
CARR-GOTTSTEIN FOODS CO.
- --------------------------------------------------------------------------------
(Name of Registrant as Specified in Its Charter)
Not applicable
- --------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
/ / No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11.
(1) Title of each class of securities to which transaction applies:
Common Stock, par value $0.01 per share
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(2) Aggregate number of securities to which transaction applies:
8,241,952 shares of Common Stock
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
$12.50 (cash merger consideration per share of Common Stock)
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(4) Proposed maximum aggregate value of transaction:
$103,024,400.00
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(5) Total fee paid:
$20,604.88
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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[LOGO]
March 10, 1999
Dear Stockholders:
You are cordially invited to attend a Special Meeting of Stockholders of
Carr-Gottstein Foods Co. ("CGF") to be held at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California on April 8, 1999
at 10:00 A.M., local time.
At this meeting, you will be asked to vote on the adoption and approval of
an Agreement and Plan of Merger, dated as of August 6, 1998, among CGF, Safeway
Inc. and ACG Merger Sub, Inc., a newly formed, wholly-owned subsidiary of
Safeway Inc. (the "Merger Agreement"), providing for the merger of ACG Merger
Sub, Inc. with and into CGF, with CGF continuing as the surviving corporation
(the "Merger"). In the Merger, you will become entitled to receive $12.50 in
cash for each share of CGF's Common Stock you own immediately prior to the
Merger.
The Merger has been unanimously approved by the members of your Board of
Directors present at the meeting at which the Merger was considered.
The Board of Directors has concluded that the Merger Agreement and the
proposed Merger are advisable and fair to, and in the best interests of, CGF's
stockholders and, therefore, THE BOARD OF DIRECTORS RECOMMENDS THAT YOU VOTE IN
FAVOR OF ADOPTING AND APPROVING THE MERGER AGREEMENT AND THE MERGER.
The attached notice of meeting and proxy statement explain the proposed
Merger and provide specific information concerning the special meeting. Please
read these materials carefully. Do not send any certificates representing CGF
Common Stock at this time.
The affirmative vote of the holders of a majority of the outstanding shares
of CGF's Common Stock entitled to vote at the Special Meeting pursuant to
Delaware law is required to adopt and approve the Merger Agreement and the
Merger. Green Equity Investors, L.P., a Delaware limited partnership and owner
of approximately 35% of the Common Stock, has agreed, among other things, to
vote all shares of Common Stock owned by it in favor of adopting and approving
the Merger Agreement and the Merger. See "The Stockholder Support Agreement."
Whether or not you plan to attend the Special Meeting, we urge you to complete,
sign and promptly return the enclosed proxy card to assure that your shares will
be voted at the meeting. Failure to return a properly executed proxy and/or to
vote at the Special Meeting will have the same effect as a vote against adoption
and approval of the Merger Agreement and the Merger. The Merger is an important
step for CGF and its stockholders. THE MERGER CANNOT BE COMPLETED UNLESS CGF'S
STOCKHOLDERS ADOPT AND APPROVE THE MERGER AGREEMENT AND THE MERGER.
On behalf of the Board of Directors, we thank you for your support and urge
you to vote FOR adoption and approval of the Merger Agreement and the Merger.
Sincerely,
/s/ John J. Cairns
John J. Cairns
CHAIRMAN OF THE BOARD OF DIRECTORS
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CARR-GOTTSTEIN FOODS CO.
6411 A STREET
ANCHORAGE, ALASKA 99518
(907) 561-1944
March 10, 1999
To the Stockholders:
Notice is hereby given that a Special Meeting of Stockholders of
Carr-Gottstein Foods Co. ("CGF") will be held at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California on April 8, 1999
at 10:00 A.M., local time, for the following purposes:
1. To consider and vote upon a proposal to adopt and approve an Agreement
and Plan of Merger (the "Merger Agreement") among CGF, Safeway Inc. and
ACG Merger Sub, Inc. ("Acquisition"), a newly-formed, wholly-owned
subsidiary of Safeway Inc., pursuant to which Acquisition will be merged
with and into CGF and CGF will continue as the surviving corporation (the
"Merger"). If the Merger Agreement and the Merger are adopted and
approved by stockholders and the other conditions to the Merger are
satisfied or waived, each stockholder of CGF will become entitled to
receive $12.50 in cash for each outstanding share of CGF's Common Stock
owned immediately prior to the effective time of the Merger (other than
stockholders who are entitled to and have perfected their appraisal
rights). A copy of the Merger Agreement is attached as APPENDIX A to, and
is described in, the accompanying proxy statement.
2. To consider and act upon such other matters as may properly come before
the Special Meeting or any adjournment or postponement thereof.
The Board of Directors has determined that only holders of CGF's Common
Stock of record at the close of business on March 5, 1999, will be entitled to
notice of, and to vote at, the Special Meeting or any adjournment or
postponement thereof. A list of such stockholders will be available for
inspection at the offices of CGF located at 6411 A Street, Anchorage, Alaska
99518, at least ten days prior to the Special Meeting.
By Order of the Board of Directors,
/s/ Donald J. Anderson
Donald J. Anderson
SECRETARY, SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
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CARR-GOTTSTEIN FOODS CO.
6411 A STREET
ANCHORAGE, ALASKA 99518
(907) 561-1944
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PROXY STATEMENT
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INTRODUCTION
This proxy statement is being furnished to the stockholders of
Carr-Gottstein Foods Co., a Delaware corporation ("CGF" or the "Company"), in
connection with the solicitation by its Board of Directors (the "Board") of
proxies to be used at a Special Meeting of Stockholders (the "Special Meeting")
to be held at the offices of Gibson, Dunn & Crutcher LLP, 333 South Grand
Avenue, Los Angeles, California on April 8, 1999 at 10:00 A.M., local time, and
at any adjournment or postponement thereof. This proxy statement, the Notice of
Special Meeting of Stockholders and the enclosed form of Proxy are first being
mailed to stockholders of CGF on or about March 10, 1999.
The Special Meeting of Stockholders has been called to consider and vote on
a proposal to adopt and approve an Agreement and Plan of Merger (the "Merger
Agreement") (attached to this proxy statement as APPENDIX A) among CGF, Safeway
Inc., a Delaware corporation ("Safeway"), and ACG Merger Sub, Inc.
("Acquisition"), a newly-formed and wholly-owned Delaware corporation organized
by Safeway, pursuant to which Acquisition will be merged with and into CGF (the
"Merger") and each outstanding share of the common stock, par value $0.01 per
share, of CGF (the "Common Stock") will be converted automatically into the
right to receive $12.50 in cash (the "Merger Consideration"), payable to the
holder thereof, without interest, other than shares held by any stockholders who
are entitled to and who have perfected their appraisal rights.
Consummating the Merger is subject to a number of conditions. Accordingly,
even if stockholders adopt and approve the Merger Agreement and the Merger,
there can be no assurance that the Merger will be consummated.
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting pursuant to Delaware law
is required to adopt and approve the Merger Agreement and the Merger. Green
Equity Investors, L.P., a Delaware limited partnership and owner of
approximately 35% of the Common Stock, has agreed, among other things, to vote
all shares of Common Stock owned by it in favor of adopting and approving the
Merger Agreement and the Merger. See "The Stockholder Support Agreement."
FORWARD-LOOKING STATEMENTS
Some statements contained in this proxy statement regarding future financial
performance and results and other statements that are not historical facts are
forward-looking statements. Such statements relate to, among other things, the
Merger, and future capital expenditures, cost reduction, cash flow and operating
results. The words "expect," "project," "estimate," "predict," "anticipate,"
"believes," "plans," "intends," and similar expressions are also intended to
identify forward-looking statements. Such statements are subject to numerous
risks, uncertainties and assumptions, including but not limited to: general
business and economic conditions in CGF's operating region, including the rate
of inflation, population, employment and job growth in CGF's markets; pricing
pressures and other competitive factors, which could include pricing strategies,
store openings and remodels; results of CGF's and Safeway's efforts to
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reduce costs; the ability to integrate and achieve operating improvements;
increases in labor costs and deterioration in relations with the union
bargaining units; issues arising from addressing year 2000 information
technology issues; opportunities that CGF or Safeway may pursue; the
availability and terms of financing; conditions to the consummation of the
Merger, including regulatory approval, which could affect the timing of the
Merger; legal proceedings and changes in state or federal legislation or
registration.
Other factors and assumptions not identified above could also cause the
actual results to differ materially from those set forth in the forward-looking
information. CGF and Safeway do not undertake to update forward-looking
information contained herein or elsewhere to reflect actual results, changes in
assumptions or changes in other factors affecting such forward-looking
information.
Should one or more of these risks or uncertainties materialize, or should
underlying assumptions prove incorrect, actual results may vary materially from
those indicated in, contemplated by or implied by such statements.
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TABLE OF CONTENTS
<TABLE>
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INTRODUCTION............................................................................................ ii
FORWARD-LOOKING STATEMENTS.............................................................................. ii
SUMMARY................................................................................................. 1
Date, Time and Place of the Special Meeting......................................................... 1
Purpose of the Special Meeting...................................................................... 1
Record Date and Quorum.............................................................................. 1
Vote Required....................................................................................... 1
Parties to the Merger Transaction................................................................... 2
The Proposed Merger................................................................................. 2
Effective Date of the Merger; Payment for Shares.................................................... 2
Background of the Merger Transaction................................................................ 3
The Board's Recommendation.......................................................................... 3
Opinion of Financial Adviser........................................................................ 4
Conflicts of Interest............................................................................... 4
Certain Effects of the Merger....................................................................... 5
Conditions to the Merger............................................................................ 5
Termination of the Merger Agreement................................................................. 6
Termination Fee and Payment of Expenses............................................................. 7
The Stockholder Support Agreement................................................................... 7
Financing for the Merger............................................................................ 7
Federal Income Tax Consequences..................................................................... 7
Accounting Treatment................................................................................ 8
Market Prices for Common Stock and Dividends........................................................ 8
Rights of Dissenting Stockholders................................................................... 8
Summary of Selected Consolidated Financial Data..................................................... 9
Fourth Quarter 1998 Results......................................................................... 10
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING.......................................................... 12
RECORD DATE AND VOTING OF COMMON STOCK.................................................................. 12
SOLICITATION OF PROXIES................................................................................. 13
THE MERGER.............................................................................................. 13
Background of the Merger............................................................................ 13
Recommendation of the Board of Directors............................................................ 14
Certain Information Provided to Safeway by CGF...................................................... 15
Opinion of Financial Adviser to CGF................................................................. 16
Safeway's Reasons for the Merger.................................................................... 20
Interests of Certain Persons in the Merger.......................................................... 21
The Merger Agreement................................................................................ 22
Regulatory Compliance............................................................................... 29
Financing for the Merger............................................................................ 30
The Stockholder Support Agreement................................................................... 31
Appraisal Rights.................................................................................... 31
Federal Income Tax Consequences..................................................................... 33
Certain Effects of the Merger....................................................................... 34
INFORMATION REGARDING CGF............................................................................... 34
</TABLE>
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INFORMATION REGARDING SAFEWAY AND ACQUISITION........................................................... 34
SELECTED FINANCIAL DATA FOR CGF......................................................................... 36
Fourth Quarter 1998 Results......................................................................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS................... 39
Results of Operations............................................................................... 39
Liquidity and Capital Resources..................................................................... 42
MARKET PRICE AND DIVIDEND INFORMATION................................................................... 45
Market Prices for Common Stock and Dividends........................................................ 45
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT.................................................. 46
INDEPENDENT PUBLIC ACCOUNTANTS.......................................................................... 48
ADDITIONAL INFORMATION.................................................................................. 48
OTHER BUSINESS.......................................................................................... 49
</TABLE>
APPENDICES:
Appendix A--Agreement and Plan of Merger
Appendix B--Opinion of Donaldson, Lufkin & Jenrette Securities Corporation
Appendix C--Stockholder Support Agreement
Appendix D--Appraisal Rights Statute
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SUMMARY
THE FOLLOWING IS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE IN
THIS PROXY STATEMENT. REFERENCE IS MADE TO, AND THIS SUMMARY IS QUALIFIED IN ITS
ENTIRETY BY, THE MORE DETAILED INFORMATION CONTAINED ELSEWHERE IN THIS PROXY
STATEMENT AND IN THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE. STOCKHOLDERS
ARE URGED TO READ THIS PROXY STATEMENT AND ITS APPENDICES IN THEIR ENTIRETY
BEFORE VOTING.
DATE, TIME AND PLACE OF THE SPECIAL MEETING
A Special Meeting of Stockholders (the "Special Meeting") of Carr-Gottstein
Foods Co. ("CGF" or the "Company") will be held at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California on April 8, 1999
at 10:00 A.M., local time.
PURPOSE OF THE SPECIAL MEETING
At the Special Meeting, the stockholders will consider and vote on a
proposal to adopt and approve an Agreement and Plan of Merger (the "Merger
Agreement") (attached to this proxy statement as APPENDIX A) among CGF, Safeway
Inc., a Delaware corporation ("Safeway"), and ACG Merger Sub, Inc.
("Acquisition"), a newly-formed, wholly-owned Delaware corporation organized by
Safeway, pursuant to which Acquisition will be merged with and into CGF (the
"Merger") and each outstanding share of CGF's common stock, $0.01 par value per
share (the "Common Stock"), will be converted automatically into the right to
receive $12.50 in cash payable to the holders thereof, without interest (the
"Merger Consideration"), other than shares held by stockholders who are entitled
to and who have perfected their appraisal rights, shares held in CGF's treasury
or by any of CGF's subsidiaries or shares held by Safeway, Acquisition or any
other subsidiary of Safeway. See "The Merger."
RECORD DATE AND QUORUM
The Board of Directors of CGF (the "Board") has fixed the close of business
on March 5, 1999 as the record date (the "Record Date") for the determination of
stockholders entitled to notice of, and to vote at, the Special Meeting and any
adjournment or postponement thereof. Each holder of record of Common Stock at
the close of business on the Record Date is entitled to one vote for each share
then held on each matter submitted to a vote of stockholders. At the Record
Date, there were 8,248,052 shares of Common Stock outstanding. The holders of a
majority of the outstanding shares entitled to vote at the Special Meeting must
be present in person or represented by proxy to constitute a quorum for the
transaction of business. See "Record Date and Voting of Common Stock."
VOTE REQUIRED
The affirmative vote of the holders of a majority of the outstanding shares
of Common Stock entitled to vote at the Special Meeting pursuant to Delaware law
is required to adopt and approve the Merger Agreement and the Merger. Thus, a
failure to vote or a vote to abstain will have the same legal effect as a vote
cast against adoption and approval of the Merger Agreement and the Merger. In
addition, brokers who hold shares of Common Stock as nominees will not have
discretionary authority to vote such shares in the absence of instructions from
the beneficial owners; thus, such "broker non-votes" will have the same legal
effect as a vote cast against adoption and approval of the Merger Agreement and
the Merger. See "Record Date and Voting of Common Stock."
As a condition to entering into the Merger Agreement, Safeway required that
Green Equity Investors, L.P., a Delaware limited partnership ("GEI") and owner
of approximately 35% of the Common Stock, enter into a Stockholder Support
Agreement, dated as of August 6, 1998, between Safeway and GEI, pursuant to
which GEI has agreed, among other things, to vote all shares of Common Stock
owned by it in favor of adopting and approving the Merger Agreement and the
Merger. See "The Stockholder Support Agreement." In addition, all directors and
executive officers of CGF, owners of approximately 2% of the
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outstanding shares of Common Stock collectively (excluding shares owned by GEI
that may be attributable to Messrs. Leonard I. Green, Jonathan D. Sokoloff and
Gregory J. Annick as a result of their affiliation with GEI and excluding shares
that may be acquired upon the exercise of stock options exercisable prior to the
Merger), have advised CGF that they intend to vote all shares of Common Stock
owned by them in favor of adopting and approving the Merger Agreement and the
Merger.
PARTIES TO THE MERGER TRANSACTION
CGF. CGF is the leading food and drug retailer in Alaska, with 49 stores
primarily located in Anchorage, as well as in Fairbanks, Juneau, Kenai and other
Alaska communities. CGF operates a chain of 16 super-combination food, drug and
general merchandise stores under the name Carrs Quality Centers. CGF also
operates nine smaller stores, four under the name Eagle Quality Centers, two
under other trade names and three neighborhood food stores located in smaller
Alaskan communities. CGF is Alaska's highest-volume alcoholic beverage retailer
through its chain of 17 wine and liquor stores operated under the name Oaken Keg
Spirit Shops. CGF also runs seven specialty tobacco stores under the name The
Great Alaska Tobacco Company. In addition, CGF's vertically integrated
organization includes freight transportation operations and Alaska's only
full-line food warehouse and distribution center.
SAFEWAY AND ACQUISITION. Safeway is one of the largest food and drug chains
in North America based on sales, with 1,497 stores as of January 2, 1999.
Safeway's U.S. retail operations are located principally in northern California,
southern California, Oregon, Washington, Colorado, Arizona, Illinois and the
Mid-Atlantic region. Safeway's Canadian retail operations are located primarily
in British Columbia, Alberta and Manitoba/Saskatchewan. In support of its retail
operations, Safeway has an extensive network of distribution, manufacturing and
food processing facilities. Safeway also holds a 49% interest in Casa Ley, S.A.
de C.V., which, as of January 2, 1999, operated 77 food and general merchandise
stores in western Mexico.
Acquisition is a newly formed, wholly owned subsidiary of Safeway formed for
the purpose of being merged with and into CGF pursuant to the terms and
conditions of the Merger Agreement. At the Effective Time, subject to the terms
and conditions of the Merger Agreement and the DGCL, Acquisition will be merged
with and into CGF, the separate corporate existence of Acquisition will cease,
and CGF will continue as the Surviving Corporation.
THE PROPOSED MERGER
The Merger Agreement provides that, subject to satisfaction of certain
conditions, Acquisition will be merged into CGF, and that following the Merger,
the separate existence of Acquisition will cease and CGF will continue as the
surviving corporation (the "Surviving Corporation"). At the Effective Date (as
defined below) of the Merger and subject to the conditions and procedures set
forth in the Merger Agreement, each share of issued and outstanding Common Stock
(other than shares as to which statutory appraisal rights are properly perfected
and not withdrawn, shares held in CGF's treasury or by any of CGF's subsidiaries
or shares held by Safeway, Acquisition or any other subsidiary of Safeway) will,
by virtue of the Merger, be converted into the right to receive $12.50 in cash,
without interest. See "The Merger."
The directors and officers of the Surviving Corporation will be appointed by
Safeway and the board of directors of the Surviving Corporation immediately
following consummation of the Merger.
EFFECTIVE DATE OF THE MERGER; PAYMENT FOR SHARES
The Merger will become effective (the "Effective Date") at the time and date
when a copy of a certificate of merger is filed with the Secretary of State of
the State of Delaware pursuant to the Delaware General Corporation Law (the
"DGCL"). The time of such filing is currently expected to occur as soon as
practicable after the Special Meeting, subject to adoption and approval of the
Merger Agreement and the Merger at the Special Meeting and satisfaction or
waiver of the terms and conditions of the Merger
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Agreement. Detailed instructions with regard to the surrender of certificates,
together with a letter of transmittal, will be forwarded to stockholders by
ChaseMellon Shareholder Services (the "Payment Agent") as soon as reasonably
practicable following the Effective Date. Stockholders should not submit their
certificates to the Payment Agent until they have received such materials.
Payment for shares will be made to stockholders as promptly as practicable
following receipt by the Payment Agent of their certificates and other required
documents. No interest will be paid or accrued on the cash payable upon the
surrender of certificates. See "The Merger Agreement." STOCKHOLDERS SHOULD NOT
SEND ANY SHARE CERTIFICATES AT THIS TIME.
BACKGROUND OF THE MERGER TRANSACTION
The Board and management have, from time to time, considered strategic
alternatives for CGF, including acquisitions, diversification of its business
into strategically complementary areas and other courses of action. On March 19,
1998, the Board met to discuss the potential benefits of exploring potential
strategic alternatives, including a recapitalization of CGF or a sale, merger,
consolidation or other business combination involving all or a substantial
amount of the securities or assets of CGF in one or a series of transactions (a
"Transaction"). In connection therewith, the Board authorized the retention of
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ") as its exclusive
financial adviser with respect to any Transaction, authorized the preparation
and circulation of a confidential information memorandum (the "Confidential
Information Memorandum") and authorized negotiations with third parties
regarding a possible Transaction.
On March 20, 1998, CGF engaged DLJ to act as its exclusive financial adviser
with respect to a possible Transaction. Over the next several weeks, DLJ
contacted a number of prospective partners. Thereafter, information about CGF
was provided to interested parties.
On August 5, 1998, the Board held a special meeting to consider the proposed
Merger Agreement with Safeway. DLJ discussed the financial aspects of the
proposed transaction with Safeway and delivered its oral opinion that the
consideration to be received by CGF's stockholders other than GEI (the "Public
Stockholders") pursuant to the Merger Agreement is fair to such stockholders
from a financial point of view as of such date. Thereafter, the members of the
Board present at such meeting unanimously approved the Merger Agreement subject
to certain changes and the resolution of certain remaining issues. Following
this meeting, representatives of CGF negotiated the remaining issues with
representatives of Safeway, and on August 6, 1998, the Merger Agreement was
signed, and DLJ delivered its written opinion that, as of that date, and subject
to the assumptions, limitations and qualifications set forth in such opinion,
the consideration to be received by the Public Stockholders pursuant to the
Merger Agreement is fair to such stockholders from a financial point of view.
For a discussion of the background of the Merger, see "Background of the
Merger."
THE BOARD'S RECOMMENDATION
The members of the Board present at the meeting held to consider the Merger
unanimously determined that the Merger Agreement and the Merger are advisable
and fair to, and in the best interest of, CGF's stockholders and recommended
that the stockholders vote to adopt and approve the Merger Agreement and the
Merger. In reaching these conclusions, the Board was favorably influenced by
numerous factors, including, among others, the fairness opinion presented by
DLJ, the targeted solicitation process conducted by DLJ in seeking a strategic
partner for CGF, and the fact that the cash merger price of $12.50 per share
represented a premium of approximately 59% over the price of Common Stock on the
day before the announcement of the Merger.
For a discussion of the factors considered by the Board, see "Recommendation
of the Board of Directors."
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OPINION OF FINANCIAL ADVISER
CGF retained DLJ to act as its exclusive financial adviser in connection
with a possible Transaction and to render its opinion to the Board as to the
fairness from a financial point of view of the consideration to be received by
the Public Stockholders of CGF in any proposed Transaction. DLJ provided to the
Board an oral opinion on August 5, 1998 that the consideration to be received by
the Public Stockholders is fair to such stockholders from a financial point of
view and confirmed the oral opinion in a written opinion dated August 6, 1998
that, as of that date, and subject to the assumptions, limitations and
qualifications set forth in such opinion, the consideration to be received by
the Public Stockholders pursuant to the Merger Agreement is fair to such
stockholders from a financial point of view. The full text of the written
opinion of DLJ, which sets forth a description of assumptions made, matters
considered and limitations on the review undertaken by DLJ, is attached as
APPENDIX B to this proxy statement. Stockholders are urged to read such opinion
carefully in its entirety. See "Opinion of Financial Adviser to CGF."
CONFLICTS OF INTEREST
In considering the recommendation of the Board with respect to the Merger,
stockholders should be aware that certain officers and directors of CGF have
interests in connection with the Merger which may present them with actual or
potential conflicts of interest. See "Interests of Certain Persons in the
Merger."
1998 SPECIAL BONUS PLAN. The Compensation Committee of the Board proposed,
and on August 5, 1998, the Board unanimously adopted and approved, the 1998
Special Bonus Plan in connection with CGF's review of strategic alternatives,
including the Merger. The 1998 Special Bonus Plan provides that upon closing of
the Merger or any other change of control on or before June 30, 1999, three
executive officers of CGF, Lawrence H. Hayward, Donald J. Anderson and Jeffry L.
Philipps, will be entitled to receive special bonuses in recognition of the
extraordinary services rendered by them in connection with CGF's exploration of
strategic alternatives. Lump sum payments will be made in the amount of $225,000
to Mr. Hayward and $150,000 to each of Messrs. Anderson and Philipps, assuming
that each is still employed by CGF at the Effective Time. In addition, in
connection with the transactions associated with the Merger and in recognition
of their contributions to CGF, the Board approved a one-time special bonus of
$47,400 for each of the non-employee directors of CGF, E. Dean Werries and
Donald Gallegos.
