<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): September 7, 1996.
SHOPKO STORES, INC.
(Exact name of registrant as specified in its charter)
Minnesota 1-10876 41-0985054
----------- --------- ------------
(State or other (Commission (IRS Employer
jurisdiction of File Number) Identification
incorporation) No.)
700 Pilgrim Way
Green Bay, Wisconsin 54304
--------------------------------------- ---------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (414) 497-2211
<PAGE>
Item 5. Other Events.
------------
ShopKo Stores, Inc., a Minnesota corporation ("ShopKo"), Phar-Mor, Inc., a
Pennsylvania corporation ("Phar-Mor"), and Cabot Noble, Inc., a Delaware
corporation ("Cabot Noble"), have entered into an Agreement and Plan of
Reorganization (the "Plan of Reorganization") dated as of September 7, 1996
pursuant to which ShopKo and Phar-Mor have agreed to combine their respective
companies under a new holding company (the "Reorganization"). The Reorganization
will be accomplished through share exchanges with Cabot Noble, a newly organized
holding company, with ShopKo and Phar-Mor continuing as separate operating
subsidiaries of Cabot Noble once the share exchanges are consummated.
Under the terms of the Reorganization, each issued and outstanding share of
ShopKo common stock will be exchanged for 2.4 shares of Cabot Noble common
stock, subject to adjustment in the event the value of the exchange
consideration falls outside a range of $17.25 and $18.00 (based on the average
daily closing sale prices of the Phar-Mor common stock over a specified 30 day
period). Each issued and outstanding share of Phar-Mor common stock will be
exchanged for one share of Cabot Noble common stock.
In connection with the Reorganization, SUPERVALU INC., a Delaware
corporation ("SuperValu"), which currently owns approximately 46% of the issued
and outstanding shares of ShopKo common stock, has entered into a Stock Purchase
Agreement (the "Stock Purchase Agreement") with Cabot Noble whereby SuperValu
has agreed to sell the Cabot Noble shares it receives in the Reorganization to
Cabot Noble immediately after the Reorganization is completed for an aggregate
purchase price of $248,438,339, which represents $16.86 per share for the ShopKo
common stock held by SuperValu prior to the Reorganization. The Stock Purchase
Agreement provides that SuperValu will receive $208,038,339 in cash at closing
and $40,400,000 in a short-term promissory note due January 31, 1997.
SuperValu has also entered into a Voting Agreement (the "Voting Agreement")
with Robert M. Haft. Robert M. Haft is one of two members of Hamilton Morgan
L.L.C., a Delaware limited liability company ("Hamilton Morgan"). Hamilton
Morgan has voting control over approximately 40% of Phar-Mor's outstanding
common stock. The other member of Hamilton Morgan is FoxMeyer Health Corporation
("FoxMeyer"). In the Voting Agreement, SuperValu has agreed to vote 19.9% of its
ShopKo shares in favor of the Plan of Reorganization, and Robert Haft has agreed
to use his reasonable efforts to cause Hamilton Morgan to vote all of the Phar-
Mor shares over which it has voting control in favor of the Plan of
Reorganization. FoxMeyer has not reached a conclusion as to its position on the
transaction. SuperValu was limited as to the number of shares it could agree to
vote in favor of the Plan of Reorganization by certain provisions of the
Minnesota Business Corporation Act relating to control share acquisitions.
SuperValu has indicated its intention to vote all of the shares of ShopKo common
stock in favor of the Plan of Reorganization.
2
<PAGE>
Consummation of the Reorganization is subject to certain conditions,
including (a) receipt of financing of at least $100 million, (b) approval by the
shareholders of ShopKo and Phar-Mor, (c) receipt of necessary regulatory
approvals, and (d) other conditions to closing customary in transactions of this
type.
Certain additional information regarding the Reorganization is contained in
ShopKo's press release (the "Press Release") dated September 9, 1996 which is
incorporated herein by reference.
The Plan of Reorganization, the Voting Agreement, the Stock Purchase
Agreement and the Press Release are attached hereto as exhibits and incorporated
herein by reference. The foregoing summary of such exhibits is qualified in its
entirety by reference to the complete text of such exhibits.
Forward-Looking Statements
The actual results of ShopKo, Phar-Mor and Cabot Noble may differ
materially from those contained in forward-looking statements contained in (i)
the Press Release, (ii) information included or incorporated by reference in
future filings by ShopKo, Phar-Mor, or Cabot Noble with the Securities and
Exchange Commission, and (iii) information contained in written material,
releases and oral statements issued by, or on behalf of, ShopKo, Phar-Mor or
Cabot Noble. Factors which may cause such a difference to occur include, but are
not limited to (i) those factors identified in ShopKo's Annual Report on Form
10-K for the fiscal year ended February 24, 1996 which are incorporated herein
by reference, (ii) delays in anticipated cost savings, (iii) higher than
anticipated costs in completing the Reorganization, (iv) business disruption
related to the Reorganization (both before and after completion), (v) cost
savings that are less than anticipated, (vi) higher than expected financing or
refinancing costs, (vii) litigation costs and delays caused by litigation,
(viii) unanticipated regulatory delays or constraints or changes in the proposed
transaction required by regulatory authorities, and (ix) other unanticipated
occurrences which may delay the consummation of the Reorganization, increase the
costs related to the Reorganization, or decrease the expected financial benefits
of the Reorganization.
Item 7. Financial Statements and Exhibits
(c) Exhibits
Exhibit Number Description
2.1 Agreement and Plan of Reorganization dated as of
September 7, 1996 by and among Phar-Mor, Inc., ShopKo
Stores, Inc. and Cabot Noble, Inc. (with selected
exhibits attached).
3
<PAGE>
10.1 Voting Agreement dated as of September 7, 1996 by and among
SUPERVALU INC., Supermarket Operators of America, Inc.,
Cabot Noble, Inc. and Robert M. Haft.
10.2 Stock Purchase Agreement dated as of September 7, 1996 by
and between Cabot Noble, Inc., SUPERVALU INC., and
Supermarket Operators of America, Inc.
99.1 Press Release dated September 9, 1996.
4
<PAGE>
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Report to be signed on its behalf by the
undersigned hereunto duly authorized.
Dated: September 9, 1996 SHOPKO STORES, INC.
By: /s/ Jeffrey A. Jones
-------------------------------------
Jeffrey A. Jones, Chief Financial Officer
5
<PAGE>
EXHIBIT INDEX
-------------
Exhibit No. Description
----------- -----------
2.1 Agreement and Plan of Reorganization dated as
of September 7, 1996 by and among Phar-Mor,
Inc., Shopko Stores, Inc. and Cabot Noble, Inc.
(with selected exhibits attached).
10.1 Voting Agreement dated as of September 7, 1996
by and among SUPERVALU INC., Supermarket
Operators of America, Inc., Cabot Noble, Inc.
and Robert M. Haft.
10.2 Stock Purchase Agreement dated as of September
7, 1996 by and between Cabot Noble, Inc.,
SUPERVALU INC., and Supermarket Operators of
America, Inc.
99.1 Press Release dated September 9, 1996.
6
<PAGE>
-----------------------------------------
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PHAR-MOR, INC.
SHOPKO STORES, INC.
AND
CABOT NOBLE, INC.
DATED AS OF SEPTEMBER 7, 1996
-----------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
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Page
----
<S> <C> <C>
ARTICLE I THE REORGANIZATION............................................................ 2
1.1 EFFECTIVE DATE........................................................... 2
1.2 PHAR-MOR PLAN............................................................ 2
1.3 SHOPKO PLAN.............................................................. 3
1.4 EXCHANGE PROVISIONS...................................................... 4
1.5 REGISTRATION OF SECURITIES............................................... 6
1.6 EXCHANGE OF PHAR-MOR STOCK CERTIFICATES NOT REQUIRED..................... 7
1.7 BOARD OF DIRECTORS OF PARENT; COMMITTEES................................. 7
1.8 EXECUTIVE OFFICERS OF PARENT............................................. 7
1.9 REGISTRATION OF PARENT COMMON SHARES..................................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES................................................ 8
2.1 REPRESENTATIONS AND WARRANTIES OF SHOPKO................................ 8
(a) Organization; Standing and Power.................................. 8
(b) Subsidiaries...................................................... 8
(c) Capitalization.................................................... 9
(d) Authority; Recommendation......................................... 9
(e) Noncontravention..................................................10
(f) Government Approval...............................................10
(g) Financial Statements..............................................11
(h) Undisclosed Liabilities...........................................11
(i) Absence of Certain Changes or Events..............................11
(j) Compliance with Law...............................................11
(k) Brokers...........................................................12
(l) Litigation........................................................12
(m) Taxes and Tax Returns.............................................12
(n) Real Estate.......................................................12
(o) Licenses, Permits and Authorizations..............................13
(p) ERISA and Employee Matters........................................13
(q) Environmental Matters.............................................14
(r) Employees; Labor Relations........................................16
(s) Intellectual Property.............................................16
(t) Opinion of ShopKo Financial Adviser...............................17
(u) Registration Rights...............................................17
(v) Commission Documents..............................................17
(w) Registration Statement............................................17
2.2 REPRESENTATIONS AND WARRANTIES OF PHAR-MOR..............................18
(a) Organization; Standing and Power..................................18
(b) Subsidiaries......................................................18
</TABLE>
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<TABLE>
<C> <S> <C>
(c) Capitalization....................................................18
(d) Authority; Recommendation.........................................19
(e) Noncontravention..................................................19
(f) Government Approval...............................................20
(g) Financial Statements..............................................20
(h) Undisclosed Liabilities...........................................21
(i) Absence of Certain Changes or Events..............................21
(j) Compliance with Law...............................................21
(k) Brokers...........................................................21
(l) Litigation........................................................21
(m) Taxes and Tax Returns.............................................21
(n) Real Estate.......................................................22
(o) Licenses, Permits and Authorizations..............................22
(p) ERISA and Employee Matters........................................23
(q) Environmental Matters.............................................24
(r) Employees; Labor Relations........................................25
(s) Intellectual Property.............................................25
(t) Opinion of Phar-Mor Financial Adviser.............................26
(u) Registration Rights...............................................26
(v) Commission Documents..............................................26
(w) Registration Statement............................................26
2.3 REPRESENTATIONS AND WARRANTIES OF PARENT................................26
(a) Organization; Standing and Power..................................26
(b) Capitalization....................................................27
(c) Authority.........................................................27
(d) Noncontravention..................................................27
(e) Government Approval...............................................27
(f) Solvency..........................................................27
(g) Assets; Liabilities...............................................28
2.4 KNOWLEDGE...............................................................28
ARTICLE III COVENANTS PENDING THE REORGANIZATION....................................28
3.1 CONDUCT OF BUSINESS BY SHOPKO PENDING THE REORGANIZATION................28
3.2 CONDUCT OF BUSINESS BY PHAR-MOR PENDING THE REORGANIZATION..............30
3.3 CONDUCT OF BUSINESS BY PARENT PENDING THE REORGANIZATION................31
3.4 CONSENTS................................................................31
ARTICLE IV ADDITIONAL AGREEMENTS...................................................31
4.1 PROXY STATEMENT; OTHER FILINGS..........................................31
4.2 SHAREHOLDER APPROVALS...................................................32
4.3 LEGAL REQUIREMENTS FOR REORGANIZATION...................................33
4.4 LISTING APPLICATION.....................................................33
4.5 EMPLOYMENT AGREEMENTS...................................................33
</TABLE>
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<TABLE>
<S> <C> <C> <C>
4.6 INVESTIGATIONS...................................................34
4.7 CONFIDENTIALITY..................................................34
4.8 NO SOLICITATION OF EMPLOYEES.....................................34
4.9 BEST EFFORTS; ADDITIONAL AGREEMENTS AND PROVISIONS...............35
4.10 NO SOLICITATIONS.................................................35
4.11 AFFILIATES.......................................................36
4.12 PERIODIC REPORTS.................................................36
4.13 DIRECTORS' AND OFFICERS' INDEMNIFICATION.........................36
4.15 EXPENSES.........................................................37
ARTICLE V CONDITIONS PRECEDENT......................................................37
5.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE
REORGANIZATION................................................................37
(a) Approval of Holders of Phar-Mor Common Shares...............37
(b) Approval of Holders of ShopKo Common Shares.................37
(c) Registration Statement......................................37
(d) HSR Act.....................................................37
(e) Injunction..................................................37
(f) Exchange Listing............................................38
(g) Credit Facilities...........................................38
(h) Dissenters' Rights..........................................38
(i) Parent Buy Back.............................................38
(j) Solvency Opinion............................................38
5.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PHAR-MOR AND PARENT..........38
(a) Agreements..................................................39
(b) Representations and Warranties..............................39
(c) Officer's Certificate.......................................39
(d) Lack of Adverse Change......................................39
(e) Consents from Third Parties.................................39
(f) Tax Effect of the Reorganization............................39
(g) Letters from Accountants....................................39
(h) ShopKo Exchange.............................................40
(i) Resignation of ShopKo Board.................................40
(j) Termination of Rights Agreement.............................40
5.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SHOPKO.......................40
(a) Agreements..................................................40
(b) Representations and Warranties..............................40
(c) Officer's Certificate.......................................41
(d) Lack of Adverse Change......................................41
(e) Consents from Third Parties.................................41
(f) Tax Effect of the Reorganization............................41
(g) Letters from Accountants....................................41
(h) Phar-Mor Exchange...........................................42
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ARTICLE VI TERMINATION, AMENDMENT AND WAIVER..........................................42
6.1 TERMINATION......................................................42
6.2 EFFECT OF TERMINATION............................................44
6.3 AMENDMENT........................................................46
6.4 WAIVER...........................................................46
ARTICLE VII GENERAL PROVISIONS.........................................................46
7.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES....................46
7.2 NOTICES..........................................................46
7.3 ENTIRE AGREEMENT.................................................47
7.4 GOVERNING LAW....................................................47
7.5 VALIDITY.........................................................47
7.6 ASSIGNMENT.......................................................47
7.7 NO THIRD PARTY BENEFICIARIES.....................................48
7.8 SEVERABILITY.....................................................48
7.9 INCORPORATION OF EXHIBITS AND SCHEDULES..........................48
7.10 INTERPRETATION...................................................48
7.11 COUNTERPARTS.....................................................48
</TABLE>
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<PAGE>
LIST OF ANNEXES, EXHIBITS & SCHEDULES
-------------------------------------
Annex A Calculation of Exchange Ratio
Exhibit A Voting Agreement
Exhibit B Form of Revised Certificate of Incorporation of
Cabot Noble
Exhibit C Certificate of Incorporation of Cabot Noble, Inc.
Exhibit D By-Laws of Cabot Noble, Inc.
Exhibit E Form Employment Agreement of Kramer
Exhibit F Form Employment Agreement of Podany
Exhibit G Form Employment Agreement of Jones
Exhibit H Stock Purchase Agreement
Schedule 1.2 Phar-Mor Options and Warrants
Schedule 1.3 ShopKo Options and Warrants
Schedule 1.8 Executive Officers of Cabot Noble
Schedule 2.1(b) ShopKo Subsidiaries
Schedule 2.1(c) ShopKo Capitalization
Schedule 2.1(e) ShopKo Exceptions to Noncontravention
Schedule 2.1(h) ShopKo Liabilities
Schedule 2.1(i) ShopKo Changes and Events
Schedule 2.1(l) ShopKo Litigation
Schedule 2.1(m) ShopKo Taxes and Tax Returns
Schedule 2.1(n) ShopKo Real Estate Matters
Schedule 2.1(p) ShopKo ERISA Matters
Schedule 2.1(q) ShopKo Environmental Matters
Schedule 2.1(r) ShopKo Employee Matters
Schedule 2.1(s) ShopKo Intellectual Property
Schedule 2.1(u) ShopKo Registration Rights
Schedule 2.2(b) Phar-Mor Subsidiaries
Schedule 2.2(c) Phar-Mor Capitalization
Schedule 2.2(e) Phar-Mor Exceptions to Noncontravention
Schedule 2.2(g) Phar-Mor Press Release dated August 22, 1996
Schedule 2.2(h) Phar-Mor Liabilities
Schedule 2.2(i) Phar-Mor Changes and Events
Schedule 2.2(l) Phar-Mor Litigation
Schedule 2.2(m) Phar-Mor Taxes and Tax Returns
Schedule 2.2(n) Phar-Mor Real Estate Matters
Schedule 2.2(p) Phar-Mor ERISA Matters
Schedule 2.2(q) Phar-Mor Environmental Matters
Schedule 2.2(r) Phar-Mor Employee Matters
Schedule 2.2(s) Phar-Mor Intellectual Property
Schedule 2.2(u) Phar-Mor Registration Rights
Schedule 2.3(b) Cabot Noble Capitalization
Schedule 3.1 ShopKo Actions Pending Closing
Schedule 3.2 Phar-Mor Actions Pending Closing
Schedule 5.2 Consents From Third Parties
Schedule 5.3 Consents From Third Parties
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<PAGE>
DEFINED TERMS
-------------
The following terms are defined at the page number below indicated:
<TABLE>
<CAPTION>
Page
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<S> <C>
Affiliates..............................................36
Agreement................................................1
Average Closing Price....................................4
Business Combination....................................43
Certificates.............................................5
Claims..................................................15
Closing..................................................2
Code.....................................................2
Commission...............................................6
Common Shares Trust....................................5,6
Delaware Law............................................10
Effective Date...........................................2
Environmental Claims....................................15
Environmental Law.......................................15
ERISA...................................................13
Excess Shares............................................5
Exchange Agent...........................................4
Exchange Ratio...........................................3
Exchanged Shares.........................................5
Hamilton Morgan..........................................1
Hazardous Material......................................16
HSR Act.................................................10
Independent Directors....................................7
Liabilities.............................................11
Lien....................................................10
Minnesota Law............................................1
NYSE....................................................33
Other Filings...........................................32
Parent...................................................1
Parent Board.............................................1
Parent Buy Back.........................................38
Parent Buy Back Financing...............................38
Parent Common Shares.....................................1
Parent Material Adverse Effect..........................27
Parent Option............................................3
Parent Warrant...........................................3
Pennsylvania Law.........................................1
Person...................................................9
Phar-Mor.................................................1
Phar-Mor Benefit Plans..................................23
Phar-Mor Board...........................................1
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Phar-Mor Common Shares............................................... 1
Phar-Mor Exchange.................................................... 1
Phar-Mor Fairness Opinion............................................ 2
Phar-Mor Financial Adviser........................................... 2
Phar-Mor Group.......................................................23
Phar-Mor Intellectual Property.......................................25
Phar-Mor Material Adverse Effect.....................................18
Phar-Mor Option...................................................... 3
Phar-Mor Pension Plans...............................................23
Phar-Mor Plan........................................................ 1
Phar-Mor SEC Reports.................................................21
Phar-Mor Shareholders' Approval......................................32
Phar-Mor Special Meeting.............................................32
Phar-Mor Subsidiary..................................................18
Phar-Mor Triggering Event............................................45
Phar-Mor Warrant..................................................... 3
Pricing Period....................................................... 4
Principal Trading Market............................................. 5
Proxy Statement......................................................31
Registration Statement............................................... 7
Release..............................................................16
Reorganization....................................................... 1
Respective Representatives...........................................34
Section 13(d)(3).....................................................45
Securities Act....................................................... 6
ShopKo............................................................... 1
ShopKo Benefit Plans.................................................13
ShopKo Board......................................................... 1
ShopKo Common Shares................................................. 1
ShopKo Dissenting Shares............................................. 4
ShopKo Exchange...................................................... 1
ShopKo Fairness Opinion.............................................. 2
ShopKo Financial Adviser............................................. 2
ShopKo Group.........................................................13
ShopKo Intellectual Property.........................................17
ShopKo Material Adverse Effect....................................... 8
ShopKo Option........................................................ 4
ShopKo Pension Plans.................................................13
ShopKo Plan.......................................................... 1
ShopKo SEC Reports...................................................11
ShopKo Shareholders' Approval........................................32
ShopKo Special Meeting...............................................32
ShopKo Subsidiary.................................................... 8
ShopKo Triggering Event..............................................45
Stock Purchase Agreement.............................................38
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Subsidiary...............................................8
Supermarket..............................................1
Supervalu................................................1
Takeover Proposal.......................................35
Voting Agreement.........................................1
</TABLE>
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<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement"), dated as of
September 7, 1996, by and among Phar-Mor, Inc., a Pennsylvania corporation
("Phar-Mor"), ShopKo Stores, Inc., a Minnesota corporation ("ShopKo"), and Cabot
Noble, Inc., a Delaware corporation ("Parent").
WHEREAS, the parties hereto desire to consummate a business
combination pursuant to which Phar-Mor and ShopKo will form a new holding
company to be engaged primarily in the business of providing general merchandise
and health service through retail stores;
WHEREAS, in accordance with Section 1931 of the Pennsylvania Business
Corporation Law ("Pennsylvania Law") the Board of Directors of Phar-Mor (the
"Phar-Mor Board") has adopted a resolution proposing, approving and adopting a
plan of exchange (the "Phar-Mor Plan") pursuant to which outstanding shares of
Phar-Mor Common Stock, par value $.01 per share ("Phar-Mor Common Shares"), will
be exchanged for and converted solely into shares of Parent Common Stock, par
value $.01 per share ("Parent Common Shares"), with the result that Parent
becomes the owner of all outstanding Phar-Mor Common Shares (the "Phar-Mor
Exchange");
WHEREAS, in accordance with Section 302A.613 of the Minnesota Business
Corporation Act ("Minnesota Law") the Board of Directors of ShopKo (the "ShopKo
Board") has approved a resolution containing a plan of exchange (the "ShopKo
Plan") in which outstanding shares of ShopKo Common Stock, par value $.01 per
share ("ShopKo Common Shares"), will be exchanged solely for Parent Common
Shares (and cash in lieu of fractional ShopKo Common Shares), with the result
that Parent becomes the owner of all outstanding ShopKo Common Shares (the
"ShopKo Exchange" and, together with the Phar-Mor Exchange, the
"Reorganization");
WHEREAS, Phar-Mor owns all of the issued and outstanding shares of
Parent, and the Board of Directors of Parent (the "Parent Board") and Phar-Mor,
as the sole stockholder of Parent, have adopted resolutions adopting and
approving the Phar-Mor Plan and the ShopKo Plan, and authorizing the issuance of
Parent Common Shares upon conversion and exchange of Phar-Mor Common Shares and
ShopKo Common Shares pursuant to such Plans;
WHEREAS, the consummation of the Phar-Mor Exchange and the
consummation of the ShopKo Exchange shall be effective simultaneously, or
neither shall be consummated;
WHEREAS, as a condition precedent to the execution of this Agreement,
Parent, SUPERVALU INC., a Delaware corporation ("Supervalu"), Supermarket
Operators of America, Inc., a Delaware corporation and wholly owned subsidiary
of Supervalu ("Supermarket"), and certain members of Hamilton Morgan, L.L.C., a
Delaware limited liability company ("Hamilton Morgan"), have entered into that
certain Voting Agreement dated as of the date of this Agreement, a copy of which
is attached hereto as Exhibit A (the "Voting Agreement").
WHEREAS, the ShopKo Board has engaged Salomon Brothers Inc (the
"ShopKo Financial Adviser") to provide an opinion as to the fairness of the
ShopKo Exchange to ShopKo's public shareholders from a financial point of view
(the "ShopKo Fairness Opinion");
<PAGE>
WHEREAS, the ShopKo Board has approved this Agreement and the ShopKo
Exchange and has resolved to recommend that the holders of ShopKo Common Shares
adopt the ShopKo Plan;
WHEREAS, the Phar-Mor Board has engaged Jefferies & Company, Inc. (the
"Phar-Mor Financial Adviser") to provide an opinion as to the fairness of the
Phar-Mor Exchange to Phar-Mor's shareholders from a financial point of view (the
"Phar-Mor Fairness Opinion");
WHEREAS, the Phar-Mor Board has approved this Agreement and the Phar-
Mor Exchange and has resolved to recommend that the holders of Phar-Mor Common
Shares adopt the Phar-Mor Plan; and
WHEREAS, for federal income tax purposes, it is intended that the
exchange of Phar-Mor Common Shares and ShopKo Common Shares for Parent Common
Shares pursuant to the Phar-Mor Plan and the ShopKo Plan will qualify as
transfers to a controlled corporation described in Section 351 of the Internal
Revenue Code of 1986, as amended (the "Code").
NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties hereby
agree as follows:
ARTICLE I
THE REORGANIZATION
1.1 EFFECTIVE DATE. The articles of exchange for the ShopKo Exchange
to be filed with the Minnesota secretary of state pursuant to Subdivision 2 of
Section 302A.615 of the Minnesota Law, and the articles of exchange for the
Phar-Mor Exchange to be filed in the Pennsylvania department of state pursuant
to Section 1931(e) of the Pennsylvania Law, shall each specify the same date as
the date after such filings on which each such Exchange shall become effective
(the "Effective Date"). Prior to the filing of such articles of exchange, a
closing (the "Closing") will be held at the offices of Swidler & Berlin,
Chartered, located at 3000 K Street, N.W., Washington, D.C. (or such other place
as the parties may agree) as soon as practicable following the approval and
adoption of the Phar-Mor Plan and the ShopKo Plan by the shareholders of Phar-
Mor and ShopKo, respectively, as provided herein, and the satisfaction or waiver
of the other conditions set forth in Section 5.
1.2 PHAR-MOR PLAN. The terms and conditions of the Phar-Mor
Exchange, and the manner and basis of converting Phar-Mor Common Shares into
Parent Common Shares, are as follows:
(a) Upon satisfaction of the conditions and performance of the
obligations of the parties set forth in this Agreement to be satisfied and
performed on or prior to the Effective Date, at 5:00 p.m. New York City time on
the Effective Date (i) each Phar-Mor Common Share owned by Phar-Mor, ShopKo and
any of their subsidiaries shall be cancelled and cease to exist; and (ii) each
Phar-Mor Common Share (other than Phar-Mor Common Shares cancelled pursuant to
Section 1.2(a)(i)) shall be exchanged for one fully paid and nonassessable
Parent Common Share.
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<PAGE>
(b) Each holder of a certificate representing Phar-Mor Common Shares
exchanged for Parent Common Shares pursuant to Section 1.2(a)(ii) hereof shall
thereafter be entitled only to the Parent Common Shares for which such Phar-Mor
Common Shares have been exchanged.
(c) After the exchange of Phar-Mor Common Shares for Parent Common
Shares pursuant to Section 1.2(a)(ii), Parent shall be the holder of all issued
and outstanding Phar-Mor Common Shares.
(d) Each option to purchase Phar-Mor Common Shares listed in Schedule
1.2 (a "Phar-Mor Option") and each warrant to purchase Phar-Mor Common Shares
listed in Schedule 1.2 (a "Phar-Mor Warrant"), in each case outstanding on the
Effective Date, shall become (by conversion, exchange, assumption, substitution,
and/or otherwise as determined by mutual agreement of ShopKo and Phar-Mor) an
option (a "Parent Option") or warrant (a "Parent Warrant"), as the case may be,
to purchase the same number of Parent Common Shares. Each such Parent Option and
Parent Warrant shall be exercisable at the same aggregate exercise price after
the Reorganization as the corresponding Phar-Mor Option or Phar-Mor Warrant was
before the Reorganization and shall have the same exercise period and other
terms and conditions as the corresponding Phar-Mor Option or Phar-Mor Warrant.
Notwithstanding the foregoing, no Parent Option or Parent Warrant to purchase
fractional Parent Common Shares shall be issued in connection with the
Reorganization, unless otherwise provided in writing.
1.3 SHOPKO PLAN.
(a) The names of the corporations participating in the ShopKo
Exchange are ShopKo, Inc., a Minnesota corporation, and Cabot Noble, Inc., a
Delaware corporation.
(b) The name of the acquiring corporation is Cabot Noble, Inc., a
Delaware corporation.
(c) The terms and conditions of the ShopKo Exchange and the manner
and terms of exchanging ShopKo Common Shares for Parent Common Shares are as
follows: upon satisfaction of the conditions and performance of the obligations
of the parties set forth in this Agreement to be satisfied and performed on or
prior to the Effective Date, at 5:00 p.m. New York City time on the Effective
Date:
(i) each ShopKo Common Share owned by ShopKo, Phar-Mor and any
of their subsidiaries shall be cancelled and cease to exist; and
(ii) each ShopKo Common Share (other than ShopKo Common Shares
cancelled pursuant to Section 1.3(c)(i) and ShopKo Dissenting Shares
(as defined in Section 1.3(e)) shall be deemed to be exchanged for 2.4
(the "Exchange Ratio") fully paid and nonassessable Parent Common
Shares, and the Exchange Ratio shall be adjusted as follows (and as
described in the examples set forth on Annex A hereto): (A) if the
average per share closing price of Phar-Mor Common Shares on the
Nasdaq Stock Market for all of the trading days in the thirty calendar
day period ending with the sixth trading day prior to the date of the
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ShopKo Special Meeting as originally scheduled in the Proxy Statement
(the "Pricing Period") as reported for Nasdaq National Market Issues
in The Wall Street Journal (the "Average Closing Price"), multiplied
by 2.4 exceeds $18.00, the Exchange Ratio shall be reduced to the
quotient (taken to the third decimal place) obtained by dividing
$18.00 by the Average Closing Price; and (B) if the Average Closing
Price multiplied by 2.4 is less than $17.25, the Exchange Ratio shall
be increased to the quotient (taken to the third decimal place)
obtained by dividing $17.25 by the Average Closing Price.
(d) Each holder of ShopKo Common Shares exchanged for Parent Common
Shares pursuant to Section 1.3(c)(ii) shall be entitled only to the Parent
Common Shares for which such ShopKo Common Shares have been exchanged and cash
in lieu of fractional shares in an amount (without commissions, interest or
other fees of any nature) equal to the Average Closing Price multiplied by such
fraction, multiplied by the Exchange Ratio.
(e) Each holder of ShopKo Common Shares who asserts dissenter's
rights in full compliance with the requirements of Sections 302A.471 and
302A.473 of the Minnesota Law with respect to such shares ("ShopKo Dissenting
Shares") shall have only the right to obtain payment in cash for such ShopKo
Dissenting Shares in accordance with Sections 302A.471 and 302A.473 of the
Minnesota Law.
(f) After the exchange of ShopKo Common Shares for Parent Common
Shares pursuant to Section 1.3(c)(ii), Parent shall be the holder of all issued
and outstanding ShopKo Common Shares.
(g) Each option to purchase ShopKo Common Shares listed in Schedule
1.3 (a "ShopKo Option") outstanding on the Effective Date shall become (by
conversion, exchange, assumption, substitution, and/or otherwise as determined
by mutual agreement of Phar-Mor and ShopKo) a Parent Option to purchase that
number of Parent Common Shares determined by multiplying the number of ShopKo
Common Shares issuable upon exercise of such ShopKo Option by the Exchange
Ratio. Each such Parent Option shall be exercisable at the same aggregate
exercise price after the Reorganization as the corresponding ShopKo Option was
before the Reorganization and shall have the same exercise period and other
terms and conditions as the corresponding ShopKo Option. Notwithstanding the
foregoing, no Parent Options to purchase fractional Parent Common Shares shall
be issued in connection with the Reorganization.
1.4 EXCHANGE PROVISIONS.
(a) As soon as practicable after the Effective Date, Parent shall
deposit with a bank, trust company or other agent selected by ShopKo and Phar-
Mor (the "Exchange Agent") certificates representing Parent Common Shares
required to effect the exchange of ShopKo Common Shares for Parent Common
Shares.
(b) As soon as practicable after the Effective Date, the Exchange
Agent shall mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Date represented issued and outstanding
ShopKo Common Shares ("Certificates") that were exchanged
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(the "Exchanged Shares") for Parent Common Shares pursuant to the ShopKo
Exchange, (i) a letter of transmittal, and (ii) instructions for use in
effecting the exchange of Certificates for certificates representing Parent
Common Shares. Upon delivery of a Certificate to the Exchange Agent for
exchange, together with a duly executed letter of transmittal and such other
documents as the Exchange Agent shall require, the holder of such Certificate
shall be entitled to receive in exchange therefor a certificate representing
that number of whole Parent Common Shares and the amount of cash in lieu of
fractional Share interests which such holder has the right to receive pursuant
to this Section 1.4. Until delivered as contemplated by this Section 1.4, each
Certificate shall be deemed at any time after the Effective Date to represent
only the right to receive upon such delivery the certificate representing Parent
Common Shares and cash in lieu of any fractional Parent Common Shares as
contemplated by this Section 1.4.
(c) No dividends or other distributions declared or made after the
Effective Date with respect to Parent Common Shares with a record date after the
Effective Date shall be paid to the holder of any undelivered Certificate with
respect to the Parent Common Shares represented thereby, and no cash payment in
lieu of fractional shares shall be paid to any such holder pursuant to this
Section 1.4, until the holder of record of such Certificate shall have delivered
such Certificate as contemplated in this Section 1.4. Subject to the effect of
unclaimed property, escheat and other applicable laws, following delivery of any
such Certificate there shall be paid to or upon order of the record holder of
the certificates representing whole Parent Common Shares issued in exchange
therefor, without interest, (i) at the time of such delivery, the amount of any
cash payable in lieu of a fractional Parent Common Share to which such holder is
entitled pursuant to this Section 1.4 and the amount of any dividends or other
distributions with a record date after the Effective Date theretofore paid with
respect to such whole Parent Common Shares and (ii) at the appropriate payment
date, the amount of any dividends or other distributions with a record date
after the Effective Date but prior to delivery and a payment date subsequent to
delivery payable with respect to such whole Parent Common Shares, as the case
may be.
(d) No certificates or scrip representing fractional Parent Common
Shares shall be issued upon the delivery for exchange of Certificates, and such
fractional Share interests will not entitle the owner thereof to vote or to any
rights of a stockholder of Parent.
(e) As promptly as practicable following the Effective Date, the
Exchange Agent shall determine the excess of (x) the number of full shares of
Parent Common Shares delivered to the Exchange Agent by Parent pursuant to this
Section 1.4 over (y) the aggregate number of full Parent Common Shares to be
distributed to holders of ShopKo Common Shares pursuant to Section 1.3(c)(ii)
(such excess being herein called the "Excess Shares"). As soon after the
Effective Date as practicable, the Exchange Agent, as agent for the holders of
ShopKo Common Shares shall sell the Excess Shares at then prevailing prices on
the principal securities market on which the Parent Common Shares are then
trading (the "Principal Trading Market"), all in the manner provided in this
Section 1.4.
(f) The sale of the Excess Shares by the Exchange Agent shall be
executed on the Principal Trading Market through one or more member firms of the
Principal Trading Market and shall be executed in round lots to the extent
practicable. Until the net proceeds of such sale or sales
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have been distributed to the holders of ShopKo Common Shares, the Exchange Agent
shall hold such proceeds in trust for the holders of ShopKo Common Shares
("Common Shares Trust"). Parent shall pay all commissions, transfer taxes and
other out-of-pocket transaction costs, including the expenses and compensation,
of the Exchange Agent incurred in connection with such sale of the Excess
Shares. The Exchange Agent shall determine the portion of the net proceeds
comprising the Common Shares Trust to which each holder of ShopKo Common Shares
shall be entitled, if any, by multiplying the amount of the aggregate net
proceeds comprising the Common Shares Trust by a fraction the numerator of which
is the amount of the fractional share interest to which such holder of ShopKo
Common Shares is entitled and the denominator of which is the aggregate amount
of fractional share interests to which all holders of ShopKo Common Shares are
entitled.
(g) As soon as practicable after the sale of Excess Shares pursuant
to Section 1.4(f) and the determination of the amount of cash, if any, to be
paid to holders of ShopKo Common Shares in lieu of any fractional Share
interests, the Exchange Agent shall distribute such amounts to holders of ShopKo
Common Shares who have theretofore delivered Certificates for ShopKo Common
Shares for exchange pursuant to this Section 1.4.
(h) From and after the Effective Date, the stock transfer books with
respect to ShopKo Common Shares issued and outstanding prior to the Effective
Date shall be closed and no transfer of any such Shares shall thereafter be
made. If, after the Effective Date, Certificates are presented to Parent, they
shall be cancelled and exchanged for certificates representing the appropriate
number of whole Parent Common Shares and cash in lieu of fractional Parent
Common Shares as provided in this Section 1.4.
(i) Any certificates representing Parent Common Shares deposited with
the Exchange Agent pursuant to this Section 1.4 and not exchanged within one
year after the Effective Date pursuant to this Section 1.4 shall be returned by
the Exchange Agent to Parent, which shall thereafter act as Exchange Agent. All
funds held by the Exchange Agent for payment to the holders of undelivered
Certificates and unclaimed at the end of one year from the Effective Date shall
be remitted to Parent, after which time any holder of undelivered Certificates
shall look as a general creditor only to Parent for payment of such funds to
which such holder may be due, subject to applicable law. The Parent shall not be
liable to any Person for such shares or funds delivered to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.5 REGISTRATION OF SECURITIES. Within 10 days after the Effective
Date, Parent shall prepare and file with the Securities and Exchange Commission
(the "Commission") such registration statement(s) under the Securities Act of
1933, as amended (the "Securities Act"), as shall be required to register the
Parent Common Shares reserved for issuance pursuant to Parent Options.
Subsequent to such filing, Parent shall use its best efforts to cause such
registration statement(s) to become effective and, to the extent required by
law, keep such registration statement(s) current and effective under the
Securities Act so long as any Parent Option remains outstanding.
1.6 EXCHANGE OF PHAR-MOR STOCK CERTIFICATES NOT REQUIRED. Holders of
Phar-Mor Common Shares will automatically become holders of Parent Common Shares
and their certificates which represent Phar-Mor Common Shares will automatically
represent the Parent Common Shares
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for which such shares were exchanged in the Phar-Mor Exchange and (a) from and
after the Effective Date, the stock transfer books of Phar-Mor with respect to
shares of Phar-Mor Common Shares outstanding prior to the Effective Date shall
be closed and no transfer of any such shares will thereafter be made, and (b)
after the Phar-Mor Exchange, as presently outstanding certificates of Phar-Mor
Common Shares are presented for transfer, new stock certificates bearing the
name of the Parent and the appropriate number of Parent Common Shares will be
issued.
1.7 BOARD OF DIRECTORS OF PARENT; COMMITTEES. The parties hereby agree
that (i) the seven members of the Phar-Mor Board and (ii) three additional
individuals who qualify as "Independent Directors" (as defined in the Form of
Restated Certificate of Incorporation of Parent, a copy of which is attached
hereto as Exhibit B) selected by the ShopKo Board (in consultation with Heidrick
& Struggles, New York, or such other nationally recognized executive search firm
as may be approved by Phar-Mor and ShopKo), and approved by the members of the
Phar-Mor Board who are not also officers or employees of Phar-Mor or affiliates
of Hamilton Morgan, shall serve as members of the Parent Board from and after
the Effective Date, until their respective successors are duly elected or
appointed and qualified in the manner provided in the By-Laws of Parent, or as
otherwise provided by law; provided that the ShopKo Board shall use reasonable
efforts to designate such three nominees for Independent Director before the
Effective Date; and provided further, that to the extent such three designees of
ShopKo are not designated on or before the Effective Date, the right of ShopKo
to appoint such designees as contemplated by this Section 1.7 shall be
enforceable by those Persons who are members of the ShopKo Board as of the date
of this Agreement. Any individual selected by the Phar-Mor Board to fill any
vacancy on the Phar-Mor Board shall be selected in consultation with Heidrick &
Struggles, New York, or such other nationally recognized executive search firm
as may be approved by Phar-Mor and ShopKo, and shall be an individual that (i)
is neither an officer or employee of Phar-Mor nor an affiliate of Hamilton
Morgan, and (ii) is approved by the members of the ShopKo Board who are not also
officers or employees of ShopKo or Supervalu, directors of Supervalu or
otherwise affiliated with Supervalu. The Parent Board shall be classified into
three classes of approximately equal size, with two Independent Directors
serving in each class. The Parent Board shall establish a Compensation Committee
and Audit Committee which shall consist of two or more Independent Directors
selected by the Parent Board. The entire Parent Board shall serve as its
Nominating Committee.
1.8 EXECUTIVE OFFICERS OF PARENT. The individuals who shall serve as
the executive officers of Parent from and after the Effective Date shall be as
set forth in Schedule 1.8.
1.9 REGISTRATION OF PARENT COMMON SHARES. The Parent Common Shares to
be issued in the Reorganization will be registered under the Securities Act
pursuant to a registration statement on Form S-4 (the "Registration Statement")
to be filed with the Commission.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES
2.1 REPRESENTATIONS AND WARRANTIES OF SHOPKO. ShopKo represents and
warrants to Phar-Mor as follows (it being understood that all representations
and warranties of ShopKo which concern the businesses and operations acquired by
ShopKo pursuant to that certain Asset Purchase Agreement dated July 16, 1996, by
and among ShopKo, FoxMeyer Health Corporation and others, are made solely to the
knowledge of ShopKo):
(a) Organization; Standing and Power. ShopKo is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Minnesota. ShopKo has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
ShopKo is duly qualified as a foreign corporation to do business, and is in good
standing, in each jurisdiction where the character of its properties owned or
leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing which would not, in
the aggregate, have a material adverse effect on the business, property, assets,
liabilities or condition (financial or otherwise) of ShopKo and its
Subsidiaries taken as a whole (sometimes referred to in this Section 2.1 as a
"ShopKo Material Adverse Effect"). Copies of the Articles of Incorporation and
By-Laws of ShopKo heretofore delivered to Phar-Mor are accurate and complete as
of the date hereof.
(b) Subsidiaries. Schedule 2.1(b) sets forth for each Subsidiary of
ShopKo (a "ShopKo Subsidiary") (i) its name and jurisdiction of incorporation or
organization, (ii) the number of shares of authorized capital stock of each
class of its capital stock, if any, or other equity interests, (iii) the number
of issued and outstanding shares of each class of its capital stock or other
equity interests, the names of the holders thereof and the number of shares and
other equity interests held by each such holder, (iv) the number of shares of
capital stock or other equity interests held in its treasury, and (v) its
directors and officers. Each ShopKo Subsidiary is a corporation or other entity
duly organized, validly existing and in good standing under the laws of the
state in which it is incorporated or organized. Each ShopKo Subsidiary has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as now being conducted. Each ShopKo Subsidiary is duly
qualified as a foreign corporation or other entity to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing which would not, in
the aggregate, have a ShopKo Material Adverse Effect. For the purposes of this
Agreement, "Subsidiary" shall mean any corporation, partnership, association or
other entity with respect to which a specified Person (or a subsidiary thereof)
owns a majority of the common stock or other equity interests or has the power
to vote or direct the voting of a sufficient number of securities or other
equity interest to elect a majority of its directors or other governing body.
Except as set forth in Schedule 2.1(b), ShopKo has no Subsidiaries and does not
own or control, directly or indirectly, shares of capital stock of any other
corporation or any interest in any partnership, joint venture, or other non-
corporate business entity or enterprise. All of the issued and outstanding
capital stock or other equity interests of each ShopKo Subsidiary have been
offered, issued, and sold by each such Subsidiary in compliance with the
registration requirements of
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applicable federal and state securities laws. Except as set forth on Schedule
2.1(b), since February 24, 1996, no shares of the capital stock of any ShopKo
Subsidiary have been issued or retired or, in the case of treasury shares,
reissued.
(c) Capitalization. As of September 5, 1996, the authorized capital
stock of ShopKo and the validly issued and outstanding, fully paid and
nonassessable shares of the capital stock of ShopKo are as set forth on Schedule
2.1(c). No ShopKo Common Shares are held in its treasury. Except as set forth
in Schedule 2.1(c): (A) no subscription, warrant, option, convertible or
exchangeable security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of ShopKo or any ShopKo Subsidiary is
authorized or outstanding, (B) neither ShopKo nor any ShopKo Subsidiary has any
obligation (contingent or otherwise) to issue any subscription, warrant, option,
convertible or exchangeable security, or other such right or to issue or
distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of ShopKo or any ShopKo Subsidiary, (C) neither ShopKo
nor any ShopKo Subsidiary has any obligation (contingent or otherwise) to
purchase, redeem, or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof, (D) ShopKo owns all shares of capital stock or other equity
interests of each ShopKo Subsidiary free and clear of any Lien, and (E) to
ShopKo's knowledge, no shareholder of ShopKo has granted options or other rights
to purchase any ShopKo Common Shares from such shareholder. Except as provided
in this Agreement or Schedule 2.1(c), no person, partnership, corporation, or
other entity or party ("Person") is entitled to (i) any preemptive or similar
right with respect to the issuance by ShopKo or any ShopKo Subsidiary of any
capital stock or other equity interests or (ii) any rights with respect to the
registration of any capital stock or other equity interests of ShopKo or any
ShopKo Subsidiary under the Securities Act. Except as contemplated by this
Agreement or Schedule 2.1(c), there are no agreements, arrangements or
understandings, written or oral, between ShopKo or any ShopKo Subsidiary and any
holder of its or their capital stock or other equity interests, or, to the
knowledge of ShopKo, among any holders of its or their capital stock or other
equity interests, relating to the acquisition (including, without limitation,
rights of first refusal or preemptive rights), disposition, or voting of the
capital stock or other equity interests of ShopKo or any ShopKo Subsidiary. All
of the issued and outstanding ShopKo Common Shares have been offered, issued,
and sold by ShopKo in compliance with the registration requirements of
applicable federal and state securities laws. Except upon exercise of ShopKo
Options, since February 24, 1996 no shares of the capital stock of ShopKo have
been issued or retired or, in the case of treasury shares, reissued.
(d) Authority; Recommendation.
(i) ShopKo has the requisite corporate power and authority to enter
into this Agreement and to perform its obligations hereunder. The execution and
delivery of this Agreement by ShopKo and the consummation by ShopKo of the
ShopKo Plan have been duly authorized by the ShopKo Board, and, except for the
approval of the holders of ShopKo Common Shares as set forth in Section 4.2, no
other corporate proceedings on the part of ShopKo are necessary to authorize the
execution, delivery and performance of this Agreement and the ShopKo Plan. This
Agreement has been duly executed and delivered by ShopKo and constitutes a valid
and binding obligation of ShopKo, enforceable in accordance with its terms,
except as may be limited by applicable bankruptcy, insolvency,
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reorganization, fraudulent conveyance, moratorium and other similar laws of
general application that may affect the enforcement of the rights of creditors
and other obligees generally and by general equitable principles.
(ii) The ShopKo Board has determined the ShopKo Plan to be in
the best interest of the holders of ShopKo Common Shares and
recommended that the holders of such shares approve and adopt the
ShopKo Plan.
(e) Noncontravention. Neither the execution and delivery of this
Agreement by, nor the consummation of the ShopKo Plan, nor compliance by ShopKo
with any of the provisions hereof, will (i) violate, conflict with, or result in
a breach of any provisions of, or constitute a default (or an event which, with
notice or lapse of time or both, would constitute a default) under, or result in
the termination or suspension of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien upon any of the properties or assets of ShopKo or any of
its Subsidiaries (unless the context otherwise requires, hereinafter any
reference in this Section 2.1 to "ShopKo" shall include each ShopKo Subsidiary,
whether held directly or indirectly by ShopKo) under, any of the terms,
conditions or provisions of (x) the Articles of Incorporation or By-Laws of
ShopKo, or (y) except as set forth on Schedule 2.1(e), any note, bond, mortgage,
indenture, deed of trust, license, lease, agreement or instrument or obligation
to which ShopKo is party or which ShopKo or any of its properties or assets may
be subject, or (ii) subject to compliance with the statutes and regulations
referred to in Section 2.1(f) below, to the knowledge of ShopKo, violate any
judgment, ruling, order, writ, injunction, decree, statute, rule, regulation or
other legal requirement applicable to ShopKo or any of its properties or assets,
except, in the case of each of clauses (i)(y) and (ii) above, for such
violations, conflicts, breaches, defaults, terminations, accelerations or
creations of Liens which would not, in the aggregate, have a ShopKo Material
Adverse Effect or affect the ability of ShopKo to consummate the ShopKo Plan or
the ability of Parent to consummate the Parent Buy Back. "Lien" means any
mortgage, pledge, encumbrance, security interest, charge, or other lien, except
(i) statutory liens not yet delinquent, (ii) liens that do not materially
detract from or materially interfere with the present use of the properties or
assets subject thereto or affected thereby, or otherwise materially impair
present business operations at such properties, (iii) liens for taxes not yet
delinquent, and (iv) liens reflected in the party's financial statements
disclosed pursuant to this Agreement to the other parties hereto.
(f) Government Approval. Other than in connection with or in
compliance with the provisions of the Delaware General Corporation Law
("Delaware Law"), the Pennsylvania Law and the Minnesota Law, the provisions of
the Securities Act, the provisions of the Exchange Act, and the provisions of
the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), no notice to, filing with, or authorization, consent or approval of, any
domestic or foreign public, governmental, quasi-governmental, or regulatory
body, agency or authority is necessary for the execution and delivery of this
Agreement by ShopKo or the consummation of the ShopKo Plan or compliance by
ShopKo with any of the provisions hereof, except where failures to give such
notices, make such filings, or obtain authorizations, consents or approvals
would not, in the aggregate, have a ShopKo Material Adverse Effect or affect the
ability of ShopKo to consummate the ShopKo Plan or the ability of Parent to
consummate the Parent Buy Back.
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(g) Financial Statements. ShopKo has timely filed Quarterly Reports on
Form 10-Q for the fiscal quarters ending prior to the date hereof in 1996 and an
Annual Report on Form 10-K for the fiscal year ended February 24, 1996. The
financial statements included in or incorporated by reference into the foregoing
public reports (including the related notes and schedules) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), fairly present the respective financial position of ShopKo as of the
dates thereof and its respective results of operations and cash flow for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments and to the extent they may not include footnotes or
may be condensed or summary statements), are correct and complete in all
material respects, and are consistent with the books and records of ShopKo.
(h) Undisclosed Liabilities. Except as set forth on Schedule 2.1(h),
ShopKo has no liabilities or obligations, direct or indirect, whether accrued,
absolute, contingent or otherwise of a nature required to be disclosed under the
Exchange Act or to be reflected in financial statements (including related notes
and schedules) ("Liabilities"), except for (i) Liabilities set forth in ShopKo's
reports on Forms 10-Q, 10-K, 8-K and proxy statements filed prior to the date
hereof and since February 24, 1996 with the Commission (collectively, the
"ShopKo SEC Reports") and (ii) Liabilities that would not, individually or in
the aggregate, have a ShopKo Material Adverse Effect or affect the ability of
ShopKo to consummate the ShopKo Plan or the ability of Parent to consummate the
Parent Buy Back.
(i) Absence of Certain Changes or Events. Except as contemplated by
this Agreement or disclosed in the ShopKo SEC Reports or on Schedule 2.1(i),
since February 24, 1996 there has not been (i) any ShopKo Material Adverse
Effect, or any event which would result in a ShopKo Material Adverse Effect;
(ii) any material damage, destruction or loss, whether covered by insurance or
not; (iii) any entry by ShopKo into any commitment or transaction material to it
which is not in the ordinary course of business; (iv) any change by ShopKo in
accounting principles or methods except insofar as may have been required by a
change in generally accepted accounting principles; (v) any declaration, payment
or setting aside for payment of any dividends, except for cash dividends paid at
such times and in such amounts as are consistent with ShopKo's past practices;
(vi) any action taken by ShopKo of the type referred to in Section 3.1; or (vii)
any agreement by ShopKo to (A) do any of the things described in the preceding
clauses (i) through (vi) other than as expressly contemplated or provided for
herein or (B) take, whether in writing or otherwise, any action which, if taken
prior to the date of this Agreement, would have made any representation or
warranty in this Section 2.1 untrue or incorrect.
(j) Compliance with Law. ShopKo has not violated or failed to comply
with any statute, law, ordinance, regulation, rule, order or other legal
requirement of any foreign, federal, state or local government, authority or any
other governmental, quasi-governmental or regulatory department or agency, or
any judgment, decree or order of any court, applicable to its business or
operations, except where any such violations or failures to comply would not,
individually or in the aggregate, have a ShopKo Material Adverse Effect.
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(k) Brokers. No broker, finder or investment banker, other than the
ShopKo Financial Adviser (whose fees shall have been described to Phar-Mor in
writing prior to the filing of the Registration Statement) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Reorganization based upon arrangements made by or on behalf of ShopKo.
(l) Litigation. Except as disclosed in the ShopKo SEC Reports or as
set forth on Schedule 2.1(l), (i) there is no claim, action, proceeding or
investigation pending or, to the knowledge of ShopKo, threatened against or
relating to ShopKo before any court or governmental or regulatory authority or
body which, individually or in the aggregate, would have a ShopKo Material
Adverse Effect and (ii) ShopKo is not subject to any outstanding order, writ,
injunction or decree.
(m) Taxes and Tax Returns. Except as set forth on Schedule 2.1(m),
ShopKo has (i) duly and timely filed all United States federal and state income
tax and all other returns and reports required to be filed by it with respect to
any taxes, and each such return and report is complete and accurate in all
material respects; and (ii) paid or made adequate provision for the payment of
all federal and other taxes (including, if any, interest, penalties or additions
to tax in respect thereof) that are due and owing whether or not shown on any
return and whether disputed or not, except in the case of both (i) and (ii)
above for such failures to file, inaccuracies and failures to pay or provide for
as would not, individually or in the aggregate, have a ShopKo Material Adverse
Effect. Any deficiencies or assessments asserted in writing by the appropriate
taxing authorities have either been paid, settled or fully provided for. There
are no material claims or assessments (not provided for) pending against ShopKo
for any alleged federal or state tax deficiency and no material issue has been
raised in writing by any federal or state taxing authority or representative
thereof.
(n) Real Estate. Schedule 2.1(n) contains an accurate and complete
list of all real property owned or leased in whole or in part by ShopKo and a
list of all indebtedness secured by a Lien. Except as disclosed on Schedule
2.1(n), ShopKo has good and marketable title to all the real property owned by
it as reflected in ShopKo's unaudited consolidated balance sheet as of June 15,
1996, free and clear of all Liens and a valid leasehold interest in all real
property shown on Schedule 2.1(n) as leased by it. To the knowledge of ShopKo,
all of the buildings, structures and appurtenances situated on the real property
owned or leased in whole or in part by ShopKo are in good operating condition
and in a state of good maintenance and repair, except for such conditions which
would not, individually or in the aggregate, have a ShopKo Material Adverse
Effect, are adequate and suitable for the purposes for which they are presently
being used, and, with respect to each, ShopKo has adequate rights of ingress and
egress for operation of the business of ShopKo in the ordinary course. To the
knowledge of ShopKo, none of such buildings, structures or appurtenances (or any
equipment therein), nor the operation or maintenance thereof, violates any
restrictive covenant or any provision of federal, state or local law, ordinance,
rule or regulation, or encroaches on any property owned by others, except for
such violations and encroachments which would not, individually or in the
aggregate, have a ShopKo Material Adverse Effect. No condemnation proceeding is
pending or, to the knowledge of ShopKo, threatened which would materially
preclude or impair the use of any such property by ShopKo for the purposes for
which it is currently used. Schedule 2.1(n) sets forth all contractual use
restrictions on all real property owned or leased by ShopKo.
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(o) Licenses, Permits and Authorizations. ShopKo has all approvals,
authorizations, qualifications, consents, licenses, franchises, orders and other
permits of all governmental, quasi-governmental or regulatory agencies or
authorities, whether federal, state or local, domestic or foreign, necessary to
enable ShopKo to continue to conduct its business as currently being conducted
except where any failure to have any thereof, individually or in the aggregate,
would not have a ShopKo Material Adverse Effect. Each of the foregoing is in
full force and effect and ShopKo is in material compliance with all of its
obligations with respect thereto, and, to the knowledge of ShopKo no event has
occurred which permits, or upon the giving of notice or the lapse of time or
otherwise would permit, revocation, nonrenewal, modification, suspension or
termination of any of the foregoing.
(p) ERISA and Employee Matters.