SEVERANCE ARRANGEMENTS. On August 5, 1998, the Board approved the 1998
Severance Plan and amendments to employment agreements with three executive
officers. The purpose of the 1998 Severance Plan is to provide severance bonuses
to certain employees of CGF in the event their employment is terminated by
reason of the Merger. Under the 1998 Severance Plan, any eligible employee
(other than hourly (non-salaried) employees) who is not a party to a written
employment agreement that provides for severance benefits and who is either (i)
notified prior to the Effective Time that he or she will not be retained in a
comparable position, or that his or her employment will be terminated, as of the
Effective Time or (ii) terminated by the Surviving Corporation or its parent or
subsidiaries on or before the first anniversary of the Effective Date, shall
receive, subject to certain other conditions, a severance bonus.
If the terminated employee is an officer, he or she will receive a severance
bonus equal to twice his or her annual base salary. If the terminated employee
is a store, merchandising, operations or administrative director, he or she will
receive a severance bonus equal to his or her annual base salary, plus the
applicable target bonus. If the terminated employee is a manager, he or she will
receive a severance bonus equal to one-half his or her annual base salary. If
the terminated employee is any other salaried employee, he or she will receive a
severance bonus equal to one week of his or her annual base salary for each full
year of service, but he or she will receive not less than ten weeks of such
annual base salary.
In conjunction with the adoption of the 1998 Severance Plan, on August 5,
1998 the Board also approved amendments to the existing employment agreements
with Messrs. Hayward, Anderson and
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Phillips to provide for severance payments to each of these executives equal to
twice his annual base salary in the event that such executive is terminated or
terminates his employment as a result of the Merger.
OPTIONS. Certain of CGF's Board members and executive officers own Common
Stock or stock options and, to that extent, their interest in the Merger is the
same as yours. Immediately prior to the consummation of the Merger, all unvested
stock options issued under the 1991 Stock Option Plan will become vested, and
upon consummation of the Merger, all outstanding options under the 1991 Stock
Option Plan will be exercisable for a per share cash amount equal to the Merger
Consideration minus the per share exercise price. With the consent of the
optionholders, such options will be canceled following the Merger and each
optionholder will receive a per share cash payment equal to the difference
between the Merger Consideration and the per share exercise price. Stock options
held by non-employee directors will be canceled in exchange for a per share cash
payment equal to the difference between the Merger Consideration and the per
share exercise price. See "The Merger--The Merger Agreement--Treatment of Stock
Options." For information concerning management's ownership of Common Stock or
stock options, see "Security Ownership of Beneficial Owners and Management."
INDEMNIFICATION. The Merger Agreement provides that all rights to
indemnification or exculpation existing in favor of any directors or officers of
CGF, as provided in CGF's certificate of incorporation or bylaws as in effect on
the date of the Merger Agreement, shall survive the Merger with respect to
matters occurring at or prior to the Effective Time. Acquisition and Safeway
have agreed to maintain CGF's existing policy of directors' and officers'
liability and fiduciary insurance for a period of six years after the Effective
Time, subject to certain premium limitations.
CERTAIN EFFECTS OF THE MERGER
As a result of the Merger, the entire equity interest in CGF will be owned
by Safeway. Stockholders will no longer have any interest in, and will not be
stockholders of, CGF, and therefore will not participate in its future earnings
and growth. Instead, each such holder of Common Stock will have the right to
receive $12.50 in cash, without interest, for each share held (other than shares
in respect of which appraisal rights have been perfected). In addition, the
Common Stock will no longer be traded on the New York Stock Exchange, price
quotations will no longer be available and the registration of CGF's Common
Stock under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), will be terminated. See "Certain Effects of the Merger."
CONDITIONS TO THE MERGER
The obligations of CGF, Safeway and Acquisition to complete the Merger are
subject to the fulfillment of the following conditions: (i) the Merger Agreement
shall have been adopted by the stockholders of CGF; (ii) no statute, rule,
regulation, executive order, decree, ruling or injunction shall have been
enacted, promulgated, entered, or enforced by any court or governmental
authority that prohibits, restrains, enjoins or restricts the consummation of
the Merger and no legal proceeding shall be pending in which a governmental
authority seeks to prohibit, restrain, enjoin or restrict the consummation of
the Merger; and (iii) any applicable waiting period applicable to the Merger
under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), shall have terminated or expired, and any other required
governmental or regulatory notices or approvals shall have been either filed or
received.
The obligations of Safeway and Acquisition to complete the Merger are
further subject to the fulfillment of the following conditions: (i) the
representations and warranties of CGF set forth in the Merger Agreement or in
any other document delivered pursuant thereto are true and correct at and as of
the Effective Time; (ii) CGF has performed and complied with, in all material
respects, all obligations and covenants required to be performed or complied
with by it under the Merger Agreement; (iii) CGF has obtained required consents
and approvals to permit succession by the Surviving Corporation, pursuant to
5
<PAGE>
the Merger, to any rights or obligations of CGF under any agreements or
contracts, except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of Safeway, individually or in
the aggregate, have a material adverse effect on CGF; (iv) the termination
without continuing liability or obligation of the Management Services Agreement
(the "MSA") between CGF and Leonard Green & Associates, L.P. ("LGA," the general
partner of GEI, of which three directors of CGF, Messrs. Leonard I. Green,
Jonathan D. Sokoloff and Gregory J. Annick (or corporations wholly owned by
them), are general partners), except for the unpaid pro rata portion of the
annual $450,000 fee payable under the MSA through the Effective Time; (v) the
Stockholder Support Agreement between Safeway and GEI (discussed elsewhere
herein) is in full force and effect; and (vi) the absence of any occurrence or
development that individually or in the aggregate has had, or would be
reasonably be expected to have, a material adverse effect on CGF.
The obligations of CGF to complete the Merger are further subject to the
fulfillment of the following conditions: (i) the representations and warranties
of Safeway and Acquisition set forth in the Merger Agreement or in any other
document delivered pursuant thereto are true and correct at and as of the
Effective Time; (ii) Safeway and Acquisition have performed and complied with,
in all material respects, all obligations and covenants required to be performed
or complied with by either of them under the Merger Agreement; and (iii) Safeway
has obtained the consent or approval of each person whose consent or approval
shall be required in connection with the Merger Agreement under any agreements
or contracts, except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of CGF, individually or in the
aggregate, have a material adverse effect on Safeway. See "Conditions to the
Merger."
TERMINATION OF THE MERGER AGREEMENT
CGF or Safeway and Acquisition may terminate the Merger Agreement if (i)
they mutually consent in writing; (ii) there is a law or regulation that
prohibits the Merger or makes it illegal; (iii) a final nonappealable order
shall have been issued prohibiting the Merger; or (iv) the Merger has not been
consummated by May 31, 1999.
Safeway and Acquisition may terminate the Merger Agreement if: (i) the Board
withdraws or changes its recommendation of the Merger or has not opposed a Third
Party Acquisition (as defined herein) or has recommended a Superior Proposal (as
defined herein); (ii) CGF has entered into a definitive agreement with respect
to a Third Party Acquisition; (iii) CGF shall have breached any of its
representations or warranties set forth in the Merger Agreement or any
representation or warranty of CGF shall have become untrue in any material
respect; (iv) CGF shall have breached any of its covenants or agreements set
forth in the Merger Agreement having a material adverse effect on CGF or
materially adversely affecting or materially delaying the Merger and the cure
period for such breach has expired; or (v) CGF's stockholders shall have failed
to adopt and approve the Merger Agreement and the Merger at a meeting of the
stockholders.
CGF may terminate the Merger Agreement if: (i) Safeway or Acquisition shall
have materially breached any of its representations or warranties set forth in
the Merger Agreement or any representation or warranty of Safeway or Acquisition
shall have become untrue in any material respect; (ii) Safeway or Acquisition
shall have breached any of its covenants or agreements set forth in the Merger
Agreement having a material adverse effect on Safeway or materially adversely
affecting or materially delaying the Merger and the cure period for such breach
has expired; or (iii) the Board determines in its good faith judgment and taking
into consideration legal advice that it is likely to be required to and does
withdraw its recommendation of the Merger or recommends or approves a Superior
Proposal in the exercise of its fiduciary duties.
For a discussion of these termination provisions, see "Termination of the
Merger Agreement."
6
<PAGE>
TERMINATION FEE AND PAYMENT OF EXPENSES
CGF will be required to pay $4,000,000 to Safeway in the event that the
Merger Agreement is terminated (i) by CGF because the Board determines, in its
good faith judgment, after consultation with and taking into consideration
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 by the Merger Agreement or recommends or approves a
Superior Proposal; (ii) by Safeway or Acquisition if the Board recommends to the
holders of the Common Stock a Superior Proposal or withdraws, modifies or
changes its approval or recommendation of the Merger or the Merger Agreement or
has not opposed a Third Party Acquisition in a Schedule 14D-9 filing; (iii) by
Safeway or Acquisition if CGF enters into a definitive agreement with respect to
a Third Party Acquisition; or (iv) if another bona fide proposal to acquire
directly or indirectly for consideration consisting of cash and/or securities
more than 50% of the Common Stock then outstanding or all or substantially all
of CGF's assets is outstanding on the date of the Special Meeting, by Safeway or
Acquisition if CGF has convened the Special Meeting and CGF's stockholders fail
to adopt the Merger Agreement. In addition, in such event, CGF will be required
to pay Safeway's reasonable out-of-pocket expenses incurred in connection with
the transactions contemplated by the Merger Agreement. Notwithstanding the
foregoing, no amount shall be payable by CGF if Safeway shall have materially
breached its obligations under the Merger Agreement.
For a discussion of these termination fees and expenses, see "Termination
Fee and Payment of Expenses."
THE STOCKHOLDER SUPPORT AGREEMENT
As a condition to entering into the Merger Agreement, Safeway required that
GEI, the owner of approximately 35% of CGF's Common Stock, enter into the
Stockholder Support Agreement, dated as of August 6, 1998, between Safeway and
GEI (the "Stockholder Support Agreement"). Messrs. Leonard I. Green, Jonathan D.
Sokoloff and Gregory J. Annick, directors of CGF, or corporations wholly-owned
by them, are general partners of LGA, the general partner of GEI. The
Stockholder Support Agreement provides, among other things, that GEI shall (i)
vote all shares of Common Stock owned by it in favor of adopting the Merger
Agreement and approval of the Merger and against any other merger or similar
transaction during the term of the Merger Agreement; (ii) refrain from
transferring or otherwise disposing of its shares of Common Stock; (iii) refrain
from directly or indirectly soliciting any Third Party Acquisition proposals;
and (iv) pay to Safeway an amount equal to 50% of any "profit" (as defined in
the Stockholder Support Agreement) resulting from the sale or disposal of its
shares of Common Stock within eighteen months of a termination of the Merger
Agreement pursuant to certain termination provisions set forth therein. The
Stockholder Support Agreement is attached to this proxy statement as APPENDIX C.
See "The Stockholder Support Agreement."
FINANCING FOR THE MERGER
The total amount required to pay the aggregate Merger Consideration to CGF's
stockholders, including amounts payable with respect to outstanding stock
options, and to pay related fees, expenses and other transaction costs of
Safeway and Acquisition, will be approximately $112 million. Safeway intends to
finance these amounts through borrowings under its existing bank credit
agreement and/or the issuance of commercial paper. In addition, following the
Merger, Safeway anticipates that it will refinance all or a portion of CGF's
long-term debt. Safeway has adequate capacity under either its bank credit
agreement or commercial paper program to fund these amounts. The Merger is not
conditioned on obtaining financing.
FEDERAL INCOME TAX CONSEQUENCES
The receipt of the Merger Consideration by holders of Common Stock pursuant
to the Merger will be a taxable transaction for federal income tax purposes. For
a more detailed discussion of the federal income
7
<PAGE>
tax consequences of the Merger, see "Federal Income Tax Consequences." All
holders of Common Stock are urged to consult their tax advisers to determine the
effect of the Merger on such holders under federal, state, local and foreign tax
laws.
ACCOUNTING TREATMENT
The Merger will be treated as a "purchase" for accounting purposes.
MARKET PRICES FOR COMMON STOCK AND DIVIDENDS
CGF's Common Stock is listed on the New York Stock Exchange under the symbol
"CGF". The following tables present historical trading information about CGF's
Common Stock high and low closing sales prices:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1996
First Quarter.............................................................. 5.63 4.50
Second Quarter............................................................. 5.13 4.13
Third Quarter.............................................................. 4.38 3.63
Fourth Quarter............................................................. 4.13 3.38
1997
First Quarter.............................................................. 5.88 3.63
Second Quarter............................................................. 5.38 4.75
Third Quarter.............................................................. 5.44 4.75
Fourth Quarter............................................................. 5.31 4.75
1998
First Quarter.............................................................. 5.75 4.81
Second Quarter............................................................. 7.50 5.31
Third Quarter.............................................................. 11.25 7.13
Fourth Quarter............................................................. 11.63 10.75
1999
First Quarter (through March 3, 1999)...................................... 12.06 10.88
</TABLE>
On August 5, 1998 (the last trading day before the announcement of the
Merger Agreement) the high and low sale prices of the Common Stock were $8 1/16
and $7 3/4, respectively, and the closing sales price was $7 7/8. No cash
dividends have been paid on the Common Stock by CGF since its shares were
publicly distributed in 1993, and CGF does not currently intend to pay cash
dividends on its Common Stock.
RIGHTS OF DISSENTING STOCKHOLDERS
Any stockholder who does not wish to accept the Merger Consideration has the
right under the DGCL to receive the "fair value" of his or her shares of Common
Stock as determined by a Delaware court. This "appraisal right" is subject to a
number of restrictions and technical requirements. Generally, in order to
perfect appraisal rights (i) a dissenting stockholder must not vote in favor of
adopting and approving the Merger Agreement and the Merger and (ii) a dissenting
stockholder must make a written demand for appraisal before the vote on the
Merger Agreement and the Merger.
Merely voting against the Merger Agreement and the Merger will not protect
the right of appraisal. APPENDIX D to this proxy statement contains the
applicable provisions of the DGCL relating to appraisal rights. See "Appraisal
Rights."
8
<PAGE>
SUMMARY OF SELECTED CONSOLIDATED FINANCIAL DATA
The following table presents certain summary selected consolidated financial
data of CGF as of and for each of the five fiscal years in the period ended
December 28, 1997 and for the thirty-nine week periods ended September 27, 1998
and September 28, 1997. This financial data was derived from audited and
unaudited historical consolidated financial statements of CGF and should be read
in conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this proxy statement
and the financial statements and notes thereto incorporated herein by reference.
The selected financial data set forth below do not purport to be complete
and should be read in conjunction with, and are qualified in their entirety by,
CGF's interim unaudited financial statements and annual audited financial
statements, including the notes thereto, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS
(AMOUNTS IN THOUSANDS, EXCEPT ENDED ENDED
FOR PER SHARE AND STORE SEPT. 27, SEPT. 28, FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
INFORMATION) 1998 1997 1997 1996 1995 1994 1993
- ----------------------------------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Sales.............................. $ 440,769 $ 445,503 $ 589,274 $ 612,576 $ 601,322 $ 577,063 $ 555,266
Cost of merchandise sold, including
warehousing and transportation
expenses (1)..................... 312,028 317,380 418,639 442,996 431,230 417,183 396,080
Gross profit....................... 128,741 128,123 170,635 169,580 170,092 159,880 159,186
Operating and administrative
expenses (1,4,6)................. 105,665 107,154 151,105 144,525 141,884 130,255 131,313
Operating income (4,6)............. 23,076 12,020 19,530 25,055 28,208 29,625 27,873
Interest expense, net.............. 19,274 20,102 26,711 27,923 16,079 12,210 19,327
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................ 1,393 (5,755) (5,605) (2,810) 4,650(3) 9,211 4,244(2)
Net income (loss).................. $ 1,393 $ (5,755) $ (5,605) $ (2,810) $ 3,744 $ 9,211 $ (14,581)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other Data:
Depreciation and amortization...... $ 12,370 12,378 $ 16,536 $ 17,702 $ 17,626 $ 15,690 $ 18,294
Compensation expense stock options
(4).............................. -- -- -- -- 1,518 -- --
Nonrecurring charge (6)............ -- 8,949 8,949 -- -- -- --
Cash interest...................... 15,816 16,083 25,366 26,484 15,558 12,143 18,680
Basic Income (Loss) Per Share:
Before extraordinary items......... $ 0.17 $ (0.73) $ (0.71) $ (0.36) $ 0.32 $ 0.55 $ 0.30
Net income (loss).................. 0.17 (0.73) (0.71) (0.36) 0.26 0.55 (1.03)
Weighted average shares
outstanding...................... 8,201 7,918 7,921 7,814 14,457(5) 16,763 14,139
Diluted Income (Loss) Per Share:
(7)
Before extraordinary items......... $ 0.16 $ (0.73) $ (0.71) $ (0.36) $ 0.31 $ 0.53 $ 0.29
Net income (loss).................. 0.16 (0.73) (0.71) (0.36) 0.25 0.53 (1.01)
Weighted average shares
outstanding...................... 8,517 7,918 7,921 7,814 15,112 17,233 14,435
Financial Position:
Total assets....................... $ 319,909 $ 323,805 $ 315,466 $ 330,844 $ 336,620 $ 326,369 $ 308,912
Long-term debt, excluding current
maturities....................... 211,066 219,481 215,421 227,640 234,740 136,339 137,456
Stockholders' equity............... 26,702 24,164 24,314 29,598 32,302 112,636 113,366
Capital expenditures............... 7,832 3,192 7,010 4,390 16,660 26,473 27,949
Other Period-end Statistics:
Number of stores................... 49 45 45 42 39 36 33
Number of employees................ 3,170 3,049 3,040 3,243 3,568 3,597 3,525
</TABLE>
- ------------------------------
(1) Reclassifications have been made to fiscal years 1993 through 1995. During
these years, warehousing, transportation and the related occupancy costs
were originally reported as operating and administrative expenses. For the
current presentation, these expenses have been classified as cost of
merchandise sold.
(2) In fiscal year 1993 extraordinary item consisted of a $21,100 charge
resulting from early retirement of debt.
9
<PAGE>
(3) In fiscal year 1995, extraordinary item consisted of a $906 charge resulting
from early retirement of debt.
(4) In fiscal year 1995, CGF recognized a one time pre-tax charge of $1.5
million for non-cash expenses associated with the restructuring of a
management stock option incentive plan.
(5) On November 15, 1995 CGF repurchased and retired 7,500 shares of Common
Stock. This repurchase reduced the weighted average shares for fiscal year
1995 by approximately 800 shares.
(6) In fiscal year 1997, CGF recognized a non-recurring charge of $8.9 million
for expenses principally associated with its decision to close its YES foods
institutional food service business and discontinue wholesaling services to
a Russian export business.
(7) Diluted earnings per share data for fiscal years 1993 through 1996 have been
restated to conform with Statement of Financial Accounting Standard No. 128,
Earnings Per Share.
FOURTH QUARTER 1998 RESULTS
On February 17, 1999, CGF announced selected financial information for the
fourth quarter and fiscal year ended January 3, 1999. Sales for the fourth
quarter increased $17.3 million, or 12.1 percent, from $143.8 million in 1997 to
$161.1 million in 1998. Sales for the fiscal year ended January 3, 1999
increased $12.6 million, or 2.1 percent, from $589.3 million in 1997 to $601.9
million in 1998. Sales for the 1998 fourth quarter included one additional week
as compared to the prior year's quarter. Excluding the impact of the 53rd week,
sales for the quarter and year improved $6.2 million or 4.3 percent and $1.5
million or 0.3 percent, respectively. Excluding the impact of the 53rd week and
the effect of CGF's decision to close its YES Foods institutional food service
business and discontinue its wholesaling service to a Russian export business,
sales for year ended January 3, 1999 increased $17.4 million or 3.0 percent.
Net income for the fourth quarter increased $0.6 million to net earnings of
$0.7 million, or $0.09 per share, versus net income of $0.2 million, or $0.02
per share, in the same quarter of 1997. The increase in earnings for the 1998
quarter reflects improvements in gross margin dollars coupled with a reduction
in the operating expense rate and lower interest expenses due to lower average
debt balances in the quarter versus the prior year quarter. Net income for the
fiscal year ended January 3, 1999 excluding a 1997 one-time charge improved by
$2.4 million to net earnings of $2.1 million, or $0.26 per share, versus a net
loss of $0.3 million, or $0.04 per share, in the prior year.
Excluding the impact of the 53rd week, total retail comparable store sales
for the fourth quarter and fiscal year ended January 3, 1999, increased by 2.9
percent and 1.8 percent, respectively.
10
<PAGE>
The Company's capital investment program continued as planned during the
quarter with total capital spending for the fiscal year ended January 3, 1999 of
$10.1 million.
<TABLE>
<CAPTION>
4TH QUARTER ENDED YEAR ENDED
-------------------- --------------------
JAN. 3, DEC. 28, JAN. 3, DEC. 28,
1999 1997 1999 1997
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Sales............................................... $ 161,100 $ 143,771 $ 601,869 $ 589,274
Cost of sales and related occupancy costs........... 114,424 101,259 426,452 418,639
--------- --------- --------- ---------
Gross profit...................................... 46,676 42,512 175,417 170,635
Selling, general and administrative expenses........ 38,319 35,002 143,984 142,156
--------- --------- --------- ---------
Operating income.................................... 8,357 7,510 31,433 28,479
Other expenses:
Interest expense, net............................. 6,537 6,609 25,811 26,711
Other expense..................................... 42 155 7 373
Non-recurring charge.............................. -- -- 8,949
Net income (loss) before taxes...................... 1,778 746 5,615 (7,554)
Income tax expense (benefit)........................ 1,047 596 3,491 (1,949)
--------- --------- --------- ---------
Net income (loss)................................... $ 731 $ 150 $ 2,124 $ (5,605)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share before
Non-recurring charge................................ $ 0.09 $ 0.02 $ 0.26 $ (0.04)
--------- --------- --------- ---------
--------- --------- --------- ---------
Net income (loss) per share before
Non-recurring charge................................ $ 0.09 $ 0.02 $ 0.26 $ (0.71)
--------- --------- --------- ---------
--------- --------- --------- ---------
Weighted average common shares outstanding.......... 8,245 7,939 8,212 7,923
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
11
<PAGE>
TIME, PLACE AND PURPOSE OF THE SPECIAL MEETING
This proxy statement and the accompanying proxy card are solicited by the
Board. These proxies will be used at the Special Meeting to be held at the
offices of Gibson, Dunn & Crutcher LLP, 333 South Grand Avenue, Los Angeles,
California on April 8, 1999 at 10:00 A.M., local time, and at any and all
adjournments or postponements thereof. The purpose of the Special Meeting is to
consider and vote on a proposal to adopt and approve the Merger Agreement and
the Merger, pursuant to which Acquisition will be merged into CGF with CGF
continuing as the Surviving Corporation. The Board approved the Merger
Agreement. THE BOARD OF DIRECTORS OF CGF RECOMMENDS THAT CGF STOCKHOLDERS VOTE
FOR ADOPTION AND APPROVAL OF THE MERGER AGREEMENT AND THE MERGER.
RECORD DATE AND VOTING OF COMMON STOCK
Stockholders of record at the close of business on March 5, 1999 (the
"Record Date") will be entitled to vote at the Special Meeting. On the Record
Date, there were outstanding 8,248,052 shares of Common Stock. The presence, in
person or by proxy, of the holders of shares representing at least a majority of
the outstanding shares of Common Stock at the Special Meeting shall constitute a
quorum. Shares represented by proxies that reflect abstentions or "broker
non-votes" (I.E., shares held by a broker or nominee that are represented at the
Special Meeting, but with respect to which such broker or nominee is not
empowered to vote on a particular proposal) will be counted as shares that are
present and entitled to vote for purposes of determining the presence of a
quorum.
All shares represented by properly executed and unrevoked proxies will be
voted at the Special Meeting. Each share of Common Stock is entitled to one
vote. You may revoke your proxy before it is voted by executing another proxy at
a later date, by notifying the secretary of CGF in writing of your revocation,
or by attending the Special Meeting in person and voting in person.
At the Special Meeting, holders of Common Stock will vote on the proposal to
adopt and approve the Merger Agreement and the Merger (the "Proposal"). Holders
of a majority of all the outstanding shares of Common Stock must vote in favor
of adopting and approving the Merger Agreement and the Merger in order for the
Proposal to be adopted. Votes withheld, abstentions and "broker non-votes" will
not be counted as votes cast and will not be voted. A failure to vote, a vote to
abstain or a broker non-vote will have the same legal effect as a vote cast
against adoption of the Merger Agreement and the Merger.