(i) Schedule 2.1(p) contains a true and complete list of each
"employee benefit plan," as defined in Section 3(3) of the Employee
Retirement Income Security Act of 1974, as amended ("ERISA"), and of
all other plans, programs, agreements or arrangements, currently
maintained by ShopKo or any trade or business, whether or not
incorporated, which is part of a controlled group within the meaning
of Section 414(b), (c) or (m) of the Code with ShopKo (collectively,
the "ShopKo Group") or under which any member of the ShopKo Group has
any liability in respect of current or former employees or their
dependents or beneficiaries (collectively, the "ShopKo Benefit
Plans"). All of the ShopKo Benefit Plans which constitute employee
"pension plans" as defined in Section 3(2) of ERISA are referred to
herein as the "ShopKo Pension Plans." Each of the ShopKo Benefit Plans
is administered and is in compliance with the terms thereof and the
applicable provisions of ERISA and the Code, and any applicable
qualification requirements of the Code, except for such violations
which would not, individually or in the aggregate, have a ShopKo
Material Adverse Effect. The ShopKo Group has fulfilled its
obligations under the minimum funding standards of ERISA and the Code
with respect to each ShopKo Pension Plan, and the ShopKo Group has not
incurred, and the ShopKo Group does not have any knowledge of any
event or condition which would cause the ShopKo Group to incur, any
liability to the Pension Benefit Guaranty Corporation, any trustee
under Section 4049 of ERISA, or any ShopKo Pension Plan in connection
with the termination of any ShopKo Pension Plan under Title IV of
ERISA. No ShopKo Pension Plan has an accumulated or waived funding
deficiency, or has applied for an extension of any amortization period
within the meaning of Section 412 of the Code and no event or
condition exists which could be deemed a reportable event within the
meaning of Section 4043 of ERISA. Each ShopKo Pension Plan which is
intended to be a qualified plan under Section 401(a) of the Code is so
qualified and has received a favorable determination letter from the
Internal Revenue Service and nothing has occurred since the dates of
such letters to cause them to be no longer effective. The Internal
Revenue Service is not auditing, and has not notified any member of
the ShopKo Group that it intends to audit, any ShopKo Pension Plan.
ShopKo has previously delivered to Phar-Mor with respect to each
ShopKo Benefit Plan, true and correct copies of (A) each ShopKo
Benefit Plan (or, in the case of an oral or informal ShopKo Benefit
Plan, a written description thereof); (B) the most recent annual
report, if required (Form 5500 series); (C) the most recent actuarial
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valuation report, if required; and (iv) the most recent Summary Plan
Description, as described in Section 102(a)(1) of ERISA, if
applicable.
(ii) The aggregate actuarial present value of accrued benefits
(both vested and unvested) of ShopKo Pension Plans subject to Title IV
of ERISA does not exceed the aggregate fair market value of the assets
of such ShopKo Pension Plans by more than $100,000 based upon the
actuarial assumptions used in funding such plans for the 1995
valuation, which assumptions are reasonable in light of the experience
of such plans.
(iii) Except as set forth on Schedule 2.1(p), there are no
pending claims or lawsuits which have been asserted or instituted
(other than in respect of benefits due in the ordinary course which,
in the aggregate, are not material) against the assets of any of the
ShopKo Benefit Plans or against the ShopKo Group or any fiduciary of
the ShopKo Benefit Plans with respect to the ShopKo Benefit Plans.
(iv) As of the date hereof, there are no benefits to be provided
to current or future retirees under any "welfare benefit plans" within
the meaning of Section 3(1) of ERISA which are maintained by the
ShopKo Group, except as set forth on Schedule 2.1(p).
(v) The ShopKo Group has not maintained or contributed to, or
been obligated or required to contribute to, a "multiemployer plan,"
as such term is defined in Section 3(37) of ERISA, and no withdrawal
liability has been incurred by or asserted against any member of the
ShopKo Group with respect to a withdrawal from any multiemployer
pension plan, and the ShopKo Group does not have any knowledge of any
event or condition which would cause any of the ShopKo Group to incur
any such withdrawal liability.
(vi) Except as set forth in Schedule 2.1(p), no ShopKo Benefit
Plan exists which would result in the payment to any individual of any
money or other property or rights or accelerate or provide any other
rights or benefits to any individual as a result of the transactions
contemplated by this Agreement that would constitute an "excess
parachute payment" within the meaning of section 280G of the Code.
(q) Environmental Matters. Except as set forth on Schedule 2.1(q):
(i) To the knowledge of ShopKo, ShopKo has complied in all
material respects with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws.
There are no pending or, to the knowledge of ShopKo, threatened
Environmental Claims against or affecting ShopKo or any real property
owned or operated by ShopKo that, individually or in the aggregate,
would have a ShopKo Material Adverse Effect. To the knowledge of
ShopKo, there are no facts, circumstances, conditions or occurrences
affecting any real property owned or operated by ShopKo or on any
property adjoining or in proximity to such real property that, to the
knowledge of ShopKo, would (i) form the basis of an Environmental
Claim against ShopKo or have a ShopKo Material Adverse Effect, or (ii)
with respect to owned property, cause such real property to be subject
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to any material restrictions on the ownership, occupancy, use or
transferability of such real property under any applicable
Environmental Law.
(ii) To the knowledge of ShopKo, Hazardous Materials have not at
any time been generated, used, treated or stored on any real property
owned or operated by ShopKo where such generation, use, treatment or
storage has violated any Environmental Law. Hazardous Materials have
not at any time been Released by ShopKo on or from any such real
property where such Release has violated any applicable Environmental
Law. Except as set forth on Schedule 2.1(q), to the knowledge of
ShopKo, there are not now any underground storage tanks located on any
real property owned or currently operated by ShopKo and no storage
tanks have been removed from any such real property since December 31,
1992.
(iii) Notwithstanding anything to the contrary in this Section
2.1(q), the representations made in this Section 2.1(q) shall only be
untrue if the aggregate effect of all failures and noncompliance of
the types described above would have a ShopKo Material Adverse Effect.
For purposes hereof, the following terms shall have the following
meanings:
"Environmental Claims" means any and all administrative,
regulatory or judicial actions, suits, demands, demand letters,
claims, liens, notices of noncompliance or violation, investigations
(other than internal reports prepared by such party solely in the
ordinary course of its business and not in response to any third party
action or request of any kind) or proceedings relating in any way to
any Environmental Law or any permit issued, or any approval given,
under any such Environmental Law ("Claims"), including, without
limitation, (a) any and all Claims by governmental or regulatory
authorities for enforcement, cleanup, removal, response, remedial or
other actions or damages pursuant to any applicable Environmental Law,
and (b) any and all Claims by any third party seeking damages,
contribution, indemnification, cost recovery, compensation or
injunctive relief resulting from Hazardous Materials arising from
alleged injury or threat of injury to health, safety or the
environment.
"Environmental Law" means any federal, state, foreign or local
statute, law, rule, regulation, ordinance and code now in effect and
in each case as amended to the date hereof, and any judicial or
administrative interpretation thereof, including any binding judicial
or administrative order, consent decree or judgment, relating to the
environment, health, safety or Hazardous Materials, including, without
limitation, the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended; the Resource Conservation and
Recovery Act of 1976, as amended; the Occupational Safety and Health
Act, as amended; the Federal Water Pollution Control Act, as amended,
33 U.S.C. (S) 1251 et seq.; the Toxic Substances Control Act, 15
U.S.C. (S) 2601 et seq.; the Clean Air Act, 42 U.S.C. (S) 7401 et
seq.; the Safe Drinking Water Act, 42 U.S.C. (S) 3803 et seq.; the Oil
Pollution Act of 1990, PUB. Law 101-380 and any state and local or
foreign counterparts or equivalents.
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"Hazardous Material" means (a) any petroleum or petroleum
products, radioactive materials, asbestos, urea formaldehyde foam
insulation, polychlorinated biphenyls and radon gas, (b) any
chemicals, materials or substances defined as or included in the
definition of "hazardous substances," "hazardous waste," "hazardous
materials," "extremely hazardous waste," "restricted hazardous waste,"
"toxic substances," "toxic pollutants," "contaminants," or
"pollutants," or words of similar import, under any applicable
Environmental Law, and (c) any other chemical, material or substance,
exposure to which is prohibited, limited or regulated by any
governmental authority.
"Release" means disposing, discharging, injecting, spilling,
pumping, leaking, leaching, dumping, emitting, escaping, emptying,
seeping, placing or purging into or upon any land or water or air, or
otherwise entering into the environment.
(r) Employees; Labor Relations.
(i) Schedule 2.1(r) contains a true and complete list of all
ShopKo contracts, agreements, plans, arrangements, commitments and
understandings (formal and informal) pertaining to terms of
employment, compensation, bonuses, profit sharing, stock purchases,
stock repurchases, stock options, commissions, incentives, loans or
loan guarantees, severance pay or benefits, with any current or former
ShopKo officer or director, or any current ShopKo employees, and true
and complete copies of all such contracts, agreements, plans,
arrangements and understandings have been delivered to Phar-Mor.
Schedule 2.1(r) contains a true and complete list of all labor,
collective bargaining, union and similar agreements under or by which
ShopKo is obligated, and true and complete copies of all such
agreements have been delivered to Phar-Mor. Except as set forth on
Schedule 2.1(r), neither Parent nor ShopKo will have any
responsibility for continuing any Person in the employ of ShopKo from
and after the Effective Date or have any liability for any severance
payments to or similar arrangements with any such Person who shall
cease to be an employee of ShopKo at or prior to the Effective Date.
(ii) ShopKo is not engaged in any unfair labor practice that
would have a ShopKo Material Adverse Effect. There is (i) no unfair
labor practice complaint pending against ShopKo or, to the knowledge
of ShopKo, threatened against ShopKo, before the National Labor
Relations Board or other governmental quasi-governmental or regulatory
agency, body or authority, and no grievance or arbitration proceeding
arising out of or under any collective bargaining agreement is so
pending against ShopKo or, to the knowledge of ShopKo, threatened
against ShopKo, (ii) no strike, labor dispute, slowdown or stoppage
pending against ShopKo or, to the knowledge of ShopKo, threatened
against ShopKo and (iii) to the knowledge of ShopKo, no union
representation question existing with respect to the employees of
ShopKo.
(s) Intellectual Property. Schedule 2.1(s) sets forth a correct and
complete list of all material trademarks, service marks, trade names, or rights
with respect to the foregoing, applied for, issued to or owned by ShopKo or
under which ShopKo is licensed or franchised, all of which are valid, in good
standing and, to the knowledge of ShopKo, uncontested, except as set forth on
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Schedule 2.1(s). ShopKo owns or has valid licenses or other rights to use all
the material trademarks, service marks, trade names, or rights with respect to
the foregoing (the "ShopKo Intellectual Property") which are necessary for the
present conduct of its business. Except as set forth on Schedule 2.1(s), no
proceedings have been instituted or are pending or, to the knowledge of ShopKo,
threatened that challenge the validity of its ownership of, or licenses or other
rights to use, any ShopKo Intellectual Property. Except as set forth on
Schedule 2.1(s), the present employment of the ShopKo Intellectual Property by
ShopKo, if any, does not, to the knowledge of ShopKo, infringe any rights of any
Person. Except as set forth on Section 2.1(s), to the knowledge of ShopKo, no
trademark, service mark, trade name, or other material currently being sold or
employed by any Person infringes any rights of ShopKo with respect to the ShopKo
Intellectual Property. Notwithstanding anything to the contrary in this Section
2.1(s), the representations made in this Section 2.1(s) shall only be untrue if
the aggregate effect of all failures and noncompliance of the types described
above would have a ShopKo Material Adverse Effect.
(t) Opinion of ShopKo Financial Adviser. ShopKo has received the
written opinion of the ShopKo Financial Adviser, dated as of the date hereof,
that the ShopKo Plan is fair to ShopKo's public shareholders from a financial
point of view.
(u) Registration Rights. Except as provided in Schedule 2.1(u),
ShopKo has not granted or agreed to grant any registration rights, including
piggyback rights, to any Person.
(v) Commission Documents. ShopKo has delivered to Phar-Mor true,
correct, and complete copies of each of the ShopKo SEC Reports and each exhibit
thereto. As of their respective filing dates, the ShopKo SEC Reports complied
in all material respects with the requirements of the Securities Act and the
Exchange Act, as applicable, and taken together, the ShopKo SEC Reports contain
no untrue statement of a material fact and did not omit to state a material fact
required to be stated therein or necessary to make the statements made therein,
in light of the circumstances in which they were made, not misleading except to
the extent corrected by a subsequently filed by ShopKo SEC Report.
(w) Registration Statement. None of the information supplied or to
be supplied by ShopKo for inclusion in the Registration Statement to be filed
with the Commission and to be distributed in connection with the Phar-Mor
Special Meeting and the ShopKo Special Meeting to vote upon the Reorganization,
at the time the Registration Statement is declared effective by order of the
Commission, at the time of the Phar-Mor Special Meeting and the ShopKo Special
Meeting will contain an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading. If at any time prior
to the Effective Date any event with respect to ShopKo or its officers and
directors shall occur that is required to be described in the Registration
Statement, ShopKo shall notify Phar-Mor thereof by reference to this section and
cooperate with Phar-Mor in preparing and filing with the Commission and, as
required by law, disseminating to the shareholders of ShopKo and/or Phar-Mor an
amendment or supplement which accurately describes such event or events in
compliance with all provisions of applicable law.
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2.2 REPRESENTATIONS AND WARRANTIES OF PHAR-MOR. Phar-Mor represents
and warrants to ShopKo as follows:
(a) Organization; Standing and Power. Phar-Mor is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Pennsylvania. Phar-Mor has all requisite power and authority to own, lease and
operate its properties and to carry on its business as now being conducted.
Phar-Mor is duly qualified as a foreign corporation to do business, and is in
good standing, in each jurisdiction where the character of its properties owned
or leased or the nature of its activities makes such qualification necessary,
except for failures to be so qualified or in good standing which would not, in
the aggregate, have a material adverse effect on the business, property, assets,
liabilities or condition (financial or otherwise) of Phar-Mor and its
Subsidiaries taken as a whole (sometimes referred to in this Section 2.2 as a
"Phar-Mor Material Adverse Effect"). Copies of the Articles of Incorporation
and By-Laws of Phar-Mor heretofore delivered to ShopKo are accurate and complete
as of the date hereof.
(b) Subsidiaries. Schedule 2.2(b) sets forth for each Subsidiary of
Phar-Mor (a "Phar-Mor Subsidiary") (i) its name and jurisdiction of
incorporation or organization, (ii) the number of shares of authorized capital
stock of each class of its capital stock, if any, or other equity interests,
(iii) the number of issued and outstanding shares of each class of its capital
stock or other equity interests, the names of the holders thereof and the number
of shares and other equity interests held by each such holder, (iv) the number
of shares of capital stock or other equity interests held in its treasury, and
(v) its directors and officers. Each Phar-Mor Subsidiary is a corporation or
other entity duly organized, validly existing and in good standing under the
laws of the state in which it is incorporated or organized. Each Phar-Mor
Subsidiary has all requisite power and authority to own, lease and operate its
properties and to carry on its business as now being conducted. Each Phar-Mor
Subsidiary is duly qualified as a foreign corporation or other entity to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned or leased or the nature of its activities makes such
qualification necessary, except for failures to be so qualified or in good
standing which would not, in the aggregate, have a Phar-Mor Material Adverse
Effect. Except as set forth in Schedule 2.2(b), Phar-Mor has no Subsidiaries
and does not own or control, directly or indirectly, shares of capital stock of
any other corporation or any interest in any partnership, joint venture, or
other non-corporate business entity or enterprise. All of the issued and
outstanding capital stock or other equity interests of each Phar-Mor Subsidiary
has been offered, issued, and sold by each such Subsidiary in compliance with
the registration requirements of applicable federal and state securities laws.
Since March 31, 1996, no shares of the capital stock of any Phar-Mor Subsidiary
have been issued or retired or, in the case of treasury shares, reissued.
(c) Capitalization. As of September 5, 1996, the authorized capital
stock of Phar-Mor and the validly issued and outstanding, fully paid and
nonassessable shares of the capital stock of Phar-Mor are as set forth on
Schedule 2.2(c). No Phar-Mor Common Shares are held in its treasury. Except as
set forth in Schedule 2.2(c): (A) no subscription, warrant, option, convertible
or exchangeable security or other right (contingent or otherwise) to purchase or
acquire any shares of capital stock of Phar-Mor or any Phar-Mor Subsidiary is
authorized or outstanding, (B) neither Phar-Mor nor any Phar-Mor Subsidiary has
any obligation (contingent or otherwise) to issue any subscription, warrant,
option, convertible or exchangeable security, or other such right or to issue
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or distribute to holders of any shares of its capital stock any evidences of
indebtedness or assets of Phar-Mor or any Phar-Mor Subsidiary, (C) neither Phar-
Mor nor any Phar-Mor Subsidiary has any obligation (contingent or otherwise) to
purchase, redeem, or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof, (D) Phar-Mor owns all shares of capital stock or other equity
interests of each Phar-Mor Subsidiary free and clear of any Lien, and (E) to
Phar-Mor's knowledge, no shareholder of Phar-Mor has granted options or other
rights to purchase any Phar-Mor Common Shares from such shareholder. Except as
provided in this Agreement or Schedule 2.2(c), no Person is entitled to (i) any
preemptive or similar right with respect to the issuance by Phar-Mor or any
Phar-Mor Subsidiary of any capital stock or other equity interests or (ii) any
rights with respect to the registration of any capital stock or other equity
interests of Phar-Mor or any Phar-Mor Subsidiary under the Securities Act.
Except as contemplated by this Agreement or Schedule 2.2(c), there are no
agreements, arrangements or understandings, written or oral, between Phar-Mor or
any Phar-Mor Subsidiary and any holder of its or their capital stock or other
equity interests, or, to the knowledge of Phar-Mor, among any holders of its or
their capital stock or other equity interests, relating to the acquisition
(including, without limitation, rights of first refusal or preemptive rights),
disposition, or voting of the capital stock or other equity interests of Phar-
Mor or any Phar-Mor Subsidiary. All of the issued and outstanding Phar-Mor
Common Shares have been offered, issued, and sold by Phar-Mor in compliance with
the registration requirements of applicable federal and state securities laws.
Except upon exercise of Phar-Mor Options or as set forth on Schedule 2.2(c),
since March 31, 1996, no shares of the capital stock of Phar-Mor have been
issued or retired or, in the case of treasury shares, reissued.
(d) Authority; Recommendation.
(i) Phar-Mor has the requisite corporate power and authority to
enter into this Agreement and to perform its obligations hereunder.
The execution and delivery of this Agreement by Phar-Mor and the
consummation by Phar-Mor of the Phar-Mor Plan have been duly
authorized by the Phar-Mor Board, and, except for the approval of the
holders of Phar-Mor Common Shares as set forth in Section 4.2, no
other corporate proceedings on the part of Phar-Mor are necessary to
authorize the execution, delivery and performance of this Agreement
and the Phar-Mor Plan. This Agreement has been duly executed and
delivered by Phar-Mor and constitutes a valid and binding obligation
of Phar-Mor, enforceable in accordance with its terms, except as may
be limited by applicable bankruptcy, insolvency, reorganization,
fraudulent conveyance, moratorium and other similar laws of general
application that may affect the enforcement of the rights of creditors
and other obligees generally and by general equitable principles.
(ii) The Phar-Mor Board has determined the Phar-Mor Plan to be
fair to the holders of Phar-Mor Common Shares and recommended that the
holders of such shares approve and adopt the Phar-Mor Plan.
(e) Noncontravention. Neither the execution and delivery of this
Agreement by, nor the consummation of the Phar-Mor Plan, nor compliance by Phar-
Mor with any of the provisions hereof, will (i) violate, conflict with, or
result in a breach of any provisions of, or constitute a default (or an
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event which, with notice or lapse of time or both, would constitute a default)
under, or result in the termination or suspension of, or accelerate the
performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the properties or
assets of Phar-Mor or any of its Subsidiaries (unless the context otherwise
requires, hereinafter any reference in this Section 2.2 to "Phar-Mor" shall
include each Phar-Mor Subsidiary, whether held directly or indirectly by Phar-
Mor) under, any of the terms, conditions or provisions of (x) the Articles of
Incorporation or By-Laws of Phar-Mor, or (y) except as set forth on Schedule
2.2(e), any note, bond, mortgage, indenture, deed of trust, license, lease,
agreement or instrument or obligation to which Phar-Mor is party or which Phar-
Mor or any of its properties or assets may be subject, or (ii) subject to
compliance with the statutes and regulations referred to in Section 2.2(f)
below, to the knowledge of Phar-Mor violate any judgment, ruling, order, writ,
injunction, decree, statute, rule, regulation or other legal requirement
applicable to Phar-Mor or any of its respective properties or assets, except, in
the case of each of clauses (i)(y) and (ii) above, for such violations,
conflicts, breaches, defaults, terminations, accelerations or creations of
Liens, which would not, in the aggregate, have a Phar-Mor Material Adverse
Effect or affect the ability of Phar-Mor to consummate the Phar-Mor Plan or the
ability of Parent to consummate the Parent Buy Back.
(f) Government Approval. Other than in connection with or in
compliance with the provisions of the Delaware Law, the Pennsylvania Law and the
Minnesota Law, the provisions of the Securities Act, the provisions of the
Exchange Act, and the provisions of the HSR Act, no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign public,
governmental, quasi-governmental, or regulatory body, agency or authority is
necessary for the execution and delivery of this Agreement by Phar-Mor or the
consummation of any of the transactions contemplated by this Agreement or
compliance by Phar-Mor with any of the provisions hereof, except where failures
to give such notices, make such filings, or obtain authorizations, consents or
approvals would not, in the aggregate, have a Phar-Mor Material Adverse Effect
or affect the ability of Phar-Mor to consummate the Phar-Mor Plan or the ability
of Parent to consummate the Parent Buy Back.
(g) Financial Statements. Phar-Mor has timely filed Quarterly Reports
on Form 10-Q for the fiscal quarters ending prior to the date hereof in 1996 and
has filed a registration statement on Form 10 dated September 11, 1995. The
financial statements included in or incorporated by reference into the foregoing
public reports (including the related notes and schedules) have been prepared in
accordance with generally accepted accounting principles applied on a consistent
basis during the periods involved (except as may be indicated in the notes
thereto), fairly present the respective financial position of Phar-Mor as of the
dates thereof and its respective results of operations and cash flow for the
periods then ended (subject, in the case of interim financial statements, to
normal year-end adjustments and to the extent they may not include footnotes or
may be condensed or summary statements), are correct and complete in all
material respects, and are consistent with the books and records of Phar-Mor.
Phar-Mor's press release dated August 22, 1996, a copy of which is reproduced on
Schedule 2.2(g), includes financial data which fairly presents the financial
condition and the results of operations of Phar-Mor as of the dates and for the
periods ended as set forth therein
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(h) Undisclosed Liabilities. Except as set forth on Schedule 2.2(h),
Phar-Mor has no Liabilities except for (i) Liabilities set forth in Phar-Mor's
reports on Forms 10-Q, 10 and 8-K filed prior to the date hereof and since
September 11, 1995 with the Commission (collectively, the "Phar-Mor SEC
Reports") and (ii) Liabilities that would not, individually or in the aggregate,
have a Phar-Mor Material Adverse Effect or affect the ability of Phar-Mor to
consummate the Phar-Mor Plan or the ability of Parent to consummate the Parent
Buy Back. Phar-Mor's Plan of Reorganization under Chapter 11 of the U.S.
Bankruptcy Code was approved and declared effective on September 11, 1995.
Pursuant to the terms of such Plan of Reorganization, Phar-Mor implemented
fresh-start reporting as of July 2, 1994.
(i) Absence of Certain Changes or Events. Except as contemplated by
this Agreement or disclosed in the Phar-Mor SEC Reports or on Schedule 2.2(i),
since September 11, 1995 there has not been (i) any Phar-Mor Material Adverse
Effect, or any event which would result in a Phar-Mor Material Adverse Effect;
(ii) any material damage, destruction or loss, whether covered by insurance or
not; (iii) any entry by Phar-Mor into any commitment or transaction material to
it which is not in the ordinary course of business; (iv) any change by Phar-Mor
in accounting principles or methods except insofar as may have been required by
a change in generally accepted accounting principles; (v) any declaration,
payment or setting aside for payment of any dividends; (vi) any action taken by
Phar-Mor of the type referred to in Section 3.2; or (vii) any agreement by Phar-
Mor to (A) do any of the things described in the preceding clauses (i) through
(vi) other than as expressly contemplated or provided for herein or (B) take,
whether in writing or otherwise, any action which, if taken prior to the date of
this Agreement, would have made any representation or warranty in this Section
2.2 untrue or incorrect.
(j) Compliance with Law. Phar-Mor has not violated or failed to
comply with any statute, law, ordinance, regulation, rule, order or other legal
requirement of any foreign, federal, state or local government, authority or any
other governmental, quasi-governmental or regulatory department or agency, or
any judgment, decree or order of any court, applicable to its business or
operations, except where any such violations or failures to comply would not,
individually or in the aggregate, have a Phar-Mor Material Adverse Effect.
(k) Brokers. No broker, finder or investment banker, other than the
Phar-Mor Financial Adviser (whose fees shall have been described to ShopKo in
writing prior to the filing of the Registration Statement) is entitled to any
brokerage, finder's or other fee or commission in connection with the
Reorganization based upon arrangements made by or on behalf of Phar-Mor.
(l) Litigation. Except as disclosed in the Phar-Mor SEC Reports or as
set forth on Schedule 2.2(l), (i) there is no claim, action, proceeding or
investigation pending or, to the knowledge of Phar-Mor, threatened against or
relating to Phar-Mor before any court or governmental or regulatory authority or
body which, individually or in the aggregate, would have a Phar-Mor Material
Adverse Effect and (ii) Phar-Mor is not subject to any outstanding order, writ,
injunction or decree.
(m) Taxes and Tax Returns. Except as set forth on Schedule 2.2(m),
Phar-Mor has (i) duly and timely filed all United States federal and state
income tax and all other returns and reports
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required to be filed by it with respect to any taxes, and each such return and
report is complete and accurate in all material respects; and (ii) paid or made
adequate provision for the payment of all federal and other taxes (including, if
any, interest, penalties or additions to tax in respect thereof) that are due
and owing whether or not shown on any return and whether disputed or not, except
in the case of both (i) and (ii) above for such failures to file, inaccuracies
and failures to pay or provide for as would not, individually or in the
aggregate, have a Phar-Mor Material Adverse Effect. Any deficiencies or
assessments asserted in writing by the appropriate taxing authorities have
either been paid, settled or fully provided for. There are no material claims
or assessments (not provided for) pending against Phar-Mor for any alleged
federal or state tax deficiency and no material issue has been raised in writing
by any federal or state taxing authority or representative thereof.
(n) Real Estate. Schedule 2.2(n) contains an accurate and complete
list of all real property owned or leased in whole or in part by Phar-Mor and a
list of all indebtedness secured by a Lien. Except as disclosed on Schedule
2.2(n), Phar-Mor has good and marketable title to all the real property owned by
it as reflected in the unaudited consolidated balance sheet as of March 31,
1996, free and clear of all Liens and a valid leasehold interest in all real
property shown on Schedule 2.2(n) as leased by it. To the knowledge of Phar-
Mor, all of the buildings, structures and appurtenances situated on the real
property owned or leased in whole or in part by Phar-Mor are in good operating
condition and in a state of good maintenance and repair, except for such
conditions which would not, individually or in the aggregate, have a Phar-Mor
Material Adverse Effect, are adequate and suitable for the purposes for which
they are presently being used, and, with respect to each, Phar-Mor has adequate
rights of ingress and egress for operation of the business of Phar-Mor in the
ordinary course. To the knowledge of Phar-Mor, none of such buildings,
structures or appurtenances (or any equipment therein), nor the operation or
maintenance thereof, violates any restrictive covenant or any provision of
federal, state or local law, ordinance, rule or regulation, or encroaches on any
property owned by others, except for such violations and encroachments which
would not, individually or in the aggregate, have a Phar-Mor Material Adverse
Effect. No condemnation proceeding is pending or, to the knowledge of Phar-Mor,
threatened which would materially preclude or impair the use of any such
property by Phar-Mor for the purposes for which it is currently used. Schedule
2.2(n) sets forth all contractual use restrictions on all real property owned or
leased by Phar-Mor.