GEI, owner of approximately 35% of the Common Stock, has agreed, among other
things, pursuant to the Stockholder Support Agreement, to vote all shares of
Common Stock owned by it in favor of adopting and approving the Merger Agreement
and the Merger. See "The Stockholder Support Agreement." In addition, all
directors and executive officers of CGF, owners of approximately 2% of the
outstanding shares Common Stock collectively (excluding shares owned by GEI that
may be attributable to Messrs. Leonard I. Green, Jonathan D. Sokoloff and
Gregory J. Annick as a result of their affiliation with GEI and excluding shares
that may be acquired upon the exercise of stock options exercisable prior to the
Merger), have advised CGF that they intend to vote all shares of Common Stock
owned by them in favor of adopting and approving the Merger Agreement and the
Merger.
If the enclosed proxy is duly executed and received in time for the Special
Meeting, and if no contrary instructions are included on the proxy, it is the
intention of the persons named as proxies to vote the shares of Common Stock
represented thereby in favor of the Proposal to adopt and approve the Merger
Agreement and the Merger, and in the discretion of the persons named as proxies
in connection with any other business that may properly come before the Special
Meeting or any adjournment or postponement thereof.
At this time, CGF knows of no other matters that may be presented for
stockholder action at the Special Meeting. However, if any matters, other than
the Proposal, should properly come before the
12
<PAGE>
Special Meeting, it is the intention of the persons named in the enclosed proxy
to vote such proxy in accordance with their best judgment.
In the event that there are not sufficient votes to adopt the Proposal, it
is expected that the Special Meeting will be postponed or adjourned in order to
permit further solicitation of proxies by CGF.
The delivery of this proxy statement shall not, under any circumstances,
create any implication that the information contained herein is correct after
the date hereof.
THE BOARD RECOMMENDS A VOTE "FOR" THE ADOPTION AND APPROVAL OF THE MERGER
AGREEMENT AND THE MERGER.
SOLICITATION OF PROXIES
Officers and regular employees of CGF may solicit proxies from stockholders
by telephone, telegram, facsimile or in person. CGF will not pay these
individuals any additional compensation for such services, except for the
reimbursement of any reasonable out-of-pocket expenses that they incur. CGF will
pay all additional expenses of the solicitation of proxies for the Special
Meeting, including the cost of mailing.
NO PERSONS HAVE BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS PROXY STATEMENT IN CONNECTION
WITH CGF'S SOLICITATION OF PROXIES AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY CGF OR ANY
OTHER PERSON.
THE MERGER
BACKGROUND OF THE MERGER
The Board and management have, from time to time, considered strategic
alternatives for CGF, including acquisitions, diversification of its business
into strategically complementary areas and other courses of action. At a Board
meeting held on March 19, 1998, the Board discussed potential benefits of
strategic alternatives, including a possible recapitalization of CGF or a
possible sale, merger, consolidation or other business combination involving all
or a substantial amount of the business, securities or assets of CGF. In its
discussions, the Board considered the recent consolidation experienced in the
supermarket industry and its possible impact on competitive conditions in CGF's
market. Additionally, the Board considered the fact that CGF has had to manage
its expansion plans and capital expenditures due to CGF's historic leverage and
that CGF's operations are conducted in one market, Alaska, which, due to its
geographic location, restricts CGF's growth potential. At this meeting, the
Board authorized the retention of DLJ as its exclusive financial adviser with
respect to potential Transactions, authorized the preparation and circulation of
a confidential information memorandum and authorized negotiations with third
parties regarding a potential Transaction. On March 20, 1998, CGF engaged DLJ as
its exclusive financial adviser to assist in the review of potential
Transactions. CGF's decision to engage DLJ was based, among other factors, on
DLJ's performance in connection with investment banking and other services
rendered to CGF by DLJ in the past and on DLJ's reputation in the investment
banking community.
Over the next several weeks, CGF and DLJ prepared a confidential information
memorandum regarding CGF, and DLJ contacted eight potential partners identified
by DLJ and CGF's management. Confidentiality agreements were negotiated with
five of those entities in March and April 1998. Thereafter, information about
CGF was provided to those interested entities. In May 1998, DLJ requested that
such entities provide non-binding indications of interest, specifying the price
ranges within which such parties believe they might be able to pursue a
transaction. Preliminary, non-binding letters of interest were received from
certain of the entities which had expressed an interest in evaluating a possible
transaction with CGF. Such parties conducted due diligence with respect CGF and
met with management in May and
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June 1998. At the end of June, the interested parties were invited to submit
firm offers to acquire CGF on or before July 8, 1998.
On July 8, 1998, in response to the process established by DLJ, DLJ received
two responses to the bid invitation, including a formal proposal from Safeway,
providing for the cash purchase of all of the outstanding Common Stock for
$11.50 per share. Over the next several days, DLJ engaged in discussions with
Safeway regarding its proposal, as a result of which Safeway ultimately
increased its cash bid to $12.50 per share and submitted a written response to
the draft Merger Agreement previously presented to Safeway. From mid-July
through the signing of the Merger Agreement on August 6, 1998, representatives
of CGF and Safeway met and had telephone discussions to provide Safeway with
information about CGF and to negotiate the terms and conditions of the Merger
Agreement. The principal issues negotiated in connection with the Merger
Agreement included the scope of representations and warranties, payment of
certain fees and expenses, the conditions to Safeway's obligations to consummate
the Merger, the circumstances under which a termination fee would be payable to
Safeway and the amount thereof.
The Board was kept informed of the status of the negotiations with potential
partners throughout the process, and, at a telephonic Board meeting held on July
30, 1998, was presented with a report by management of the status of
negotiations with Safeway and open issues being negotiated. Thereafter, on
August 5, 1998, the Board met to consider the Safeway proposal and the proposed
Merger Agreement. Management presented a report on the final negotiations of
open issues. DLJ presented a summary of the Safeway proposal and a valuation
analysis of CGF. At the meeting, DLJ discussed the financial aspects of the
proposed transaction and the procedures it had undertaken to evaluate the
proposal from a financial point of view to the Public Stockholders and addressed
questions from members of the Board. Counsel made a presentation regarding the
structure of the proposed transaction and the negotiations surrounding the
Merger Agreement and then discussed the Merger Agreement and related agreements
with the Board. DLJ delivered its oral opinion to the effect that, as of the
date of such opinion, and based upon and subject to the assumptions, limitations
and qualifications set forth in such opinion, the Merger Consideration to be
received by the Public Stockholders pursuant to the Merger Agreement is fair to
such stockholders from a financial point of view. Following such discussion, the
members of the Board discussed the terms and conditions of the proposed
transaction. After discussion, the Board concluded that the Safeway transaction
was an attractive alternative to remaining independent and in the best interests
of CGF's stockholders. Thereafter, the members of the Board present at the
meeting, Messrs. Sokoloff, Annick, Cairns, Hayward, Werries and Gallegos,
unanimously approved the Merger Agreement and the Merger. Over the next day,
representatives of CGF finalized the Merger Agreement and related documents with
representatives of Safeway, and on August 6, 1998, the Merger Agreement was
signed.
RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting of the Board held on August 5, 1998 to consider the Merger, the
members of the Board present at the meeting unanimously determined that the
Merger Agreement and the Merger are advisable and fair to, and in the best
interest of, CGF's stockholders, and the Board recommends that the stockholders
vote to adopt and approve the Merger Agreement and the Merger. In reaching these
conclusions, the Board was favorably influenced by the following factors:
1. The analysis presented by DLJ and the opinion of DLJ to the effect
that, as of the date of such opinion and based upon and subject to the
assumptions, limitations and qualifications set forth in such opinion, the
consideration to be received by the Public Stockholders of CGF pursuant to
the Merger Agreement is fair to such stockholders from a financial point of
view;
2. The targeted solicitation process conducted by DLJ in seeking a
strategic partner for CGF;
3. The fact that the cash merger price of $12.50 per share represented
a premium of 59% over the price of CGF's Common Stock on the day before the
announcement of the Merger;
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4. The fact that the Common Stock has not traded at the cash merger
price of $12.50 per share since 1993;
5. The fact that the cash merger price of $12.50 per share is
substantially above the Common Stock's historical trading range;
6. Safeway's (i) experience in the Alaska market, where it has operated
supermarkets since 1960, (ii) expanded geographic presence and related
operating synergies, and (iii) favorable operating results trend; and
7. The principal terms of the Merger Agreement which included: (i) the
ability of the Board to respond to alternative proposals to acquire CGF;
(ii) the size of the breakup fee payable under the Merger Agreement and
(iii) the fact that the transaction is subject to the approval of a majority
of CGF's outstanding shares.
The Board did not assign relative weights to the factors discussed above.
In approving the transaction, the Board was aware of and considered as a
negative factor that as a result of the Merger, stockholders would no longer
participate in the future growth and earnings of CGF. It considered the
possibility that the Common Stock could significantly increase in value if CGF's
financial performance were to continue to improve as it has in the recent past.
However, the Board believed that a sale of CGF would achieve greater value at
this time for stockholders as compared with remaining a public company.
CERTAIN INFORMATION PROVIDED TO SAFEWAY BY CGF
In connection with the discussions between CGF and Safeway described above
under "Background of the Merger," CGF provided to Safeway certain confidential
financial projections (the "Projections"). The Projections were developed for
internal use only, were not prepared with the intent that they would be publicly
distributed, were based on numerous assumptions, many of which are beyond the
control of CGF, and are not necessarily indicative of future results. See
"Forward-Looking Statements."
In preparing the Projections, CGF assumed the following store additions: one
new Carrs Store in each of 1998 and 1999; two new Eagle Stores in each of 1999
and 2000; one new Oaken Keg Store in each of 1998 and 1999; and one new Tobacco
Store in each of 1998 through 2000. CGF also assumed comparable store sales
growth per year after 1998 of 1.0% for Carrs Stores, 2.0% for Eagle Stores, 1.0%
for Oaken Keg Stores and 5.0% for Tobacco Stores, assuming the current
competitive environment remains relatively stable. The Projections do not take
into account the potential effects of the transactions contemplated by the
Merger.
The Projections included (a) projected sales of $601.7 million in 1998,
$661.7 million in 1999 and $691.5 million in 2000, (b) projected EBITDA (as
defined below) of $8.0 million in 1998, $8.1 million in 1999 and $8.0 million in
2000, and (c) projected net income of $0.4 million in 1998, $0.9 million in 1999
and $1.2 million in 2000. For purposes of the Projections, CGF defined EBITDA as
earnings before interest, taxes, depreciation, amortization, non-recurring
charges, pre-opening expenses and management fees payable to Leonard Green &
Partners.
As a matter of course, CGF does not disclose projections as to future
revenues, earnings or other financial information. In addition, the Projections
were not prepared with a view to public disclosure or compliance with the
published guidelines of the Securities and Exchange Commission regarding
projections, nor were they prepared in accordance with the guidelines
established by the American Institute of Certified Public Accountants for
preparation and presentation of financial projections. The Projections were
based upon a variety of estimates and assumptions that involve judgments with
respect to, among other things, future economic and competitive conditions,
financial market conditions and future business decisions, which, though
considered reasonable by CGF, may not be realized, and are inherently subject to
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significant economic, competitive and business uncertainties, all of which are
difficult to predict and many of which are beyond the control of CGF. While CGF
believes that the estimates and assumptions relating to the Projections are
reasonable, there can be no assurance that the Projections will be realized, and
actual results may vary materially from those indicated in the Projections. See
"Forward Looking Statements." In light of the uncertainties inherent in any
projected data, CGF stockholders are cautioned not to place undue reliance on
the Projections. The Projections are not being included herein to induce any CGF
stockholder to vote in favor of the Merger.
OPINION OF FINANCIAL ADVISER TO CGF
In its role as financial advisor to CGF, DLJ was asked by CGF to render an
opinion as to the fairness from a financial point of view to the Public
Stockholders of the Merger Consideration (as defined below) to be received by
the Public Stockholders pursuant to the terms of the Merger Agreement. Pursuant
to the Merger Agreement, each share of Common Stock held by CGF stockholders
will be converted into the right to receive a cash payment per share equal to
$12.50 (the "Merger Consideration"). On August 5, 1998. DLJ delivered its oral
opinion, and on August 6, 1998 DLJ delivered its written opinion (the "DLJ
Opinion"), to the effect that, as of such dates and based upon and subject to
the assumptions, limitations and qualifications set forth in such opinions, the
Merger Consideration to be received by the Public Stockholders pursuant to the
terms of the Merger Agreement is fair to the Public Stockholders from a
financial point of view.
A COPY OF THE DLJ OPINION IS ATTACHED HERETO AS APPENDIX B. CGF STOCKHOLDERS
ARE URGED TO READ THE DLJ OPINION CAREFULLY IN ITS ENTIRETY FOR THE ASSUMPTIONS
MADE, THE PROCEDURES FOLLOWED, THE MATTERS CONSIDERED AND THE LIMITS OF THE
REVIEW MADE BY DLJ IN CONNECTION WITH SUCH OPINION.
The DLJ Opinion was prepared for the Board and addresses only the fairness
of the Merger Consideration to be received by the Public Stockholders from a
financial point of view. The DLJ Opinion does not constitute a recommendation to
any stockholder as to how such stockholder should vote on the Merger. DLJ was
not retained as an adviser or agent to CGF stockholders or any other person,
other than as an advisor to CGF. DLJ advised CGF in arm's length negotiations of
the Merger Consideration. No restrictions or limitations were imposed by CGF
upon DLJ with respect to the investigations made or the procedures followed by
DLJ in rendering the DLJ Opinion. As part of its investment banking business,
DLJ is regularly engaged in the valuation of businesses and securities in
connection with mergers, acquisitions, underwritings, sales and distributions of
listed and unlisted securities, private placements and valuations for corporate
and other purposes.
In arriving at its opinion, DLJ reviewed the Merger Agreement and the
schedules thereto. DLJ also reviewed financial and other information that was
publicly available or furnished to it by CGF, including information provided
during discussions with CGF's management. Included in the information provided
during discussions with CGF's management were certain financial projections of
CGF prepared by the management of CGF. In addition, DLJ compared certain
financial and securities data of CGF with similar data of various other
companies whose securities are traded in public markets, reviewed the historical
stock prices and trading volumes of the Common Stock, reviewed prices and
premiums paid in certain other business combinations and conducted such other
financial studies, analyses and investigations as DLJ deemed appropriate for
purposes of rendering its opinion.
In rendering its opinion, DLJ relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
it from public sources, that was provided to it by CGF or its representatives,
or that was otherwise reviewed by it. With respect to the financial projections
supplied to it, DLJ assumed that management's projections were reasonably
prepared on the basis reflecting the best currently available estimates and
judgments of the management of CGF as to the future operating and financial
performance of CGF. DLJ did not assume any responsibility for making an
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independent evaluation of any assets or liabilities or for making any
independent verification of any of the information reviewed by it. DLJ relied as
to certain legal matters on advice of counsel to CGF.
The DLJ Opinion is necessarily based on economic, market, financial and
other conditions as they existed on, and on the information made available to it
as of, the date of its opinion. It should be understood that, although
subsequent developments may affect its opinion, DLJ does not have any obligation
to update, revise or reaffirm the DLJ Opinion.
The following is a summary of the presentation made by DLJ to the Board at
its August 5, 1998 board meeting, setting forth certain factors and the
principal financial analyses performed by DLJ to arrive at its opinion. This
summary does not purport to be a complete description of the analyses performed
by DLJ. DLJ drew no specific conclusions from any of these analyses but
subjectively factored its observations from these analyses into its qualitative
assessment of the relevant facts and circumstances.
HISTORICAL STOCK PRICE PERFORMANCE. To provide comparative market data, DLJ
examined CGF's historical Common Stock performance. DLJ's analysis consisted of
a historical analysis of closing prices and trading volumes (i) from CGF's
initial public offering on July 2, 1993 through July 31, 1998 and (ii) for the
twelve months ended July 31, 1998. DLJ also examined trading volumes at
specified prices of the Common Stock from November 17, 1995, the first Monday
following the close of CGF's leveraged recapitalization, which consisted of a
self tender offer for 7.5 million shares of Common Stock at $11.50 per share
financed in part through the issuance of $100 million of senior subordinated
notes of CGF, through July 31, 1998. In addition, DLJ compared the performance
of the Common Stock for the twelve months ended July 31, 1998 to (i) the S&P 500
Composite, and (ii) an index comprised of seven publicly traded regional
supermarket retailers deemed to be reasonably comparable to CGF because they
possess general business, operating and financial characteristics similar to CGF
(the "Regional Supermarket Comparable Companies"). The Regional Supermarket
Comparable Companies consisted of Giant Foods, Inc., Dominick's Supermarkets,
Inc., Eagle Food Centers Inc., Hannaford Brothers Co., Ingles Markets Inc.,
Marsh Supermarkets Inc. and Weis Markets Inc. Since CGF's initial public
offering on July 2, 1993, the Common Stock reached a high of $15.00 per share
and a low of $3.38 per share with a historical mean of $6.56 per share. Since
the leveraged recapitalization, the Common Stock reached a high of $8.75 share
and a low of $3.38 per share with a historic mean of $5.05 per share. In the
twelve months ended July 31, 1998, the Common Stock reached a high of $8.75 per
share and a low of $4.75 per share with a historical mean of $5.66 per share. On
July 31, 1998, the closing price of the Common Stock was $8.75 per share. During
the twelve months ended July 31, 1998, 100% of the trading volume in the Common
Stock was below the acquisition offer of $12.50. During the twelve months ended
July 31, 1998, the Common Stock performed comparably to the S&P 500 Index and
the Regional Supermarket Comparable Companies index through the week of April
24, 1998. Beginning the week of May 1, 1998 CGF substantially outperformed the
S&P 500 Index and the Regional Supermarket Comparable Companies index. DLJ's
review of the data showed that a $100.00 investment on August 1, 1997 in each of
the Common Stock, the S&P 500 Index, and the Regional Supermarket Comparable
Companies index (assuming that all dividends were reinvested), would have
amounted on July 31, 1998 to $184.21 for the Common Stock, $118.32 for the S&P
500 Index and $123.30 for the Regional Supermarket Comparable Companies index.
PREMIUM ANALYSIS. DLJ reviewed publicly available information to determine
the premiums paid in (i) 10 selected comparable supermarket merger and
acquisition transactions completed between January 1, 1990 and July 31, 1998
(the "Selected Supermarket Transactions") and (ii) 180 mergers and acquisitions
transactions ranging in size from approximately $200 million to approximately
$500 million completed between January 1, 1996 and July 31, 1998 (the "Selected
M&A Transactions"). None of the preceding merger and acquisition transactions
are directly comparable to the Merger. For the Selected Supermarket
Transactions, DLJ reviewed the percentage premium in each transaction
represented by the transaction price over the trading price one day, one week
and one month prior to the announcement date of each respective transaction. The
mean percentage amount by which the transaction price exceeded the closing
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stock price one day, one week and one month prior to the announcement date for
the Selected Supermarket Transactions was approximately 24.7%, 28.5% and 31.8%,
respectively. For the Selected M&A Transactions, DLJ reviewed the percentage
premium in each transaction represented by the transaction price over the
trading price one day, one week and one month prior to the announcement date of
each respective transaction. The mean percentage amount by which the transaction
prices exceeded the closing stock prices one day, one week and one month prior
to the announcement date for the Selected M&A Transactions was approximately
27.2%, 33.2% and 39.6%, respectively. The percentage amount by which the Merger
Consideration exceeded the closing stock price of the Common Stock one day, one
week and one month prior to August 6, 1998, the date of the press release
announcing that CGF and Safeway had entered into the Merger Agreement, was
approximately 58.7%, 48.2% and 70.9%, respectively. The percentage amount by
which the Merger Consideration exceeded the closing stock price of the Common
Stock one day, one week and one month prior to July 31, 1998, the date of the
end of the evaluation period analyzed by DLJ and presented to the Board, was
approximately 48.2%, 51.5% and 66.7%, respectively.
COMPARISON OF SELECTED PUBLICLY TRADED COMPARABLE COMPANIES. DLJ analyzed
the operating performance of CGF relative to the Regional Supermarket Comparable
Companies. DLJ compared certain market trading statistics for CGF with the
Regional Supermarket Comparable Companies, including total enterprise value
(defined as market value of common equity plus book value of total debt less
cash and cash equivalents) (based on reported closing prices for the Regional
Supermarket Comparable Companies on July 31, 1998) as a multiple of latest
twelve months ("LTM") revenues, LTM earnings before interest, taxes,
depreciation and amortization ("EBITDA"), LTM earnings before interest and taxes
("EBIT") and price to estimated calendar year ending 1998 EPS (as estimated by
First Call Corporation) and book value of common equity per share. As of July
31, 1998, this analysis resulted in (i) a range of 0.2x to 0.7x, a median of
0.6x and a mean (excluding high and low) of 0.5x total enterprise value to LTM
revenues compared to 0.6x for CGF based on the Merger Consideration, (ii) a
range of 4.4x to 10.9x, a median of 8.1x and a mean (excluding high and low) of
7.9x total enterprise value to LTM EBITDA compared to 7.1x for CGF based on the
Merger Consideration, (iii) a range of 10.1x to 19.2x, a median of 12.6x and a
mean (excluding high and low) of 12.8x total enterprise value to LTM EBIT
compared to 11.1x for CGF based on the Merger Consideration, (iv) a range of
8.4x to 32.9x, a median of 18.1x and a mean (excluding high and low) of 18.2x
P/E based on calendar year 1998 EPS estimates compared to 48.1x for CGF based on
the Merger Consideration, and (v) a range of 1.0x to 7.5x, a median of 1.7x and
a mean (excluding high and low) of 2.0x price to book value of common equity per
share compared to 4.5x for CGF based on the Merger Consideration.
No company used in this analysis is identical to CGF. Accordingly, an
analysis of the results of the foregoing necessarily involves complex
considerations and judgments concerning differences in financial and operating
characteristics of the Regional Supermarket Comparable Companies and CGF and
other factors that could affect the public trading value of the Regional
Supermarket Comparable Companies. Mathematical analysis such as determining the
mean is not in itself a meaningful method of using comparable company data.
ANALYSIS OF SELECTED MERGER AND ACQUISITION TRANSACTIONS IN THE SUPERMARKET
SECTOR. Using publicly available information for the Selected Supermarket
Transactions, DLJ reviewed the consideration paid in such transactions in terms
of the total enterprise value as a multiple of LTM revenues, EBITDA and EBIT of
the acquired entity prior to its acquisition as well as the equity value
(defined as market value of common equity) as a multiple of book value of common
equity of the acquired entity prior to its acquisition. The analysis resulted in
(i) a range of 0.2x to 0.9x and a median and a mean (excluding high and low) of
0.4x total enterprise value to LTM revenues compared to 0.6x for CGF based on
the Merger Consideration, (ii) a range of 5.1x to 13.1x, a median of 7.1x and a
mean (excluding high and low) of 7.5x total enterprise value to LTM EBITDA
compared to 7.1x for CGF based on the Merger Consideration, (iii) a range of
7.5x to 17.2x, a median of 12.2x and a mean (excluding high and low) of 12.3x
total enterprise value to LTM EBIT compared to 11.1x for CGF based on the Merger
Consideration, and (iv) a
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range of 0.6x to 35.1x, a median of 3.5x and a mean (excluding high and low) of
5.2x equity value to book value of common equity compared to 4.5x for CGF based
on the Merger Consideration.
No transaction used in this analysis is identical to the Merger.
Accordingly, an analysis of the results of the foregoing necessarily involves
complex considerations and judgments concerning differences in financial and
operating characteristics of CGF and the companies involved in the selected
transactions and other factors that could affect the acquisition value of the
companies to which CGF is being compared. Mathematical analysis such as
determining the mean is not in itself a meaningful method of using comparable
transactions data.
DISCOUNTED CASH FLOW ANALYSIS. For purposes of this analysis, DLJ performed
a discounted cash flow analysis for CGF on a stand-alone basis using
management's estimates of future performance and future results of operations.
In performing its analysis, DLJ calculated the estimated "Free Cash Flow" based
on stand-alone projected unleveraged operating income adjusted for: (i) taxes;
(ii) certain projected non-cash items (E.G.,depreciation and amortization);
(iii) projected changes in working capital; and (iv) projected capital
expenditures. DLJ analyzed the projections and discounted the stream of Free
Cash Flows from fiscal 1999 to fiscal 2002 provided in such projections, back to
March 29, 1998 using discount rates ranging from 11.0% to 15.0%. Although DLJ
estimated CGF's weighted average cost of capital at approximately 12%, DLJ
believes that the appropriate discount rate is somewhat higher (approximately 14
- - 15%) due to CGF's limited growth prospects and the uncertainty of achieving
its projected financial results. These judgments are based in part on CGF's
historically heavy competition, which may increase in the near future, and its
operation based in Alaska, which may curtail CGF's growth. To estimate the
terminal value of CGF on a stand-alone basis at the end of the forecast period,
DLJ applied terminal multiples of 6.0x to 8.0x projected fiscal 2002 EBITDA and
discounted such value estimates back to March 29, 1998 using discount rates
ranging from 11.0% to 15.0%. DLJ then aggregated the present values of the Free
Cash Flows and the present values of the residual values to derive a range of
implied enterprise values for CGF on a stand-alone basis. The range of
stand-alone implied enterprise values were then adjusted for CGF's net debt to
yield implied equity values of CGF on a stand-alone basis. The range of equity
values were then divided by the number of fully diluted shares to determine a
range of equity values per share for CGF on a stand-alone basis. At a discount
rate of 14% to 15%, the analysis indicated a range of implied equity values of
$7.49 to $13.21 per share.
The summary set forth above does not purport to be a complete description of
the analyses performed by DLJ, but describes, in summary form, the principal
elements of the presentation made by DLJ to the Board on August 5, 1998. The
preparation of a fairness opinion involves various determinations as to the most
appropriate and relevant methods of financial analysis and the application of
these methods to the particular circumstances and, therefore, such an opinion is
not readily susceptible to summary description. DLJ did not form a conclusion as
to whether any individual analysis, considered in isolation, supported or failed
to support an opinion as to fairness from a financial point of view. DLJ did not
place particular reliance or weight on any individual analysis, but instead
concluded that its analyses, taken as a whole, supported its determination.
Accordingly, notwithstanding the separate factors summarized above, DLJ believes
that its analyses must be considered as a whole and that selecting portions of
its analysis and the factors considered by it, without considering all analyses
and factors, could create an incomplete or misleading view of the evaluation
process underlying its opinion. In performing its analyses, DLJ made numerous
assumptions with respect to industry performance, business and economic
conditions and other matters. The analyses performed by DLJ are not necessarily
indicative of actual values or future results, which may be significantly more
or less favorable than suggested by such analyses.
Pursuant to the terms of an engagement letter dated March 20, 1998 (the "DLJ
Engagement Letter"), CGF agreed to pay DLJ (i) a fee of $450,000 upon
notification that DLJ was prepared to deliver the DLJ Opinion and an additional
fee of $25,000 for each update of a prior opinion delivered by DLJ with respect
to a transaction (the "DLJ Opinion Fee"), and (ii) a fee payable upon
consummation of any transaction (the "Transaction Fee"), less the DLJ Opinion
Fee. The Transaction Fee equals the sum of $1,000,000, PLUS
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2.25% of CGF's equity value based upon the consideration paid in a transaction
(up to and including a transaction consideration of $10.00 per share) in excess
of CGF's equity value based upon $7.50 per share, PLUS 7.71725% of CGF's equity
value based upon consideration paid in the transaction in excess of CGF's equity
value based upon $10.00 per share. The amount of the Transaction Fee increases
based upon the amount by which the per share consideration paid in a transaction
is in excess of $7.50. Pursuant to the terms of the DLJ Engagement Letter and
based on the Merger Consideration, the total Transaction Fee payable to DLJ upon
consummation of the Merger equals approximately $3.3 million. CGF also agreed to
reimburse DLJ promptly for all reasonable out-of-pocket expenses (including the
reasonable fees and expenses of counsel) incurred by DLJ in connection with its
engagement, and to indemnify DLJ and certain related persons against certain
liabilities in connection with its engagement, including liabilities under the
federal securities laws. The terms of the fee arrangement with DLJ, which DLJ
and CGF believe are customary in transactions of this nature, were negotiated at
arm's length between CGF and DLJ, and the Board was aware of such arrangement,
including the fact that a significant portion of the aggregate fee payable to
DLJ is contingent upon consummation of the Merger.
DLJ has performed investment banking and other services for CGF and Safeway
in the past and has been compensated for such services. DLJ lead-managed CGF's
initial public offering in 1993 and a $100 million offering of senior
subordinated notes of CGF in 1995 for which DLJ received usual and customary
compensation. DLJ co-managed Safeway's $1.4 billion secondary common stock
offering in 1997 and co-managed Safeway's $1.1 billion secondary common stock
offering in 1998 for which DLJ received usual and customary compensation. In the
ordinary course of business, DLJ may actively trade the securities of CGF and
Safeway for its own account and for the accounts of its customers and,
accordingly, may at any time hold a long or short position in such securities.
SAFEWAY'S REASONS FOR THE MERGER
At a meeting held on July 8, 1998, the Board of Directors of Safeway
unanimously approved Safeway's acquisition of CGF and authorized management to
negotiate and enter into the Merger Agreement. Neither the DGCL nor the NYSE
requires that Safeway stockholders approve the Merger Agreement or the Merger,
and Safeway is not seeking approval of its stockholders.
In reaching its conclusion to approve the Merger Agreement and the Merger,
Safeway's Board of Directors was favorably influenced by the following factors:
1. A component of Safeway's long-term business strategy is growth
through acquisition. Safeway has identified certain criteria for considering
acquisition targets, which include strong market share and the potential for
improving EBITDA margin. Safeway believes that the Merger is consistent with
and in furtherance of this strategy;
2. The continuing trend of consolidation in the grocery retailing
industry and the importance of operational scale and geographic diversity in
remaining competitive in the long term;
3. The opportunities presented by the Merger to enhance Safeway's
presence in Alaska and to leverage Safeway's cost structure in Alaska;
4. Safeway's familiarity with many of CGF's operating territories which
Safeway believes will enhance its ability to operate effectively CGF, as
well as Safeway, stores after the Merger; and
5. The terms and conditions of the Merger Agreement and the agreements
contemplated by the Merger Agreement, including the form and amount of
consideration and the representations, warranties, covenants and conditions
contained in those agreements.
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INTERESTS OF CERTAIN PERSONS IN THE MERGER
In considering the Merger, stockholders should be aware that certain
directors and officers of CGF have interests in the Merger, as described below.
1998 SPECIAL BONUS PLAN. The Compensation Committee of the Board proposed,
and on August 5, 1998, the Board unanimously adopted and approved, the 1998
Special Bonus Plan in connection with CGF's review of strategic alternatives,
including the Merger. The 1998 Special Bonus Plan provides that upon closing of
the Merger or any other change of control on or before June 30, 1999, three
executive officers of CGF, Lawrence H. Hayward, Donald J. Anderson and Jeffry L.
Philipps, will be entitled to receive special bonuses in recognition of the
extraordinary services rendered by them in connection with CGF's exploration of
strategic alternatives. Lump sum payments will be made in the amount of $225,000
to Mr. Hayward and $150,000 to each of Messrs. Anderson and Philipps, assuming
that each is still employed by CGF at the Effective Time. In addition, in
connection with the transactions associated with the Merger and in recognition
of their contributions to CGF, the Board approved a one-time special bonus of
$47,400 for each of the non-employee directors of CGF, E. Dean Werries and
Donald Gallegos.
SEVERANCE ARRANGEMENTS. On August 5, 1998, the Board unanimously adopted
and approved the 1998 Severance Plan and amendments to employment agreements
with three executive officers. The purpose of the 1998 Severance Plan is to
provide severance bonuses to certain employees of CGF in the event their
employment is terminated by reason of the Merger. Under the 1998 Severance Plan,
any eligible employee (other than hourly (non-salaried) employees) who is not a
party to a written employment agreement that provides for severance benefits and
who is either (i) notified prior to the Effective Time that he or she will not
be retained in a comparable position, or that his or her employment will be
terminated, as of the Effective Time or (ii) terminated by the Surviving
Corporation or its parent or subsidiaries on or before the first anniversary of
the Effective Date, shall receive, subject to certain other conditions, a
severance bonus.
If the terminated employee is an officer, he or she will receive a severance
bonus equal to twice his or her annual base salary. If the terminated employee
is a store, merchandising, operations or administrative director, he or she will
receive a severance bonus equal to his or her annual base salary, plus the
applicable target bonus. If the terminated employee is a manager, he or she will
receive a severance bonus equal to one-half his or her annual base salary. If
the terminated employee is any other salaried employee, he or she will receive a
severance bonus equal to one week of his or her annual base salary for each full
year of service, but he or she will receive not less than ten weeks of such
annual base salary.
In conjunction with the adoption of the 1998 Severance Plan, on August 5,
1998 the Board also approved amendments to the existing employment agreements
with Messrs. Hayward, Anderson and Phillips to provide for severance payments to
each of these executives equal to twice his annual base salary in the event that
such executive is terminated or terminates his employment as a result of the
Merger.
OPTIONS. Certain of CGF's Board members and executive officers own Common
Stock or stock options and, to that extent, their interest in the Merger is the
same as yours. Immediately prior to the consummation of the Merger, all unvested
stock options issued under the 1991 Stock Option Plan will become vested, and
upon consummation of the Merger all outstanding options under the 1991 Stock
Option Plan will be exercisable for a per share cash amount equal to the Merger
Consideration minus the per share exercise price. With the consent of the
optionholders, such options will be canceled following the Merger and each
optionholder will receive a per share cash payment equal to the difference
between the Merger Consideration and the per share exercise price. Stock options
held by non-employee directors will be canceled in exchange for a per share cash
payment equal to the difference between the Merger Consideration and the per
share exercise price. See "The Merger--The Merger Agreement--Treatment of Stock
Options." For information concerning management's ownership of Common Stock or
stock options, see "Security Ownership of Beneficial Owners and Management."
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INDEMNIFICATION. The Merger Agreement provides that all rights to
indemnification or exculpation existing in favor of any directors or officers of
CGF, as provided in CGF's certificate of incorporation or bylaws as in effect on
the date of the Merger Agreement, shall survive the Merger with respect to
matters occurring at or prior to the Effective Time. Acquisition and Safeway
have agreed to maintain the existing CGF policy of directors' and officers'
liability and fiduciary insurance for a period of six years after the Effective
Time, subject to certain premium limitations.
THE MERGER AGREEMENT
The following summary of the material terms of the Merger Agreement is
subject to, and qualified in its entirety by, the complete text of the Merger
Agreement which is attached to this proxy statement as APPENDIX A. The terms of
the Merger Agreement are the result of arm's-length negotiations between CGF on
the one hand and Acquisition and Safeway on the other hand.
TERMS OF THE MERGER. Subject to and immediately following the receipt of
the requisite vote of stockholders of CGF and the satisfaction or waiver of the
conditions to the consummation of the Merger set forth in the Merger Agreement,
the parties shall cause the Merger to be consummated by filing a certificate of
merger as contemplated by the DGCL. The Merger shall be effective at the time
the certificate of merger is filed with the Delaware Secretary of State (the
"Effective Time").
At the Effective Time, subject to the terms and conditions set forth in the
Merger Agreement and the DGCL, Acquisition will be merged with and into CGF, the
separate corporate existence of Acquisition will cease, and CGF will continue as
the Surviving Corporation.
The Merger Agreement provides that the certificate of incorporation and the
bylaws of Acquisition, as in effect at the Effective Time, shall be the
certificate of incorporation and the bylaws of the Surviving Corporation
immediately after the Effective Time. The Merger Agreement further provides that
the directors and officers of Acquisition at the Effective Time shall be the
directors and officers of the Surviving Corporation immediately after the
Effective Time.
CONVERSION OF SECURITIES. At the Effective Time, each share of Common Stock
that is issued and outstanding immediately prior to the Effective Time (other
than (i) shares held in CGF's treasury or by any of CGF's subsidiaries, (ii)
shares held by Safeway, Acquisition or any other subsidiary of Safeway and (iii)
shares as to which appraisal rights have been demanded and perfected in
accordance with Section 262 of the DGCL) shall, by virtue of the Merger and
without any action on the part of the holder thereof, be converted into and
represent the right to receive, in cash and without interest, the Merger
Consideration. Except for the right to receive the Merger Consideration, from
and after the Effective Date, all such shares, by virtue of the Merger and
without any action on the part of the holders, will no longer be outstanding and
will be canceled and retired and will cease to exist. Each holder of a
certificate formerly representing any such shares will after the Effective Date
cease to have any rights with respect to such shares other than the right to
receive the Merger Consideration for such shares upon surrender of such
certificate. At the Effective Time, each share of Common Stock held in the
treasury of CGF and each share of Common Stock held by Safeway, Acquisition or
any of Safeway's other subsidiaries immediately prior to the Effective Time
shall be canceled and cease to exist, and no payment shall be made with respect
thereto.
APPRAISAL RIGHTS. Notwithstanding any provision of the Merger Agreement to
the contrary, any shares of Common Stock held by a holder who has demanded and
perfected the right of appraisal of those shares in accordance with the
provisions of Section 262 of the DGCL (the "Dissenting Shares") shall not be
converted into the right to receive the Merger Consideration pursuant to the
Merger Agreement, but the holder shall only be entitled to such rights as are
granted by the DGCL. If a holder of shares of Common Stock who demands appraisal
of such shares under the DGCL effectively withdraws or becomes ineligible for
(through failure to perfect or otherwise) the right of appraisal, then, as of
the Effective Time
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or the occurrence of such event, whichever last occurs, those shares shall be
converted into and represent only the right to receive the Merger Consideration
upon compliance with the provisions, and subject to the limitations, of the
Merger Agreement. The Merger Agreement requires that CGF shall give Safeway (a)
prompt notice of any written demands for appraisal of any shares of Common Stock
and (b) the opportunity to participate in all negotiations and proceedings with
respect to demands for appraisal under the DGCL. The Merger Agreement further
provides that CGF shall not, except with the prior written consent of Safeway,
make any payment with respect to any demands for appraisal of Common Stock or
offer to settle or settle any such demands.
TREATMENT OF STOCK OPTIONS. Each outstanding option to purchase shares of
Common Stock that was granted under CGF's 1991 Stock Option Plan, as amended (a
"1991 Stock Option"), will, to the extent not previously vested, become fully
vested immediately prior to the Effective Time, will remain outstanding after
the Effective Time and will be exercisable for 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 of
Common Stock subject to such 1991 Stock Option (subject to any tax withholding
obligations). Pursuant to the terms of the Merger Agreement, CGF has agreed to
use its commercially reasonable efforts to obtain the consent of 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 CGF to each such
holder of 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 of Common Stock subject to such 1991
Stock Option (subject to any tax withholding obligations).
On the business day following the Effective Time, each outstanding option to
purchase shares of Common Stock that was granted under CGF's 1994 Outside
Directors Stock Option Plan, as amended (a "1994 Stock Option"), will be
canceled and CGF will pay to each holder of a 1994 Stock Option 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 of Common Stock subject to such 1994 Stock Option
(subject to any tax withholding obligations).
PAYMENT FOR SHARES. At the Effective Time, Safeway will deposit with
ChaseMellon Shareholder Services or such other agent or agents as may be
appointed by Safeway and Acquisition (the "Payment Agent"), cash in U.S. dollars
in an amount equal to the Merger Consideration multiplied by the aggregate
outstanding shares of Common Stock (such sum being hereinafter referred to as
the "Merger Fund"). Out of the Merger Fund, the Payment Agent will, pursuant to
instructions from the holders of Common Stock, make the payments of the Merger
Consideration referred to in the Merger Agreement. Any amount remaining in the
Merger Fund six months after the Effective Time will be refunded to Safeway upon
demand, and Safeway will remain liable for payment of the Merger Consideration
for two years after the Effective Time.
In the event any certificate or certificates representing Common Stock are
lost, stolen or destroyed, then the person claiming such fact must provide (i)
an affidavit to that effect and (ii) as may be required by Safeway or the
Payment Agent in its discretion, a suitable bond or indemnity. Upon receipt and
processing of such documents, the Merger Consideration owing to such person will
be paid to such person.
Upon surrender of a certificate representing Common Stock for cancellation
to the Payment Agent in accordance with the Merger Agreement, such certificate
will be canceled and cease to exist, and each such holder of a certificate or
certificates that represented shares of Common Stock issued and outstanding
immediately prior to the Effective Time will cease to have any rights as a
stockholder of CGF with respect to the shares of Common Stock represented by
such certificate or certificates, except for the right to receive the payment
provided pursuant to the Merger Agreement. Until so surrendered, each
certificate will be deemed after the Effective Time to represent only the right
to receive upon such surrender the Merger Consideration. No transfer of shares
of Common Stock issued and outstanding immediately prior to the Effective Time
will be made on the stock transfer books of CGF after the Effective Time.
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DETAILED INSTRUCTIONS, INCLUDING A TRANSMITTAL LETTER, WILL BE MAILED TO
STOCKHOLDERS PROMPTLY FOLLOWING THE EFFECTIVE TIME AS TO THE METHOD OF
EXCHANGING CERTIFICATES FORMERLY REPRESENTING SHARES OF COMMON STOCK FOR THE
MERGER CONSIDERATION. STOCKHOLDERS SHOULD NOT SEND CERTIFICATES REPRESENTING
THEIR SHARES OF COMMON STOCK TO THE PAYMENT AGENT OR CGF PRIOR TO RECEIPT OF THE
TRANSMITTAL LETTER.
REPRESENTATIONS AND WARRANTIES. CGF has made various representations and
warranties in the Merger Agreement, in respect of itself and its subsidiaries,
including those relating to the following matters (which representations and
warranties are subject, in certain cases, to specified exceptions): (i)
corporate organization and qualification; (ii) capitalization; (iii) authority;
(iv) Securities and Exchange Commission ("SEC") reports and financial
statements; (v) information provided in this proxy statement; (vi) consents,
approvals and absence of violations; (vii) absence of defaults; (viii) absence
of undisclosed liabilities and certain changes; (ix) litigation; (x) compliance
with applicable law; (xi) employee benefit plans and labor matters; (xii)
environmental laws and regulations; (xiii) taxes; (xiv) intellectual property
and software; (xv) vote required to adopt the Merger Agreement; (xvi) opinion of
financial adviser as to the Merger Consideration; (xvii) absence of brokers;
(xviii) related party transactions; (xix) assets of CGF and its subsidiaries;
(xx) contracts; (xxi) certain agreements of CGF; and (xxii) absence of unlawful
payments.
Safeway and Acquisition have made various representations and warranties in
the Merger Agreement including those relating to the following matters (which
representations and warranties are subject, in certain cases, to specified
exceptions): (i) organization and qualification; (ii) authority; (iii) SEC
reports and financial statements; (iv) information supplied in this proxy
statement; (v) consents, approvals and absence of violations; (vi) absence of
defaults; (vii) litigation; (viii) absence of brokers; (ix) absence of prior
activities of Acquisition; and (x) financing to effect the Merger.
None of the representations or warranties of CGF, Safeway or Acquisition
survive the consummation of the Merger.
CONDUCT OF BUSINESS PENDING THE MERGER. The Merger Agreement provides that
except as described therein or in the schedules thereto, from the date of the
Merger Agreement through the Effective Time, CGF will and will cause each of its
subsidiaries to conduct its operations only in the ordinary course of business
consistent with past practices 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 described therein or in the
schedules thereto, the Merger Agreement provides that, from the date of the
Merger Agreement through the Effective Time, neither CGF nor any of its
subsidiaries will do any of the following without the prior written consent of
Safeway and Acquisition:
(i) amend its certificate of incorporation or bylaws;
(ii) authorize for issuance, issue, sell or agree or commit to issue or
sell or deliver any stock of any class or other equity equivalents except
for the issuance and sale of Common Stock pursuant to the exercise of
previously granted 1991 Stock Options or 1994 Stock Options;
(iii) split, combine or reclassify, declare, set aside or pay any
dividends on or make a distribution on, redeem or otherwise acquire its
capital stock;
(iv) adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization;
(v) alter through merger, liquidation, reorganization or restructuring
the corporate structure or ownership of any of CGF's subsidiaries;
(vi) incur or assume any long-term or short-term debt or sell any debt
securities except for borrowings under existing credit facilities in the
ordinary course of business;
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(vii) assume, guarantee, endorse or otherwise become liable or
responsible for the obligations of any other person (other than obligations
of subsidiaries of CGF incurred in the ordinary course of business) except
pursuant to existing credit facilities;
(viii) make any loans, advances or capital contributions to or investments
in any other person (other than to subsidiaries of CGF in the ordinary
course of business consistent with past practice);
(ix) pledge or otherwise encumber shares of capital stock of CGF or any
of its subsidiaries;
(x) mortgage or pledge any of its material assets, tangible or
intangible, or create or suffer to exist any lien thereupon (other than tax
liens for taxes not yet due);
(xi) except as may be required by law and except for certain specified
exceptions, enter into, adopt, amend or terminate any bonus, profit sharing,
compensation, severance, termination, stock option, stock appreciation
right, or other similar compensation plan 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;
(xii) sell, lease or dispose of any assets in any single transaction or
series of related transactions for consideration in excess of $250,000,
other than in the ordinary course of business;
(xiii) except as may be required as a result of a change in law or
generally accepted accounting principles, change any of its accounting
principles or practices;
(xiv) revalue in any material respect any of its assets;
(xv) acquire any corporation, partnership or other business organization
or equity interest therein;
(xvi) enter into any contract or agreement that requires annual
expenditures by CGF or its subsidiaries in excess of $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;
(xvii) enter into, renew or modify any agreement or collective bargaining
agreement relating to its business except for routine employee grievance
matters;
(xviii) make any material modifications to certain contracts;
(xix) make any payment to certain related parties, except in accordance
with the terms of any contract or compensation to employees in the ordinary
course of business;
(xx) authorize any new capital expenditures that in the aggregate are in
excess of $5,000,000, subject to certain exceptions;
(xxi) make any material tax election or settle or compromise any income
tax liability involving cost or liability to CGF in excess of $250,000;
(xxii) settle or compromise any pending or threatened suit, action or
claim disclosed to Safeway or relating to the Merger or which could have a
material adverse effect on CGF; or
(xxiii) take or agree in writing to take any of the actions described
above or any actions that would make any of CGF's representations or
warranties untrue or incorrect as of the date when made.
OTHER POTENTIAL ACQUIRERS. CGF has agreed that neither it, nor any of its
subsidiaries, nor any of their respective officers, directors, or employees
will, and that it will use its best efforts to cause its and its subsidiaries'
agents and representatives not to, solicit, initiate or encourage or participate
in any discussions or negotiations with or provide non-public information to any
person or group concerning a Third Party Acquisition. Notwithstanding the
foregoing, the Board may take and disclose to CGF's stockholders a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to any
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tender offer. The Board, however, may not recommend that CGF's stockholders
tender their shares of Common Stock in connection with such tender offer unless
the Board by majority vote determines in its good faith judgment, after
consultation with and based on the advice of legal counsel, that there is a
substantial likelihood that the Board is required to do so in order to comply
with its fiduciary duties. In addition, the Board may, or may permit others on
its behalf, to enter into negotiations or supply non-public information to any
other person in connection with a Third Party Acquisition if the Board by
majority vote determines in good faith, after consultation with and based on
advice of legal counsel, that there is a substantial likelihood that the Board
is required to do so in order to comply with its fiduciary duties. In the event
that CGF receives any proposal or inquiry concerning Third Party Acquisition,
CGF will promptly notify Safeway of the identity of the party and the terms and
conditions of such proposal or inquiry.
Except as described in this paragraph, the Board has agreed not to withdraw
its recommendation of the transactions contemplated by the Merger Agreement or
approve or recommend, or cause CGF to enter into any agreement with respect to,
any Third Party Acquisition. Notwithstanding the foregoing, if the 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 Board may
withdraw its recommendation of the transactions contemplated hereby or approve
or recommend a Superior Proposal. CGF is not entitled to enter into any
agreement with respect to a Superior Proposal unless and until the Merger
Agreement is terminated and CGF has paid all amounts due to Safeway thereunder.
"Third Party Acquisition" means the occurrence of any of the following
events: (i) the acquisition of CGF 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 Safeway, Acquisition or any affiliate thereof (a "Third Party");
(ii) the acquisition by a Third Party of more than 35% of the total assets of
CGF 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 of Common
Stock; (iv) the adoption by CGF of a plan of liquidation or the declaration or
payment of an extraordinary dividend; (v) the repurchase by CGF or any of its
subsidiaries of more than 35% of the outstanding shares of Common Stock; or (vi)
the acquisition by CGF 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 CGF.
"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 of Common Stock then outstanding or all or substantially all the
assets of CGF which otherwise is on terms which the 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
CGF's stockholders than the Merger.
ADDITIONAL COVENANTS. Pursuant to the Merger Agreement, CGF has covenanted,
among other things, to: (i) prepare and file with the SEC this proxy statement
and to use its reasonable best efforts to have this proxy statement cleared by
the SEC and thereafter mailed to its stockholders; (ii) use all reasonable
efforts to cause KPMG Peat Marwick LLP to deliver a customary agreed-upon
procedures letter dated not more than five days prior to the date on which this
proxy statement shall be mailed to stockholders; (iii) take all action necessary
to convene a special meeting of its stockholders as soon as practicable to vote
upon adoption of the Merger Agreement; (iv) permit Safeway and its authorized
representatives to have access to CGF's officers, employees, agents, independent
auditors, representatives, properties, books and records; (v) cooperate with
Safeway's efforts to negotiate and enter into written agreements affecting CGF's
real estate, as Safeway may deem necessary or desirable; (vi) cause each of its
and each of its subsidiaries' officers and directors to tender their
resignations effective on or before the Effective Time; and (vii) comply with
the terms, conditions and provisions of certain other agreements.