(o) Licenses, Permits and Authorizations. Phar-Mor has all approvals,
authorizations, qualifications, consents, licenses, franchises, orders and other
permits of all governmental, quasi-governmental or regulatory agencies or
authorities, whether federal, state or local, domestic or foreign, necessary to
enable Phar-Mor to continue to conduct its business as currently being
conducted, except where any failure to have any thereof, individually or in the
aggregate, would not have a Phar-Mor Material Adverse Effect. Each of the
foregoing is in full force and effect and Phar-Mor is in material compliance
with all of its obligations with respect thereto, and, to the knowledge of Phar-
Mor no event has occurred which permits, or upon the giving of notice or the
lapse of time or otherwise would permit, revocation, nonrenewal, modification,
suspension or termination of any of the foregoing.
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(p) ERISA and Employee Matters.
(i) Schedule 2.2(p) contains a true and complete list of each
"employee benefit plan," as defined in Section 3(3) of ERISA, and of all other
plans, programs, agreements or arrangements, currently maintained by Phar-Mor or
any trade or business, whether or not incorporated, which is part of a
controlled group within the meaning of Section 414(b), (c) or (m) of the Code
with Phar-Mor (collectively, the "Phar-Mor Group") or under which any member of
the Phar-Mor Group has any liability in respect of current or former employees
or their dependents or beneficiaries (collectively, the "Phar-Mor Benefit
Plans"). All of the Phar-Mor Benefit Plans which constitute employee "pension
plans" as defined in Section 3(2) of ERISA are referred to herein as the "Phar-
Mor Pension Plans." Each of the Phar-Mor Benefit Plans is administered and is in
compliance with the terms thereof and the applicable provisions of ERISA and the
Code, and any applicable qualification requirements of the Code except for such
violations which would not, individually or in the aggregate, have a Phar-Mor
Material Adverse Effect. The Phar-Mor Group has fulfilled its obligations under
the minimum funding standards of ERISA and the Code with respect to each Phar-
Mor Pension Plan, and the Phar-Mor Group has not incurred, and the Phar-Mor
Group does not have any knowledge of any event or condition which would cause
the Phar-Mor Group to incur, any liability to the Pension Benefit Guaranty
Corporation, any trustee under Section 4049 of ERISA, or any Phar-Mor Pension
Plan in connection with the termination of any Phar-Mor Pension Plan under Title
IV of ERISA. No Phar-Mor Pension Plan has an accumulated or waived funding
deficiency, or has applied for an extension of any amortization period within
the meaning of Section 412 of the Code and no event or condition exists which
could be deemed a reportable event within the meaning of Section 4043 of ERISA.
Each Phar-Mor Pension Plan which is intended to be a qualified plan under
Section 401(a) of the Code is so qualified and has received a favorable
determination letter from the Internal Revenue Service and nothing has occurred
since the dates of such letters to cause them to be no longer effective. The
Internal Revenue Service is not auditing, and has not notified any member of the
Phar-Mor Group that it intends to audit, any Phar-Mor Pension Plan. Phar-Mor has
previously delivered to ShopKo with respect to each Phar-Mor Benefit Plan, true
and correct copies of (A) each Phar-Mor Benefit Plan (or, in the case of an oral
or informal Phar-Mor Benefit Plan, a written description thereof); (B) the most
recent annual report, if required (Form 5500 series); (C) the most recent
actuarial valuation report, if required; and (iv) the most recent Summary Plan
Description, as described in Section 102(a)(1) of ERISA, if applicable.
(ii) The aggregate actuarial present value of accrued benefits
(both vested and unvested) of Phar-Mor Pension Plans subject to Title IV of
ERISA does not exceed the aggregate fair market value of the assets of such
Phar-Mor Pension Plans by more than $100,000 based upon the actuarial
assumptions used in funding such plans for the 1995 valuation, which
assumptions are reasonable in light of the experience of such plans.
(iii) Except as set forth on Schedule 2.2(p), there are no
pending claims or lawsuits which have been asserted or instituted (other than in
respect of benefits due in the ordinary course which, in the aggregate, are not
material) against the assets of any of the Phar-Mor
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Benefit Plans or against the Phar-Mor Group or any fiduciary of the
Phar-Mor Benefit Plans with respect to the Phar-Mor Benefit Plans.
(iv) As of the date hereof, there are no benefits to be provided
to current or future retirees under any "welfare benefit plans" within
the meaning of Section 3(1) of ERISA which are maintained by the Phar-
Mor Group, except as set forth on Schedule 2.2(p).
(v) The Phar-Mor Group has not maintained or contributed to, or
been obligated or required to contribute to, a "multiemployer plan,"
as such term is defined in Section 3(37) of ERISA, and no withdrawal
liability has been incurred by or asserted against any member of the
Phar-Mor Group with respect to a withdrawal from any multiemployer
pension plan, and the Phar-Mor Group does not have any knowledge of
any event or condition which would cause any of the Phar-Mor Group to
incur any such withdrawal liability.
(vi) Except as set forth in Schedule 2.2(p), no Phar-Mor Benefit
Plan exists which would result in the payment to any individual of any
money or other property or rights or accelerate or provide any other
rights or benefits to any individual as a result of the transactions
contemplated by this Agreement that would constitute an "excess
parachute payment" within the meaning of section 280G of the Code.
(q) Environmental Matters. Except as set forth on Schedule 2.2(q):
(i) To the knowledge of Phar-Mor, Phar-Mor has complied in
all material respects with all applicable Environmental Laws and the
requirements of any permits issued under such Environmental Laws.
There are no pending or, to the knowledge of Phar-Mor, threatened
Environmental Claims against or affecting Phar-Mor or any real
property owned or operated by Phar-Mor that, individually or in the
aggregate, would have a Phar-Mor Material Adverse Effect. To the
knowledge of Phar-Mor, there are no facts, circumstances, conditions
or occurrences affecting any real property owned or operated by Phar-
Mor or on any property adjoining or in proximity to such real property
that, to the knowledge of Phar-Mor, would (i) form the basis of an
Environmental Claim against Phar-Mor or have a Phar-Mor Material
Adverse Effect, or (ii) with respect to owned property, cause such
real property to be subject to any material restrictions on the
ownership, occupancy, use or transferability of such real property
under any applicable Environmental Law.
(ii) To the knowledge of Phar-Mor, Hazardous Materials have not
at any time been generated, used, treated or stored on any real
property owned or operated by Phar-Mor where such generation, use,
treatment or storage has violated any Environmental Law. Hazardous
Materials have not at any time been Released by Phar-Mor on or from
any such real property where such Release has violated any applicable
Environmental Law. Except as set forth on Schedule 2.2(q), to the
knowledge of Phar-Mor, there are not now any underground storage tanks
located on any real property owned or currently operated by Phar-Mor
and no storage tanks have been removed from any such real property
since December 31, 1992.
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(iii) Notwithstanding anything to the contrary in this Section 2.2(q),
the representations made in this Section 2.2(q) shall only be untrue if the
aggregate effect of all failures and noncompliance of the types described
above would have a Phar-Mor Material Adverse Effect.
(r) Employees; Labor Relations.
(i) Schedule 2.2(r) contains a true and complete list of all Phar-Mor
contracts, agreements, plans, arrangements, commitments and understandings
(formal and informal) pertaining to terms of employment, compensation,
bonuses, profit sharing, stock purchases, stock repurchases, stock options,
commissions, incentives, loans or loan guarantees, severance pay or
benefits, with any current or former Phar-Mor officer or director, or any
current Phar-Mor employees, and true and complete copies of all such
contracts, agreements, plans, arrangements and understandings have been
delivered to Phar-Mor. Schedule 2.2(r) contains a true and complete list of
all labor, collective bargaining, union and similar agreements under or by
which Phar-Mor is obligated, and true and complete copies of all such
agreements have been delivered to Phar-Mor. Except as set forth on Schedule
2.2(r), neither Parent nor Phar-Mor will have any responsibility for
continuing any Person in the employ of Phar-Mor from and after the
Effective Date or have any liability for any severance payments to or
similar arrangements with any such Person who shall cease to be an employee
of Phar-Mor at or prior to the Effective Date.
(ii) Phar-Mor is not engaged in any unfair labor practice that would
have a Phar-Mor Material Adverse Effect. There is (i) no unfair labor
practice complaint pending against Phar-Mor or, to the knowledge of Phar-
Mor, threatened against Phar-Mor, before the National Labor Relations Board
or other governmental quasi-governmental or regulatory agency, body or
authority, and no grievance or arbitration proceeding arising out of or
under any collective bargaining agreement is so pending against Phar-Mor
or, to the knowledge of Phar-Mor, threatened against Phar-Mor, (ii) no
strike, labor dispute, slowdown or stoppage pending against Phar-Mor or, to
the knowledge of Phar-Mor, threatened against Phar-Mor and (iii) to the
knowledge of Phar-Mor, no union representation question existing with
respect to the employees of Phar-Mor.
(s) Intellectual Property. Schedule 2.2(s) sets forth a correct and
complete list of all material trademarks, service marks, trade names, or rights
with respect to the foregoing, applied for, issued to or owned by Phar-Mor or
under which Phar-Mor is licensed or franchised, all of which are valid, in good
standing and, to the knowledge of Phar-Mor, uncontested, except as set forth on
Schedule 2.2(s). Phar-Mor owns or has valid licenses or other rights to use all
the material trademarks, service marks, trade names, or rights with respect to
the foregoing (the "Phar-Mor Intellectual Property") which are necessary for the
present conduct of its business. Except as set forth on Schedule 2.2(s), no
proceedings have been instituted or are pending or, to the knowledge of Phar-
Mor, threatened that challenge the validity of its ownership of, or licenses or
other rights to use, any Phar-Mor Intellectual Property. Except as set forth on
Schedule 2.2(s), the present employment of the Phar-Mor Intellectual Property by
Phar-Mor, if any, does not, to the knowledge of Phar-Mor, infringe any rights of
any Person. Except as set forth on Section 2.2(s), to the
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knowledge of Phar-Mor, no trademark, service mark, trade name, or other material
currently being sold or employed by any Person infringes any rights of Phar-Mor
with respect to the Phar-Mor Intellectual Property. Notwithstanding anything to
the contrary in this Section 2.2(s), the representations made in this Section
2.2(s) shall only be untrue if the aggregate effect of all failures and
noncompliance of the types described above would have a Phar-Mor Material
Adverse Effect.
(t) Opinion of Phar-Mor Financial Adviser. Phar-Mor has received the
written opinion of the Phar-Mor Financial Adviser, dated as of the date hereof,
that the Phar-Mor Plan is fair to Phar-Mor's shareholders from a financial point
of view.
(u) Registration Rights. Except as provided in Schedule 2.2(u),
Phar-Mor has not granted or agreed to grant any registration rights, including
piggyback rights, to any Person.
(v) Commission Documents. Phar-Mor has delivered to ShopKo true,
correct, and complete copies of each of the Phar-Mor SEC Reports and each
exhibit thereto. As of their respective filing dates, the Phar-Mor SEC Reports
complied in all material respects with the requirements of the Securities Act
and the Exchange Act, as applicable, and taken together, the Phar-Mor SEC
Reports contain no untrue statement of a material fact and did not omit to state
a material fact required to be stated therein or necessary to make the
statements made therein, in light of the circumstances in which they were made,
not misleading except to the extent corrected by a subsequently filed by Phar-
Mor SEC Report.
(w) Registration Statement. None of the information supplied or to
be supplied by Phar-Mor for inclusion in the Registration Statement to be filed
with the Commission and to be distributed in connection with the ShopKo Special
Meeting and the Phar-Mor Special Meeting to vote upon the Reorganization, at the
time the Registration Statement is declared effective by order of the
Commission, at the time of the ShopKo Special Meeting and the Phar-Mor Special
Meeting, will contain an untrue statement of a material fact or omit to state
any material fact necessary in order to make the statements therein, in light of
the circumstances under which they were made, not misleading. If at any time
prior to the Effective Date any event with respect to Phar-Mor or its officers
and directors shall occur that is required to be described in the Registration
Statement, Phar-Mor shall notify ShopKo thereof by reference to this section and
cooperate with ShopKo in preparing and filing with the Commission and, as
required by law, disseminating to the shareholders of Phar-Mor and/or ShopKo an
amendment or supplement which accurately describes such event or events in
compliance with all provisions of applicable law.
2.3 REPRESENTATIONS AND WARRANTIES OF PARENT. Parent represents and
warrants to ShopKo as follows:
(a) Organization; Standing and Power. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the state of
Delaware. Parent has all requisite power and authority to own, lease and
operate its properties and to carry on its business to be conducted following
the Reorganization. Parent will at the Effective Date be duly qualified as a
foreign corporation to do business, and be in good standing, in each
jurisdiction where the character of its properties owned or leased or the nature
of its activities will make such qualification necessary after
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the Reorganization, except for failures to be so qualified or in good standing
which would not, in the aggregate, have a material adverse effect on the
business, property, assets, liabilities or condition (financial or otherwise) of
Parent (sometimes referred to in this Section 2.3 as a "Parent Material Adverse
Effect"). The Certificate of Incorporation and By-Laws of Parent heretofore
delivered to ShopKo, copies of which are attached hereto as Exhibits C and D,
respectively, are accurate and complete as of the date hereof.
(b) Capitalization. The authorized capital stock of Parent and the
validly issued and outstanding, fully paid and nonassessable shares of the
capital stock of Parent are as set forth on Schedule 2.3(b).
(c) Authority. Parent has the requisite corporate power and authority
to enter into this Agreement, and to perform its obligations hereunder. The
execution and delivery of this Agreement by Parent and the consummation by
Parent of the Reorganization and the Parent Buy Back has been duly authorized by
the Parent Board and the sole stockholder of Parent, and no other corporate
proceedings on the part of Parent are necessary to authorize the execution,
delivery and performance of this Agreement, the Reorganization and the Parent
Buy Back. This Agreement has been duly executed and delivered by Parent and
constitutes a valid and binding obligation of Parent, enforceable in accordance
with its terms, except as may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar laws of
general application that may affect the enforcement of rights of creditors and
other obligees generally and by general equitable principles.
(d) Noncontravention. Neither the execution and delivery of this
Agreement by, nor the consummation of the Reorganization or the Parent Buy Back,
nor compliance by Parent with any of the provisions hereof, will violate,
conflict with, or result in a breach of any provisions of, or constitute a
default (or an event which, with notice or lapse of time or both, would
constitute a default) under, or result in the termination or suspension of, or
accelerate the performance required by, or result in a right of termination or
acceleration under, or result in the creation of any Lien upon any of the
properties or assets of Parent under, any of the terms, conditions or provisions
of the Certificate of Incorporation or By-Laws of Parent.
(e) Government Approval. Other than in connection with or in
compliance with the provisions of the Delaware Law, the Pennsylvania Law and the
Minnesota Law, the provisions of the Securities Act, the provisions of the
Exchange Act, and the provisions of the HSR Act, no notice to, filing with, or
authorization, consent or approval of, any domestic or foreign public,
governmental, quasi-governmental, or regulatory body, agency or authority is
necessary for the execution and delivery of this Agreement by Parent or the
consummation of any of the transactions contemplated by this Agreement or
compliance by Parent with any of the provisions hereof, except where failures to
give such notices, make such filings, or obtain authorizations, consents or
approvals would not, in the aggregate, have a Parent Material Adverse Effect or
affect the ability of Parent to consummate the Reorganization or the Parent Buy
Back.
(f) Solvency. Assuming that the representations and warranties of
ShopKo in Section 2.1 and of Phar-Mor in Section 2.2 are true and correct in all
material respects as of the Effective
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Date, (i) Parent will have sufficient funds to enable it to make all payments
required to consummate the Parent Buy Back, (ii) the Parent Buy Back will be
permissible under Section 173 of the Delaware Law, (iii) Parent and each of its
Subsidiaries will be solvent on the date of the Parent Buy Back, (iv) Parent
will not, nor will any of its Subsidiaries, become insolvent as a result of the
Parent Buy Back, (v) at the time of the Parent Buy Back, Parent will not be
engaged in a business or transaction, or about to engage in a business or
transaction, for which any property remaining with Parent has an unreasonably
small capital, and (vi) Parent does not, and at the time of the Parent Buy Back
will not, intend to incur, or believe that it would incur, debts that would be
beyond its ability to pay as such debts mature.
(g) Assets; Liabilities. Except for its obligations pursuant to this
Agreement and the Parent Buy Back, Parent has and before the Effective Date will
have, no assets, liabilities, employees or operations. Parent has not
conducted, and before the Effective Date will not conduct, any business.
2.4 KNOWLEDGE. Knowledge which qualifies any representation and
warranty of a party means the actual knowledge of an executive officer (as
defined in Rule 3b-7 of the Exchange Act) of such party.
ARTICLE III
COVENANTS PENDING THE REORGANIZATION
3.1 CONDUCT OF BUSINESS BY SHOPKO PENDING THE REORGANIZATION. Except
as otherwise expressly contemplated hereby or disclosed on Schedule 3.1, ShopKo
covenants and agrees, with respect to ShopKo and its Subsidiaries (unless the
context otherwise requires, hereinafter any reference in this Section 3.1 to
"ShopKo" shall include each ShopKo Subsidiary, whether held directly or
indirectly by ShopKo), that, prior to the Effective Date, unless Phar-Mor shall
first otherwise expressly agree in writing or as otherwise expressly
contemplated by this Agreement:
(a) ShopKo shall conduct its businesses, or take any action, only in
the ordinary course of business and consistent with past practices, and shall
use its best efforts to maintain and preserve its business organization, assets,
employees and advantageous business relationships, to maintain all of its
properties in useful and good condition, and to continue to be covered to the
fullest extent under the insurance policies carried by ShopKo, including,
without limitation, public liability and property damage insurance in effect
with financially sound and reputable insurance companies in at least such
amounts and against such risks as are currently covered by such policies;
(b) ShopKo shall comply with (i) all applicable statutes, laws,
ordinances, regulations, rules, orders and other legal requirements of any
foreign, federal, state or local government, authority or any other governmental
department or agency, and any judgments, decrees or orders of any court,
applicable to its business or operations and (ii) all contracts, commitments and
other agreements to which it is a party, except where any such violations or
failures to comply with respect to clauses (i) or (ii) will not, individually or
in the aggregate, result in a ShopKo Material Adverse Effect.
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(c) ShopKo shall not, directly or indirectly, do any of the
following: (i) except in the ordinary course of business and consistent with
past practice, sell, pledge, dispose of or encumber any assets of ShopKo
(including, without limitation, any indebtedness owned or any claims held); (ii)
whether or not in the ordinary course of business or consistent with past
practice, sell or dispose of any material assets of ShopKo; (iii) amend its
articles of incorporation or by-laws or similar organizational documents; (iv)
split, combine or reclassify any shares of its capital stock or other equity
interests or declare, set aside or pay any dividend or distribution, payable in
cash, stock, property or otherwise with respect to any of its capital stock or
other equity interests, except for cash dividends paid at such times and in such
amounts as are consistent with ShopKo's past practices (provided, that no cash
dividends shall be declared or paid on the ShopKo Common Shares following the
cash dividend to be paid thereon on September 15, 1996); (v) redeem, purchase or
otherwise acquire any of its capital stock or other equity interests; (vi) adopt
a plan of complete or partial liquidation or resolutions providing for the
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization; or (vii) prepare or
file any tax return or tax report inconsistent with past practice or, on any
such return or report, take any position, make any election or adopt any method
that is inconsistent with positions taken, elections made or methods used in
preparing or filing similar returns or reports in prior periods; or (viii)
authorize or propose any of the foregoing, or enter into any contract,
agreement, commitment, understanding or arrangement to do any of the foregoing;
(d) ShopKo shall not, directly or indirectly, (i) issue, sell, pledge
or dispose of, or authorize, propose or agree to the issuance, sale, pledge or
disposition of, any shares of, or any options, warrants or rights of any kind to
acquire any shares of, or any securities convertible into or exchangeable or
exercisable for any shares of, its capital stock or other equity interests of
any class or any other securities in respect of, in lieu of, or in substitution
for, shares of its common stock or other equity interests outstanding on the
date hereof; (ii) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or entity or
division thereof, or make any investment in any entity, either by purchase of
stock or other securities, contributions to capital, property transfer or
purchase of any property or assets, other than cash management transactions in
the ordinary course of business and consistent with past practice; (iii) except
in the ordinary course of business and consistent with past practice, incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee, endorse or otherwise as an accommodation become responsible for, the
obligations of any other Person, or make any loans or advances; (iv) authorize,
recommend or propose any change in its capitalization (other than the incurrence
of indebtedness otherwise permitted hereunder); (v) modify or change in any
material respect any existing material license, lease, contract or other
document, other than in the ordinary course of business and consistent with past
practice and other than changes to employment agreements in connection with the
Reorganization; or (vi) authorize or propose any of the foregoing, or enter into
or modify any contract, agreement, commitment or arrangement to do any of the
foregoing; and
(e) ShopKo shall not take, or agree, in writing or otherwise, to take
any of the foregoing actions or any action which would make any representation
or warranty in Section 2.1 untrue or incorrect in any material respect.
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3.2 CONDUCT OF BUSINESS BY PHAR-MOR PENDING THE REORGANIZATION.
Except as otherwise expressly contemplated hereby or disclosed on Schedule 3.2,
Phar-Mor covenants and agrees, with respect to Phar-Mor and its Subsidiaries
(unless the context otherwise requires, hereinafter any reference in this
Section 3.2 to "Phar-Mor" shall include each Phar-Mor Subsidiary, whether held
directly or indirectly by Phar-Mor), that, prior to the Effective Date, unless
ShopKo shall first otherwise expressly agree in writing or as otherwise
expressly contemplated by this Agreement:
(a) Phar-Mor shall conduct its businesses, or take any action, only
in the ordinary course of business and consistent with past practices, and shall
use its best efforts to maintain and preserve its business organization, assets,
employees and advantageous business relationships, to maintain all of its
properties in useful and good condition, and to continue to be covered to the
fullest extent under the insurance policies carried by Phar-Mor, including,
without limitation, public liability and property damage insurance in effect
with financially sound and reputable insurance companies in at least such
amounts and against such risks as are currently covered by such policies;
(b) Phar-Mor shall comply with (i) all applicable statutes, laws,
ordinances, regulations, rules, orders and other legal requirements of any
foreign, federal, state or local government, authority or any other governmental
department or agency, and any judgments, decrees or orders of any court,
applicable to its business or operations and (ii) all contracts, commitments and
other agreements to which it is a party, except where any such violations or
failures to comply with respect to clauses (i) or (ii) will not, individually or
in the aggregate, result in a Phar-Mor Material Adverse Effect.
(c) Phar-Mor shall not, directly or indirectly, do any of the
following: (i) except in the ordinary course of business and consistent with
past practice, sell, pledge, dispose of or encumber any assets of Phar-Mor
(including, without limitation, any indebtedness owned or any claims held); (ii)
whether or not in the ordinary course of business or consistent with past
practice, sell or dispose of any material assets of Phar-Mor; (iii) amend its
articles of incorporation or by-laws or similar organizational documents; (iv)
split, combine or reclassify any shares of its capital stock or other equity
interests or declare, set aside or pay any dividend or distribution, payable in
cash, stock, property or otherwise with respect to any of its capital stock or
other equity interests; (v) redeem, purchase or otherwise acquire any of its
capital stock or other equity interests; (vi) adopt a plan of complete or
partial liquidation or resolutions providing for the complete or partial
liquidation, dissolution, merger, consolidation, restructuring, recapitalization
or other reorganization; (vii) prepare or file any tax return or tax report
inconsistent with past practice or, on any such return or report, take any
position, make any election or adopt any method that is inconsistent with
positions taken, elections made or methods used in preparing or filing similar
returns or reports in prior periods; or (viii) authorize or propose any of the
foregoing, or enter into any contract, agreement, commitment, understanding or
arrangement to do any of the foregoing;
(d) Phar-Mor shall not, directly or indirectly, (i) issue, sell,
pledge or dispose of, or authorize, propose or agree to the issuance, sale,
pledge or disposition of, any shares of, or any options, warrants or rights of
any kind to acquire any shares of, or any securities convertible into or
exchangeable or exercisable for any shares of, its capital stock or other equity
interests of any class or any other securities in respect of, in lieu of, or in
substitution for, shares of its common stock or
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other equity interests outstanding on the date hereof; (ii) acquire (by merger,
consolidation or acquisition of stock or assets) any corporation, partnership or
other business organization or entity or division thereof, or make any
investment in any entity, either by purchase of stock or other securities,
contributions to capital, property transfer or purchase of any property or
assets, other than cash management transactions in the ordinary course of
business and consistent with past practice; (iii) except in the ordinary course
of business and consistent with past practice, incur any indebtedness for
borrowed money or issue any debt securities or assume, guarantee, endorse or
otherwise as an accommodation become responsible for, the obligations of any
other Person, or make any loans or advances; (iv) authorize, recommend or
propose any change in its capitalization (other than the incurrence of
indebtedness otherwise permitted hereunder); (v) modify or change in any
material respect any existing material license, lease, contract or other
document, other than in the ordinary course of business and consistent with past
practice and other than changes to employment agreements in connection with the
Reorganization; or (vi) authorize or propose any of the foregoing, or enter into
or modify any contract, agreement, commitment or arrangement to do any of the
foregoing; and
(e) Phar-Mor shall not take, or agree, in writing or otherwise, to
take any of the foregoing actions or any action which would make any
representation or warranty in Section 2.2 untrue or incorrect in any material
respect.
3.3 CONDUCT OF BUSINESS BY PARENT PENDING THE REORGANIZATION. Except
as otherwise expressly contemplated hereby, Parent covenants and agrees that,
before the Effective Date, it shall conduct no business and shall not have any
assets, liabilities, employees or operations.
3.4 CONSENTS. With respect to all leases, licenses, and other
contracts and instruments and rights of any party hereto which require the
consent of a third party in the event of a transaction similar to the
Reorganization, such party shall use its reasonable efforts to obtain, or caused
to be obtained, such consents; provided that no party shall make any payment or
deliver value in excess of $500,000 to obtain such consents without the prior
written consent of the other parties hereto.
ARTICLE IV
ADDITIONAL AGREEMENTS
4.1 PROXY STATEMENT; OTHER FILINGS.
(a) As promptly as practicable after the date hereof, Parent, Phar-
Mor and ShopKo shall prepare and file with the Commission, and shall use their
respective best efforts to have declared effective or cleared, as the case may
be, by the Commission, a Registration Statement on Form S-4 under the Securities
Act and a joint proxy statement and form of proxy under the Exchange Act with
respect to the Phar-Mor Special Meeting and the ShopKo Special Meeting. Promptly
after such Registration Statement becomes effective under the Securities Act,
Phar-Mor and ShopKo shall mail such proxy statement and proxy to their
respective shareholders. The term "Proxy Statement" shall mean such joint proxy
statement at the time it initially is mailed to holders of ShopKo Common Shares
and Phar-Mor Common Shares and all amendments or supplements thereto, if any,
similarly
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filed and mailed. As soon as practicable after the date hereof ShopKo and Phar-
Mor shall promptly prepare and file any other filings required under the
Exchange Act or any other federal or state securities law relating to the
Reorganization and the transactions contemplated herein ("Other Filings").
ShopKo and Phar-Mor shall use their respective best efforts to obtain and
furnish the information required to be included in the Proxy Statement and any
Other Filings and to respond promptly to any comments made by the Commission or
any other governmental official with respect to the Proxy Statement and any
Other Filing and any preliminary version thereof. The information provided and
to be provided by ShopKo and Phar-Mor, respectively, for use in the Proxy
Statement and any Other Filings shall not, on the date the Proxy Statement is
first mailed to holders of ShopKo Common Shares or Phar-Mor Common Shares or any
Other Filing is filed with the appropriate governmental official and, in the
case of the Proxy Statement, on the dates of the ShopKo Special Meeting or the
Phar-Mor Special Meeting, respectively, contain any statement which, at the time
of and in light of the circumstances under which it is made, is false and
misleading with respect to any material fact, or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein not false or misleading or necessary to correct any statement in any
earlier communication which has become false or misleading, and ShopKo and Phar-
Mor each agree to correct any such information provided by it for use in the
Proxy Statement or any Other Filings which shall have become false or
misleading. The Proxy Statement shall comply as to form in all material
respects with all applicable requirements of federal and state securities laws.