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Safeway and Acquisition have covenanted, among other things to: (i) hold in
confidence all documents and information concerning CGF and its subsidiaries
furnished to Safeway or Acquisition in connection with the transactions
contemplated by the Merger Agreement; (ii) provide the eligible employees of CGF
and its subsidiaries from the Effective Time to the first anniversary thereof
with compensation and employee benefits (other than stock option plans) that, in
the aggregate, are at least as favorable as those currently provided by CGF and
its subsidiaries and to cause the Surviving Corporation to honor all "change of
control" or similar provisions relating to employees or executive officers
contained in any existing contracts; and (iii) cause the Surviving Corporation
to maintain all rights to indemnification or exculpation now existing in favor
of the directors, officers or other employees and agents of CGF and its
subsidiaries as provided in their respective certificates of incorporation or
bylaws with respect to matters occurring prior to the Effective Time, and to
cause the Surviving Corporation to maintain in effect for at least six years
following the Effective Time (within certain premium limits), the policies of
the directors' and officers' liability insurance most recently maintained by CGF
with respect to matters occurring prior to the Effective Time.
CGF, Safeway and Acquisition each have covenanted to: (i) notify each other
after the receipt of any written or oral comments by the SEC and promptly
provide copies of all correspondence between itself or its representative and
the SEC with respect to this proxy statement; (ii) use all commercially
reasonable efforts to take all actions and to do all things necessary in order
to consummate and make effective the transactions contemplated by the Merger
Agreement; (iii) cooperate in preparing and filing this proxy statement and any
filings required by the HSR Act; (iv) use all commercially reasonable efforts to
obtain consents of all third parties or governmental entities necessary or
advisable for the consummation of the transactions contemplated by the Merger
Agreement; (v) contest any legal proceeding relating to the Merger; (vi) execute
any additional instruments necessary to consummate the transactions contemplated
by the Merger Agreement; (vii) consult with one another before issuing any press
release or otherwise making any public announcement; (viii) give prompt notice
to one another concerning breaches of its own representations and warranties
under the Merger Agreement; and (ix) promptly notify one another concerning any
notice or other communication (a) alleging that consent of such person to the
transactions contemplated by the Merger Agreement may be required, (b) from any
governmental or regulatory agency in connection with the transactions
contemplated by the Merger Agreement or (c) with respect to any actions, suits,
claims or investigations against CGF, in each case, which relates to the
consummation of the transactions contemplated by the Merger Agreement.
CONDITIONS TO THE MERGER. The obligations of CGF, Safeway and Acquisition
to complete the Merger are subject to the fulfillment of the following
conditions: (i) the Merger Agreement shall have been adopted by the stockholders
of CGF; (ii) no statute, rule, regulation, executive order, decree, ruling or
injunction shall have been enacted, promulgated, entered, or enforced by any
court or governmental authority that prohibits, restrains, enjoins or restricts
the consummation of the Merger and no legal proceeding shall be pending in which
a governmental authority seeks to prohibit, restrain, enjoin or restrict the
consummation of the Merger; and (iii) any applicable waiting period applicable
to the Merger under the HSR Act shall have terminated or expired, and any other
required governmental or regulatory notices or approvals shall have been either
filed or received.
The obligations of Safeway and Acquisition to complete the Merger are
further subject to the fulfillment of the following conditions: (i) the
representations and warranties of CGF set forth in the Merger Agreement or in
any other document delivered pursuant thereto are true and correct at and as of
the Effective Time; (ii) CGF has performed and complied with, in all material
respects, all obligations and covenants required to be performed or complied
with by it under the Merger Agreement; (iii) CGF has obtained required consents
and approvals to permit succession by the Surviving Corporation pursuant to the
Merger to any rights or obligations of CGF under certain third-party agreements
and instruments; (iv) the termination without continuing liability or obligation
of the MSA between CGF and LGA except for the unpaid pro rata portion of the
annual $450,000 fee payable under the MSA through the Effective
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Time; (v) the Stockholder Support Agreement between Safeway and Green Equity
Investors, L.P. is in full force and effect; and (vi) the absence of any
occurrence or development that individually or in the aggregate has had, or
would be reasonably be expected to have, a material adverse effect on CGF.
The obligations of CGF to complete the Merger are further subject to the
fulfillment of the following conditions: (i) the representations and warranties
of Safeway and Acquisition set forth in the Merger Agreement or in any other
document delivered pursuant thereto are true and correct at and as of the
Effective Time; (ii) Safeway and Acquisition have performed and complied with,
in all material respects, all obligations and covenants required to be performed
or complied with by either under the Merger Agreement; and (iii) Safeway has
obtained the consent or approval of each person whose consent or approval shall
be required in connection with the Merger Agreement under any agreements or
contracts, except for those for which failure to obtain such consents and
approvals would not, in the reasonable opinion of CGF, individually or in the
aggregate, have a material adverse effect on Safeway.
TERMINATION OF MERGER AGREEMENT. The Merger Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective Time in the event
of any of the following:
(i) by mutual written consent of CGF, Safeway and Acquisition;
(ii) by CGF or Safeway and Acquisition if there is any law or regulation
that makes consummation of the Merger illegal or otherwise prohibited, or
any court of competent jurisdiction or other governmental authority shall
have issued a final order, decree or ruling or taken other final action
restraining, enjoining or prohibiting the Merger and such order, decree,
ruling or other action is nonappealable;
(iii) by CGF or Safeway and Acquisition if the Merger has not been
consummated by January 31, 1999 (or, if as of January 31, 1999, all
necessary approvals or consents under the HSR Act or any other antitrust
statute, law, rule or regulation required for the consummation of the Merger
have not been obtained, May 31, 1999) (unless the terminating party's
failure to fulfill any of its obligations under the Merger Agreement shall
have been the reason that the Effective Time shall not have occurred on or
before such date);
(iv) by CGF if Safeway or Acquisition shall have materially breached any
representation or warranty set forth in the Merger Agreement or if any
representation or warranty of Safeway or Acquisition shall have become
untrue in any material respect, in either case such that the conditions of
CGF to consummating the Merger would be incapable of being satisfied by
January 31, 1999 (or such extended later date);
(v) by CGF if Safeway or Acquisition shall have breached any of its
covenants or agreements set forth in the Merger Agreement and such breach
would have a material adverse effect on Safeway or materially adversely
affect (or materially delay) consummation of the Merger, and if Safeway or
Acquisition has not cured such breach prior to twenty business days
following written notice by CGF (provided that CGF has not breached any of
its obligations under the Merger Agreement in any material respect);
(vi) by CGF if the Board determines by a majority vote in its good faith
judgment, after consultation with and taking into consideration advice of
legal counsel, that it is likely to be required in order to comply with its
fiduciary duties, and does, withdraw its recommendation of the transactions
contemplated by the Merger Agreement or approve or recommend a Superior
Proposal;
(vii) by Safeway and Acquisition if CGF's stockholders shall have failed
to adopt the Merger;
(viii) by Safeway and Acquisition if the Board withdraws, modifies or
changes its approval or recommendation of the Merger or the Merger Agreement
or shall not have opposed a Third Party Acquisition in a 14D-9 filing;
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(ix) by Safeway and Acquisition if CGF has entered into a definitive
agreement with respect to a Third Party Acquisition;
(x) by Safeway and Acquisition if CGF shall have breached any of its
representations or warranties set forth in the Merger Agreement or any
representation or warranty of CGF shall have become untrue in any material
respect, in either case such that the conditions of Safeway and Acquisition
to consummating the Merger would be incapable of being satisfied by January
31, 1999 (or such extended date);
(xi) by Safeway and Acquisition if CGF shall have breached any of its
covenants or agreements set forth in the Merger Agreement having a material
adverse effect on CGF or materially adversely affecting (or materially
delaying) consummation of the Merger, and CGF has not cured such breach
prior to twenty business days following written notice by Safeway or
Acquisition (provided that neither Safeway nor Acquisition has breached any
of their respective obligations under the Merger Agreement in any material
respect); or
(xii) by Safeway or Acquisition if the Board shall have recommended to
the holders of the Common Stock a Superior Proposal.
TERMINATION FEE AND PAYMENT OF EXPENSES. In the event that the Merger
Agreement is terminated pursuant to clauses (vi), (viii), (ix) or (xii) as set
forth in the immediately preceding paragraph or, if another bona fide proposal
to acquire directly or indirectly for consideration consisting of cash and/or
securities more than 50% of the Common Stock then outstanding or all or
substantially all of CGF's assets is outstanding on the date of the Special
Meeting and CGF's stockholders fail to adopt the Merger Agreement at the Special
Meeting, CGF shall pay $4,000,000 as a termination fee to Safeway within five
business days of such termination. In addition, in such event, within five
business days of presentation of statements therefor, CGF shall pay Safeway's
reasonable out-of-pocket expenses incurred in connection with the transactions
contemplated by the Merger Agreement. Notwithstanding the foregoing, no amount
described in this paragraph shall be payable by CGF if Safeway shall have
materially breached its obligations under the Merger Agreement.
In all other circumstances, CGF, Safeway and Acquisition shall pay their own
fees and expenses in connection with the Merger Agreement and the Merger.
AMENDMENT. CGF, Safeway and Acquisition may amend the Merger Agreement in
writing at any time before or after approval of the Merger by CGF's
stockholders, but, after such stockholder approval, no amendment shall be made
that requires the approval of such stockholders under applicable law without
such approval.
ACCOUNTING TREATMENT. The Merger will be treated as a "purchase" for
accounting purposes.
REGULATORY COMPLIANCE
A certificate of merger must be filed on behalf of CGF, Safeway and
Acquisition with the Secretary of State of Delaware in order to effect the
Merger.
Under Alaska state law, a transfer of controlling interest of a holder of a
liquor license constitutes a transfer of that license, which requires
application to and the approval of the Alaska Alcoholic Beverage Control Board.
The Alaska Alcoholic Beverage Control Board has approved CGF's liquor license
transfer pending consummation of the Merger.
CGF is party to various other federal, state and local operating permits,
none of which individually is material to its business that, in the event of a
change of control, require notification and reissuance of the permit in
question. CGF has initiated the notification and reissuance processes with the
various federal, state and local agencies.
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CONSENT DECREE. On February 9, 1999, Safeway, CGF and Acquisition entered
into a Consent Decree with the State of Alaska (the "Consent Decree"), in
connection with settling a lawsuit filed by the State of Alaska in the Superior
Court for the State of Alaska, Third Judicial District at Anchorage (the
"Court"), with respect to the Merger (a copy of the Consent Decree may be
obtained from the Court). The Consent Decree, which is subject to court
approval, requires Safeway and CGF to sell seven stores (the "Stores")-- four
Safeway stores located in Anchorage, one Safeway store located in each of Eagle
River and Wasilla and the CGF store in Fairbanks. Each of these Stores is
required to be sold to operating supermarket companies that will be approved by
the Attorney General.
The Consent Decree provides for a 60-day public comment period following
which the Court will conduct a hearing on the comments, if any, and will
determine whether to approve the Consent Decree. The parties have scheduled a
hearing before the Court for April 13, 1999. The Merger may not be consummated
prior to the entry of an order by the Court approving the Consent Decree, and
upon the approval and entry of the Consent Decree by the Court, Safeway and CGF
anticipate consummating the Merger shortly thereafter.
Following the Court's approval of the Consent Decree, Safeway and CGF will
have six months to obtain approval from the Attorney General of the State of
Alaska (the "Attorney General") of signed purchase agreements and proposed
transactions to sell the Stores and an additional two months to complete the
sales, subject to extensions approved by the Attorney General. The Consent
Decree contains provisions for payments by Safeway of up to $1 million for each
Store for which it is unable to meet those deadlines. In addition, if the
deadlines are not met, the State of Alaska may seek the appointment of a trustee
to effect the divestiture of the remaining Stores.
Pursuant to the Consent Decree, until Safeway and CGF have sold the Stores,
they have agreed to operate and conduct the business of the Stores in the
ordinary course, maintain existing business relationships with each Store's
suppliers, customers and employees, maintain inventory levels and selections at
each Store and limit increases in the gross profit margins for supermarkets that
they operate in the geographic areas in which the Stores are located.
HSR ACT. The Merger is subject to review by the Federal Trade Commission
(the "FTC") and the Antitrust Division of the Department of Justice (the "DOJ")
under the HSR Act. The parties have apprised the FTC of the Consent Decree. The
staff of the FTC's Seattle Regional Office has indicated to Safeway and CGF that
it is prepared to recommend that the Bureau of Competition grant early
termination of the waiting period under the HSR Act, provided that the Court
enters the Consent Decree, in substantially the same form as agreed to by the
parties, and that the Bureau of Competition is in agreement with this position.
AKPIRG LITIGATION. In late October 1998, an Alaska consumer group, Alaska
Public Interest Research Group ("AKPIRG"), and five individuals filed a
purported class-action lawsuit in Alaska state court seeking an injunction to
prevent the Merger. In February 1999, Safeway and CGF settled with AKPIRG and
the individual plaintiffs. The settlement provides that AKPIRG and the
individual plaintiffs will no longer oppose the Merger or the Consent Decree and
will dismiss the lawsuit.
Except as described above, CGF is not aware of any licenses or regulatory
permits that are material to its business that might be adversely affected by
the Merger, or of any approval or other action by any governmental,
administrative or regulatory agency or authority which would be required prior
to the Effective Time.
FINANCING FOR THE MERGER
The total amount required to pay the aggregate Merger Consideration to CGF's
stockholders, including amounts payable with respect to outstanding stock
options, and to pay related fees, expenses and other transaction costs of
Safeway and Acquisition, will be approximately $112 million. Safeway intends to
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finance these amounts through borrowings under its existing bank credit
agreement and/or the issuance of commercial paper. In addition, following the
Merger, Safeway anticipates that it will refinance all or a portion of CGF's
long-term debt. Safeway has adequate capacity under either its bank credit
agreement or commercial paper program to fund these amounts. The Merger is not
conditioned on obtaining financing.
THE STOCKHOLDER SUPPORT AGREEMENT
The following summary of the Stockholder Support Agreement is subject to,
and qualified in its entirety by, the complete text of the Stockholder Support
Agreement which is attached to this proxy statement as APPENDIX C. The terms of
the Stockholder Support Agreement are the result of arm's-length negotiations
between Safeway and GEI. Pursuant to the Stockholder Support Agreement, GEI has
agreed, among other things, (i) to vote all of its shares of Common Stock in
favor of adopting the Merger Agreement and approving the Merger and to vote all
of its shares against any other merger agreement, consolidation,
recapitalization, sale of assets or similar extraordinary transaction involving
CGF or any Third Party Acquisition; (ii) that it will not offer to sell, sell,
assign, transfer or otherwise dispose of any of its shares of Common Stock;
(iii) that it will not directly or indirectly solicit, encourage, enter into or
conduct discussions with or provide any non-public information to any person or
group concerning a Third Party Acquisition; and (iv) in the event that the
Merger Agreement is terminated pursuant to clauses (vi), (viii), (ix) or (xii)
set forth in the subsection entitled "Termination of Merger Agreement" contained
herein, or because CGF's stockholders failed to adopt the Merger Agreement and
CGF paid a termination fee to Safeway as a result, that GEI will pay to Safeway
50% of the "profit" (as defined below) resulting from the sale or other
disposition of any of GEI's shares of Common Stock pursuant to a Third Party
Acquisition or at such time as a Third Party Acquisition is pending, within 18
months of such termination. For the purposes of the Stockholder Support
Agreement, "profit" equals (A) the aggregate consideration received by GEI for
the shares of Common Stock that it sold or disposed of less (B) $12.50 per share
multiplied by the number of shares disposed of or sold.
APPRAISAL RIGHTS
If the Merger is consummated, a holder of record of shares of Common Stock
who objects to the terms of the Merger may seek an appraisal under Section 262
of the Delaware General Corporation Law of the "fair value" of such holder's
shares. The following is a summary of the principal provisions of Section 262
and does not purport to be a complete description. A copy of Section 262 is
attached to this proxy statement as APPENDIX D. Failure to take any action
required by Section 262 will result in a termination or waiver of a
stockholder's rights under Section 262.
1. A stockholder electing to exercise Appraisal Rights must (a) deliver to
CGF, before the CGF stockholders vote on the Merger Agreement, a written demand
for appraisal that is made by or on behalf of the person who is the holder of
record of Common Stock for which appraisal is demanded and (b) not vote in favor
of adopting the Merger Agreement. The demand must be delivered to Carr-Gottstein
Foods Co. at 6411 A Street, Anchorage, Alaska 99518, Attention: Donald J.
Anderson, Chief Financial Officer. A proxy or vote against adopting the Merger
Agreement does not constitute a demand. A stockholder electing to take such
action must do so by a separate written demand that reasonably informs CGF of
the identity of the holder of record and of such stockholder's intention to
demand appraisal of such holder's Common Stock. Because a proxy left blank will,
unless revoked, be voted FOR adoption of the Merger Agreement, a stockholder
electing to exercise Appraisal Rights who votes by proxy must not leave the
proxy blank but must vote AGAINST adoption of the Merger Agreement or ABSTAIN
from voting for or against adoption of the Merger Agreement.
2. Only the holder of record of Common Stock is entitled to demand
Appraisal Rights for Common Stock registered in that holder's name. The demand
must be executed by or for the holder of record, fully and correctly, as the
holder's name appears on the holder's stock certificates. If Common Stock is
owned of record in a fiduciary capacity, such as by a trustee, guardian or
custodian, the demand should be executed
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in that capacity. If Common Stock is owned of record by more than one person, as
in a joint tenancy or tenancy in common, the demand should be executed by or for
all owners. An authorized agent, including one of two or more joint owners, may
execute the demand for appraisal for a holder of record; however, the agent must
identify the owner or owners of record and expressly disclose the fact that, in
executing the demand, the agent is acting as agent for the owner or owners of
record.
A holder of record, such as a broker, who holds Common Stock as nominee for
beneficial owners may exercise a holder's right of appraisal with respect to
Common Stock held for all or less than all of such beneficial owners. In such
case, the written demand should set forth the number of shares of Common Stock
covered by the demand. Where no number of shares of Common Stock is expressly
mentioned, the demand will be presumed to cover all shares of Common Stock
standing in the name of the holder of record.
3. Within 10 days after the Effective Time, CGF will send notice of the
effectiveness of the Merger to each person who prior to the Effective Time
satisfied the foregoing conditions.
4. Within 120 days after the Effective Time, CGF or any stockholder who has
satisfied the foregoing conditions may file a petition in the Delaware Court of
Chancery demanding a determination of the fair value of the Common Stock.
Stockholders seeking to exercise Appraisal Rights should not assume that CGF
will file a petition to appraise the value of their Common Stock or that CGF
will initiate any negotiations with respect to the "fair value" of such Common
Stock. Accordingly, holders of Common Stock should initiate all necessary action
to perfect their Appraisal Rights within the time periods prescribed in Section
262.
5. Within 120 days after the Effective Time, any stockholder who has
complied with the requirements for exercise of Appraisal Rights, as discussed
above, is entitled, upon written request, to receive from CGF a statement
setting forth the aggregate number of shares of Common Stock not voted in favor
of the Merger and with respect to which demands for appraisal have been made and
the aggregate number of holders of such Common Stock. CGF is required to mail
such statement within 10 days after it receives a written request to do so.
6. If a petition for an appraisal is timely filed, after a hearing on the
petition, the Delaware Court of Chancery will determine the stockholders
entitled to Appraisal Rights and will appraise the Common Stock owned by such
stockholders, determining its "fair value" exclusive of any element of value
arising from the accomplishment or expectation of the Merger and will determine
the amount of interest, if any, to be paid upon the value of the Common Stock of
the stockholders entitled to appraisal. Any such judicial determination of the
"fair value" of Common Stock could be based upon considerations other than or in
addition to the price paid in the Merger and the market value of Common Stock,
including asset values, the investment value of the Common Stock and any other
valuation considerations generally accepted in the investment community. The
value so determined for Common Stock could be more than, less than or the same
as the consideration paid pursuant to the Merger Agreement. The Court may also
order that all or a portion of any stockholder's expenses incurred in connection
with an appraisal proceeding, including, without limitation, reasonable
attorneys' fees and fees and expenses of experts utilized in the appraisal
proceeding, be charged pro rata against the value of all Common Stock entitled
to appraisal.
7. Any stockholder who has duly demanded an appraisal in compliance with
Section 262 will not, after the Effective Time, be entitled to vote the shares
subject to such demand for any purpose or be entitled to dividends or other
distributions on that Common Stock (other than those payable or deemed to be
payable to stockholders of record as of a date prior to the Effective Time).
8. Holders of Common Stock lose the right to appraisal if no petition for
appraisal is filed within 120 days after the Effective Time, or if a stockholder
delivers to CGF a written withdrawal of such stockholder's demand for an
appraisal and an acceptance of the Merger, except that any such attempt to
withdraw made more than 60 days after the Effective Time requires CGF's written
approval. If Appraisal
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Rights are not perfected or a demand for Appraisal Rights is withdrawn, a
stockholder will be entitled to receive the consideration otherwise payable
pursuant to the Merger Agreement.
9. If an appraisal proceeding is timely instituted, such proceeding may not
be dismissed as to any stockholder who has perfected a right of appraisal
without the approval of the Delaware Court of Chancery.
FEDERAL INCOME TAX CONSEQUENCES
Upon consummation of the Merger each outstanding share of Common Stock
(except for those shares with respect to which statutory appraisal rights are
exercised, those shares which are held in CGF's treasury or by any of CGF's
subsidiaries and those shares held by Safeway, Acquisition or any other
subsidiary of Safeway) will be converted into the right to receive the Merger
Consideration. The following discussion is a summary of the principal federal
income tax consequences of the Merger to stockholders of CGF whose shares of
Common Stock are surrendered pursuant to the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of appraisal
rights). The discussion applies only to stockholders in whose hands shares of
Common Stock are capital assets and may not apply to shares of Common Stock
received pursuant to the exercise of employee stock options or otherwise as
compensation or to stockholders who are not citizens or residents of the United
States.
THE FEDERAL INCOME TAX CONSEQUENCES SET FORTH BELOW ARE INCLUDED FOR GENERAL
INFORMATIONAL PURPOSES ONLY AND ARE BASED UPON PRESENT LAW. BECAUSE INDIVIDUAL
CIRCUMSTANCES MAY DIFFER, EACH STOCKHOLDER IS URGED TO CONSULT SUCH
STOCKHOLDER'S OWN TAX ADVISER TO DETERMINE THE APPLICABILITY OF THE RULES
DISCUSSED BELOW TO SUCH STOCKHOLDER AND THE PARTICULAR TAX EFFECTS OF THE
MERGER, INCLUDING THE APPLICATION AND EFFECT OF STATE, LOCAL AND OTHER TAX LAWS.
The receipt of cash pursuant to the Merger (including any cash amounts
received by dissenting stockholders pursuant to the exercise of Appraisal
Rights) will be a taxable transaction for federal income tax purposes under the
Internal Revenue Code of 1986, as amended (the "Code"). In general, for federal
income tax purposes, a stockholder will recognize gain or loss equal to the
difference between the cash received by the stockholder pursuant to the Merger
Agreement and the stockholder's adjusted tax basis in the shares of Common Stock
surrendered pursuant to the Merger Agreement. Such gain or loss will be a
capital gain or loss. The rate at which any such gain will be taxed to
non-corporate stockholders (including individuals, estates and trusts) will, as
a general matter, depend upon each stockholder's holding period in the shares of
Common Stock at the Effective Time. If a non-corporate stockholder's holding
period for the shares of Common Stock is more than 12 months, either a 20
percent or a 10 percent capital gains rate generally will apply to such gain,
depending on the amount of taxable income of such stockholder for such year. If
the stockholder's holding period for the shares of Common Stock is one year or
less, such gain will be taxed at the same rates as ordinary income. Capital loss
generally is deductible only to the extent of capital gain plus ordinary income
of up to $3,000. Net capital loss in excess of $3,000 may be carried forward to
subsequent taxable years.
For corporations, capital losses are allowed only to the extent of capital
gains, and net capital gain is taxed at the same rate as ordinary income.
Corporations generally may carry capital losses back up to three years and
forward up to five years.
Payments in connection with the Merger may be subject to "backup
withholding" at a 31% rate. Backup withholding generally applies if the
stockholder fails to furnish such stockholder's social security number or other
taxpayer identification number ("TIN"), or furnishes an incorrect TIN. Backup
withholding is not an additional tax but merely a creditable advance payment
which may be refunded to the extent it results in an overpayment of tax. Certain
persons generally are exempt from backup withholding, including corporations and
financial institutions. Certain penalties apply for failure to furnish correct
information
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and for failure to include reportable payments in income. Stockholders should
consult with their own tax advisers as to the qualifications and procedures for
exemption from backup withholding.
CERTAIN EFFECTS OF THE MERGER
Upon consummation of the Merger, Acquisition will be merged with and into
CGF, the separate corporate existence of Acquisition will cease, and CGF will
continue as the Surviving Corporation. After the Effective Time, the present
holders of Common Stock will no longer have any equity interest in CGF, will not
share in the future earnings or growth of CGF and will no longer have rights to
vote on corporate matters. CGF is currently subject to the information filing
requirements of the Exchange Act, and in accordance therewith, is required to
file reports and other information with the SEC relating to its business,
financial statements and other matters. As a result of the Merger, there will
cease to be any public market for Common Stock, and, after the Effective Time,
Common Stock will be delisted from the New York Stock Exchange. Upon such event,
CGF will apply to the SEC for the deregistration of Common Stock under the
Exchange Act. The termination of the registration of Common Stock under the
Exchange Act would make certain provisions of the Exchange Act (including the
proxy solicitation provisions of Section 14(a) and the short-swing trading
provisions of Section 16(b)) no longer applicable to CGF.
INFORMATION REGARDING CGF
CGF is the leading food and drug retailer in Alaska, with 49 stores
primarily located in Anchorage, as well as in Fairbanks, Juneau, Kenai and other
Alaska communities. CGF operates a chain of 16 super-combination food, drug and
general merchandise stores under the name Carrs Quality Centers (the "Carrs
Stores"). CGF also operates nine smaller stores, four under the name Eagle
Quality Centers, two under other trade names and three neighborhood food stores
located in smaller Alaskan communities (collectively, the "Eagle Stores"). CGF
is Alaska's highest-volume alcoholic beverage retailer through its chain of 17
wine and liquor stores operated under the name Oaken Keg Spirit Shops (the
"Oaken Keg Stores"). CGF also runs seven specialty tobacco stores under the name
The Great Alaska Tobacco Company (the "Tobacco Stores"). In addition, CGF's
vertically integrated organization, which includes freight transportation
operations and Alaska's only full-line food warehouse and distribution center,
provides CGF retail and wholesale operations important merchandising benefits,
cost advantages and operating efficiencies not available to its competitors.
CGF's principal executive offices are located at 6411 A Street, Anchorage,
Alaska 99518, (907) 561-1944.
CGF's predecessor (the "Predecessor") was formed in 1986 as a result of the
merger of J.B. Gottstein & Co., a retail grocery and wholesale grocery
distributor founded in 1915, and Carrs Quality Centers, an Alaska grocery store
company that commenced operations in 1950. CGF was formed in 1990 by Leonard
Green & Partners, for the purpose of acquiring, through Green Equity Investors
and with certain members of CGF's senior management, assets of the Predecessor,
including real property, and certain subsidiaries used or held for use in the
business and operation of retail food and liquor stores, food wholesaling and
freight operations, and assumed certain liabilities, pursuant to an acquisition
agreement among CGF, the Predecessor, Laurence J. Carr and Barnard J. Gottstein.
During 1993, CGF undertook an initial public offering of its common stock. In
1995, CGF completed a leveraged recapitalization consisting of a self tender
offer for 7.5 million shares of common stock financed in part through the
issuance of $100.0 million of 12% senior subordinated notes of CGF.
INFORMATION REGARDING SAFEWAY AND ACQUISITION
Safeway is one of the largest food and drug chains in North America based on
sales, with 1,497 stores as of January 2, 1999. Safeway's U.S. retail operations
are located principally in northern California, southern California, Oregon,
Washington, Colorado, Arizona, Illinois and the Mid-Atlantic region. Safeway's
Canadian retail operations are located primarily in British Columbia, Alberta
and Manitoba/ Saskatchewan. In support of its retail operations, Safeway has an
extensive network of distribution,
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manufacturing and food processing facilities. Safeway also holds a 49% interest
in Casa Ley, S.A. de C.V., which, as of January 2, 1999, operated 77 food and
general merchandise stores in western Mexico. Safeway's principal executive
offices are located at 5918 Stoneridge Mall Road, Pleasanton, California
94588-3229, (925) 467-3000.
Acquisition is a newly formed, wholly owned subsidiary of Safeway formed for
the purpose of being merged with and into CGF pursuant to the terms and
conditions of the Merger Agreement. At the Effective Time, subject to the terms
and conditions of the Merger Agreement and the DGCL, Acquisition will be merged
with and into CGF, the separate corporate existence of Acquisition will cease,
and CGF will continue as the Surviving Corporation. Acquisition's principal
executive offices are located at 5918 Stoneridge Mall Road, Pleasanton, CA
94588-3229, (925) 467-3000.
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SELECTED FINANCIAL DATA FOR CGF
The following table presents certain summary selected consolidated financial
data of CGF as of and for each of the five fiscal years in the period ended
December 28, 1997 and for the thirty-nine week periods ended September 27, 1998
and September 28, 1997. This financial data was derived from audited and
unaudited historical consolidated financial statements of CGF and should be read
in conjunction with the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained elsewhere in this proxy statement
and the financial statements and notes thereto incorporated herein by reference.
The selected financial data set forth below do not purport to be complete
and should be read in conjunction with, and are qualified in their entirety by,
CGF's interim unaudited financial statements and annual audited financial
statements, including the notes thereto, which are incorporated herein by
reference.
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS
(AMOUNTS IN THOUSANDS, EXCEPT ENDED ENDED
FOR PER SHARE AND STORE SEPT. 27, SEPT. 28, FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR FISCAL YEAR
INFORMATION) 1998 1997 1997 1996 1995 1994 1993
- ------------------------------------ ----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
Operating Results:
Sales............................... $ 440,769 $ 445,503 $ 589,274 $ 612,576 $ 601,322 $ 577,063 $ 555,266
Cost of merchandise sold, including
warehousing and transportation
expenses (1)...................... 312,028 317,380 418,639 442,996 431,230 417,183 396,080
Gross profit........................ 128,741 128,123 170,635 169,580 170,092 159,880 159,186
Operating and administrative
expenses (1,4,6).................. 105,665 107,154 151,105 144,525 141,884 130,255 131,313
Operating income (4,6).............. 23,076 12,020 19,530 25,055 28,208 29,625 27,873
Interest expense, net............... 19,274 20,102 26,711 27,923 16,079 12,210 19,327
Income (loss) before extraordinary
item and cumulative effect of
change in accounting for income
taxes............................. 1,393 (5,755) (5,605) (2,810) 4,650(3) 9,211 4,244(2)
Net income (loss)................... $ 1,393 $ (5,755) $ (5,605) $ (2,810) $ 3,744 $ 9,211 $ (14,581)
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Other Data:
Depreciation and amortization....... $ 12,370 12,378 $ 16,536 $ 17,702 $ 17,626 $ 15,690 $ 18,294
Compensation expense stock options
(4)............................... -- -- -- -- 1,518 -- --
Nonrecurring charge (6)............. -- 8,949 8,949 -- -- -- --
Cash interest....................... 15,816 16,083 25,366 26,484 15,558 12,143 18,680
Basic Income (Loss) Per Share:
Before extraordinary items.......... $ 0.17 $ (0.73) $ (0.71) $ (0.36) $ 0.32 $ 0.55 $ 0.30
Net income (loss)................... 0.17 (0.73) (0.71) (0.36) 0.26 0.55 (1.03)
Weighted average shares
outstanding....................... 8,201 7,918 7,921 7,814 14,457(5) 16,763 14,139
Diluted Income (Loss) Per Share: (7)
Before extraordinary items.......... $ 0.16 $ (0.73) $ (0.71) $ (0.36) $ 0.31 $ 0.53 $ 0.29
Net income (loss)................... 0.16 (0.73) (0.71) (0.36) 0.25 0.53 (1.01)
Weighted average shares
outstanding....................... 8,517 7,918 7,921 7,814 15,112 17,233 14,435
Financial Position:
Total assets........................ $ 319,909 $ 323,805 $ 315,466 $ 330,844 $ 336,620 $ 326,369 $ 308,912
Long-term debt, excluding current
maturities........................ 211,066 219,481 215,421 227,640 234,740 136,339 137,456
Stockholders' equity................ 26,702 24,164 24,314 29,598 32,302 112,636 113,366
Capital expenditures................ 7,832 3,192 7,010 4,390 16,660 26,473 27,949
Other Period-end Statistics:
Number of stores.................... 49 45 45 42 39 36 33
Number of employees................. 3,170 3,049 3,040 3,243 3,568 3,597 3,525
</TABLE>
- ------------------------------
(1) Reclassifications have been made to fiscal years 1993 through 1995. During
these years, warehousing, transportation and the
related occupancy costs were originally reported as operating and
administrative expenses. For the current presentation, these expenses have
been classified as cost of merchandise sold.
(2) In fiscal year 1993 extraordinary item consisted of a $21,100 charge
resulting from early retirement of debt.
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(3) In fiscal year 1995, extraordinary item consisted of a $906 charge resulting
from early retirement of debt.
(4) In fiscal year 1995, CGF recognized a one time pre-tax charge of $1.5
million for non-cash expenses associated with the restructuring of a
management stock option incentive plan.
(5) On November 15, 1995 CGF repurchased and retired 7,500 shares of Common
Stock. This repurchase reduced the weighted average shares for fiscal year
1995 by approximately 800 shares.
(6) In fiscal year 1997, CGF recognized a non-recurring charge of $8.9 million
for expenses principally associated with its decision to close its YES foods
institutional food service business and discontinue wholesaling services to
a Russian export business.
(7) Diluted earnings per share data for fiscal years 1993 through 1996 have been
restated to conform with Statement of Financial Accounting Standard No. 128,
Earnings Per Share.
FOURTH QUARTER 1998 RESULTS
On February 17, 1999, CGF announced selected financial information for the
fourth quarter and fiscal year ended January 3, 1999. Sales for the fourth
quarter increased $17.3 million, or 12.1 percent, from $143.8 million in 1997 to
$161.1 million in 1998. Sales for the fiscal year ended January 3, 1999
increased $12.6 million, or 2.1 percent, from $589.3 million in 1997 to $601.9
million in 1998. Sales for the 1998 fourth quarter included one additional week
as compared to the prior year's quarter. Excluding the impact of the 53rd week,
sales for the quarter and year improved $6.2 million or 4.3 percent and $1.5
million or 0.3 percent, respectively. Excluding the impact of the 53rd week and
the effect of CGF's decision to close its YES Foods institutional food service
business and discontinue its wholesaling service to a Russian export business,
sales for year ended January 3, 1999 increased $17.4 million or 3.0 percent.
Net income for the fourth quarter increased $0.6 million to net earnings of
$0.7 million, or $0.09 per share, versus net income of $0.2 million, or $0.02
per share, in the same quarter of 1997. The increase in earnings for the 1998
quarter reflects improvements in gross margin dollars coupled with a reduction
in the operating expense rate and lower interest expenses due to lower average
debt balances in the quarter versus the prior year quarter. Net income for the
fiscal year ended January 3, 1999 excluding a 1997 one-time charge improved by
$2.4 million to net earnings of $2.1 million, or $0.26 per share, versus a net
loss of $0.3 million, or $0.04 per share, in the prior year.
Excluding the impact of the 53rd week, total retail comparable store sales
for the fourth quarter and fiscal year ended January 3, 1999, increased by 2.9
percent and 1.8 percent, respectively.
37
<PAGE>
The Company's capital investment program continued as planned during the
quarter with total capital spending for the fiscal year ended January 3, 1999 of
$10.1 million.
<TABLE>
<CAPTION>
4TH QUARTER ENDED YEAR ENDED
---------------------- ----------------------
JAN. 3, DEC. 28, JAN. 3, DEC. 28,
1999 1997 1999 1997
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Sales............................................................ $ 161,100 $ 143,771 $ 601,869 $ 589,274
Cost of sales and related occupancy costs........................ 114,424 101,259 426,452 418,639
---------- ---------- ---------- ----------
Gross profit................................................... 46,676 42,512 175,417 170,635
Selling, general and administrative expenses..................... 38,319 35,002 143,984 142,156
---------- ---------- ---------- ----------
Operating income................................................. 8,357 7,510 31,433 28,479
Other expenses:
Interest expense, net.......................................... 6,537 6,609 25,811 26,711
Other expense.................................................. 42 155 7 373
Non-recurring charge........................................... -- -- 8,949
----------
Net income (loss) before taxes................................... 1,778 746 5,615 (7,554)
Income tax expense (benefit)..................................... 1,047 596 3,491 (1,949)
---------- ---------- ---------- ----------
Net income (loss)................................................ $ 731 $ 150 $ 2,124 $ (5,605)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share before
Non-recurring charge............................................. $ 0.09 $ 0.02 $ 0.26 $ (0.04)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Net income (loss) per share before
Non-recurring charge............................................. $ 0.09 $ 0.02 $ 0.26 $ (0.71)
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Weighted average common shares outstanding....................... 8,245 7,939 8,212 7,923
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
38
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the "Selected
Financial Data of CGF" presented elsewhere in this proxy statement.
GENERAL
In recent years, Alaska, primarily the greater Anchorage area, has attracted
an increased presence of existing and new competitors, including supermarkets,
general merchandisers, discount retailers and warehouse membership club stores.
CGF has addressed the competition by remerchandising certain general merchandise
categories and by continuing its aggressive capital expenditure program to
remodel existing stores and establish additional stores in new regions of
Alaska. From 1992 through 1997, 11 of the 15 Carrs Stores were remodeled or
expanded, and two new Carrs Stores and four new Eagle Stores have been added.
The table below sets forth certain income statement components as a
percentage of sales.
<TABLE>
<CAPTION>
39 WEEKS 39 WEEKS FISCAL YEAR
ENDED SEPT. ENDED SEPT. -------------------------------
27, 1998 28, 1997 1997 1996 1995
----------- ----------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Sales......................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of merchandise sold, including
warehousing and transportation expenses..... 70.8 71.2 71.0 72.3 71.7
Gross profit.................................. 29.2 28.8 29.0 27.7 28.3
Operating and administrative expenses......... 24.0 26.1 25.7 23.6 23.6
----- ----- --------- --------- ---------
Operating income.............................. 5.2 2.7 3.3 4.1 4.7
----- ----- --------- --------- ---------
----- ----- --------- --------- ---------
</TABLE>
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% from the 13 week period in 1998.
GROSS PROFIT. Gross profit for the 13 weeks ended September 27, 1998 was
$45.1 million compared to $43.3 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. 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.
39
<PAGE>
OTHER INCOME AND EXPENSE. Net interest expense was $6.3 million for the 13
weeks ended September 27, 1998 compared to $6.9 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 benefit 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.
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 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 decrease in gross margin dollars is primarily attributable to the
closure of YES Foods. 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
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 $19.2 million for the 39
weeks ended September 27, 1998 compared to $20.3 million for the 39 weeks ended
September 28, 1997. The decrease in interest expense is due 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.
FISCAL 1997 COMPARED TO FISCAL 1996
SALES. Sales for fiscal 1997 were $589.3 million compared to $612.6 million
for fiscal 1996. The 3.8% decrease was due primarily to CGF's decision to close
its YES Foods institutional food service business and discontinue its
wholesaling services to a Russian export business as well as generally softer
comparable store sales at the retail division during the first half of 1997. The
decrease in sales for 1997 reflects a 1.4% decrease in total retail comparable
store sales. Sales at the retail division were impacted by increased competitive
activity and less promotional spending by CGF.
GROSS PROFIT. Gross profit for fiscal 1997 was $170.6 million compared to
$169.6 million for fiscal 1996. The increase in gross margin dollars is
primarily attributable to improved buying practices, reductions in promotional
spending as well as improved gross margins achieved at the wholesale and freight
40
<PAGE>
divisions. As a percentage of sales, gross profit was 29.0% for fiscal 1997 as
compared to 27.7% for fiscal 1996. Gross profit as a percentage of sales for
fiscal 1997 increased as a result of improved buying practices, reductions in
promotional spending during 1997 and the closure of YES Foods which operated at
lower gross margin rates.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating expenses for fiscal 1997,
before a one time pre-tax non-recurring charge of $8.9 million for expenses
principally associated with CGF's decision to close its YES Foods institutional
food service business and discontinue its wholesaling services to a Russian
export business, were $142.2 million compared to $144.5 million for fiscal 1996.
Excluding the non-recurring charge, operating expenses as a percentage of sales
were 24.1% for fiscal 1997 and 23.6% for fiscal 1996. Including the
non-recurring charge, operating expenses were $151.1 million, or 25.7% of sales.
OPERATING INCOME. Operating income for fiscal 1997, before the
non-recurring pre-tax charge of $8.9 million recognized in June 1997, increased
$3.4 million from $25.1 million, or 4.1% of sales, in 1996 to $28.5 million, or
4.8% in 1997. The dollar increase was due primarily to the improved gross margin
rate during 1997.
OTHER INCOME AND EXPENSE. Net interest expense was $26.7 million for fiscal
1997 compared to $27.9 million for fiscal 1996. The decrease in interest expense
reflects the lower average debt balances during 1997. See "Liquidity and Capital
Resources."
INCOME TAXES. CGF recognized an income tax benefit for fiscal 1997 of $1.9
million compared to an expense of $30,000 for fiscal 1996.
NET LOSS. Net loss was $5.6 million, or $0.71 per share, for fiscal 1997
compared to a net loss of $2.8 million, or $0.36 per share, for fiscal 1996. The
net loss for fiscal 1997 reflects a $8.9 million pre-tax non-recurring charge
($5.3 million, or $0.67 per share on an after-tax basis) for expenses
principally associated with CGF's decision to close its YES Foods institutional
food service business and discontinue its wholesaling services to a Russian
export business.
FISCAL 1996 COMPARED TO FISCAL 1995
SALES. Sales for fiscal 1996 were $612.6 million compared to $601.3 million
for fiscal 1995. The 1.9% increase was due primarily to increases in Eagle
Stores sales as well as sales improvements from the wholesale and freight
divisions. The increase in sales for 1996 reflects a 0.5% increase in total
retail comparable store sales.
GROSS PROFIT. Gross profit for fiscal 1996 was $169.6 million compared to
$170.1 million for fiscal 1995. The decrease in gross margin dollars is
primarily attributable to the increased promotional spending associated with the
kickoff of the Carrs Plus "Swipe the Gold, Save the Green" electronic marketing
campaign which impacted the first three quarters of 1996. As a percentage of
sales, gross profit was 27.7% for fiscal 1996 as compared to 28.3% for fiscal
1995. Gross profit as a percentage of sales for fiscal 1996 decreased as a
result of the increased promotional spending during the first three quarters of
1996 and an overall increase in third party wholesale and freight business sales
mix, generating a lower gross profit margin.
OPERATING AND ADMINISTRATIVE EXPENSES. Operating expenses for fiscal 1996
were $144.5 million compared to $141.9 million for fiscal 1995. Operating
expenses as a percentage of sales were 23.6% for each of fiscal 1996 and fiscal
1995. The increase in operating expenses reflects expenses associated with the
new Carrs Store opened in March 1995, as well as increased expenses associated
with CGF's "Fusion" corporate reengineering project which was designed to bring
operating efficiencies and improvements to the backstage side of the business.
41
<PAGE>
OPERATING INCOME. Operating income for fiscal 1996 was $25.1 million
compared to $28.2 million for fiscal 1995. The decrease was due primarily to the
increased promotional expenses associated with the Carrs Plus electronic
marketing campaign, increased expenses associated with CGF's "Fusion" project
and increases in depreciation and amortization.
OTHER INCOME AND EXPENSE. Net interest expense was $27.9 million for fiscal
1996 compared to $16.1 million for fiscal 1995. The increase in interest expense
reflects increased borrowings associated with the financing of CGF's tender
offer for approximately 50% of its outstanding stock in November 1995. See
"Liquidity and Capital Resources."
INCOME TAXES. Income tax expense for fiscal 1996 was $30,000 compared to
$5.2 million (a 52.8% effective tax rate) for fiscal 1995. The high effective
tax rate in 1995 resulted from the amortization of intangible assets for which
no tax benefit was available.
NET INCOME (LOSS). Net loss was $2.8 million, or $0.36 per share, for
fiscal 1996, compared to net income before extraordinary items of $4.7 million,
or $0.32 per share, for fiscal 1995. An extraordinary charge of $1.5 million
($0.9 million, or $0.06 per share, on an after-tax basis) was recorded during
1995 as a result of the early retirement of debt. After giving effect to the
extraordinary charge, net income for 1995 was $3.7 million, or $0.26 per share.
The net income for fiscal 1995 reflects a $2.2 million pre-tax non-recurring
charge (or $0.09 per share on an after-tax basis) for expenses associated with a
sale/ leaseback transaction that CGF elected not to pursue.
LIQUIDITY AND CAPITAL RESOURCES
CGF'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 $22.2 million for fiscal 1997
compared to $22.2 million for fiscal 1996 and $17.1 million for fiscal 1995. The
fiscal 1996 increase compared to fiscal 1995 was due primarily to the one-time
charge in 1995 for expenses associated with a sale/leaseback transaction that
CGF elected not to pursue. The balance of the changes is due to higher inventory
balances offset by increases in accrued payables and expenses.
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
this period.
Net cash used by financing activities was $14.0 million for fiscal 1997. The
cash used was principally for scheduled debt amortization payments and payments
against CGF's working capital revolver.
Net cash used by financing activities for the 39 weeks ending September 27,
1998 was $5.3 million. During this time period, the Company had no increased
borrowings under its revolving line of credit and made payments against its
long-term debt in the amount of $8.2 million. 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
expenditures.
CGF spent an aggregate of $7.0 million, $4.4 million and $16.7 million on
capital expenditures during fiscal 1997, 1996 and 1995, respectively. During
fiscal 1997 CGF completed one major remodel and substantially completed the
remodels at two additional Carrs locations and added two Great Alaska Tobacco
Company stores.
Capital expenditures for the 26 weeks ending June 28, 1998 were $6.3
million. Capital expenditures are expected to range between $8.0 and $12.0
million for fiscal 1998. It is anticipated that the balance of
42
<PAGE>
1998 capital expenditures will be funded out of cash provided by operations and
borrowings under the working capital revolver.
On April 9, 1998, CGF 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, CGF entered into a long-term lease for the store in North Pole,
Alaska.
The table below summarizes year-end historical remodels, expansions and new
store information, as well as added selling square footage resulting from
expansions and new stores, for the period from 1990 through December 1997.
<TABLE>
<CAPTION>
NUMBER OF STORES
----------------------------------------------------------------------------
TOTAL SELLING
REMODELS EXPANSIONS NEW STORES SQUARE FEET ADDED
------------------------ ------------------------ ------------------------ --------------------
YEAR CARRS EAGLE CARRS EAGLE CARRS EAGLE CARRS EAGLE
- ------------------------- ----- ----- ----- ----- ----- ----- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
1990..................... 3 1 -- -- -- -- -- --
1991..................... 7 -- -- 1 -- -- -- 5,240
1992..................... -- -- 2 -- -- -- 38,581 --
1993..................... 5 2 2 -- 1 -- 50,450 --
1994..................... 3 -- 2 -- -- 3 5,320 67,184
1995..................... -- -- 1 -- 1 -- 43,976 --
1996..................... -- -- -- -- -- -- -- --
1997..................... 3 -- -- -- -- 1 520 2,255
<CAPTION>
TOTAL SELLING
SQUARE FEET
--------------------
YEAR CARRS EAGLE
- ------------------------- --------- ---------
<S> <C> <C>
1990..................... 407,446 62,572
1991..................... 407,446 62,572
1992..................... 446,027 62,572
1993..................... 496,477 62,572
1994..................... 501,797 129,756
1995..................... 543,725 129,756
1996..................... 543,725 129,756
1997..................... 544,245 132,011
</TABLE>
On November 15, 1995 CGF completed a cash tender offer in which it purchased
7.5 million shares of previously outstanding common stock at $11.50 per share.
In conjunction with the tender offer, CGF completed the issuance of $100 million
principal amount of unsecured senior subordinated notes. In addition to
financing the tender offer, the net proceeds from the sale of the notes were
used to repay a portion of the debt outstanding under CGF's existing credit
facility and to pay fees and expenses associated with the offering of the notes,
the tender offer and the amendment and restatement of CGF's existing credit
facility.