(b) Parent shall take such action as may be reasonably required to cause
the Parent Common Shares issuable in the Reorganization to be registered or to
obtain an exemption from registration under applicable state "blue sky" or
securities laws; provided, however, that Parent shall not be required to
register or qualify as a foreign corporation or to take other action which would
subject it to service of process in any jurisdiction where it will not be,
following the Effective Date, so subject.
4.2 SHAREHOLDER APPROVALS.
(a) ShopKo shall, as soon as reasonably practicable after the date
hereof, (i) take all steps necessary duly to call, give notice of, convene and
hold a special meeting of its shareholders ("ShopKo Special Meeting") for the
purpose of securing the approval and adoption of the ShopKo Plan by the holders
of a majority of the issued and outstanding ShopKo Common Shares ("ShopKo
Shareholders' Approval"), (ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and state law and with its
articles of incorporation and by-laws, (iii) subject to the fiduciary duties of
the ShopKo Board, recommend to its shareholders the approval of the ShopKo Plan,
and (iv) cooperate and consult with Phar-Mor with respect to each of the
foregoing matters.
(b) Phar-Mor shall, as soon as reasonably practicable after the date
hereof, (i) take all steps necessary to call, give notice of, convene and hold a
special meeting of its shareholders ("Phar-Mor Special Meeting") for the purpose
of securing the approval and adoption of the Phar-Mor Plan by the holders of a
majority of the issued and outstanding Phar-Mor Common Shares ("Phar-Mor
Shareholders' Approval"), (ii) distribute to its shareholders the Proxy
Statement in accordance with applicable federal and state law and its articles
of incorporation and by-laws, (iii) subject to the
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fiduciary duties of the Phar-Mor Board, recommend to its shareholders the
approval of the Phar-Mor Plan, and (iv) cooperate and consult with ShopKo with
respect to each of the foregoing matters.
(c) The ShopKo Special Meeting for the purpose of securing the ShopKo
Shareholders' Approval and the Phar-Mor Special Meeting for the purpose of
securing the Phar-Mor Shareholders' Approval, shall be held on or before such
date or dates as ShopKo and Phar-Mor shall jointly determine.
4.3 LEGAL REQUIREMENTS FOR REORGANIZATION.
(a) ShopKo will take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on it with respect to the
Reorganization and will promptly cooperate with and furnish information to Phar-
Mor in connection with any such requirements imposed upon Phar-Mor or any Phar-
Mor Subsidiary in connection with the Reorganization.
(b) Phar-Mor will take all reasonable actions necessary to comply promptly
with all legal requirements which may be imposed on it with respect to the
Reorganization and will promptly cooperate with and furnish information to
ShopKo in connection with any such requirements imposed upon either ShopKo or
any ShopKo Subsidiary in connection with the Reorganization.
(c) ShopKo and Phar-Mor shall each file or cause to be filed with the
Federal Trade Commission and the Department of Justice any notifications
required to be filed under the HSR Act, and the rules and regulations
promulgated thereunder with respect to the Reorganization Plan, and shall use
all commercially reasonable efforts to make such filing promptly and to respond
promptly to any requests for additional information made by either of such
governmental authorities.
4.4 LISTING APPLICATION. Parent shall prepare and submit to the New York
Stock Exchange ("NYSE") a listing application covering Parent Common Shares to
be issued in the Reorganization, and shall use all reasonable efforts to obtain,
prior to the Effective Date, approval for the listing of such Parent Common
Shares upon official notice of issuance; provided, that if such approval is not
obtained, Parent shall promptly prepare and submit to Nasdaq a listing
application covering Parent Common Shares to be issued in the Reorganization,
and shall use all reasonable efforts to obtain, prior to the Effective Date,
approval for the listing of such Parent Common Shares upon official notice of
issuance.
4.5 EMPLOYMENT AGREEMENTS.
(a) Phar-Mor. Subject to the terms and conditions of such agreements and
arrangements, all existing employment agreements and severance arrangements
between Phar-Mor and any of its employees including all related health benefits,
will remain in place and be unaffected by the Reorganization.
(b) ShopKo. All existing employment agreements and severance arrangements
between ShopKo and its any of its employees including all related health
benefits, will remain in place and be unaffected by the Reorganization;
provided, that the existing severance agreements between
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ShopKo and Dale P. Kramer, William J. Podany and Jeffrey A. Jones shall, in
connection with the Reorganization, be superseded by employment agreements
substantially in the forms attached hereto as Exhibits E, F and G,
respectively.
4.6 INVESTIGATIONS. Subject to currently existing contractual and legal
restrictions applicable to ShopKo (which ShopKo represents and warrants are not
material) or to Phar-Mor (which Phar-Mor represents and warrants are not
material), and upon reasonable notice, each of ShopKo and Phar-Mor shall (and
shall cause each of its Subsidiaries to) afford to officers, employees, counsel,
accountants and other authorized representatives of the other party ("Respective
Representatives") access, during normal business hours throughout the period
prior to the Effective Date or until this Agreement is terminated, to its
properties, books and records (including, without limitation, the work papers of
independent accountants) and, during such period, shall (and shall cause each of
its Subsidiaries to) furnish promptly to such Respective Representatives all
information concerning its business, properties and personnel as may reasonably
be requested; provided that no investigation pursuant to this Section shall
affect or be deemed to modify any of the respective representations or
warranties made by ShopKo or Phar-Mor.
4.7 CONFIDENTIALITY.
(a) Except for the use of information as required in connection with the
Registration Statement and any other governmental filings required in order to
complete the transactions contemplated herein, all information received by
ShopKo, Phar-Mor, or Parent and their respective representatives pursuant to the
terms of this Agreement (or as part of any due diligence investigation conducted
in connection prior to the execution thereof) shall be kept in strictest
confidence by the receiving party and its representatives. If the Reorganization
shall fail to be consummated, all copies of documents or extracts thereof
containing information and data as to one of the other parties, including all
information prepared by the receiving party or such receiving party's
representatives, shall be turned over to the party furnishing the same, except
that such information prepared by the receiving party or such receiving party's
representatives may be destroyed at the option of the receiving party, with
notice of such destruction (or return) to be confirmed in writing to the
disclosing party. Any information not so destroyed (or returned) shall remain
subject to these confidentiality provisions until the second anniversary of the
Effective Date.
(b) The foregoing confidentiality provisions shall not apply to such
portions of the information received which (i) are or become generally available
to the public through no action by the receiving party or by such party's
representatives or (ii) are or become available to the receiving party on a
nonconfidential basis from a source other than the disclosing party or its
representatives, which the receiving party believes, after reasonable inquiry,
it is not prohibited from disclosing such portions to it by a contractual, legal
or fiduciary obligation, and shall not apply to any disclosure by Parent of any
information disclosed by ShopKo or Phar-Mor, so long as such disclosure occurs
after the Closing.
4.8 NO SOLICITATION OF EMPLOYEES. Except as otherwise contemplated by the
terms of this Agreement, from the date of this Agreement through the Effective
Date and, in the event of a termination of this Agreement prior to Closing, for
a period of twelve months following the date
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of such termination, no party hereto shall solicit the services of any then
current employee of any other party hereto without the express written consent
of such other party.
4.9 BEST EFFORTS; ADDITIONAL AGREEMENTS AND PROVISIONS. Subject to the
terms and conditions of this Agreement and the fiduciary duties of the Phar-Mor
Board and the ShopKo Board, respectively, under applicable law (as determined in
good faith by such board based on the advice of outside counsel), each of the
parties hereto agrees to use its 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, the financing contemplated in Section 5.1(i). If any time after the
Effective Date any further action is necessary or desirable to carry out the
purposes of this Agreement, the proper officers and directors of each party to
this Agreement shall take all such necessary action. The parties hereto agree to
use their respective reasonable efforts to challenge any action, including using
all reasonable efforts to have any order or injunction vacated or reversed,
brought against any of the parties hereto seeking a temporary restraining order
or preliminary or permanent injunctive relief which would prohibit, or
materially interfere with, the consummation of the transactions contemplated by
this Agreement. Without limiting the foregoing provisions of this Section 4.9,
each of Phar-Mor and ShopKo acknowledge and agree that, prior to the Effective
Date, and subject to the provisions of this Agreement including, without
limitation, the covenants set forth in Article III hereof, Phar-Mor and ShopKo
shall continue to conduct their respective businesses independently and there
will be no transactions between Phar-Mor and ShopKo without the consent of their
respective boards of directors; provided, that each of the parties hereto shall
cooperate, and shall use its reasonable efforts to cause its respective officers
to cooperate, with each other party hereto so as to satisfy the conditions as to
financing hereunder and to plan an expeditious and orderly integration of the
businesses and operations of ShopKo and Phar-Mor as soon as practicable
following consummation of the Reorganization.
4.10 NO SOLICITATIONS. Each party hereto shall not, and shall cause its
Subsidiaries and its officers, directors, agents, representatives and affiliates
not to, directly or indirectly: initiate, solicit or encourage, or take any
action to facilitate the making of any offer or proposal which constitutes or is
reasonably likely to lead to any Takeover Proposal, or, in the event of any
unsolicited Takeover Proposal, engage in negotiations or provide any
confidential information or data to any Person relating to any Takeover
Proposal. Each party hereto shall notify the other party orally and in writing
of any inquiries, offers or proposals concerning any Takeover Proposal
(including, without limitation, the terms and conditions of any such inquiry,
offer or proposal and the identity of the Person making it), within 24 hours of
the receipt thereof and shall give the other party five days' advance written
notice of any agreement to be entered into with or any information to be
supplied to any Person making such inquiry, offer or proposal in accordance with
the last sentence of this Section 4.10. Each party hereto shall immediately
cease and cause to be terminated all existing discussions and negotiations, if
any, with any parties conducted heretofore with respect to any Takeover
Proposal. As used in this Section 4.10, "Takeover Proposal" shall mean any
tender or exchange offer, proposal for a merger, consolidation or other business
combination involving a substantial equity interest in or a substantial portion
of the assets of ShopKo or Phar-Mor, or any proposal or offer to acquire in any
manner a substantial equity interest in, or a substantial portion of the assets
of, ShopKo or Phar-Mor other than pursuant to the transactions contemplated by
this
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Agreement. Notwithstanding anything in this Section 4.10 to the contrary, unless
the ShopKo Shareholders' Approval and the Phar-Mor Shareholders' Approval have
been obtained, any party hereto may, to the extent required by the fiduciary
duties of the Board of Directors of such party under applicable law (as
determined in good faith by the Board of Directors of such party based on the
advice of outside counsel), participate in discussions or negotiations with,
furnish information to, and afford access to the properties, books and records
of such party and its Subsidiaries to any Person in connection with a possible
Takeover Proposal with respect to such party by such Person.
4.11 AFFILIATES. Phar-Mor and ShopKo each will use its best efforts to
obtain and deliver on or prior to the Effective Date written undertakings from
all Persons who, it reasonably believes, are "Affiliates" of Phar-Mor or ShopKo
within the meaning of Rule 145 promulgated by the Commission under the
Securities Act, which undertakings shall, in form and substance reasonably
satisfactory to Swidler & Berlin, Chartered, obligate such "Affiliates" not to
sell or otherwise dispose of any of the Parent Common Shares received by them
pursuant to the Reorganization in violation of the registration requirements of
the Securities Act or the rules and regulations of the Commission promulgated
thereunder. Such undertakings shall provide that such "Affiliates" agree that
for a reasonable period of time following the consummation of the Reorganization
there may be placed upon the certificates representing Parent Common Shares
received by them pursuant to the Reorganization, or any substitutions therefor,
a legend stating in substance that Parent may refuse to transfer such shares in
the absence of an effective registration statement as to such transfer, or an
opinion of counsel reasonably satisfactory to Swidler & Berlin, Chartered that
such registration is not required; provided, however, Parent agrees to remove
such legend at such time as the prohibitions are no longer in effect.
4.12 PERIODIC REPORTS. Each of Phar-Mor and ShopKo covenants that it will
file with the Commission on a timely basis all periodic reports required to be
filed by it by the federal securities laws and the rules and regulations of the
Commission thereunder from the date of this Agreement through the Effective
Date, and that each such report will not contain any untrue statement of
material fact or omit to state any material fact required to be stated therein
or necessary to make statement therein, in the light of the circumstances under
which they were made, not misleading.
4.13 DIRECTORS' AND OFFICERS' INDEMNIFICATION. It is understood and agreed
that each of Phar-Mor and ShopKo shall continue to keep in full force and effect
(a) the provisions of its respective Articles of Incorporation and Bylaws
regarding indemnification and limitation of liabilities of officers and
directors and (b) for a period of six years after expiration of the respective
policies as currently in force, the existing "directors' and officers'
insurance" coverage maintained by each of Phar-Mor and ShopKo. This Section 4.13
shall survive the consummation of the Reorganization. At the consummation of the
Reorganization, and as a condition thereto, Phar-Mor and ShopKo shall each
affirm in writing to each of its respective officers and directors the
obligations of Phar-Mor and ShopKo, respectively, under this Section 4.13.
Parent shall guarantee the obligations of Phar-Mor and ShopKo under this Section
4.13.
4.14 PARENT BUY BACK. Parent covenants and agrees that, immediately upon
the effectiveness of the Reorganization, it shall consummate the Parent Buy
Back, subject to the terms and conditions of the Stock Purchase Agreement. In
the event of termination of this Agreement
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other than as a result of a material breach hereof by ShopKo, on the one hand,
or Phar-Mor, on the other, all expenses, fees (including filing fees), financing
commitment and other costs incurred by the parties hereto in connection with the
Parent Buy-Back Financing shall be borne 75% by ShopKo and 25% by Phar-Mor.
4.15 EXPENSES. Except as otherwise provided in Sections 4.14 and
6.2, each party shall bear its respective expenses and legal fees incurred with
respect to this Agreement and the transactions contemplated hereby.
ARTICLE V
CONDITIONS PRECEDENT
5.1 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY TO EFFECT THE
REORGANIZATION. The respective obligations of each of the parties to effect the
Reorganization shall be subject to the satisfaction or waiver of each of the
following conditions:
(a) Approval of Holders of Phar-Mor Common Shares. The Phar-Mor Plan
shall have been approved and adopted by the required affirmative vote of the
holders of the outstanding Phar-Mor Common Shares in accordance with
Pennsylvania Law and Phar-Mor's Articles of Incorporation and Bylaws voting at a
meeting in which a quorum is present.
(b) Approval of Holders of ShopKo Common Shares. The ShopKo Plan
shall have been approved and adopted by the required affirmative vote of the
holders of the outstanding ShopKo Common Shares in accordance with Minnesota Law
and ShopKo's Articles of Incorporation and Bylaws voting at a meeting in which a
quorum is present.
(c) Registration Statement. The Registration Statement shall have
been declared effective and shall be effective on the Effective Date, and no
stop order suspending effectiveness shall have been issued, no action, suit,
proceeding or investigation by the Commission to suspend the effectiveness
thereof shall have been initiated and be continuing, and all necessary approvals
under state securities laws or the Securities Act or Exchange Act relating to
the issuance or trading of the Parent Common Shares shall have been received and
shall be in full force and effect.
(d) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Reorganization under the HSR Act shall
have expired or been terminated.
(e) Injunction. On the Effective Date there shall be no judgment,
decree, injunction, ruling or order of any court, governmental department,
authority, commission, agency or instrumentality outstanding against Parent,
Phar-Mor or ShopKo which prohibits, restricts or delays consummation of the
Reorganization or the Parent Buy Back or the satisfaction of any of the
conditions to the consummation of the Reorganization or the Parent Buy Back, or
limits in any material respect the right of Parent to control, from and after
the Effective Date (i) ShopKo or any
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material aspect of the business of ShopKo and the ShopKo Subsidiaries or (ii)
Phar-Mor or any material aspect of the business of Phar-Mor and the Phar-Mor
Subsidiaries.
(f) Exchange Listing. The Parent Common Shares required to be issued
hereunder shall have been approved for listing on NYSE or Nasdaq, subject to
official notice of issuance.
(g) Credit Facilities. Each of ShopKo and Phar-Mor shall have
received written confirmation of the continuation of their respective existing
financing facilities prior to or effective as of Closing, or, in the
alternative, a working capital facility commitment in form and substance
reasonably acceptable to Phar-Mor and ShopKo, to be entered into prior to or
concurrently with the Closing.
(h) Dissenters' Rights. Holders of ShopKo Common Shares holding in
excess of 5% of the ShopKo Common Shares shall not have exercised appraisal
rights under Minnesota Law.
(i) Parent Buy Back. At the Effective Date, there shall exist no
condition or circumstance that would reasonably be expected to prevent or delay
the consummation of the transactions contemplated in that certain Stock Purchase
Agreement among Parent, Supervalu and Supermarket, dated as of the date of this
Agreement, a copy of which is attached hereto as Exhibit H (the "Stock Purchase
Agreement"), pursuant to which, immediately following the consummation of the
Reorganization, Parent will on the Effective Date acquire all of the Parent
Common Shares received by Supermarket as a result of the Reorganization (the
"Parent Buy Back"). All documentation, payments and deliveries necessary to
consummate the Parent Buy Back pursuant to the terms of the Stock Purchase
Agreement shall be completed at or before Closing and held in escrow pending the
Effective Date. Without limiting the foregoing, at the Effective Date, Parent
shall have received a financing commitment or other reasonable assurances from
one or more underwriters, placement agents or other financing sources (on terms
and conditions reasonably acceptable to each of Parent, Phar-Mor and ShopKo)
that Parent (together with its Subsidiaries from and after the Effective Date)
may obtain financing of at least $100 million (the "Parent Buy-Back Financing"),
and all documents and deliveries necessary to consummate such financing shall be
completed at or before Closing and held in escrow pending the Effective Date.
Notwithstanding any provision to the contrary, the conditions set forth in this
Section 5.1(i) may not be waived without the prior written consent of Supervalu,
which consent may not be unreasonably withheld or delayed.
(j) Solvency Opinion. Each of Parent, Phar-Mor, Supervalu and ShopKo
shall have received a solvency opinion from a nationally recognized valuation
firm reasonably acceptable to each of Parent, Phar-Mor and ShopKo, dated the
Effective Date, in a form reasonably acceptable to Parent, Phar-Mor and ShopKo.
5.2 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PHAR-MOR AND PARENT.
The obligations of Phar-Mor and Parent to effect the Reorganization are also
subject to the satisfaction or waiver of each of the following conditions, as
determined by the Phar-Mor Board:
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(a) Agreements. ShopKo shall have performed in all material respects
each covenant, agreement, obligation and condition to be performed or complied
with by it hereunder on or prior to the Effective Date.
(b) Representations and Warranties. The representations and
warranties of ShopKo set forth in this Agreement shall be true and correct in
all material respects at and as of the Effective Date as if made at and as of
such time, except to the extent that any such representation or warranty is made
as of a specified date, in which case such representation or warranty shall have
been true and correct in all material respects as of such date.
(c) Officer's Certificate. Phar-Mor shall have received a
certificate, dated as of the Effective Date, of the President or a Vice
President of ShopKo to the effect that, to the best of the knowledge,
information and belief of such officer, the conditions specified in paragraphs
(a) and (b) above have been fulfilled.
(d) Lack of Adverse Change. Since the date hereof, there shall have
been no ShopKo Material Adverse Effect.
(e) Consents from Third Parties. All necessary consents set forth on
Schedule 5.2 in connection with the transactions contemplated by this Agreement
shall have been received.
(f) Tax Effect of the Reorganization. Phar-Mor shall have received
an opinion dated as of the Effective Date from Swidler & Berlin, Chartered,
counsel for Phar-Mor, to the effect that the Reorganization will be treated, for
federal income tax purposes, as a tax-free transfer of property to Parent by the
holders of Phar-Mor Common Shares, to the extent such holders receive Parent
Common Shares in the Reorganization.
(g) Letters from Accountants. Parent and Phar-Mor shall have
received two letters, one dated as of the date the Proxy Statement is mailed to
the shareholders of ShopKo and the other dated as of the Effective Date, from
Deloitte & Touche confirming that they are independent accountants with respect
to ShopKo and its Subsidiaries, and stating in effect that (i) in their opinion
the financial statements examined by them and included or incorporated by
reference in the Proxy Statement comply as to form in all material respects with
the applicable accounting requirements of the Securities Act, the Exchange Act
and the published rules and regulations thereunder, and (ii) on the basis of a
reading of the latest available interim financial statements of ShopKo and its
Subsidiaries, inquiries of officials of ShopKo and its Subsidiaries responsible
for financial and accounting matters, and a reading of the minutes of ShopKo and
its Subsidiaries as set forth in the minute books to a specified day not more
than five days prior to the date of delivery of such letter, nothing came to
their attention that caused them to believe that:
(i) any unaudited consolidated condensed financial statements of
ShopKo and its Subsidiaries in the Proxy Statement do not comply as to
form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and
regulations thereunder and are not in conformity with generally
accepted accounting
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principles applied on a basis substantially consistent with that of
the most recent ShopKo audited financial statements included in, or
incorporated into, the Proxy Statement;
(ii) any unaudited consolidated financial statements of ShopKo
and its Subsidiaries prepared subsequent to the date of the Proxy
Statement are not prepared on a basis substantially consistent with
that of the most recent ShopKo audited financial statements included
in, or incorporated into, the Proxy Statement; and
(iii) for the period subsequent to the date of the latest
available unaudited consolidated financial statements of ShopKo and
its Subsidiaries and as of a specified date not more than five (5)
days prior to the date of delivery of such letter, there was any
change in capital stock and any increases in consolidated long-term
debt or any decrease in consolidated net assets as compared with
amounts shown on the most recent unaudited ShopKo balance sheet
included in, or incorporated into, the Proxy Statement, except for any
change, increase or decrease which the Proxy Statement discloses has
occurred or may occur;
(h) ShopKo Exchange. The ShopKo Exchange shall be consummated, in
accordance with the provisions hereof (without amendment, variance or waiver of
any provision unless approved in writing by Phar-Mor) as of the Effective Date,
simultaneously with consummation of the Phar-Mor Exchange.
(i) Resignation of ShopKo Board. Each member of the ShopKo Board
shall have submitted a written resignation to ShopKo, with copies to Phar-Mor,
which resignations shall be effective as of the Effective Date.
(j) Termination of Rights Agreement. Effective on or before the
Effective Date, the ShopKo Board shall have terminated the Rights Agreement
dated July 3, 1996, between ShopKo and Norwest Bank Minnesota, National
Association, and evidence of such termination shall be submitted to Phar-Mor at
Closing.
5.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF SHOPKO. The
obligations of ShopKo to effect the Reorganization are also subject to the
satisfaction or waiver of each of the following conditions, as determined by the
ShopKo Board:
(a) Agreements. Phar-Mor shall have performed in all material
respects each covenant, agreement, obligation and condition to be performed or
complied with by it hereunder on or prior to the Effective Date.
(b) Representations and Warranties. The representations and
warranties of Phar-Mor set forth in this Agreement shall be true and correct in
all material respects at and as of the Effective Date as if made at and as of
such time, except to the extent that any such representation or warranty is made
as of a specified date, in which case such representation or warranty shall have
been true and correct in all material respect as of such date.
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(c) Officer's Certificate. ShopKo shall have received a certificate,
dated as of the Effective Date, of the President or a Vice President of Phar-Mor
to the effect that, to the best of the knowledge, information and belief of such
officer, the conditions specified in paragraphs (a) and (b) above have been
fulfilled.
(d) Lack of Adverse Change. Since the date hereof, there shall have
been no Phar-Mor Material Adverse Effect.
(e) Consents from Third Parties. All necessary consents set forth on
Schedule 5.3 in connection with the transactions contemplated by this Agreement
shall have been received.
(f) Tax Effect of the Reorganization. ShopKo shall have received an
opinion dated as of the Effective Date from Sidley & Austin, special counsel for
ShopKo, to the effect that the Reorganization will be treated, for federal
income tax purposes, as a tax-free transfer of property to Parent by the holders
of ShopKo Common Shares, to the extent such holders receive Parent Common Shares
in the Reorganization.