CGF is a party to a credit facility (the "Credit Facility") which provides
for (i) two term loan facilities, a $35.0 million facility maturing on June 30,
2001 ("Term A Facility") and a $60.0 million facility maturing on December 31,
2002 ("Term B Facility"), and (ii) a revolving credit facility of $35.0 million
expiring on June 30, 2001. The revolving credit facility and the $35.0 million
term loan bears interest at an annual rate equal to the lender's base rate plus
1.0% or the reserve-adjusted Eurodollar rate plus 2.0%, at CGF's option, and the
$60.0 million term loan bears interest at an annual rate equal to the lender's
base rate plus 1.25% or the reserve-adjusted Eurodollar rate plus 2.25%, at
CGF's option. Interest rates on the revolving credit facility and the Term A
Facility are subject to reduction by up to 0.75% in the event CGF meets certain
financial tests. On April 17, 1998, CGF amended the Credit Facility. The
amendment reduced CGF's borrowing rates by 50 basis points on its $35.0 working
capital revolver and Term A Facility, and by 75 basis points on its Term B
Facility. The amendment also modified certain financial covenants and
restrictions.
The principal amounts of the Term A Facility and the Term B Facility are
required to be amortized commencing on June 30, 1996. Remaining scheduled
amortization payments under the Term A Facility are $7.0 million in each of 1998
and 1999, $5.0 million in 2000 and $4.0 million in 2001. Remaining scheduled
amortization payments under the Term B Facility are $600,000 in each of 1998,
1999 and 2000, $15.0 million in 2001 and $42.0 million in 2002. Availability
under the revolver will be reduced by $5.0 million on each of December 31, 1999
and 2000.
At June 28, 1998, there were no borrowings outstanding on the revolving
debt. CGF had available unused credit of $35.0 million. Funds borrowed under the
revolving credit portion of the Credit Facility are
43
<PAGE>
restricted to working capital and general corporate purposes. The level of
borrowings under CGF's revolving debt is dependent primarily upon cash flows
from operations, the timing of disbursements, long-term borrowing activity and
capital expenditure requirements. Upon consummation of the Merger, the Credit
Facility will be repaid and terminated.
YEAR 2000 ISSUE. The year 2000 issue 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-field 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 CGF's
administrative operations, CGF 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, CGF 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 CGF. CGF 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. CGF 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 conversations are not made, or
are not completed timely, the Year 2000 issue could have a material impact on
the operations of this Company. CGF expended approximately $250,000 in 1998 and
expects to expend approximately $500,000 in 1999 addressing Year 2000 issues.
CGF currently expects that the total incremental cost of ensuring that its
remaining computer systems are Year 2000 complaint will not exceed $1,000,000.
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 CGF has initiated formal communications with a number
of its significant suppliers to determine the extent to which CGF's interface
systems are vulnerable to those third parties' failure to remediate their own
Year 2000 issues, and has initiated similar communication with the balance of
its major suppliers, there is no guarantee that the systems of other companies
on which CGF's systems rely will be timely converted and would not have an
adverse effect on CGF's systems.
INFLATION. As is typical of the supermarket industry, CGF has adjusted its
retail prices in response to inflationary trends. Competitive conditions may
from time to time limit CGF's ability to increase its prices as a result of
inflation.
NEW ACCOUNTING PRONOUNCEMENTS. In February 1997, the Financial Accounting
Standards Board (SFAS) issued SFAS No. 128, "Earnings Per Share." This new
standard simplifies the earnings per share (EPS) calculation and makes the U.S.
standard for computing EPS more consistent with international accounting
standards. CGF adopted SFAS 128 at year-end 1997. EPS for prior years has been
restated where necessary to comply with SFAS 128.
Under SFAS 128, primary EPS was replaced with a simpler calculation called
basic EPS. Basic EPS is calculated by dividing income available to common
shareholders by the weighted average common shares outstanding. Previously,
primary EPS was based on the weighted average of both outstanding and issuable
shares assuming all dilutive options had been exercised. Under SFAS 128, fully
diluted EPS has not changed significantly, but has been renamed diluted EPS.
Diluted EPS includes the effect of all potentially dilutive securities, such as
options. CGF's basic and diluted EPS are materially the same.
In June 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive
Income." SFAS 130 establishes standards for the reporting and display of
comprehensive income and its components. Comprehensive income includes all
changes in equity during a period except those due to owner investments and
44
<PAGE>
distributions. It includes items such as foreign currency translation
adjustments, and unrealized gains and losses on available-for-sale securities.
This standard does not changes the display or components of present-day net
income. CGF began presenting the required disclosures in its financial
statements beginning in the 1998 first quarter. This statement does not have a
material impact on CGF.
Also in June 1997, the FASB issued SFAS No. 131, "Disclosure about Segments
of an Enterprise and Related Information." This new standard requires companies
to disclose segment data based on how management makes decisions about
allocating resources to segments and how it measures segment performance. SFAS
131 requires companies to disclose a measure of segment profit or loss
(operating income, for example), segment assets, and reconciliations to
consolidated totals. It also requires entity-wide disclosures about a company's
products and services, its major customers and the material countries in which
it holds assets and reports revenues. If the Merger does not occur, CGF will
adopt SFAS 131 in its 1998 year-end financial statements. This statement is not
expected to have a significant effect on CGF's financial statements.
In February 1998, the FASB issued SFAS No 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." SFAS 132 standardizes the
disclosure requirements for pensions and postretirement benefits where
practical. It also eliminates certain disclosures and requires additional
information on changes in benefit obligations and the values of plan assets. If
the Merger does not occur, CGF will adopt SFAS 132 in its 1998 year-end
financial statements. This statement is not expected to have a significant
effect on CGF's pension plan disclosures.
MARKET PRICE AND DIVIDEND INFORMATION
MARKET PRICES FOR COMMON STOCK AND DIVIDENDS
CGF's Common Stock is listed on the New York Stock Exchange under the symbol
"CGF". The following tables present historical trading information about CGF's
Common Stock high and low closing sales prices:
<TABLE>
<CAPTION>
PERIOD HIGH LOW
- ----------------------------------------------------------------------------- --------- ---------
<S> <C> <C>
1996
First Quarter.............................................................. 5.63 4.50
Second Quarter............................................................. 5.13 4.13
Third Quarter.............................................................. 4.38 3.63
Fourth Quarter............................................................. 4.13 3.38
1997
First Quarter.............................................................. 5.88 3.63
Second Quarter............................................................. 5.38 4.75
Third Quarter.............................................................. 5.44 4.75
Fourth Quarter............................................................. 5.31 4.75
1998
First Quarter.............................................................. 5.75 4.81
Second Quarter............................................................. 7.50 5.31
Third Quarter.............................................................. 11.25 7.13
Fourth Quarter............................................................. 11.63 10.75
1999
First Quarter (through March 3, 1999)...................................... 12.06 10.88
</TABLE>
On August 5, 1998 (the last trading day before the announcement of the
Merger Agreement) the high and low sale prices of the Common Stock were $8 1/16
and $7 3/4, respectively, and the closing sales price was $7 7/8. No cash
dividends have been paid on the Common Stock by CGF since its shares were
publicly distributed in 1993, and CGF does not currently intend to pay cash
dividends on its Common Stock.
45
<PAGE>
SECURITY OWNERSHIP OF BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth stock ownership information as of the Record
Date with respect to (i) all persons known to be the beneficial owner of more
than five percent of CGF's Common Stock, (ii) the directors and executive
officers of CGF, and (iii) all directors and executive officers of CGF as a
group.
<TABLE>
<CAPTION>
PERCENT OF
NUMBER OF SHARES
NAME AND ADDRESS SHARES OUTSTANDING
- ------------------------------------------------------------------------------------- ---------- ---------------
<S> <C> <C>
Green Equity Investors, L.P. (13).................................................... 2,869,592 35.1%
Leonard I. Green (13)................................................................ 2,879,614(1) 35.2%
Jonathan D. Sokoloff (13)............................................................ 2,872,089(1) 35.1%
Gregory J. Annick (13)............................................................... 2,870,093(1) 35.1%
Jennifer A. Holden Dunbar (13)....................................................... 2,869,843(1) 35.1%
John J. Cairns, Chairman (14)........................................................ 333,991(2) 4.1%
E. Dean Werries...................................................................... 25,000(3) *
Fleming Companies, Inc.
P.O. Box 26647
Oklahoma City, Oklahoma 73126-0647
Donald Gallegos...................................................................... 20,000(4) *
King Soopers
P.O. Box 5567
Denver, Colorado 80217
Lawrence H. Hayward, Chief Executive Officer (14).................................... 300,000(5) 3.7%
Donald J. Anderson, Chief Financial Officer (14)..................................... 96,000(6) 1.2%
Jeffry Philipps, Senior Vice President--Store Operations (14)........................ 65,000(5) *
Tammy L. Jerry, Vice President--Perishables (14)..................................... 15,505(7) *
J. Michael Moxness, General Counsel (14)............................................. 30,400(8) *
Dimensional Fund Advisors, Inc....................................................... 661,441(9) 8.1%
1299 Ocean Avenue, 11th Floor
Santa Monica, California 90401
First Manhattan Co................................................................... 446,025 11) 5.5%
437 Madison Avenue
New York, NY 10022
All directors and officers as a group (10 persons)................................... 3,737,068 12) 45.7%
</TABLE>
- ------------------------
(1) The shares shown as beneficially owned by Messrs. Green, Sokoloff, and
Annick and Ms. Holden Dunbar include 2,869,592 shares owned of record by
GEI. These individuals, or corporations owned solely by each of them, are
general partners of Leonard Green & Associates, L.P., general partner of
GEI. As such, they have shared voting and investment power with respect to
all shares held by GEI. However, such individuals disclaim beneficial
ownership of the securities held by GEI except to the extent of their
respective pecuniary interests therein.
46
<PAGE>
(2) The shares shown as beneficially owned by Mr. Cairns include 158,368 shares
of Common Stock that may be acquired upon the exercise of stock options
which will be exercisable immediately prior to the Merger.
(3) The shares shown as beneficially owned by Mr. Werries include 20,000 shares
of Common Stock which may be acquired upon the exercise of stock options
which will be exercisable immediately prior to the Merger.
(4) The shares shown as beneficially owned by Mr. Gallegos consist solely of
shares of Common Stock that may be acquired upon the exercise of stock
options which will be exercisable immediately prior to the Merger.
(5) The shares shown as beneficially owned by Mr. Hayward and Mr. Philipps
consist solely of shares of Common Stock that may be acquired upon the
exercise of stock options which will be exercisable immediately prior to
the Merger.
(6) The shares shown as beneficially owned by Mr. Anderson include 90,000
shares of Common Stock that may be acquired upon the exercise of stock
options which will be exercisable immediately prior to the Merger.
(7) The shares shown as beneficially owned by Ms. Jerry include 13,500 shares
of Common Stock that may be acquired upon the exercise of stock options
which will be exercisable immediately prior to the Merger.
(8) The shares shown as beneficially owned by Mr. Moxness include 23,800 shares
of Common Stock that may be acquired upon the exercise of stock options
which will be exercisable immediately prior to the Merger.
(9) Dimensional Fund Advisors Inc. ("Dimensional"), a registered investment
advisor, is deemed to have beneficial ownership of 661,441 shares, all of
which shares are held in portfolios of DFA Investment Dimensions Group
Inc., a registered open-end investment company, or in series of the DFA 3
Investment Trust Company, a Delaware business trust, or the DFA Group Trust
and DFA Participation Group Trust, investment vehicles for qualified
employee benefit plans, all of which Dimensional serves as investment
manager. Dimensional disclaims beneficial ownership of all such shares.
Dimensional has sole voting power as to 661,441 shares and shared voting
power as to no shares. Dimensional has sole dispositive power as to 661,441
shares and shared dispositive power as to no shares. This information is as
of February 11, 1999 and is derived solely from public filings by
Dimensional Fund Advisors, Inc.
(10) This information is as of February 11, 1999 and is derived solely from
public filings by First Manhattan Co. First Manhattan Co. has sole voting
power as to no shares and shared voting power as to 445,025 shares. First
Manhattan Co. has sole dispositive power as to no shares and shared
dispositive power as to 446,025 shares.
(11) The aggregate amount of 446,025 shares includes 352,255 shares owned by
family members of general partners of First Manhattan Co. which are being
reported for informational purposes. First Manhattan Co. disclaims
dispositive power as to 35,000 of such shares and beneficial ownership as
to 317,255 of such shares.
(12) The shares shown as beneficially owned by all officers and directors as a
group include 675,668 shares of Common Stock that may be acquired upon the
exercise of stock options which will be exercisable immediately prior to
the Merger.
(13) The address of such person is c/o Leonard Green & Associates, L.P., 11111
Santa Monica Blvd., Suite 2000, Los Angeles, California 90025.
(14) The address of such person is c/o Carr-Gottstein Foods, 6411 A Street,
Anchorage, Alaska 99518.
47
<PAGE>
INDEPENDENT PUBLIC ACCOUNTANTS
Representatives of KPMG Peat Marwick LLP, CGF's independent public
accountants, are expected to be present at the Special Meeting, where they will
be available to respond to appropriate questions and have the opportunity to
make a statement if they so desire.
ADDITIONAL INFORMATION
As required by law, CGF files reports, proxy statements and other
information with the SEC. These reports, proxy statements and other information
contain additional information about CGF. You can inspect and copy these
materials at the public reference facilities maintained by the SEC at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549, and at the
following Regional Offices of the Commission: 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and 7 World Trade Center, Suite 1300, New York,
New York 10048. For further information concerning the SEC's public reference
rooms, you may call the SEC at 1-800-SEC-0330. Some of this information may also
be accessed on the World Wide Web through the Commission's Internet address at
"http://www.sec.gov."
The SEC allows CGF to "incorporate by reference" information into this proxy
statement, which means that CGF can disclose important information by referring
you to another document filed separately with the SEC. Information incorporated
by reference is considered part of this proxy statement, except to the extent
that the information is superseded by information in this proxy statement. This
proxy statement incorporates by reference the information contained in the
following documents previously filed by CGF with the SEC:
(a) CGF's Annual Report on Form 10-K for the fiscal year ended December
28, 1997;
(b) CGF's Quarterly Reports on Form 10-Q for the periods ended March 29,
1998 and June 28, 1998; and September 27, 1998.
(c) CGF's Current Reports on Form 8-K dated August 19, 1998 and February
23, 1999.
CGF also incorporates by reference the information contained in all other
documents CGF files with the SEC after the date of this proxy statement and
before the Special Meeting. The information contained in any such document will
be considered part of this proxy statement from the date the document is filed.
If you are a stockholder of CGF and would like to receive a copy of any
document incorporated by reference into this proxy statement (which will not
include any of the exhibits to the document other than those exhibits that are
themselves specifically incorporated by reference into this proxy statement),
you should write to Carr-Gottstein Foods Co. at 6411 A Street, Anchorage, Alaska
99518, Attention: Donald J. Anderson, Chief Financial Officer. In order to
ensure timely delivery of the documents you request, you should make your
request by March 22, 1999.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS PROXY STATEMENT. CGF
HAS NOT AUTHORIZED ANYONE TO GIVE ANY INFORMATION DIFFERENT FROM THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT. YOU SHOULD NOT ASSUME THAT THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT IS ACCURATE AS OF ANY LATER DATE THAN THE DATE
HEREOF, AND THE MAILING OF THIS PROXY STATEMENT TO STOCKHOLDERS SHALL NOT CREATE
ANY IMPLICATION TO THE CONTRARY.
48
<PAGE>
OTHER BUSINESS
CGF knows of no other matter to be presented at the Special Meeting.
However, if other matters should properly come before the Special Meeting, it is
the intention of the persons named in the enclosed proxy to vote the proxy with
respect to such matters in accordance with their best judgment.
By Order of the Board of Directors,
/s/ Donald J. Anderson
--------------------------------------
Donald J. Anderson,
SECRETARY, SENIOR VICE PRESIDENT AND
CHIEF FINANCIAL OFFICER
March 10, 1999
49
<PAGE>
APPENDIX A
- --------------------------------------------------------------------------------
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>
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................................................................. 1
SECTION 1.5. Certificate of Incorporation and Bylaws............................................... 1
SECTION 1.6. Directors............................................................................. 2
SECTION 1.7. Officers.............................................................................. 2
SECTION 1.8. Conversion of Shares.................................................................. 2
SECTION 1.9. Appraisal Rights...................................................................... 2
SECTION 1.10. Payment of Merger Consideration...................................................... 3
SECTION 1.11. Stock Options........................................................................ 4
ARTICLE 2 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.................................................... 4
SECTION 2.1. Organization and Qualification; Subsidiaries.......................................... 4
SECTION 2.2. Capitalization of the Company and its Subsidiaries.................................... 5
SECTION 2.3. Authority Relative to this Agreement; Recommendation.................................. 5
SECTION 2.4. SEC Reports; Financial Statements..................................................... 6
SECTION 2.5. Information Supplied.................................................................. 6
SECTION 2.6. Consents and Approvals; No Violations................................................. 6
SECTION 2.7. No Default............................................................................ 7
SECTION 2.8. No Undisclosed Liabilities; Absence of Changes........................................ 7
SECTION 2.9. Litigation............................................................................ 8
SECTION 2.10. Compliance with Applicable Law....................................................... 8
SECTION 2.11. Employee Benefit Plans; Labor Matters................................................ 9
SECTION 2.12. Environmental Laws and Regulations................................................... 10
SECTION 2.13. Taxes................................................................................ 12
SECTION 2.14. Intellectual Property; Software...................................................... 13
SECTION 2.15. Vote Required........................................................................ 14
SECTION 2.16. Opinion of Financial Adviser......................................................... 14
SECTION 2.17. Brokers.............................................................................. 14
SECTION 2.18. Related Party Transactions........................................................... 14
SECTION 2.19. Assets............................................................................... 14
SECTION 2.20. Contracts............................................................................ 15
SECTION 2.21. Shared Appreciation Agreement........................................................ 16
SECTION 2.22. Payments............................................................................. 16
ARTICLE 3 REPRESENTATIONS AND WARRANTIES OF PARENT AND ACQUISITION......................................... 16
SECTION 3.1. Organization.......................................................................... 16
SECTION 3.2. Authority Relative to this Agreement.................................................. 16
SECTION 3.3. SEC Reports; Financial Statements..................................................... 17
SECTION 3.4. Information Supplied.................................................................. 17
SECTION 3.5. Consents and Approvals; No Violations................................................. 17
SECTION 3.6. No Default............................................................................ 18
SECTION 3.7. Litigation............................................................................ 18
SECTION 3.8. Brokers............................................................................... 18
SECTION 3.9. No Prior Activities................................................................... 18
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
SECTION 3.10. Financing............................................................................ 18
ARTICLE 4 COVENANTS........................................................................................ 18
SECTION 4.1. Conduct of Business................................................................... 18
SECTION 4.2. Preparation of the Proxy Statement.................................................... 20
SECTION 4.3. Other Potential Acquirers............................................................. 20
SECTION 4.4. Comfort Letter........................................................................ 21
SECTION 4.5. Meeting of Stockholders............................................................... 21
SECTION 4.6. Access to Information................................................................. 22
SECTION 4.7. Additional Agreements; Commercially Reasonable Efforts................................ 22
SECTION 4.8. Employee Benefits..................................................................... 23
SECTION 4.9. Public Announcements.................................................................. 23
SECTION 4.10. Indemnification...................................................................... 23
SECTION 4.11 Resignation of Officers and Directors................................................. 24
SECTION 4.12 Notice of Certain Events.............................................................. 24
SECTION 4.13 SAA................................................................................... 24
ARTICLE 5 CONDITIONS TO CONSUMMATION OF THE MERGER......................................................... 25
SECTION 5.1. Conditions to Each Party's Obligations to Effect the Merger........................... 25
SECTION 5.2. Conditions to the Obligations of the Company.......................................... 25
SECTION 5.3. Conditions to the Obligations of Parent and Acquisition............................... 25
ARTICLE 6 TERMINATION; AMENDMENT; WAIVER................................................................... 26
SECTION 6.1. Termination........................................................................... 26
SECTION 6.2. Effect of Termination................................................................. 27
SECTION 6.3. Fees and Expenses..................................................................... 27
SECTION 6.4. Amendment............................................................................. 28
SECTION 6.5. Extension; Waiver..................................................................... 28
ARTICLE 7 MISCELLANEOUS.................................................................................... 28
SECTION 7.1. Nonsurvival of Representations and Warranties......................................... 28
SECTION 7.2. Entire Agreement; Assignment.......................................................... 28
SECTION 7.3. Validity.............................................................................. 28
SECTION 7.4. Notices............................................................................... 29
SECTION 7.5. Governing Law......................................................................... 29
SECTION 7.6. Descriptive Headings.................................................................. 29
SECTION 7.7. Parties in Interest................................................................... 29
SECTION 7.8. Certain Definitions................................................................... 29
SECTION 7.9. Personal Liability.................................................................... 30
SECTION 7.10. Counterparts......................................................................... 30
</TABLE>
ii
<PAGE>
TABLE OF CONTENTS
TO
COMPANY DISCLOSURE SCHEDULE
<TABLE>
<CAPTION>
SCHEDULE TITLE
- ----------- ---------------------------------------------------------------------------------
<C> <S>
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>
iii
<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
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
</TABLE>
iv
<PAGE>
<TABLE>
<CAPTION>
CROSS REFERENCE
TERM IN AGREEMENT PAGE
- ---------------------------------------------------- ---------------------------------------------------- -----
<S> <C> <C>
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>
v
<PAGE>
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 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
1
<PAGE>
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.
(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.
2
<PAGE>
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 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.
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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 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.
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SECTION 2.2. CAPITALIZATION OF THE COMPANY AND ITS SUBSIDIARIES.
(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 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
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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 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
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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, 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;
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(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;
(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
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approvals of all Governmental Entities necessary for 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, (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.
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(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.
(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
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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 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
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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
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
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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, 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 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
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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
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).
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(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 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
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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 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
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the transactions contemplated 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 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.
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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.
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;
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(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 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;
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(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 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
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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 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.
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
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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 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
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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 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
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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 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
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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 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.
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
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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.
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
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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 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
27
<PAGE>
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
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.
28
<PAGE>
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:
<TABLE>
<S> <C>
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
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 SAFEWAY INC.
to: 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.
</TABLE>
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;
29
<PAGE>
(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.
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.
30
<PAGE>
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
31
<PAGE>
APPENDIX B
August 6, 1998
Board of Directors
Carr Gottstein Foods Company
6411 A Street
Anchorage, AK 99518
Dear Sirs:
You have requested our opinion as to the fairness from a financial point of
view to the public stockholders of Carr Gottstein Foods Company (the "Company")
of the consideration to be received by such stockholders pursuant to the terms
of the Agreement and Plan of Merger, dated as of August 6, 1998 (the
"Agreement"), by and among Safeway Inc. ("Safeway"), the Company and ACG Merger
Sub, Inc. ("Merger Sub"), a wholly owned subsidiary of Safeway pursuant to which
Merger Sub will be merged (the "Merger") with and into the Company.
Pursuant to the Agreement, each share of common stock of the Company will be
converted into the right to receive $12.50 per share in cash.
In arriving at our opinion, we have reviewed the draft dated August 1, 1998
of the Agreement and the exhibits thereto. We also have reviewed financial and
other information that was publicly available or furnished to us by the Company
including information provided during discussions with management. Included in
the information provided during discussions with management was certain
financial projections of the Company for the period beginning January 1, 1998
and ending December 31, 2002 prepared by the management of the Company. In
addition, we have compared certain financial and securities data of the Company
with various other companies whose securities are traded in public markets,
reviewed the historical stock prices and trading volumes of the common stock of
the Company, reviewed prices and premiums paid in certain other business
combinations and conducted such other financial studies, analyses and
investigations as we deemed appropriate for purposes of this opinion.
In rendering our opinion, we have relied upon and assumed the accuracy and
completeness of all of the financial and other information that was available to
us from public sources, that was provided to us by the Company or its
representatives, or that was otherwise reviewed by us. With respect to the
financial projections supplied to us, we have assumed that they have been
reasonably prepared on the basis reflecting the best currently available
estimates and judgments of the management of the Company as to the future
operating and financial performance of the Company. We have not assumed any
responsibility for making an independent evaluation any assets or liabilities or
for making any independent verification of any of the information reviewed by
us. We have relied as to certain legal matters on advice of counsel to the
Company.
Our opinion is necessarily based on economic, market, financial and other
conditions as they exist on, and on the information made available to us as of,
the date of this letter. It should be understood that, although subsequent
developments may affect this opinion, we do not have any obligation to update,
revise or reaffirm this opinion. Our opinion does not address the relative
merits of the Merger and the other business strategies being considered by the
Company's Board of Directors, nor does it address the Board's decision to
proceed with the Merger. Our opinion does not constitute a recommendation to any
stockholder as to how such stockholder should vote on the proposed transaction.
Donaldson, Lufkin & Jenrette Securities Corporation ("DLJ"), as part of its
investment banking services, is regularly engaged in the valuation of businesses
and securities in connection with mergers, acquisitions, underwritings, sales
and distributions of listed and unlisted securities, private placements and
valuations for corporate and other purposes. DLJ has performed investment
banking and other services for the Company and Safeway in the past and has been
compensated for such services. DLJ lead-managed the
<PAGE>
Company's initial public offering in 1993 and a $100 million offering of Senior
Subordinated Notes of the Company in 1995 for which DLJ received usual and
customary compensation. DLJ co-managed Safeway's $1.4 billion secondary common
stock offering in 1997 and co-managed Safeway's $1.1 billion secondary common
stock offering in 1998 for which DLJ received usual and customary compensation.
Based upon the foregoing and such other factors as we deem relevant, we are
of the opinion that the consideration to be received by the public stockholders
of the Company pursuant to the Agreement is fair to such stockholders from a
financial point of view.
Very truly yours,
DONALDSON, LUFKIN & JENRETTE
SECURITIES CORPORATION
By: __________________________________
Warren C. Woo
MANAGING DIRECTOR
2
<PAGE>
APPENDIX C
STOCKHOLDER SUPPORT AGREEMENT
THIS STOCKHOLDER SUPPORT AGREEMENT dated as of August 6, 1998 (this
"AGREEMENT"), is entered into by Green Equity Investors, L.P., a Delaware
limited partnership (the "STOCKHOLDER"), for the benefit of Safeway Inc., a
Delaware corporation ("PARENT"). Capitalized terms used and not otherwise
defined herein shall have the respective meanings assigned to them in the Merger
Agreement referred to below.
WHEREAS, as of the date hereof, the Stockholder owns of record and
beneficially 2,869,592 shares of common stock ("COMMON STOCK"), of
Carr-Gottstein Foods Co., a Delaware corporation (the "COMPANY") (collectively
and together with any other voting or equity securities of the Company hereafter
acquired by the Stockholder beneficially or of record prior to the termination
of this Agreement, the "SHARES");
WHEREAS, concurrently with the execution of this Agreement, Parent, ACG
Merger Sub, Inc., a Delaware corporation and a wholly-owned subsidiary of Parent
("MERGER SUB"), and the Company are entering into an Agreement and Plan of
Merger, dated as of the date hereof (the "MERGER AGREEMENT"), pursuant to which,
upon the terms and subject to the conditions thereof, Merger Sub will be merged
with and into the Company (the "MERGER") such that the Company will become a
wholly-owned subsidiary of Parent; and
WHEREAS, as a condition to the willingness of Parent to enter into the
Merger Agreement, Parent has requested that the Stockholder agree, and in order
to induce Parent to enter into the Merger Agreement, the Stockholder is willing,
to consent to the adoption of the Merger Agreement and the approval of the
Merger and to agree to certain other matters, all upon the terms and subject to
the conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing and the mutual covenants
and agreements contained herein, and intending to be legally bound hereby, the
parties hereby agree, severally and not jointly, as follows:
Section 1. CONSENT; VOTING OF SHARES; PROXY.
(a) The Stockholder hereby agrees that at any meeting of the stockholders of
the Company, however called, and in any action by consent of the stockholders of
the Company in lieu of a meeting, the Stockholder will vote all of the Shares
(i) in favor of (A) the adoption of the Merger Agreement and approval of the
Merger and the other transactions contemplated by the Merger Agreement and
hereby consents to the adoption of the Merger Agreement and the approval of the
Merger and the other transactions contemplated by the Merger Agreement and (B)
any other matter necessary to the consummation of the transactions contemplated
by the Merger Agreement and (ii) against (X) any merger agreement or merger
(other than the Merger Agreement and the Merger), consolidation, combination,
sale of substantial assets, reorganization, recapitalization, liquidation or
winding up of the company or any other similar extraordinary transaction
involving the Company or any other Third Party Acquisition (as defined in the
Merger Agreement), (Y) corporate action the consummation of which would
frustrate the purposes or impede, prevent, nullify or delay consummation of the
transactions contemplated by the Merger Agreement or (Z) any amendment to the
Company's certificate of incorporation or bylaws or any other action or
agreement that would result in a breach of any representation, warranty,
covenant, agreement or other obligation of the Company under the Merger
Agreement or which could result in any of the conditions to the Company's
obligations under the Merger Agreement not being fulfilled. In addition, the
Stockholder agrees that it will, upon request by Parent, furnish written
confirmation, in form and substance reasonably satisfactory to Parent, of the
Stockholder's support for the Merger Agreement
S-1
<PAGE>
and the Merger. The Stockholder acknowledges receipt of and opportunity to
review a copy of the Merger Agreement.
(b) From time to time and without additional consideration, the Stockholder
shall execute and deliver, or cause to be executed and delivered, such proxies,
consents and other similar instruments and shall take such further actions as
Parent may reasonably request for the purpose of carrying out and furthering the
intent of this Agreement. The Stockholder shall use all reasonable efforts to
assist and cooperate with the other parties to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by the Merger Agreement.
Section 2. TRANSFER OF SHARES. The Stockholder agrees that it shall not
take any action to, directly or indirectly, (a) offer to sell, sell, assign,
transfer (including by merger or otherwise by operation of law), pledge,
encumber or otherwise dispose of any of its respective Shares, in any case other
than to an affiliate of the Stockholder, but only if such affiliate agrees in
writing to be bound by the terms of this Agreement and executes any other
documents reasonably requested by Parent, (b) deposit any of its respective
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to any such Shares or grant any proxy or power of attorney with respect
thereto or (c) enter into any contract, option or other arrangement or
undertaking with respect to the direct or indirect sale, assignment, transfer
(including by merger or otherwise by operation of law) or other disposition of
or transfer of any interest in or the voting of any of its respective Shares or
any other securities of the Company.
Section 3. NO SOLICITATION. The Stockholder agrees that neither it nor any
of its subsidiaries, nor any officer, director, employee, partner or member of
the Stockholder or its subsidiaries shall, and that, subject to Section 9, 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 Merger Sub) concerning any Third Party
Acquisition.
Section 4. TREATMENT OF CERTAIN STOCKHOLDER PROFITS. (a) In the event that
the Merger Agreement shall have been terminated at any time pursuant to Section
6.1(d) or 6.1(e)(iii), (iv), (v) or (vi) (provided, with respect to a
termination pursuant to Section 6.1(e)(vi), a termination fee is payable to
Parent pursuant to Section 6.3(a) of the Merger Agreement) thereof, the
Stockholder shall pay to Parent an amount equal to 50% of the profit (determined
in accordance with this Section 4) of the Stockholder from the sale or other
disposition of any Shares within 18 months of such termination either pursuant
to a Third Party Acquisition or at such time as a Third Party Acquisition is
pending. Payment shall be made immediately upon the receipt of the proceeds from
such sale or other disposition.
(b) For purposes of this Section 4, the profit of the Stockholder shall
equal (A) the aggregate consideration received by the Stockholder for the Shares
that were sold or disposed of, valuing any non-cash consideration (including any
residual interest in the Company) at its fair market value on the date of such
consummation less (B) $12.50 per Share multiplied by the number of Shares sold
or disposed of.
(c) For purposes of this Section 4, the fair market value of any non-cash
consideration consisting of:
(A) securities listed on a national securities exchange or traded or quoted
on the Nasdaq shall be equal to the average closing price per share of
such security as reported on the composite trading system of such
exchange or by Nasdaq for the five trading days ending on the trading day
immediately prior to the date of value determination; and
(B) consideration which is other than cash or securities of the form
specified in clause (A) of this Section 4(c) shall be determined by a
nationally recognized independent investment banking firm mutually agreed
upon by the parties within 10 business days of the event requiring
selection of such banking firm; PROVIDED, HOWEVER, that if the parties
are unable to agree within two business days after the date of such event
as to the investment banking firm, then the parties shall each
S-2
<PAGE>
select one firm, and those firms shall select a third investment banking
firm, which third firm shall make such determination; PROVIDED FURTHER,
that the fees and expenses of such investment banking firm shall be borne
equally by Parent and the Stockholder. The determination of the
investment banking firm shall be binding upon the parties.
(d) Any payment of profit under this Section 4 shall be paid in the same
proportion of cash and non-cash consideration as the aggregate consideration
received by the Stockholder in the Third Party Acquisition or other disposition.
Section 5. TERMINATION. This Agreement shall terminate upon the earlier to
occur of (i) the Effective Time or (ii) any termination of the Merger Agreement
in accordance with the terms thereof; provided that no such termination shall
relieve any party of liability for a breach hereof prior to termination;
provided further that notwithstanding the foregoing, Section 4 shall survive the
termination of the Merger Agreement.
Section 6. REPRESENTATIONS. The Stockholder represents and warrants to
Merger Sub and Parent as follows:
(a) The Stockholder is the sole record and beneficial owner of, and has
good title to, all of the Shares, and there exist no restrictions on
transfer, options, proxies, voting agreements, voting trusts or liens
affecting said Shares, except as imposed by law. The Stockholder has the
power to vote, dispose of and otherwise transfer the Shares without the
approval, consent or other action of any person (other than a general
partner acting in such capacity).
(b) The execution and delivery of this Agreement by the Stockholder does
not, and the performance by the Stockholder of its obligations hereunder
will not, constitute a violation of, conflict with, result in a default (or
an event which, with notice or lapse of time or both, would result in a
default) under, or result in the creation of any lien on any of its Shares
under, (i) any contract commitment, agreement, understanding, arrangement or
restriction of any kind to which the Stockholder is a party or by which the
Stockholder or its Shares are bound, (ii) any judgment, writ, decree, order
or ruling affecting the Stockholder or its Shares, or (iii) the
organizational documents of the Stockholder to the extent the Stockholder is
not an individual.
(c) The Stockholder has full power and authority to execute, deliver and
perform this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and
validly authorized by the Stockholder and no other actions on the part of
the Stockholder are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by the Stockholder and, assuming due
authorization, execution and delivery by the Parent, constitutes a valid and
binding agreement of the Stockholder, enforceable against the Stockholder in
accordance with its terms, except to the extent that enforceability may be
limited by applicable bankruptcy, reorganization, insolvency, moratorium or
other laws affecting the enforcement of creditor's rights generally and by
general principles of equity, regardless of whether such enforceability is
considered in a proceeding in equity or at law.
(d) The Stockholder has not entered into nor will it enter into any
contract, agreement, arrangement or understanding with any Person which will
result in the obligation of Parent or the Company to pay any finder's fee,
brokerage commission or similar payment in connection with the transactions
contemplated hereby.
Section 7. WAIVER OF DISSENTER'S AND APPRAISAL RIGHTS. The Stockholder
agrees that it will not exercise any rights to dissent from the Merger or
request appraisal of its respective Shares pursuant to Section 262 of the DGCL
or any other similar provisions of law in connection with the Merger.
S-3
<PAGE>
Section 8. SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement were not
performed in accordance with the terms hereof and that the parties shall be
entitled to specific performance of the terms hereof, in addition to any other
remedy at law or in equity.
Section 9. STOCKHOLDER CAPACITY. The Stockholder signs solely in its
capacity as the record holder and beneficial owner of the Shares and,
notwithstanding Section 3, nothing herein shall limit or affect any actions
taken by any officer or director of the Company or its subsidiaries in his or
her capacity as an officer or director of the Company to the extent permitted by
the Merger Agreement (including causing its representatives to take actions
permitted by the Merger Agreement). Nothing in this Agreement shall be deemed to
constitute a transfer of the beneficial ownership of the Shares by the
Stockholder.
Section 10. MISCELLANEOUS.
(a) This Agreement constitutes the entire agreement between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings, both written and oral, between the parties with
respect thereto. This Agreement may not be amended, modified or rescinded except
by an instrument in writing signed by each of the parties hereto.
(b) If any term or other provision of this Agreement is invalid, illegal or
incapable of being enforced by any rule of law, or public policy, all other
conditions and provisions of this Agreement shall nevertheless remain in full
force and effect. Upon such determination that any term or other provision is
invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible to the fullest extent permitted by
applicable law in a mutually acceptable manner in order that the terms of this
Agreement remain as originally contemplated to the fullest extent possible.
(c) This Agreement shall be governed by and construed in accordance with the
internal laws of the State of Delaware without regard to the principles of
conflicts of law thereof.
(d) This Agreement may be executed in counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument. This Agreement shall be binding upon the Stockholder upon the
execution of this Agreement by such Stockholder.
S-4
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has caused this Agreement to
be signed by its respective duly authorized signatory as of the date first
written above.
GREEN EQUITY INVESTORS, L.P.
By: Leonard Green & Associates, L.P.,
its General Partner
By: GANMAX, Inc., a General Partner
/s/ Gregory J. Annick
-----------------------------------
By: Gregory J. Annick
Its: President
Agreed and Acknowledged:
SAFEWAY INC.
Michael C. Ross
- --------------------------------------
Name: Michael C. Ross
Its: Senior Vice President and General
Counsel
S-5
<PAGE>
APPENDIX D
APPENDIX D
DELAWARE CODE ANNOTATED
SECTION 262. APPRAISAL RIGHTS
TITLE 8. CORPORATIONS
CHAPTER 1. GENERAL CORPORATION LAW
SUBCHAPTER IX. MERGER OR CONSOLIDATION
8 DEL.
SECTION 262. APPRAISAL RIGHTS
(a) Any stockholder of a corporation of this State who holds shares of stock
on the date of the making of a demand pursuant to subsection (d) of this section
with respect to such shares, who continuously holds such shares through the
effective date of the merger or consolidation, who has otherwise complied with
subsection (d) of this section and who has neither voted in favor of the merger
or consolidation nor consented thereto in writing pursuant to section 228 of
this title shall be entitled to an appraisal by the Court of Chancery of the
fair value of the stockholder's shares of stock under the circumstances
described in subsections (b) and (c) of this section. As used in this section,
the word "stockholder" means a holder of record of stock in a stock corporation
and also a member of record of a nonstock corporation; the words "stock" and
"share" mean and include what is ordinarily meant by those words and also
membership or membership interest of a member of a nonstock corporation; and the
words "depository receipt" mean a receipt or other instrument issued by a
depository representing an interest in one or more shares, or fractions thereof,
solely of stock of a corporation, which stock is deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or
series of stock of a constituent corporation in a merger or consolidation to be
effected pursuant to section 251 (other than a merger effected pursuant to
section 251(g) of this title), section 252, section 254, section 257, section
258, section 263 or section 264 of this title:
(1) Provided, however, that no appraisal rights under this section shall
be available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to
determine the stockholders entitled to receive notice of and to vote at the
meeting of stockholders to act upon the agreement of merger or
consolidation, were either (i) listed on a national securities exchange or
designated as a national market system security on an interdealer quotation
system by the National Association of Securities Dealers, Inc. or (ii) held
of record by more than 2,000 holders; and further provided that no appraisal
rights shall be available for any shares of stock of the constituent
corporation surviving a merger if the merger did not require for its
approval the vote of the stockholders of the surviving corporation as
provided in subsection (f) of section 251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights
under this section shall be available for the shares of any class or series
of stock of a constituent corporation if the holders thereof are required by
the terms of an agreement of merger or consolidation pursuant to section
251, 252, 254, 257, 258, 263 and 264 of this title to accept for such stock
anything except:
a. Shares of stock of the corporation surviving or resulting from
such merger or consolidation, or depository receipts in respect thereof;
b. Shares of stock of any other corporation, or depository receipts
in respect thereof, which shares of stock (or depository receipts in
respect thereof) or depository receipts at the effective date of the
merger or consolidation will be either listed on a national securities
exchange
<PAGE>
or designated as a national market system security on an interdealer
quotation system by the National Association of Securities Dealers, Inc.
or held of record by more than 2,000 holders;
c. Cash in lieu of fractional shares or fractional depository
receipts described in the foregoing subparagraphs a. and b. of this
paragraph; or
d. Any combination of the shares of stock, depository receipts and
cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation
party to a merger effected under section 253 of this title is not owned by
the parent corporation immediately prior to the merger, appraisal rights
shall be available for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting,
shall notify each of its stockholders who was such on the record date for
such meeting with respect to shares for which appraisal rights are available
pursuant to subsection (b) or (c) hereof that appraisal rights are available
for any or all of the shares of the constituent corporations, and shall
include in such notice a copy of this section. Each stockholder electing to
demand the appraisal of his shares shall deliver to the corporation, before
the taking of the vote on the merger or consolidation, a written demand for
appraisal of his shares. Such demand will be sufficient if it reasonably
informs the corporation of the identity of the stockholder and that the
stockholder intends thereby to demand the appraisal of his shares. A proxy
or vote against the merger or consolidation shall not constitute such a
demand. A stockholder electing to take such action must do so by a separate
written demand as herein provided. Within 10 days after the effective date
of such merger or consolidation, the surviving or resulting corporation
shall notify each stockholder of each constituent corporation who has
complied with this subsection and has not voted in favor of or consented to
the merger or consolidation of the date that the merger or consolidation has
become effective; or
(2) If the merger or consolidation was approved pursuant to section 228
or section 253 of this title, each constituent corporation, either before
the effective date of the merger or consolidation or within ten days
thereafter, shall notify each of the holders of any class or series of stock
of such constituent corporation who are entitled to appraisal rights of the
approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section; provided that, if the notice is given on or after the effective
date or the merger or consolidation, such notice shall be given by the
surviving or resulting corporation to all such holders of any class or
series of stock of a constituent corporation that are entitled to appraisal
rights. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the
effective date of the merger or consolidation. Any stockholder entitled to
appraisal rights may, within 20 days after the date of mailing of such
notice, demand in writing from the surviving or resulting corporation the
appraisal of such holder's shares. Such demand will be sufficient if it
reasonably informs the corporation of the identity of the stockholder and
that the stockholder intends thereby to demand the
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<PAGE>
appraisal of such holder's shares. If such notice did not notify
stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders
of any class or series of stock of such constituent corporation that are
entitled to appraisal rights of the effective date of the merger or
consolidation or (ii) the surviving or resulting corporation shall send such
a second notice to all such holders on or within 10 days after such
effective date; provided, however, that if such second notice is sent more
than 20 days following the sending of the first notice, such second notice
need only be sent to each stockholder who is entitled to appraisal rights
and who has demanded appraisal of such holder's shares in accordance with
this subsection. An affidavit of the secretary or assistant secretary or of
the transfer agent of the corporation that is required to give either notice
that such notice has been given shall, in the absence of fraud, be prima
facie evidence of the facts stated therein. For purposes of determining the
stockholders entitled to receive either notice, each constituent corporation
may fix, in advance, a record date that shall be not more than 10 days prior
to the date the notice is given, provided, that if the notice is given on or
after the effective date of the merger or consolidation, the record date
shall be such effective date. If no record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger or consolidation,
the surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw his demand for
appraisal and to accept the terms offered upon the merger or consolidation.
Within 120 days after the effective date of the merger or consolidation, any
stockholder who has complied with the requirements of subsections (a) and (d)
hereof, upon written request, shall be entitled to receive from the corporation
surviving the merger or resulting from the consolidation a statement setting
forth the aggregate number of shares not voted in favor of the merger or
consolidation and with respect to which demands for appraisal have been received
and the aggregate number of holders of such shares. Such written statement shall
be mailed to the stockholder within 10 days after his written request for such a
statement is received by the surviving or resulting corporation or within 10
days after expiration of the period for delivery of demands for appraisal under
subsection (d) hereof, whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in Chancery, if so ordered by the Court, shall
give notice of the time and place fixed for the hearing of such petition by
registered or certified mail to the surviving or resulting corporation and to
the stockholders shown on the list at the addresses therein stated. Such notice
shall also be given by 1 or more publications at least 1 week before the day of
the hearing, in a newspaper of general circulation published in the City of
Wilmington, Delaware or such publication as the Court deems advisable. The forms
of the notices by mail and by publication shall be approved by the Court, and
the costs thereof shall be borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the
stockholders who have complied with this section and who have become entitled to
appraisal rights. The Court may require the stockholders who have demanded an
appraisal for their shares and who hold stock represented by certificates to
submit their certificates of stock to the Register in Chancery for notation
thereon of the pendency of the appraisal
3
<PAGE>
proceedings; and if any stockholder fails to comply with such direction, the
Court may dismiss the proceedings as to such stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court
shall appraise the shares, determining their fair value exclusive of any element
of value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted his
certificates of stock to the Register in Chancery, if such is required, may
participate fully in all proceedings until it is finally determined that he is
not entitled to appraisal rights under this section.
(i) The Court shall direct the payment of the fair value of the shares,
together with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporation be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed
upon the parties as the Court deems equitable in the circumstances. Upon
application of a stockholder, the Court may order all or a portion of the
expenses incurred by any stockholder in connection with the appraisal
proceeding, including, without limitation, reasonable attorney's fees and the
fees and expenses of experts, to be charged pro rata against the value of all
the shares entitled to an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded his appraisal rights as provided in subsection (d)
of this section shall be entitled to vote such stock for any purpose or to
receive payment of dividends or other distributions on the stock (except
dividends or other distributions payable to stockholders of record at a date
which is prior to the effective date of the merger or consolidation); provided,
however, that if no petition for an appraisal shall be filed within the time
provided in subsection (e) of this section, or if such stockholder shall deliver
to the surviving or resulting corporation a written withdrawal of his demand for
an appraisal and an acceptance of the merger or consolidation, either within 60
days after the effective date of the merger or consolidation as provided in
subsection (e) of this section or thereafter with the written approval of the
corporation, then the right of such stockholder to an appraisal shall cease.
Notwithstanding the foregoing, no appraisal proceeding in the Court of Chancery
shall be dismissed as to any stockholder without the approval of the Court, and
such approval may be conditioned upon such terms as the Court deems just.
(l) The shares of the surviving or resulting corporation to which the shares
of such objecting stockholders would have been converted had they assented to
the merger or consolidation shall have the status of authorized and unissued
shares of the surviving or resulting corporation
4
<PAGE>
[LOGO]
CARR-GOTTSTEIN FOODS CO.
PROXY
PROXY SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The undersigned, revoking all previous proxies, hereby appoints Lawrence
H. Hayward and Donald J. Anderson (the "Proxies"), or any of them acting
individually, as the proxy of the undersigned, with full power of
substitution, to vote, as indicated below and in their discretion upon such
other matters as may properly come before the meeting, all shares which the
undersigned would be entitled to vote at the Special Meeting of
Carr-Gottstein Foods Co. ("CGF") to be held at the offices of Gibson, Dunn &
Crutcher LLP, 333 South Grand Avenue, Los Angeles, California on April 8,
1999 at 10:00 A.M., local time and at any adjournment or postponement thereof.
Please date and sign your Proxy on the reverse side and return it promptly.
- --------------------------------------------------------------------------------
FOLD AND DETACH HERE
<PAGE>
<TABLE>
<S><C>
Please mark
your vote as / X /
indicated in
this example
FOR AGAINST ABSTAIN
1. To approve and adopt an Agreement / / / / / / 2. In accordance with their best judgment, the Proxies
and Plan of Merger, dated as of are authorized to transact and vote upon such other
August 6, 1998 (the "Merger business as may properly come before the Special
Agreement"), among CGF, Safeway Meeting and any postponement or adjournment thereof.
Inc. and ACG Merger Sub, Inc.
("Acquisition"), and the merger
of Acquisition with and into
CGF as provided for therein.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS.
UNLESS OTHERWISE SPECIFIED, THE SHARES WILL BE VOTED "FOR"
THE APPROVAL OF THE MERGER AND THE MERGER AGREEMENT
DESCRIBED ON THE REVERSE SIDE HEREOF. THIS PROXY ALSO
DELEGATES DISCRETIONARY AUTHORITY WITH RESPECT TO ANY OTHER
BUSINESS WHICH MAY PROPERLY COME BEFORE THE MEETING OR ANY
ADJOURNMENT OR POSTPONEMENT THEREOF.
THE UNDERSIGNED HEREBY ACKNOWLEDGES RECEIPT OF THE NOTICE OF
SPECIAL MEETING AND PROXY STATEMENT.
Signature of Stockholder:______________________________Signature of Stockholder:__________________________Date:____________________
NOTE: Please sign this proxy exactly as name(s) appear on your stock certificate. When signing as attorney-in-fact, executor,
administrator, trustee or guardian, please add your title as such, and if signer is a corporation, please sign with full corporate
name by a duly authorized officer or officers and affix the corporate seal. Where stock is issued in the name of two (2) or
more persons, all such persons should sign.
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FOLD AND DETACH HERE
</TABLE>