(g) Letters from Accountants. ShopKo shall have received two letters,
one dated as of the date the Proxy Statement is mailed to the shareholders of
Phar-Mor and the other dated as of the Effective Date, from Deloitte & Touche
confirming that they are independent accountants with respect to Phar-Mor and
its Subsidiaries, and stating in effect that (i) in their opinion the financial
statements examined by them and included or incorporated by reference in the
Proxy Statement comply as to form in all material respects with the applicable
accounting requirements of the Securities Act, the Exchange Act and the
published rules and regulations thereunder, and (ii) on the basis of a reading
of the latest available interim financial statements of Phar-Mor and its
Subsidiaries, inquiries of officials of Phar-Mor and its Subsidiaries
responsible for financial and accounting matters, and a reading of the minutes
of Phar-Mor and its Subsidiaries as set forth in the minute books to a specified
day not more than five days prior to the date of delivery of such letter,
nothing came to their attention that caused them to believe that:
(i) any unaudited consolidated condensed financial statements of
Phar-Mor and its Subsidiaries in the Proxy Statement do not comply as
to form in all material respects with the applicable accounting
requirements of the Securities Act and the published rules and
regulations thereunder and are not in conformity with generally
accepted accounting principles applied on a basis substantially
consistent with that of the most recent Phar-Mor audited financial
statements included in the Proxy Statement;
(ii) any unaudited consolidated financial statements of Phar-Mor
and its Subsidiaries prepared subsequent to the date of the Proxy
Statement are not prepared on a basis substantially consistent with
that of the most recent Phar-Mor audited financial statements included
in the Proxy Statement; and
(iii) for the period subsequent to the date of the latest
available unaudited consolidated financial statements of Phar-Mor and
its Subsidiaries and as of a specified date not more than five (5)
days prior to the date of delivery of such letter, there was any
change
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in capital stock and any increases in consolidated long-term debt or
any decrease in consolidated net assets as compared with amounts shown
on the most recent Phar-Mor unaudited balance sheet included in the
Proxy Statement, except for any change, increase or decrease which the
Proxy Statement discloses has occurred or may occur;
(h) Phar-Mor Exchange. The Phar-Mor Exchange shall be consummated,
in accordance with the provisions hereof (without amendment, variance or waiver
of any provision unless approved in writing by ShopKo) as of the Effective Date,
simultaneously with consummation of the ShopKo Exchange.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
6.1 TERMINATION. This Agreement may be terminated at any time prior to
the Effective Date:
(a) by mutual consent of the Phar-Mor Board and the ShopKo Board;
(b) by the Phar-Mor Board or the ShopKo Board (i) if the Effective
Date shall not have occurred on or before March 31, 1997; (ii) if any state or
federal law, order, rule or regulation is adopted or issued, which has the
effect, as supported by the written opinion of outside counsel for such party,
of prohibiting the Reorganization or the Parent Buy Back or (iii) if any court
of competent jurisdiction in the United States or any State shall have issued an
order, judgment or decree permanently restraining, enjoining or otherwise
prohibiting the Reorganization or the Parent Buy Back, and such order, judgment
or decree shall have become final and nonappealable;
(c) by the Phar-Mor Board or the ShopKo Board if at the Phar-Mor
Special Meeting or the ShopKo Special Meeting (including any adjournment
thereof), the Phar-Mor Plan or the ShopKo Plan, respectively, shall fail to be
approved and adopted by the votes referred to in Section 5.1;
(d) by the Phar-Mor Board prior to the date originally set forth in
the Proxy Statement for the ShopKo Special Meeting if the Exchange Ratio, as
adjusted, shall be greater than 3.140, unless ShopKo agrees, by written notice
delivered to Phar-Mor within three (3) days after the end of the Pricing Period,
that the Exchange Ratio shall be set at 3.140;
(e) by the ShopKo Board prior to the date originally set forth in the
Proxy Statement for the ShopKo Special Meeting if the Exchange Ratio, as
adjusted, shall be less than 1.895, unless Phar-Mor agrees, by written notice
delivered to ShopKo within three (3) days after the end of the Pricing Period,
that the Exchange Ratio shall be set at 1.895;
(f) by the Phar-Mor Board in the event there has been a material
breach of any representation, warranty, covenant or agreement contained in this
Agreement on the part of ShopKo and such breach has not been cured within ten
(10) business days after notice thereof to ShopKo;
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provided, that Phar-Mor is not in material breach of the terms of this
Agreement; and provided further, that no cure period shall be required for a
breach which by its nature cannot be cured;
(g) by the ShopKo Board in the event there has been a material breach
of any representation, warranty, covenant or agreement contained in this
Agreement on the part of Phar-Mor and such breach has not been cured within ten
(10) business days after notice thereof to Phar-Mor; provided, that ShopKo is
not in material breach of the terms of this Agreement; and provided further,
that no cure period shall be required for a breach which by its nature cannot be
cured;
(h) by ShopKo, upon five days' prior written notice to Phar-Mor, if,
as a result of a tender offer by a party other than Phar-Mor or any of its
affiliates or any written offer or proposal with respect to a merger or sale of
a material portion of its assets or other business combination (each, a
"Business Combination") by a party other than Phar-Mor or any of its affiliates,
the ShopKo Board determines in good faith that its fiduciary obligations under
applicable law require that such tender offer or other written offer or proposal
be accepted; provided, however, that (i) the ShopKo Board shall have been
advised in writing by outside counsel that notwithstanding a binding commitment
to consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties, such fiduciary duties
would also require the directors to reconsider such commitment as a result of
such tender offer or other written offer or proposal; and (ii) prior to any such
termination, ShopKo shall, and shall cause its respective financial and legal
advisors to, negotiate in good faith with Phar-Mor to make such adjustments in
the terms and conditions of this Agreement as would enable ShopKo to proceed
with the transactions contemplated herein; provided, further, that ShopKo and
Phar-Mor acknowledge and affirm that notwithstanding anything in this Section
6.1(h) to the contrary, the parties hereto intend this Agreement to be an
exclusive agreement and, accordingly, nothing in this Agreement is intended to
constitute a solicitation of an offer or proposal for a Business Combination, it
being acknowledged and agreed that any such offer or proposal would interfere
with the strategic advantages and benefits which the parties expect to derive
from the Reorganization;
(i) by Phar-Mor, upon five days' prior written notice to ShopKo if,
as a result of a tender offer by a party other than ShopKo or any of its
affiliates or any written offer or proposal with respect to a Business
Combination by a party other than ShopKo or any of its affiliates, the Phar-Mor
Board determines in good faith that its fiduciary obligations under applicable
law require that such tender offer or other written offer or proposal be
accepted; provided, however, that (i) the Phar-Mor Board shall have been advised
in writing by outside counsel that notwithstanding a binding commitment to
consummate an agreement of the nature of this Agreement entered into in the
proper exercise of their applicable fiduciary duties, such fiduciary duties
would also require the directors to reconsider such commitment as a result of
such tender offer or other written offer or proposal; and (ii) prior to any such
termination, Phar-Mor shall, and shall cause its respective financial and legal
advisors to, negotiate in good faith with ShopKo to make such adjustments in the
terms and conditions of this Agreement as would enable Phar-Mor to proceed with
the transactions contemplated herein; provided, further, that ShopKo and Phar-
Mor acknowledge and affirm that notwithstanding anything in this Section 6.1(i)
to the contrary, the parties hereto intend this Agreement to be an exclusive
agreement and, accordingly, nothing in this Agreement is intended to constitute
a solicitation of an offer or proposal for a Business Combination, it being
acknowledged
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<PAGE>
and agreed that any such offer or proposal would interfere with the strategic
advantages and benefits which the parties expect to derive from the
Reorganization;
(j) by ShopKo, if the Phar-Mor Board (i) shall withdraw or modify in
any manner adverse to ShopKo its approval of this Agreement and the transactions
contemplated hereby or its recommendation to its shareholders regarding the
approval of this Agreement, (ii) shall fail to reaffirm such approval or
recommendation upon the reasonable request of ShopKo, (iii) shall approve or
recommend any acquisition by a third party of Phar-Mor or a material portion of
its assets or any tender offer for the Phar-Mor Common Shares, or (iv) shall
resolve to take any of the actions specified in clause (i), (ii) or (iii);
provided, however, that ShopKo and Phar-Mor acknowledge and affirm that
notwithstanding anything in this Section 6.1(j) to the contrary, the parties
hereto intend this Agreement to be an exclusive agreement and, accordingly,
nothing in this Agreement is intended to constitute a solicitation of an offer
or proposal for a Business Combination, it being acknowledged and agreed that
any such offer or proposal would interfere with the strategic advantages and
benefits which the parties expect to derive from the Reorganization; and
(k) by Phar-Mor, if the ShopKo Board (i) shall withdraw or modify in
any manner adverse to Phar-Mor its approval of this Agreement and the
transactions contemplated hereby or its recommendation to its shareholders
regarding the approval of this Agreement, (ii) shall fail to reaffirm such
approval or recommendation upon the reasonable request of Phar-Mor, (iii) shall
approve or recommend any acquisition by a third party of ShopKo or a material
portion of its assets or any tender offer for the ShopKo Common Shares or (iv)
shall resolve to take any of the actions specified in clause (i), (ii) or (iii);
provided, however, that ShopKo and Phar-Mor acknowledge and affirm that
notwithstanding anything in this Section 6.1(k) to the contrary, the parties
hereto intend this Agreement to be an exclusive agreement and, accordingly,
nothing in this Agreement is intended to constitute a solicitation of an offer
or proposal for a Business Combination, it being acknowledged and agreed that
any such offer or proposal would interfere with the strategic advantages and
benefits which the parties expect to derive from the Reorganization.
6.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement as provided in
Sections 6.1(a) through 6.1(e), this Agreement shall forthwith become void and
there shall be no liability or obligation on the part of Phar-Mor or ShopKo or
their respective officers or directors; provided, however, that nothing in this
section shall release any party hereto from liability for any breach of this
Agreement.
(b) In the event of termination of this Agreement as a result of a
material breach thereof by ShopKo, on the one hand, or Phar-Mor, on the other,
the breaching party shall reimburse the non-breaching party for all expenses,
fees, financing commitments and other costs incurred by or on behalf of the non-
breaching party in connection with the Reorganization and the Parent Buy-Back
not in excess of $500,000, which remedy shall be in addition to, and not in lieu
of, all other remedies which the non-breaching party may have. In addition to
the foregoing:
(i) if this Agreement is terminated prior to the Effective Date
as provided in Section 6.1(f) and, prior to such termination, a ShopKo
Triggering Event shall have
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<PAGE>
occurred, ShopKo shall pay Phar-Mor a fee of $15 million payable in
cash, plus any expenses identified in Section 6.2(b); and
(ii) if this Agreement is terminated prior to the Effective Date
as provided in Section 6.1(g) and prior to such termination, a Phar-
Mor Triggering Event shall have occurred, Phar-Mor shall pay ShopKo a
fee of $3 million payable in cash, plus any expenses identified in
Section 6.2(b).
(iii) If this Agreement is terminated (i) at such time that this
Agreement is terminable pursuant to one of Section 6.1(h) or Section
6.1(i) but not the other, or (ii) is terminated pursuant to Section
6.1(j) or Section 6.1(k), then (A) in the event of a termination
pursuant to Section 6.1(i) or Section 6.1(j) Phar-Mor shall pay to
ShopKo, and (B) in the event of a termination pursuant to Section
6.1(h) or Section 6.1(k), ShopKo shall pay to Phar-Mor, promptly (but
not later than five business days after such notice is received
pursuant to Section 6.1(h) or Section 6.1(i) or is given pursuant to
Section 6.1(j) or Section 6.1(k)) an amount equal to $15 million in
cash if required to be paid by ShopKo and $3 million in cash if
required to be paid by Phar-Mor, plus in each case cash in an amount
equal to all documented out-of-pocket expenses and fees incurred by
the other party (including, without limitation, fees and expenses
payable to all legal, accounting, financial, public relations and
other professional advisors arising out of, in connection with or
related to the Reorganization or the transactions contemplated by this
Agreement) not in excess of $500,000.
A "ShopKo Triggering Event" shall mean: (i) the acceptance in writing by ShopKo
of any Business Combination proposal; (ii) the recommendation by the ShopKo
Board not to oppose any tender offer for capital stock of ShopKo by a third
party; (iii) a withdrawal or material modification by the ShopKo Board of its
authorization, approval or recommendation to the shareholders of ShopKo with
respect to the ShopKo Plan or the failure by the ShopKo Board to approve or take
steps necessary to consummate the Reorganization; or (iv) the acquisition by any
person, entity or group (as the term is used in Section 13(d)(3) of the Exchange
Act ("Section 13(d)(3)"), other than Supervalu, of beneficial ownership with
respect to more than twenty percent (20%) of the ShopKo Common Shares. A
"Phar-Mor Triggering Event" shall mean (i) the acceptance in writing by Phar-Mor
of any Business Combination proposal; (ii) the recommendation of the Phar-Mor
Board not to oppose any tender offer for capital stock of Phar-Mor by a third
party; (iii) a withdrawal or material modification by the Phar-Mor Board of its
authorization, approval or recommendation to the shareholders of Phar-Mor with
respect to the Phar-Mor Plan or the failure by the Phar-Mor Board to approve or
take steps necessary to consummate the Reorganization; or (iv) the acquisition
by any person, entity or group (as the term is used in Section 13(d)(3)), other
than Hamilton Morgan and its affiliates, of beneficial ownership with respect to
more than twenty percent (20%) of the Phar-Mor Common Shares.
(c) The parties agree that the agreements contained in this Section
6.2(b) are an integral part of the transactions contemplated by this Agreement
and constitute liquidated damages and not a penalty. If one party fails to pay
promptly to the other any expense and/or fee due hereunder, the defaulting party
shall pay the costs and expenses (including legal fees and expenses) in
connection with any action, including the filing of any lawsuit or other legal
action, taken to collect payment,
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<PAGE>
together with interest on the amount of any unpaid fee at the publicly
announced prime rate of Citibank, N.A. from the date such fee was required
to be paid.
(d) Notwithstanding anything herein to the contrary, the aggregate
amount payable by Phar-Mor and its affiliates pursuant to Section 6.2(b)
shall not exceed $3.5 million and the aggregate amount payable by ShopKo
and its affiliates pursuant to Section 6.2(b) shall not exceed $15.5
million.
6.3 AMENDMENT. This Agreement may be amended by an instrument in
writing approved by the Phar-Mor Board and the ShopKo Board and signed on
behalf of each of the parties hereto; provided, however, that after
adoption of this Agreement and the Reorganization by the shareholders of
Phar-Mor or ShopKo, no such amendment may be made without the further
approval of such approving shareholders except to the extent permitted by
Minnesota Law or Pennsylvania Law, as applicable.
6.4 WAIVER. At any time prior to the Effective Date, whether before
or after the Phar-Mor Special Meeting or the ShopKo Special Meeting, Phar-
Mor, by action taken by the Phar-Mor Board, or ShopKo, by action taken by
the ShopKo Board, may (i) extend the time for the performance of any of the
obligations or other acts of any other party hereto or (ii) waive
compliance with any of the agreements of any other party or with any
conditions to its own obligations. Any agreement on the part of a 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 by a duly
authorized officer.
ARTICLE VII
GENERAL PROVISIONS
7.1 NO SURVIVAL OF REPRESENTATIONS AND WARRANTIES. None of the
representations and warranties of Phar-Mor or ShopKo contained in Article
II shall survive Closing. This Section 7.1 shall not limit any covenant or
agreement of the parties hereto which by its terms contemplates performance
after the Effective Date.
7.2 NOTICES. All notices and other communications hereunder shall be
in writing (including telex or similar writing) and shall be deemed given
if delivered in person or by messenger, cable, telegram or telex or
facsimile transmission or by a reputable overnight delivery service which
provides for evidence of receipt to the parties at the following addresses
or telecopier numbers (or at such other address, or telecopy number for a
party as shall be specified by like notice):
(a) if to ShopKo, to:
ShopKo Stores, Inc.
700 Pilgrim Way
P.O. Box 19060
Green Bay, WI 54307-9060
Attn: Richard J. Schepp
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<PAGE>
with a copy to:
Randall J. Erickson, Esq.
Godfrey & Kahn, S.C.
780 North Water Street
Milwaukee, WI 53202-3590
and
Thomas A. Cole, Esq.
Sidley & Austin
One First National Plaza
Chicago, IL 60603
(b) if to Phar-Mor or Parent, to:
Phar-Mor, Inc.
20 Federal Plaza West
Youngstown, OH 44501-0400
Attn: John R. Ficarro, General Counsel
with a copy to:
Morris F. DeFeo, Jr., Esq.
Swidler & Berlin, Chartered
3000 K Street, N.W.
Washington, D.C. 20007-5116
7.3 ENTIRE AGREEMENT. This Agreement (including the Exhibits and
Schedules hereto and the documents and the instruments referred to herein and
therein), constitutes the entire agreement and supersedes all prior and
contemporaneous agreements and understandings, both written and oral, among the
parties with respect to the subject matter hereof.
7.4 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 of such state, and, to the extent applicable,
Minnesota Law and Pennsylvania Law.
7.5 VALIDITY. The invalidity or unenforceability of any provisions
of this Agreement shall not affect the validity or enforceability of any other
provisions of this Agreement, each of which shall remain in full force and
effect.
7.6 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any party hereto,
whether by operation of law or otherwise, without the express prior written
consent of each of the other parties hereto. Subject to the preceding
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sentence, this Agreement will be binding upon, inure to the benefit of and be
enforceable by the parties and their respective successors, heirs, legal
representatives and permitted assigns.
7.7 NO THIRD PARTY BENEFICIARIES. Except for the provisions in
Section 4.13 concerning indemnification, which are intended for the benefit only
of those Persons specified therein, Section 1.7 concerning Independent
Directors, which are intended for the benefit of the ShopKo Board and the Phar-
Mor Board as specified in such section, and Section 5.1(i), which, in addition
to the parties hereto, is also intended for the benefit of Supervalu, this
Agreement is not intended to confer upon any Person other than the parties
hereto any rights or remedies hereunder.
7.8 SEVERABILITY. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction or other authority
to be invalid, void, unenforceable or against its regulatory policy, the
remainder of the terms, provisions, covenants and restrictions of this Agreement
shall remain in full force and effect and shall in no way be affected, impaired
or invalidated.
7.9 INCORPORATION OF EXHIBITS AND SCHEDULES. The Exhibits and
Schedules identified in this Agreement are incorporated herein by reference and
made a part hereof as if more fully set forth herein.
7.10 INTERPRETATION. When reference is made in this Agreement to
Annexes, Exhibits or Sections, such reference shall be to an Annex, Exhibit to
or Section of this Agreement unless otherwise indicated. The headings contained
in this Agreement are for reference purposes only and shall not affect in any
way the meaning or interpretation of this Agreement.
7.11 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
[THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK]
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<PAGE>
IN WITNESS WHEREOF, ShopKo, Phar-Mor and Parent have caused this
Agreement to be signed by their respective officers thereunto duly authorized as
of the date first above written.
SHOPKO STORES, INC.
By: /s/ Dale P. Kramer
----------------------------------------------
Name: Dale P. Kramer
Title: President and Chief Executive Officer
PHAR-MOR, INC.
By: /s/ Robert M. Haft
----------------------------------------------
Name: Robert M. Haft
Title: Chairman of the Board and Chief
Executive Officer
CABOT NOBLE, INC.
By: /s/ Robert M. Haft
----------------------------------------------
Name: Robert M. Haft
Title: Chairman of the Board and Chief
Executive Officer
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<TABLE>
<CAPTION>
ANNEX A Agreement and Plan of Reorganization
-------
Exchange Ratio
(Number of Aggregate Value Fixed Aggregate Value
Assumed Parent Shares received Per Exchange Ratio received Per
Phar-Mor exchanged for each ShopKo Share [Pursuant to ShopKo Share
Share Price ShopKo Share) Exchanged Sections 6.1(d) & (e)] Exchanged
----------- ------------ --------- ---------------------- ---------
$ 5.000 3.450 $17.250 3.140 $15.700
Phar-Mor Conditional Termination Right $ 5.250 3.286 $17.250 3.140 $16.485
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 5.500 3.136 $17.250 3.136 $17.250
$ 5.750 3.000 $17.250 3.000 $17.250
$ 6.000 2.875 $17.250 2.875 $17.250
$ 6.250 2.760 $17.250 2.760 $17.250
$ 6.500 2.654 $17.250 2.654 $17.250
$ 6.750 2.556 $17.250 2.556 $17.250
$ 7.000 2.464 $17.250 2.464 $17.250
$ 7.188 2.400 $17.250 2.400 $17.250
$ 7.250 2.400 $17.400 2.400 $17.400
$ 7.375 2.400 $17.700 2.400 $17.700
$ 7.500 2.400 $18.000 2.400 $18.000
$ 7.750 2.323 $18.000 2.323 $18.000
$ 8.000 2.250 $18.000 2.250 $18.000
$ 8.250 2.182 $18.000 2.182 $18.000
$ 8.500 2.118 $18.000 2.118 $18.000
$ 8.750 2.057 $18.000 2.057 $18.000
$ 9.000 2.000 $18.000 2.000 $18.000
$ 9.250 1.946 $18.000 1.946 $18.000
$ 9.500 1.895 $18.000 1.895 $18.000
- ------------------------------------------------------------------------------------------------------------------------------------
ShopKo Conditional Termination Right $ 9.750 1.846 $18.000 1.895 $18.476
$10.000 1.800 $18.000 1.895 $18.950
</TABLE>
<PAGE>
LIST OF OMITTED SCHEDULES
-------------------------
Registrant agrees to furnish supplementally to the Commission a copy of any
omitted schedule or exhibit upon request.
Exhibit B Form of Revised Certificate of Incorporation of
Cabot Noble
Exhibit C Certificate of Incorporation of Cabot Noble, Inc.
Exhibit D By-Laws of Cabot Noble, Inc.
Schedule 1.2 Phar-Mor Options and Warrants
Schedule 1.3 ShopKo Options and Warrants
Schedule 1.8 Executive Officers of Cabot Noble
Schedule 2.1(b) ShopKo Subsidiaries
Schedule 2.1(c) ShopKo Capitalization
Schedule 2.1(e) ShopKo Exceptions to Noncontravention
Schedule 2.1(h) ShopKo Liabilities
Schedule 2.1(i) ShopKo Changes and Events
Schedule 2.1(l) ShopKo Litigation
Schedule 2.1(m) ShopKo Taxes and Tax Returns
Schedule 2.1(n) ShopKo Real Estate Matters
Schedule 2.1(p) ShopKo ERISA Matters
Schedule 2.1(q) ShopKo Environmental Matters
Schedule 2.1(r) ShopKo Employee Matters
Schedule 2.1(s) ShopKo Intellectual Property
Schedule 2.1(u) ShopKo Registration Rights
Schedule 2.2(b) Phar-Mor Subsidiaries
Schedule 2.2(c) Phar-Mor Capitalization
Schedule 2.2(e) Phar-Mor Exceptions to Noncontravention
Schedule 2.2(g) Phar-Mor Press Release dated August 22, 1996
Schedule 2.2(h) Phar-Mor Liabilities
Schedule 2.2(i) Phar-Mor Changes and Events
Schedule 2.2(l) Phar-Mor Litigation
Schedule 2.2(m) Phar-Mor Taxes and Tax Returns
Schedule 2.2(n) Phar-Mor Real Estate Matters
Schedule 2.2(p) Phar-Mor ERISA Matters
Schedule 2.2(q) Phar-Mor Environmental Matters
Schedule 2.2(r) Phar-Mor Employee Matters
Schedule 2.2(s) Phar-Mor Intellectual Property
Schedule 2.2(u) Phar-Mor Registration Rights
Schedule 2.3(b) Cabot Noble Capitalization
Schedule 3.1 ShopKo Actions Pending Closing
Schedule 3.2 Phar-Mor Actions Pending Closing
Schedule 5.2 Consents From Third Parties
Schedule 5.3 Consents From Third Parties
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<PAGE>
Exhibit E
---------
FORM OF
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into by and
between Shopko Stores, Inc., a Minnesota corporation (the "Company"), and Dale
Kramer ("Employee") as of ________ __, 1996.
WHEREAS, Cabot Noble, Inc., a Delaware corporation ("Cabot Noble"),
the Company and Phar-Mor, Inc., a Pennsylvania corporation ("Phar-Mor") have
entered into an Agreement and Plan of Reorganization dated as of September __,
1996 (the "Plan") whereby the Company and Phar-Mor will become wholly-owned
subsidiaries of Cabot Noble; and
WHEREAS, the Plan will constitute a "Change of Control" for purposes
of that Change of Control Severance Agreement dated April 10, 1995 between the
Company and the Employee (the "Severance Agreement"); and
WHEREAS, the Company wishes to retain the Employee to perform services
for the Company pursuant to this Agreement, which Agreement shall supersede the
Severance Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
I. EMPLOYMENT AND TERM.
The Company hereby employs Employee and Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth. This Agreement
shall commence on the Effective Date as defined in the Plan (the "Effective
Date") and terminate one day before the third anniversary of the Effective Date
(the "Stated Term"), subject to the provisions of Section IV of this Agreement.
II. DUTIES.
Subject to the provisions of Section IV of this Agreement:
<PAGE>
A. The Company will employ Employee and Employee will serve the Company
for the Stated Term as its President and Chief Executive Officer with the same
operational job responsibilities as he holds on the day prior to the Effective
Date acknowledging that the Company will no longer be a public company as of the
Effective Date. In addition, Employee will be a member of the Chairman's
Council of Cabot Noble. Employee shall have such corporate power and authority
as reasonably required to enable the discharge of duties in the office which he
holds.
B. Employee agrees to devote substantially all of his business time,
energies and abilities to the business of the Company. Nothing herein shall
prevent Employee, upon approval of the Board, from serving as a director or
trustee of other corporations or businesses that are not in competition with the
business of the Company as set forth in Section V of this Agreement or in
competition with any present or future affiliate of the Company.
C. Employee shall report to the Chairman of the Company or, at the Board's
direction, to the Board.
III. COMPENSATION.
A. Base Salary. During the Stated Term, the Company will pay to Employee
a base salary at the rate of $500,000 per year, subject to periodic review, not
less frequently than annually, and possible increase (but not decrease) by the
compensation committee (composed of independent directors) of the Board of
Directors of Cabot Noble (the "Compensation Committee"). Such salary shall be
earned weekly and shall be payable in arrears in periodic installments no less
frequently than in accordance with the Company's customary practices. Amounts
payable shall be reduced by standard withholding and other deductions authorized
by Employee or required by applicable law.
B. Bonus. For the Company's fiscal year ending February 22, 1997, the
Company will pay the Employee that bonus to which he is entitled under the
Company's F'97 Executive Incentive Plan (the "Incentive Plan"), provided,
however, that "earnings," for
2
<PAGE>
purposes of the earnings per share computation under the Incentive Plan, shall
be increased by expenses and one-time charges related to the transactions set
out in the Plan, including expenses associated with functions previously
performed in Youngstown. The determination of the Company's public accountants
as to these expenses and one-time charges shall be binding on the Employee and
the Company. For the twelve-month period beginning on February 23, 1997, the
Company will pay the Employee a bonus equal to the greater of (i) $250,000 or
(ii) the amount to which he is entitled under the incentive/bonus plan adopted
by the Compensation Committee. Thereafter, the Company will pay the Employee a
bonus equal to the amount to which he is entitled under the incentive/bonus plan
adopted by the Compensation Committee. If the fiscal year of the Company is
changed, the Compensation Committee will determine the bonus to be paid to the
Employee for the short fiscal year and the subsequent fiscal year by prorating
the bonus to which he would otherwise be entitled hereunder based on the number
of months in the short year, or such other equitable method such that the
Employee would not be economically disadvantaged compared to if the fiscal year
had not been changed. Any bonus payable to Employee under this Section III.B.
shall be paid within 90 days after the end of the applicable fiscal year.
C. Option Grant. Employee shall also be eligible and entitled to receive
on the Effective Date a nonqualified stock option for 175,000 shares of Cabot
Noble common stock at a per share exercise price equal to the fair market of a
share of Cabot Noble common stock on the Effective Date (the "Option"). The
Option shall vest as to one-third of the shares on ___________ __, 1997, as to
an additional one-third of the shares for a total of two-thirds of the shares on
____________ __, 1998 and as to the remaining one-third of the shares for a
total of all of the shares on _____________ __, 1999. Notwithstanding the
foregoing, if, during the Stated Term, the Employee's employment is terminated
by the Company without Cause (as defined in Section IV.B. hereof) or the
Employee terminates employment with the Company for Good Reason (as defined in
Section IV.C. hereof), the Option shall immediately vest. In all events, the
Option shall remain exercisable for the lesser of (i) three years after
3
<PAGE>
termination of employment with the Company for any reason other than termination
by the Company for Cause or (ii) ten years after the Effective Date. During the
term of this Agreement, Employee shall remain eligible, subject to the
discretion of the Compensation Committee, to receive additional option awards.
D. Other Stock or Equity Plans. Employee shall be eligible to participate
under any other stock or equity incentive plan or benefit provided by the
Company to senior officers at the discretion of the Compensation Committee. For
purposes of this Agreement, "senior officer" means an officer of the Company of
the rank of senior vice president or above.
E. Welfare Benefit Plans. Employee and/or his family, as the case may be,
shall (subject only to exceptions of general applicability or applicable legal
requirements) be eligible to participate in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, pension, medical, prescription, dental,
disability, and life insurance plans and programs) to the extent available
generally to senior officers of the Company.
F. Expenses. Employee shall be entitled to receive prompt reimbursement
for all reasonable employment expenses incurred by him in accordance with the
policies, practices and procedures of the Company as in effect generally with
respect to senior officers.
G. Vacation. Employee shall be entitled during the term of this Agreement
to five (5) weeks paid vacation per annum. Employee may accumulate vacation only
to the extent permitted by the policies, practices and procedures of the Company
as in effect generally with respect to senior officers.
H. Car or Car Allowance. Employee shall be entitled to a car or car
allowance to the extent applicable generally to senior officers.
4
<PAGE>
I. Attorneys' Fee Reimbursement. On the later of (i) the Effective Date
or (ii) ten days after the presentation of the invoice therefor, the Company
shall pay to the law firm of McDermott, Will & Emery in Chicago an amount not to
exceed $9,500 for legal fees incurred by the Employee.
J. Supplemental Retirement Benefit. No later than 30 days after the
Stated Term, the Company shall pay to the Employee, or, if the Employee is
deceased, his Estate or such other beneficiary as he designates to the Company
in writing, a lump sum amount equal to $950,000. In addition, the Company will
use its best efforts to provide the Employee and his spouse with group medical
and dental insurance comparable to that provided to senior officers for the
period beginning with the Employee's termination of employment and ending with
the Employee's 65th birthday.
K. Reservation of Right to Amend. Except with respect to the benefits
provided to Employee in accordance with Sections III.A., B., C., G., H., I. and
J., the Company reserves the right to modify, suspend or discontinue any and all
of the above plans, practices, policies and programs at any time without
recourse by Employee so long as such action is taken with respect to senior
officers or management generally and does not single out Employee.
IV. TERMINATION.
-----------
A. Death or Disability. Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that a Disability of Employee has occurred (pursuant to the definition of
Disability set forth below), Company may terminate Employee's employment by
providing Employee written notice in accordance with Section XVI of the
Company's intention to terminate Employee's employment. In such event,
Employee's employment with the Company shall terminate effective on the 30th day
after receipt of such notice by Employee, provided that, within the 30 days
after such receipt, Employee shall not have returned to full-time performance of
his duties.
5
<PAGE>
For purposes of this Agreement, "Disability" means a physical or mental
impairment which (i) substantially limits a major life activity of Employee,
(ii) renders Employee unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an undue hardship on the
Company, and (iii) has contributed to Employee's absence from his duties with
the Company on a full-time basis for more than 60 consecutive days. The Company
reserves the right, in good faith, to make the determination of Disability under
this Agreement based upon information (as to items (i) and (ii) above) supplied
by a physician selected by the Company or its insurers and acceptable to
Employee or his legal representative (such agreement as to acceptability not to
be withheld unreasonably).
B. Cause. The Company may terminate Employee's employment for Cause
(pursuant to the definition of Cause set forth below) by providing Employee
written notice in accordance with Section XVI of the Company's intention to
terminate Employee's employment, setting forth in such notice the specific
grounds therefor. In such event, Employees employment with the Company shall
terminate effective as of the date of receipt of such notice by Employee.
For purposes of this Agreement, "Cause" means (1) a material breach by
Employee of Employee's obligations under Section II of this Agreement (other
than as a result of incapacity due to physical or mental illness), which is
demonstrably willful and deliberate on the Employee's part and is committed in
bad faith or without reasonable belief that such conduct is in the best
interests of the Company, or which is the result of Employee's gross neglect of
duties, and, in either case, not remedied in a reasonable period of time not
more than five days after receipt of written notice from the Board specifying
such breach, (2) the conviction of Employee of a felony or other crime involving
fraud, dishonesty or moral turpitude, or (3) the commission by the Employee of a
fraud which results in a material financial loss to the Company.
C. Good Reason. Employee may terminate Employee's employment for Good
Reason (pursuant to the definition of Good
6
<PAGE>
Reason set forth below) which is not remedied in a reasonable period of time not
more than five days after notice thereof as provided below. Employee shall
provide the Company written notice in accordance with Section XVI of Employee's
intention to terminate Employee's employment for Good Reason, setting forth in
such notice the grounds therefor. In such event, Employee's employment with the
Company shall terminate effective as of the earlier of (x) the 15th day after
the Company's receipt of such notice or (y) such later date as set forth in such
notice, unless the Company has cured the grounds therefor.
For purposes of this Agreement, "Good Reason" means (1) Employee's position
(including responsibilities, title, reporting requirements or authority) is
reduced below the level set forth in Section II.A. hereof; (2) the Company fails
in any material respect to comply with the provisions of Section III of this
Agreement; (3) the Company purports to terminate Employee's employment otherwise
than as expressly permitted by this Agreement or without payment of any amounts
required to be paid under Section IV.F; or (4) the Company required the Employee
to be based at any office or location other than Green Bay, Wisconsin, except
for travel reasonably required in performance of the Employee's responsibilities
hereunder.
D. Other than Cause or Good Reason or Death or Disability. The Company may
terminate Employee's employment without cause by providing Employee written
notice in accordance with Section XVI of the Company's intention to terminate
Employee's employment. In such event, Employee's employment shall terminate
effective on the 30th day after receipt of such notice by Employee.
E. Termination by Employee other than for Good Reason. The Employee may
voluntarily terminate his employment with the Company for any reason whatsoever,
other than in a situation where he has Good Reason for doing so, by providing
Employer written notice thereof in accordance with Section XVI. In such event,
Employee's employment shall terminate effective on the 30th day after receipt of
such notice by Employer unless the parties mutually agree to an earlier
termination.
7
<PAGE>
F. Obligations of the Company Upon Termination.
-------------------------------------------
Upon termination of Employee's employment for any reason, the Company shall
have no further obligations to Employee (or his estate or legal representative)
under this Agreement other than the following:
1. Death or Disability. If Employee's employment is terminated by
reason of Employee's Death or Disability, the Company shall: (a) pay (i)
the sum of (a) Employee's annual base salary through the end of the
calendar month during which the termination occurs (to the extent not
theretofore paid), (b) any accrued vacation pay, in each case to the extent
not theretofore paid and (c) any accrued incentive compensation that has
been fixed and determined, which the Company shall pay to Employee or his
estate or beneficiary, as applicable, in a lump sum in cash within 30 days
of the date of termination, or earlier as may be required by applicable law
and (ii) the supplemental retirement benefit set forth in Section III.J.
hereof no later than the 30th day after the Stated Term; (b) pay any
amounts then due or payable pursuant to the terms of any applicable welfare
benefit plans notwithstanding such termination of employment; and (c)
perform its obligations under any then outstanding stock option awards,
whether granted by Cabot Noble, the Company or otherwise, and any other
stock or incentive awards in accordance with their respective terms (the
sum of the amounts and benefits described in clauses (a), (b) and (c) shall
be hereinafter referred to as the "Accrued Obligations").
2. Cause. If Employee's employment is terminated by the Company for
Cause, the Company shall timely pay any Accrued Obligations, not including
the amount set forth in Section IV.F.1.(a)(ii) hereof. If it is
subsequently determined that the Company did not have Cause for termination
under Section IV.B., then the Company's decision to terminate shall be
deemed to have been made under Section IV.D., and the amounts payable under
Section IV.F.3 shall be the only amounts Employee may receive for his
termination.
8
<PAGE>
3. Other than For Cause or by Reason of Death or Disability. If the Company
terminates Employee's employment (other than for Cause or because of his Death
or Disability), or Employee terminates his employment for Good Reason, the
Company shall (a) timely pay any Accrued Obligations and (b) the amounts set
forth in the remainder of this Section depending on the date on which the
Employee's employment with the Company is terminated. If the termination of
employment occurs on or prior to ________ __, 1997, the Company shall pay
Employee a lump sum equal to three times the sum of (i) the base salary
contained in Section III.A. hereof (or any higher base salary currently in
effect on the date of termination) ("Base Salary") and (ii) the greater of (a)
the average of the annual bonuses payable to the Employee in respect of the
three fiscal years preceding the fiscal year in which the termination occurs
(annualized if any of the fiscal years is shorter than twelve months) or (b)
$250,000 (the greater of (a) or (b) being the "Bonus Amount"). If the
termination of employment occurs after ________ __, 1997 but on or prior to
________ __, 1999, the Company shall pay Employee a lump sum equal to (iii) the
greater of (c) the number of months remaining in the Stated Term after the month
in which the termination of employment occurs, divided by twelve, or (d) 1.5
times (iv) the sum of (e) the Base Salary and (f) the Bonus Amount. In addition,
if Employee is terminated without Cause or terminates his employment for Good
Reason, then Company shall pay Employee an additional amount equal to the annual
base salary not otherwise paid to Employee for that portion of the notice period
under Section IV.C. or IV.D. during which Employee continued in the employment
of the Company.
4. Termination by Employee other than for Good Reason. If the Employee
voluntarily terminates his employment with the Company for any reason
whatsoever, other than in a situation where he has Good Reason for doing so, the
Company shall (i) timely pay any Accrued Obligations and (ii) enter into a
consulting agreement with Employee containing customary terms reasonably
agreeable to the Employee and the
9
<PAGE>
Company whereby the Employee will be paid a consulting fee of $150,000 per annum
for the remainder of the Stated Term.
5. Withholdings and Deductions. Any payment made pursuant to this Section
IV.F. shall be paid, less standard withholdings and other deductions authorized
by Employee or required by law. All amounts due Employee under this Section
IV.F. shall be paid within 14 days after the date of termination or as earlier
required by law, provided, however, that the Accrued Obligations shall be paid
no later than 30 days after the date of termination, except in the case of the
payment under Section III.J. hereof which shall be paid no later than 30 days
after the expiration of the Stated Term.
6. Exclusive Remedy. Employee agrees that the payments contemplated by this
Agreement shall constitute the exclusive and sole remedy for any termination of
his employment, and Employee covenants not to assert or pursue any other
remedies, at law or in equity, with respect to any termination of employment.
7. Restricted Stock and Other Benefit Plans. The Company agrees that for
purposes of the vesting of the restricted stock granted to Employee by the
Company on April 17, 1996 (the "Restricted Stock"), any termination of
employment shall be treated as a retirement after age 55 with ten or more years
of service with the Company. The Company further agrees that any termination of
employment shall be treated as a retirement for purposes of the welfare benefit
plans set forth in Section III.C. hereof and any other stock option or incentive
plans of Cabot Noble or the Company so long as the age and length of service
requirements set forth in those plans are met.
V. NONCOMPETITION.
--------------
Employee agrees that for that portion of the Stated Term during which he
remains in the employ of the Company, he will not, directly or indirectly,
without the prior written consent of
10
<PAGE>
the Board, provide consulting services with or without pay, own, manage,
operate, join, control, participate in, or be connected as a stockholder,
partner, employee, director, officer or otherwise with any other person, entity
or organization engaged directly or indirectly in the business of (i) operating
a regional or national mass retail specialty discounter or (ii) operating a
prescription benefit management service or optical vision management service, or
(iii) providing a combination software/decision support product for reducing
health care insurance costs. The mere ownership by Employee of shares
representing less than one percent of the equity of any publicly traded company,
or less than five percent of the equity of any privately-held company, shall not
be prohibited by this Agreement.
VI. UNIQUE SERVICES; INJUNCTIVE RELIEF; SPECIFIC PERFORMANCE.
--------------------------------------------------------
Employee agrees (i) that the services to be rendered by Employee pursuant
to this Agreement, the rights and privileges granted to the Company pursuant to
this Agreement and the rights and privileges granted to Employee by virtue of
his position, are of a special, unique, extraordinary, managerial and
intellectual character, which gives them a peculiar value, the loss of which to
the Company cannot be adequately compensated in damages in any action at law,
(ii) that the Company will or would suffer irreparable injury if Employee were
to compete with the business of the Company or to solicit employees of the
Company in violation of Section V. or VII. of this Agreement, and (iii) that the
Company would by reason of such breach or violation of this Agreement be
entitled to the remedies of injunction, specific performance and other equitable
relief in a court of appropriate jurisdiction. Employee consents to the
jurisdiction of a court of equity to enter provisional equitable relief to
prevent a breach or anticipatory breach of Section V. or VII. of this Agreement
by Employee.
VII. SOLICITING EMPLOYEES.
--------------------
Employee, while he is employed by the Company and for the one year period
following termination of his employment, will not
11
<PAGE>
directly or indirectly solicit any employee of the Company or of any subsidiary
or affiliate of the Company in an executive, managerial, sales or marketing
capacity to work for any business, individual, partnership, firm, corporation,
or other entity then in competition with the business of the Company or of any
subsidiary or affiliate of the Company.
VIII. CONFIDENTIAL INFORMATION.
------------------------
Employee agrees that during the Stated Term of this Agreement and at all
times thereafter (notwithstanding the termination of this Agreement or the
expiration of the Stated Term of this Agreement):
A. Employee shall hold in a fiduciary capacity for the benefit of the
Company all secret or Confidential Information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses
that are obtained by Employee during his employment by the Company or any of its
affiliated companies and that are not or do not become public knowledge (other
than by acts by Employee or his representatives in violation of this Agreement).
For the purposes of this Agreement, "Confidential Information" includes
financial information about the Company (including gross profit margins),
contract terms with the Company's vendors and others, customer lists and data,
trade secrets and such other competitively sensitive information to which
Employee has access as a result of his positions with the Company. After
termination of Employee's employment with the Company, he shall not, without the
prior written consent of the Company, or as may otherwise be required by law or
legal process, communicate or divulge such Confidential Information to anyone
other than the Company and those designated by it.
B. Employee agrees that all styles, designs, lists, materials, books,
files, reports, computer equipment, pharmacy cards, Company automobiles, keys,
door opening cards, correspondence, records and other documents ("Company
material") used, prepared or made available to Employee, shall be and shall
12
<PAGE>
remain the property of the Company. Upon the termination of employment or the
expiration of this Agreement, all Company materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.
IX. SUCCESSORS.
----------
A. This Agreement is personal to Employee and neither it nor any benefits
hereunder shall, without the prior written consent of the Company, be assignable
by Employee.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity that at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise.
X. WAIVER.
------
No waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of this Agreement.
No waiver shall be binding unless in writing and signed by the party waiving the
breach.
XI. MODIFICATION.
------------
This Agreement may not be amended or modified other than by a written
agreement executed by the Employee and (a) the Chairman of the Board or (b) a
duly authorized member of the Board who is not an officer or employee of the
Company or a subsidiary of the Company.
XII. SAVINGS CLAUSE.
--------------
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other
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<PAGE>
provisions or applications of the Agreement that can be given effect without the
invalid provisions or applications, and to this end the provisions of this
Agreement are declared to be severable.
XIII. COMPLETE AGREEMENT.
------------------
This Agreement constitutes and contains the entire agreement and
understanding concerning Employee's employment and the other subject matters
addressed herein between the parties and, as of the Effective Date, supersedes
and replaces all prior negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matters of this Agreement,
including the Severance Agreement.
XIV. GOVERNING LAW.
-------------
This Agreement shall be deemed to have been executed and delivered within
the State of Wisconsin, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with, and governed by, the laws of
the State of Wisconsin without regard to principles of conflict of laws.
XV. CAPTIONS.
--------
The captions of this Agreement are not part of the provisions of this
Agreement and shall have no force or effect.
XVI. COMMUNICATIONS.
--------------
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if hand delivered or if
mailed by registered or certified mail, postage prepaid, addressed:
If to Employee, to
Dale Kramer
2532 Huntington Way South
Suamico, WI 54173
14
<PAGE>
If to the Company, to
700 Pilgrim Way
Box 19060
Green Bay, WI 54307-9060
Attention: Chairman of the Board of Directors
with a copy to
Cabot Noble, Inc.
3000 K St., NW
Washington, D.C. 20007
Attn: Robert Haft
Either party may change the address at which notice shall be given by written
notice given in the above manner.
XVII. ARBITRATION.
-----------
Except as otherwise provided in Section VI. of this Agreement, any dispute,
controversy or claim arising out of or in respect of this Agreement (or its
validity, interpretation or enforcement), the employment relationship or the
subject matter of this Agreement shall at the request of either party be
submitted to and settled by arbitration conducted in Green Bay, Wisconsin in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. The arbitration shall be governed by the Federal
Arbitration Act (9 U.S.C. (S)(S) 1-16). The arbitration of such issues,
including the determination of any amount of damages suffered, shall be final
and binding upon the parties to the maximum extent permitted by law. The
arbitrator in such action shall not be authorized to ignore, change, modify, add
to or delete from any provision of this Agreement. Judgment upon the award
rendered by the arbitrator may be entered by any court having jurisdiction
thereof. The arbitrator shall award reasonable expenses (including
reimbursement of the assigned arbitration costs and reasonable attorneys' fees)
to the prevailing party upon application therefor.
XVIII. EXECUTION.
---------
15
<PAGE>
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same Agreement. Photographic copies of such signed counterparts may be used
in lieu of the originals for any purpose.
XIX. LEGAL COUNSEL.
In entering this Agreement, the parties represent that they have relied
upon the advice of their respective attorneys, who are attorneys of their own
choice, and that the terms of this Agreement have been completely read and
explained to them by their attorneys, and that those terms are fully understood
and voluntarily accepted by them.
XX. LIMITATION ON PAYMENTS.
A. Notwithstanding anything contained herein to the contrary, prior to the
payment of any amounts pursuant to Section IV.F.3. hereof, an independent
national accounting firm designated by the Company (the "Accounting Firm") shall
compute whether there would be any "excess parachute payments" payable to the
Employee, within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), taking into account the total "parachute
payments," within the meaning of Section 280G of the Code, payable to the
Employee by the Company or any successor thereto under this Agreement and any
other plan, agreement or otherwise. If there would be any excess parachute
payments, the Accounting Firm will compute the net after-tax proceeds to the
Employee, taking into account the excise tax imposed by Section 4999 of the
Code, if (i) the payments hereunder were reduced, but not below zero, such that
the total parachute payments payable to the Employee would not exceed three (3)
times the "base amount" as defined in Section 280G of the Code, less One Dollar
($1.00), or (ii) the payments hereunder were not reduced. If reducing the
payments hereunder would result in a greater after-tax amount to the Employee,
such lesser amount shall be paid to the Employee. If not reducing the payments
hereunder would result in a greater after-tax amount to the Employee, such
payments shall not be reduced. The
16
<PAGE>
determination by the Accounting Firm shall be binding upon the Company and the
Employee subject to the application of Section XX.B. hereof.
B. As a result of the uncertainty in the application of Sections 280G of
the Code, it is possible that excess parachute payments will be paid when such
payment would result in a lesser after-tax amount to the Employee; this is not
the intent hereof. In such cases, the payment of any excess parachute payments
will be void ab initio as regards any such excess. Any excess will be treated
as a loan by the Company to the Employee. The Employee will return the excess
to the Company, within fifteen (15) business days of any determination by the
Accounting Firm that excess parachute payments have been paid when not so
intended, with interest at an annual rate equal to the rate provided in Section
1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that
such rate is necessary to avoid an excise tax under Section 4999 of the Code)
from the date the Employee received the excess until it is repaid to the
Company.
C. All fees, costs and expenses (including, but not limited to, the cost
of retaining experts) of the Accounting Firm shall be borne by the Company and
the Company shall pay such fees, costs and expenses as they become due. In
performing the computations required hereunder, the Accounting Firm shall assume
that taxes will be paid for state and federal purposes at the highest possible
marginal tax rates which could be applicable to the Employee in the year of
receipt of the payments, unless the Employee agrees otherwise.
17
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SHOPKO STORES, INC. Dale Kramer
By:
-------------------------------- -------------------------------------
Its:
-------------------------------
18
<PAGE>
Exhibit F
---------
FORM OF
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into by and between
Shopko Stores, Inc., a Minnesota corporation (the "Company"), and William Podany
("Employee") as of __________, 1996.
WHEREAS, Cabot Noble, Inc., a Delaware corporation ("Cabot Noble"), the
Company and Phar-Mor, Inc., a Pennsylvania corporation ("Phar-Mor") have entered
into an Agreement and Plan of Reorganization dated as of September __, 1996 (the
"Plan") whereby the Company and Phar-Mor will become wholly-owned subsidiaries
of Cabot Noble; and
WHEREAS, the Plan will constitute a "Change of Control" for purposes of
that Change of Control Severance Agreement dated April 10, 1995 between the
Company and the Employee (the "Severance Agreement"); and
WHEREAS, the Company wishes to retain the Employee to perform services for
the Company pursuant to this Agreement, which Agreement shall supersede the
Severance Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
I. EMPLOYMENT AND TERM.
-------------------
The Company hereby employs Employee and Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth. This Agreement
shall commence on the Effective Date as defined in the Plan (the "Effective
Date") and terminate one day before the second anniversary of the Effective Date
(the "Stated Term"), subject to the provisions of Section IV of this Agreement.
II. DUTIES.
------
Subject to the provisions of Section IV of this Agreement:
<PAGE>
A. The Company will employ Employee and Employee will serve the Company
for the Stated Term as its Executive Vice President and Chief Operating Officer
with the same operational job responsibilities as he holds on the day prior to
the Effective Date acknowledging that the Company will no longer be a public
company as of the Effective Date. Employee shall also be a member of the
Chairman's Council of Cabot Noble. Employee shall have such corporate power and
authority as reasonably required to enable the discharge of duties in the office
which he holds.
B. Employee agrees to devote substantially all of his business time,
energies and abilities to the business of the Company. Nothing herein shall
prevent Employee, upon approval of the Board, from serving as a director or
trustee of other corporations or businesses that are not in competition with the
business of the Company as set forth in Section V of this Agreement or in
competition with any present or future affiliate of the Company.
C. Employee shall report to the President of the Company or, at the
Board's direction, to the Board.
III. COMPENSATION.
------------
A. Base Salary. During the Stated Term, the Company will pay to Employee
a base salary at the rate of $440,000 per year, subject to periodic review, not
less frequently than annually, and possible increase (but not decrease) by the
compensation committee (composed of independent directors) of the Board of
Directors of Cabot Noble (the "Compensation Committee"). Such salary shall be
earned weekly and shall be payable in arrears in periodic installments no less
frequently than in accordance with the Company's customary practices. Amounts
payable shall be reduced by standard withholding and other deductions authorized
by Employee or required by applicable law.
B. Bonus. For the Company's fiscal year ending February 22, 1997, the
Company will pay the Employee that bonus to which he is entitled under the
Company's F'97 Executive Incentive Plan (the "Incentive Plan"), provided,
however, that "earnings," for
2
<PAGE>
purposes of the earnings per share computation under the Incentive Plan, shall
be increased by expenses and one-time charges related to the transactions set
out in the Plan, including expenses associated with functions previously
performed in Youngstown. The determination of the Company's public accountants
as to these expenses and one-time charges shall be binding on the Employee and
the Company. For the twelve-month period beginning on February 23, 1997, the
Company will pay the Employee a bonus equal to the greater of (i) 40% of his
base salary as then in effect, but not less than $176,000 (the "Minimum Bonus"),
or (ii) the amount to which he is entitled under the incentive/bonus plan
adopted by the Compensation Committee. Thereafter, the Company will pay the
Employee a bonus equal to the amount to which he is entitled under the
incentive/bonus plan adopted by the Compensation Committee. If the fiscal year
of the Company is changed, the Compensation Committee will determine the bonus
to be paid to the Employee for the short fiscal year and the subsequent fiscal
year by prorating the bonus to which he would otherwise be entitled hereunder
based on the number of months in the short year, or such other equitable method
such that the Employee would not be economically disadvantaged compared to if
the fiscal year had not been changed. Any bonus payable to Employee under this
Section III.B. shall be paid within 90 days after the end of the applicable
fiscal year.
C. Option Grant. Employee shall also be eligible and entitled to receive on
the Effective Date a nonqualified stock option for 112,500 shares of Cabot Noble
common stock at a per share exercise price equal to the fair market of a share
of Cabot Noble common stock on the Effective Date (the "Option"). The Option
shall vest as to one-third of the shares on ___________ __, 1997, as to an
additional one-third of the shares for a total of two-thirds of the shares on
____________ __, 1998, and as to the remaining one-third for a total of all of
the shares on ________ __, 1999. Notwithstanding the foregoing, if, during the
Stated Term, the Employee's employment is terminated by the Company without
Cause (as defined in Section IV.B. hereof) or the Employee terminates employment
with the Company for Good Reason (as defined in Section IV.C. hereof), the
Option shall
3
<PAGE>
immediately vest. During the term of this Agreement, Employee shall remain
eligible, subject to the discretion of the Compensation Committee, to receive
additional option awards.
D. Other Stock or Equity Plans. Employee shall be eligible to participate
under any other stock or equity incentive plan or benefit provided by the
Company to senior officers at the discretion of the Compensation Committee. For
purposes of this Agreement, "senior officer" means an officer of the Company of
the rank of senior vice president or above.
E. Welfare Benefit Plans. Employee and/or his family, as the case may be,
shall (subject only to exceptions of general applicability or applicable legal
requirements) be eligible to participate in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, pension, medical, prescription, dental,
disability, and life insurance plans and programs) to the extent available
generally to senior officers of the Company.
F. Expenses. Employee shall be entitled to receive prompt reimbursement for
all reasonable employment expenses incurred by him in accordance with the
policies, practices and procedures of the Company as in effect generally with
respect to senior officers.
G. Vacation. Employee shall be entitled during the term of this Agreement
to four (4) weeks paid vacation per annum. Employee may accumulate vacation only
to the extent permitted by the policies, practices and procedures of the Company
as in effect generally with respect to senior officers.
H. Car or Car Allowance. Employee shall be entitled to a car or car
allowance to the extent applicable generally to senior officers.
I. Attorneys' Fee Reimbursement. On the later of (i) the Effective Date or
(ii) ten days after the presentation of the invoice therefor, the Company shall
pay to the law firm of
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McDermott, Will & Emery in Chicago an amount not to exceed $9,500 for legal fees
incurred by the Employee.
J. Reservation of Right to Amend. Except with respect to the benefits
provided to Employee in accordance with Sections III.A., B., C., G., H., and I.,
the Company reserves the right to modify, suspend or discontinue any and all of
the above plans, practices, policies and programs at any time without recourse
by Employee so long as such action is taken with respect to senior officers or
management generally and does not single out Employee.
IV. TERMINATION.
A. Death or Disability. Employee's employment shall terminate automatically
upon Employee's death. If the Company determines in good faith that a Disability
of Employee has occurred (pursuant to the definition of Disability set forth
below), Company may terminate Employee's employment by providing Employee
written notice in accordance with Section XVI of the Company's intention to
terminate Employee's employment. In such event, Employee's employment with the
Company shall terminate effective on the 30th day after receipt of such notice
by Employee, provided that, within the 30 days after such receipt, Employee
shall not have returned to full-time performance of his duties.
For purposes of this Agreement, "Disability" means a physical or mental
impairment which (i) substantially limits a major life activity of Employee,
(ii) renders Employee unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an undue hardship on the
Company, and (iii) has contributed to Employee's absence from his duties with
the Company on a full-time basis for more than 60 consecutive days. The Company
reserves the right, in good faith, to make the determination of Disability under
this Agreement based upon information (as to items (i) and (ii) above) supplied
by a physician selected by the Company or its insurers and acceptable to
Employee or his legal representative (such agreement as to acceptability not to
be withheld unreasonably).
5
<PAGE>
B. Cause. The Company may terminate Employee's employment for Cause
(pursuant to the definition of Cause set forth below) by providing Employee
written notice in accordance with Section XVI of the Company's intention to
terminate Employee's employment, setting forth in such notice the specific
grounds therefor. In such event, Employees employment with the Company shall
terminate effective as of the date of receipt of such notice by Employee.
For purposes of this Agreement, "Cause" means (1) a material breach by
Employee of Employee's obligations under Section II of this Agreement (other
than as a result of incapacity due to physical or mental illness), which is
demonstrably willful and deliberate on the Employee's part and is committed in
bad faith or without reasonable belief that such conduct is in the best
interests of the Company, or which is the result of Employee's gross neglect of
duties, and, in either case, not remedied in a reasonable period of time not
more than five days after receipt of written notice from the Board specifying
such breach, (2) the conviction of Employee of a felony or other crime involving
fraud, dishonesty or moral turpitude, or (3) the commission by the Employee of a
fraud which results in a material financial loss to the Company.
C. Good Reason. Employee may terminate Employee's employment for Good
Reason (pursuant to the definition of Good Reason set forth below) which is not
remedied in a reasonable period of time not more than five days after notice
thereof as provided below. Employee shall provide the Company written notice in
accordance with Section XVI of Employee's intention to terminate Employee's
employment for Good Reason, setting forth in such notice the grounds therefor.
In such event, Employee's employment with the Company shall terminate effective
as of the earlier of (x) the 15th day after the Company's receipt of such notice
or (y) such later date as set forth in such notice, unless the Company has cured
the grounds therefor.
For purposes of this Agreement, "Good Reason" means (1) Employee's position
(including responsibilities, title, reporting requirements or authority) is
reduced below the level set forth
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in Section II.A. hereof; (2) the Company fails in any material respect to comply
with the provisions of Section III of this Agreement; (3) the Company purports
to terminate Employee's employment otherwise than as expressly permitted by this
Agreement or without payment of any amounts required to be paid under Section
IV.F; or (4) the Company requires the Employee to be based at any office or
location other than Green Bay, Wisconsin, except for travel reasonably required
in performance of the Employee's responsibilities hereunder.
D. Other than Cause or Good Reason or Death or Disability. The Company may
terminate Employee's employment without cause by providing Employee written
notice in accordance with Section XVI of the Company's intention to terminate
Employee's employment. In such event, Employee's employment shall terminate
effective on the 30th day after receipt of such notice by Employee.
E. Termination by Employee other than for Good Reason. The Employee may
voluntarily terminate his employment with the Company for any reason whatsoever,
other than in a situation where he has Good Reason for doing so, by providing
Employer written notice thereof in accordance with Section XVI. In such event,
Employee's employment shall terminate effective on the 30th day after receipt of
such notice by Employer unless the parties mutually agree to an earlier
termination.
F. Obligations of the Company Upon Termination.
Upon termination of Employee's employment for any reason, the Company shall
have no further obligations to Employee (or his estate or legal representative)
under this Agreement other than the following:
1. Death or Disability. If Employee's employment is terminated by reason
of Employee's Death or Disability, the Company shall: (a) pay the sum of (i)
Employee's annual base salary through the end of the calendar month during which
the termination occurs (to the extent not theretofore paid), (ii) any accrued
vacation pay, in each case to the extent not theretofore paid, and (iii) any
accrued incentive
7
<PAGE>
compensation that has been fixed and determined, which the Company shall pay to
Employee or his estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the date of termination, or earlier as may be required by
applicable law; (b) pay any amounts then due or payable pursuant to the terms of
any applicable welfare benefit plans notwithstanding such termination of
employment; and (c) perform its obligations under any then outstanding stock
option awards, whether granted by Cabot Noble, the Company or otherwise, and any
other stock or incentive awards in accordance with their respective terms (the
sum of the amounts and benefits described in clauses (a), (b) and (c) shall be
hereinafter referred to as the "Accrued Obligations").
2. Cause. If Employee's employment is terminated by the Company for
Cause, the Company shall timely pay any Accrued Obligations. If it is
subsequently determined that the Company did not have Cause for termination
under Section IV.B., then the Company's decision to terminate shall be deemed to
have been made under Section IV.D., and the amounts payable under Section IV.F.3
shall be the only amounts Employee may receive for his termination.
3. Other than For Cause or by Reason of Death or Disability. If the
Company terminates Employee's employment (other than for Cause or because of his
Death or Disability), or Employee terminates his employment for Good Reason, the
Company shall (a) timely pay any Accrued Obligations and (b) if such termination
occurs on or prior to ________ __, 1997, pay Employee a lump sum equal to two
times the sum of (i) the base salary contained in Section III.A. hereof (or any
higher base salary currently in effect on the date of termination) ("Base
Salary") and (ii) the greater of (a) the average of the annual bonuses payable
to the Employee by the Company in respect of the three fiscal years preceding
the fiscal year in which the termination occurs, annualized if any of the fiscal
years is shorter than twelve months (or the average of bonuses paid by the
Company for such shorter period preceding the fiscal year in
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<PAGE>
which termination occurs during which the Employee was employed) or (b) the
Minimum Bonus (the greater of (a) or (b) being the "Bonus Amount"). If the
termination of employment occurs after ________ __, 1997 but on or prior to
________ __, 1998, the Company shall pay Employee a lump sum equal to 1.5 times
the sum of (c) the Base Salary and (d) the Bonus Amount. In addition, if
Employee is terminated without Cause or terminates his employment for Good
Reason, then Company shall pay Employee an additional amount equal to the annual
base salary not otherwise paid to Employee for that portion of the notice period
under Section IV.C. or IV.D. during which Employee continued in the employment
of the Company. Further, the Company shall pay to Employee, within 14 days of
presentation of receipts or other substantiation reasonably required hereunder,
an amount equal to (e) all out-of-pocket expenses for packing and moving his
household effects and automobiles by commercial moving service from Green Bay,
Wisconsin to any other location in the continental United States and (f) any
loss he suffers on his home in Green Bay, Wisconsin equal to the excess of the
purchase price of his home, plus any capital improvements thereto, over the Sale
Price (as defined herein) ((e) and (f) jointly referred to as the "Moving
Reimbursement"). Sale Price means the actual selling price to a third party,
less commissions and other customary expenses of sale, for which Employee sells
his home if the sale occurs within 180 days after termination of employment or,
if no such sale has occurred within such period, the Appraised Value (as defined
herein). The Appraised Value means the fair market value of the home as of the
date of the appraisal as determined by a qualified appraiser mutually agreed to
by the Employee and the Company. If the parties cannot mutually agree, each
party shall pick an appraiser who in turn shall mutually agree on a third
qualified appraiser who shall determine the fair market value of the home as of
the date of the appraisal. Such appraisal shall be binding on the parties
hereto. The appraisal shall be paid for one-half by the Employee and one-half
by the Company. Notwithstanding the foregoing, the Moving Reimbursement shall
not exceed the lesser of (g)
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$75,000 or (h) the full amount of the Moving Reimbursement reduced by amounts
paid by a subsequent employer for packing and moving expenses from Green Bay and
for any loss he suffers on his Green Bay home.
4. Termination by Employee other than for Good Reason. If the Employee
voluntarily terminates his employment with the Company for any reason
whatsoever, other than in a situation where he has Good Reason for doing so, the
Company shall timely pay any Accrued Obligations.
5. Withholdings and Deductions. Any payment made pursuant to this Section
IV.F. shall be paid, less standard withholdings and other deductions authorized
by Employee or required by law. All amounts due Employee under this Section
IV.F. shall be paid within 14 days after the date of termination (except as
expressly provided Section IV.F.3.) or as earlier required by law, except that
the Accrued Obligations shall be paid no later than 30 days after the date of
termination.
6. Exclusive Remedy. Employee agrees that the payments contemplated by
this Agreement shall constitute the exclusive and sole remedy for any
termination of his employment, and Employee covenants not to assert or pursue
any other remedies, at law or in equity, with respect to any termination of
employment.
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V. NONCOMPETITION.
--------------
Employee agrees that for that portion of the Stated Term during which he
remains in the employ of the Company, he will not, directly or indirectly,
without the prior written consent of the Board, provide consulting services with
or without pay, own, manage, operate, join, control, participate in, or be
connected as a stockholder, partner, employee, director, officer or otherwise
with any other person, entity or organization engaged directly or indirectly in
the business of (i) operating a regional or national mass retail specialty
discounter or (ii) operating a prescription benefit management service or
optical vision management service, or (iii) providing a combination
software/decision support product for reducing health care insurance costs. The
mere ownership by Employee of shares representing less than one percent of the
equity of any publicly traded company, or less than five percent of the equity
of any privately-held company, shall not be prohibited by this Agreement.
VI. UNIQUE SERVICES; INJUNCTIVE RELIEF; SPECIFIC PERFORMANCE.
--------------------------------------------------------
Employee agrees (i) that the services to be rendered by Employee pursuant
to this Agreement, the rights and privileges granted to the Company pursuant to
this Agreement and the rights and privileges granted to Employee by virtue of
his position, are of a special, unique, extraordinary, managerial and
intellectual character, which gives them a peculiar value, the loss of which to
the Company cannot be adequately compensated in damages in any action at law,
(ii) that the Company will or would suffer irreparable injury if Employee were
to compete with the business of the Company or to solicit employees of the
Company in violation of Section V. or VII. of this Agreement, and (iii) that the
Company would by reason of such breach or violation of this Agreement be
entitled to the remedies of injunction, specific performance and other equitable
relief in a court of appropriate jurisdiction. Employee consents to the
jurisdiction of a court of equity to enter provisional equitable relief to
prevent a
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breach or anticipatory breach of Section V. or VII. of this Agreement by
Employee.
VII. SOLICITING EMPLOYEES.
--------------------
Employee, while he is employed by the Company and for the one year period
following termination of his employment, will not directly or indirectly solicit
any employee of the Company or of any subsidiary or affiliate of the Company in
an executive, managerial, sales or marketing capacity to work for any business,
individual, partnership, firm, corporation, or other entity then in competition
with the business of the Company or of any subsidiary or affiliate of the
Company.
VIII. CONFIDENTIAL INFORMATION.
------------------------
Employee agrees that during the Stated Term of this Agreement and at all
times thereafter (notwithstanding the termination of this Agreement or the
expiration of the Stated Term of this Agreement):
A. Employee shall hold in a fiduciary capacity for the benefit of the
Company all secret or Confidential Information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses
that are obtained by Employee during his employment by the Company or any of its
affiliated companies and that are not or do not become public knowledge (other
than by acts by Employee or his representatives in violation of this Agreement).
For the purposes of this Agreement, "Confidential Information" includes
financial information about the Company (including gross profit margins),
contract terms with the Company's vendors and others, customer lists and data,
trade secrets and such other competitively sensitive information to which
Employee has access as a result of his positions with the Company. After
termination of Employee's employment with the Company, he shall not, without the
prior written consent of the Company, or as may otherwise be required by law or
legal process,
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<PAGE>
communicate or divulge such Confidential Information to anyone other than the
Company and those designated by it.
B. Employee agrees that all styles, designs, lists, materials, books,
files, reports, computer equipment, pharmacy cards, Company automobiles, keys,
door opening cards, correspondence, records and other documents ("Company
material") used, prepared or made available to Employee, shall be and shall
remain the property of the Company. Upon the termination of employment or the
expiration of this Agreement, all Company materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.
IX. SUCCESSORS.
----------
A. This Agreement is personal to Employee and neither it nor any benefits
hereunder shall, without the prior written consent of the Company, be assignable
by Employee.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity that at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise.
X. WAIVER.
------
No waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of this Agreement.
No waiver shall be binding unless in writing and signed by the party waiving the
breach.
XI. MODIFICATION.
------------
This Agreement may not be amended or modified other than by a written
agreement executed by the Employee and (a) the Chairman
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of the Board or (b) a duly authorized member of the Board who is not an officer
or employee of the Company or a subsidiary of the Company.
XII. SAVINGS CLAUSE.
--------------
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement that can be given effect without the invalid provisions or
applications, and to this end the provisions of this Agreement are declared to
be severable.
XIII. COMPLETE AGREEMENT.
------------------
This Agreement constitutes and contains the entire agreement and
understanding concerning Employee's employment and the other subject matters
addressed herein between the parties and, as of the Effective Date, supersedes
and replaces all prior negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matters of this Agreement,
including the Severance Agreement.
XIV. GOVERNING LAW.
-------------
This Agreement shall be deemed to have been executed and delivered within
the State of Wisconsin, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with, and governed by, the laws of
the State of Wisconsin without regard to principles of conflict of laws.
XV. CAPTIONS.
--------
The captions of this Agreement are not part of the provisions of this
Agreement and shall have no force or effect.
XVI. COMMUNICATIONS.
--------------
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All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if hand delivered or if
mailed by registered or certified mail, postage prepaid, addressed:
If to Employee, to
William Podany
332 Iroquois Avenue
Green Bay, WI 54301
If to the Company, to
700 Pilgrim Way
Box 19060
Green Bay, WI 54307-9060
Attention: Chairman of the Board of Directors
with a copy to
Cabot Noble, Inc.
3000 K St., NW
Washington, DC 20007
Attn: Robert Haft
Either party may change the address at which notice shall be given by written
notice given in the above manner.
XVII. ARBITRATION.
Except as otherwise provided in Section VI. of this Agreement, any dispute,
controversy or claim arising out of or in respect of this Agreement (or its
validity, interpretation or enforcement), the employment relationship or the
subject matter of this Agreement shall at the request of either party be
submitted to and settled by arbitration conducted in Green Bay, Wisconsin in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. The arbitration shall be governed by the Federal
Arbitration Act (9 U.S.C. (S)(S) 1-16). The arbitration of such issues,
including the determination of any amount of damages suffered, shall be final
and binding upon the parties to the maximum extent permitted by law. The
arbitrator in such action shall not be authorized to
15
<PAGE>
ignore, change, modify, add to or delete from any provision of this Agreement.
Judgment upon the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. The arbitrator shall award reasonable expenses
(including reimbursement of the assigned arbitration costs and reasonable
attorneys' fees) to the prevailing party upon application therefor.
XVIII. EXECUTION.
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same Agreement. Photographic copies of such signed counterparts may be used
in lieu of the originals for any purpose.
XIX. LEGAL COUNSEL.
In entering this Agreement, the parties represent that they have relied
upon the advice of their respective attorneys, who are attorneys of their own
choice, and that the terms of this Agreement have been completely read and
explained to them by their attorneys, and that those terms are fully understood
and voluntarily accepted by them.
XX. LIMITATION ON PAYMENTS.
A. Notwithstanding anything contained herein to the contrary, prior to the
payment of any amounts pursuant to Section IV.F.3. hereof, an independent
national accounting firm designated by the Company (the "Accounting Firm") shall
compute whether there would be any "excess parachute payments" payable to the
Employee, within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), taking into account the total "parachute
payments," within the meaning of Section 280G of the Code, payable to the
Employee by the Company or any successor thereto under this Agreement and any
other plan, agreement or otherwise. If there would be any excess parachute
payments, the Accounting Firm will compute the net after-tax proceeds to the
Employee, taking into account the excise tax
16
<PAGE>
imposed by Section 4999 of the Code, if (i) the payments hereunder were reduced,
but not below zero, such that the total parachute payments payable to the
Employee would not exceed three (3) times the "base amount" as defined in
Section 280G of the Code, less One Dollar ($1.00), or (ii) the payments
hereunder were not reduced. If reducing the payments hereunder would result in
a greater after-tax amount to the Employee, such lesser amount shall be paid to
the Employee. If not reducing the payments hereunder would result in a greater
after-tax amount to the Employee, such payments shall not be reduced. The
determination by the Accounting Firm shall be binding upon the Company and the
Employee subject to the application of Section XX.B. hereof.
B. As a result of the uncertainty in the application of Sections 280G of
the Code, it is possible that excess parachute payments will be paid when such
payment would result in a lesser after-tax amount to the Employee; this is not
the intent hereof. In such cases, the payment of any excess parachute payments
will be void ab initio as regards any such excess. Any excess will be treated
as a loan by the Company to the Employee. The Employee will return the excess
to the Company, within fifteen (15) business days of any determination by the
Accounting Firm that excess parachute payments have been paid when not so
intended, with interest at an annual rate equal to the rate provided in Section
1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that
such rate is necessary to avoid an excise tax under Section 4999 of the Code)
from the date the Employee received the excess until it is repaid to the
Company.
C. All fees, costs and expenses (including, but not limited to, the cost
of retaining experts) of the Accounting Firm shall be borne by the Company and
the Company shall pay such fees, costs and expenses as they become due. In
performing the computations required hereunder, the Accounting Firm shall assume
that taxes will be paid for state and federal purposes at the highest possible
marginal tax rates which could be applicable to the Employee in the year of
receipt of the payments, unless the Employee agrees otherwise.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SHOPKO STORES, INC. William Podany
By: ________________________________ _____________________________________
Its: _______________________________
18
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Exhibit G
---------
FORM OF
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement (the "Agreement") is entered into by and
between Shopko Stores, Inc., a Minnesota corporation (the "Company"), and
Jeffrey Jones ("Employee") as of ________ __, 1996.
WHEREAS, Cabot Noble, Inc., a Delaware corporation ("Cabot Noble"),
the Company and Phar-Mor, Inc., a Pennsylvania corporation ("Phar-Mor") have
entered into an Agreement and Plan of Reorganization dated as of September __,
1996 (the "Plan") whereby the Company and Phar-Mor will become wholly-owned
subsidiaries of Cabot Noble; and
WHEREAS, the Plan will constitute a "Change of Control" for purposes
of that Change of Control Severance Agreement dated April 10, 1995 between the
Company and the Employee (the "Severance Agreement"); and
WHEREAS, the Company wishes to retain the Employee to perform services
for the Company pursuant to this Agreement, which Agreement shall supersede the
Severance Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained herein, the parties agree as follows:
I. EMPLOYMENT AND TERM.
-------------------
The Company hereby employs Employee and Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth. This Agreement
shall commence on the Effective Date as defined in the Plan (the "Effective
Date") and terminate one day before the second anniversary of the Effective Date
(the "Stated Term"), subject to the provisions of Section IV of this Agreement.
II. DUTIES.
------
Subject to the provisions of Section IV of this Agreement:
<PAGE>
A. The Company will employ Employee and Employee will serve the Company
for the Stated Term as its Senior Vice President and Chief Financial Officer
with the same operational job responsibilities as he holds on the day prior to
the Effective Date acknowledging that the Company will no longer be a public
company as of the Effective Date. Employee shall also be a member of the
Chairman's Council of Cabot Noble. Employee shall have such corporate power and
authority as reasonably required to enable the discharge of duties in the office
which he holds.
B. Employee agrees to devote substantially all of his business time,
energies and abilities to the business of the Company. Nothing herein shall
prevent Employee, upon approval of the Board, from serving as a director or
trustee of other corporations or businesses that are not in competition with the
business of the Company as set forth in Section V of this Agreement or in
competition with any present or future affiliate of the Company.
C. Employee shall report to the President of the Company or, at the
Board's direction, to the Board.
III. COMPENSATION.
------------
A. Base Salary. During the Stated Term, the Company will pay to Employee
a base salary at the rate of $325,000 per year, subject to periodic review, not
less frequently than annually, and possible increase (but not decrease) by the
compensation committee (composed of independent directors) of the Board of
Directors of Cabot Noble (the "Compensation Committee"). Such salary shall be
earned weekly and shall be payable in arrears in periodic installments no less
frequently than in accordance with the Company's customary practices. Amounts
payable shall be reduced by standard withholding and other deductions authorized
by Employee or required by applicable law.
B. Bonus. For the Company's fiscal year ending February 22, 1997, the
Company will pay the Employee that bonus to which he is entitled under the
Company's F'97 Executive Incentive Plan (the "Incentive Plan"), provided,
however, that "earnings," for
2
<PAGE>
purposes of the earnings per share computation under the Incentive Plan, shall
be increased by expenses and one-time charges related to the transactions set
out in the Plan, including expenses associated with functions previously
performed in Youngstown. The determination of the Company's public accountants
as to these expenses and one-time charges shall be binding on the Employee and
the Company. For the twelve-month period beginning on February 23, 1997, the
Company will pay the Employee a bonus equal to the greater of (i) 40% of his
base salary as then in effect, but not less than $130,000 (the "Minimum Bonus"),
or (ii) the amount to which he is entitled under the incentive/bonus plan
adopted by the Compensation Committee. Thereafter, the Company will pay the
Employee a bonus equal to the amount to which he is entitled under the
incentive/bonus plan adopted by the Compensation Committee. If the fiscal year
of the Company is changed, the Compensation Committee will determine the bonus
to be paid to the Employee for the short fiscal year and the subsequent fiscal
year by prorating the bonus to which he would otherwise be entitled hereunder
based on the number of months in the short year, or such other equitable method
such that the Employee would not be economically disadvantaged compared to if
the fiscal year had not been changed. Any bonus payable to Employee under this
Section III.B. shall be paid within 90 days after the end of the applicable
fiscal year.
C. Option Grant. Employee shall also be eligible and entitled to receive
on the Effective Date a nonqualified stock option for 112,500 shares of Cabot
Noble common stock at a per share exercise price equal to the fair market of a
share of Cabot Noble common stock on the Effective Date (the "Option"). The
Option shall vest as to one-third of the shares on ___________ __, 1997, as to
an additional one-third of the shares for a total of two-thirds of the shares on
____________ __, 1998, and as to the remaining one-third for a total of all of
the shares on ________ __, 1999. Notwithstanding the foregoing, if, during the
Stated Term, the Employee's employment is terminated by the Company without
Cause (as defined in Section IV.B. hereof) or the Employee terminates employment
with the Company for Good Reason (as defined in Section IV.C. hereof), the
Option shall
3
<PAGE>
immediately vest. During the term of this Agreement, Employee shall remain
eligible, subject to the discretion of the Compensation Committee, to receive
additional option awards.
D. Other Stock or Equity Plans. Employee shall be eligible to participate
under any other stock or equity incentive plan or benefit provided by the
Company to senior officers at the discretion of the Compensation Committee. For
purposes of this Agreement, "senior officer" means an officer of the Company of
the rank of senior vice president or above.
E. Welfare Benefit Plans. Employee and/or his family, as the case may be,
shall (subject only to exceptions of general applicability or applicable legal
requirements) be eligible to participate in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, pension, medical, prescription, dental,
disability, and life insurance plans and programs) to the extent available
generally to senior officers of the Company.
F. Expenses. Employee shall be entitled to receive prompt reimbursement
for all reasonable employment expenses incurred by him in accordance with the
policies, practices and procedures of the Company as in effect generally with
respect to senior officers.
G. Vacation. Employee shall be entitled during the term of this Agreement
to four (4) weeks paid vacation per annum. Employee may accumulate vacation only
to the extent permitted by the policies, practices and procedures of the Company
as in effect generally with respect to senior officers.
H. Car or Car Allowance. Employee shall be entitled to a car or car
allowance to the extent applicable generally to senior officers.
I. Attorneys' Fee Reimbursement. On the later of (i) the Effective Date
or (ii) ten days after the presentation of the invoice therefor, the Company
shall pay to the law firm of
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McDermott, Will & Emery in Chicago an amount not to exceed $9,500 for legal fees
incurred by the Employee.
J. Reservation of Right to Amend. Except with respect to the benefits
provided to Employee in accordance with Sections III.A., B., C., G., H., and I.,
the Company reserves the right to modify, suspend or discontinue any and all of
the above plans, practices, policies and programs at any time without recourse
by Employee so long as such action is taken with respect to senior officers or
management generally and does not single out Employee.
IV. TERMINATION.
A. Death or Disability. Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that a Disability of Employee has occurred (pursuant to the definition of
Disability set forth below), Company may terminate Employee's employment by
providing Employee written notice in accordance with Section XVI of the
Company's intention to terminate Employee's employment. In such event,
Employee's employment with the Company shall terminate effective on the 30th day
after receipt of such notice by Employee, provided that, within the 30 days
after such receipt, Employee shall not have returned to full-time performance of
his duties.
For purposes of this Agreement, "Disability" means a physical or mental
impairment which (i) substantially limits a major life activity of Employee,
(ii) renders Employee unable to perform the essential functions of his position,
even with reasonable accommodation that does not impose an undue hardship on the
Company, and (iii) has contributed to Employee's absence from his duties with
the Company on a full-time basis for more than 60 consecutive days. The Company
reserves the right, in good faith, to make the determination of Disability under
this Agreement based upon information (as to items (i) and (ii) above) supplied
by a physician selected by the Company or its insurers and acceptable to
Employee or his legal representative (such agreement as to acceptability not to
be withheld unreasonably).
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B. Cause. The Company may terminate Employee's employment for Cause
(pursuant to the definition of Cause set forth below) by providing Employee
written notice in accordance with Section XVI of the Company's intention to
terminate Employee's employment, setting forth in such notice the specific
grounds therefor. In such event, Employees employment with the Company shall
terminate effective as of the date of receipt of such notice by Employee.
For purposes of this Agreement, "Cause" means (1) a material breach by
Employee of Employee's obligations under Section II of this Agreement (other
than as a result of incapacity due to physical or mental illness), which is
demonstrably willful and deliberate on the Employee's part and is committed in
bad faith or without reasonable belief that such conduct is in the best
interests of the Company, or which is the result of Employee's gross neglect of
duties, and, in either case, not remedied in a reasonable period of time not
more than five days after receipt of written notice from the Board specifying
such breach, (2) the conviction of Employee of a felony or other crime involving
fraud, dishonesty or moral turpitude, or (3) the commission by the Employee of a
fraud which results in a material financial loss to the Company.
C. Good Reason. Employee may terminate Employee's employment for Good
Reason (pursuant to the definition of Good Reason set forth below) which is not
remedied in a reasonable period of time not more than five days after notice
thereof as provided below. Employee shall provide the Company written notice in
accordance with Section XVI of Employee's intention to terminate Employee's
employment for Good Reason, setting forth in such notice the grounds therefor.
In such event, Employee's employment with the Company shall terminate effective
as of the earlier of (x) the 15th day after the Company's receipt of such notice
or (y) such later date as set forth in such notice, unless the Company has cured
the grounds therefor.
For purposes of this Agreement, "Good Reason" means (1) Employee's position
(including responsibilities, title, reporting requirements or authority) is
reduced below the level set forth
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in Section II.A. hereof; (2) the Company fails in any material respect to comply
with the provisions of Section III of this Agreement; (3) the Company purports
to terminate Employee's employment otherwise than as expressly permitted by this
Agreement or without payment of any amounts required to be paid under Section
IV.F; or (4) the Company requires the Employee to be based at any office or
location other than Green Bay, Wisconsin, except for travel reasonably required
in performance of the Employee's responsibilities hereunder.
D. Other than Cause or Good Reason or Death or Disability. The Company may
terminate Employee's employment without cause by providing Employee written
notice in accordance with Section XVI of the Company's intention to terminate
Employee's employment. In such event, Employee's employment shall terminate
effective on the 30th day after receipt of such notice by Employee.
E. Termination by Employee other than for Good Reason. The Employee may
voluntarily terminate his employment with the Company for any reason whatsoever,
other than in a situation where he has Good Reason for doing so, by providing
Employer written notice thereof in accordance with Section XVI. In such event,
Employee's employment shall terminate effective on the 30th day after receipt of
such notice by Employer unless the parties mutually agree to an earlier
termination.
F. Obligations of the Company Upon Termination.
Upon termination of Employee's employment for any reason, the Company shall
have no further obligations to Employee (or his estate or legal representative)
under this Agreement other than the following:
1. Death or Disability. If Employee's employment is terminated by
reason of Employee's Death or Disability, the Company shall: (a) pay the
sum of (i) Employee's annual base salary through the end of the calendar
month during which the termination occurs (to the extent not theretofore
paid), (ii) any accrued vacation pay, in each case to the extent not
theretofore paid, and (iii) any accrued incentive
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compensation that has been fixed and determined, which the Company shall pay to
Employee or his estate or beneficiary, as applicable, in a lump sum in cash
within 30 days of the date of termination, or earlier as may be required by
applicable law; (b) pay any amounts then due or payable pursuant to the terms of
any applicable welfare benefit plans notwithstanding such termination of
employment; and (c) perform its obligations under any then outstanding stock
option awards, whether granted by Cabot Noble, the Company or otherwise, and any
other stock or incentive awards in accordance with their respective terms (the
sum of the amounts and benefits described in clauses (a), (b) and (c) shall be
hereinafter referred to as the "Accrued Obligations").
2. Cause. If Employee's employment is terminated by the Company for
Cause, the Company shall timely pay any Accrued Obligations. If it is
subsequently determined that the Company did not have Cause for termination
under Section IV.B., then the Company's decision to terminate shall be deemed to
have been made under Section IV.D., and the amounts payable under Section IV.F.3
shall be the only amounts Employee may receive for his termination.
3. Other than For Cause or by Reason of Death or Disability. If the
Company terminates Employee's employment (other than for Cause or because of his
Death or Disability), or Employee terminates his employment for Good Reason, the
Company shall (a) timely pay any Accrued Obligations and (b) if such termination
occurs on or prior to ________ __, 1997, pay Employee a lump sum equal to two
times the sum of (i) the base salary contained in Section III.A. hereof (or any
higher base salary currently in effect on the date of termination) ("Base
Salary") and (ii) the greater of (a) the average of the annual bonuses payable
to the Employee by the Company in respect of the three fiscal years preceding
the fiscal year in which the termination occurs, annualized if any of the fiscal
years is shorter than twelve months (or the average of bonuses paid by the
Company for such shorter period preceding the fiscal year in
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which termination occurs during which the Employee was employed) or (b) the
Minimum Bonus (the greater of (a) or (b) being the "Bonus Amount"). If the
termination of employment occurs after ________ __, 1997 but on or prior to
________ __, 1998, the Company shall pay Employee a lump sum equal to 1.5 times
the sum of (c) the Base Salary and (d) the Bonus Amount. In addition, if
Employee is terminated without Cause or terminates his employment for Good
Reason, then Company shall pay Employee an additional amount equal to the annual
base salary not otherwise paid to Employee for that portion of the notice period
under Section IV.C. or IV.D. during which Employee continued in the employment
of the Company. Further, the Company shall pay to Employee, within 14 days of
presentation of receipts or other substantiation reasonably required hereunder,
an amount equal to (e) all out-of-pocket expenses for packing and moving his
household effects and automobiles by commercial moving service from Green Bay,
Wisconsin to any other location in the continental United States and (f) any
loss he suffers on his home in Green Bay, Wisconsin equal to the excess of the
purchase price of his home, plus any capital improvements thereto, over the Sale
Price (as defined herein) ((e) and (f) jointly referred to as the "Moving
Reimbursement"). Sale Price means the actual selling price to a third party,
less commissions and other customary expenses of sale, for which Employee sells
his home if the sale occurs within 180 days after termination of employment or,
if no such sale has occurred within such period, the Appraised Value (as defined
herein). The Appraised Value means the fair market value of the home as of the
date of the appraisal as determined by a qualified appraiser mutually agreed to
by the Employee and the Company. If the parties cannot mutually agree, each
party shall pick an appraiser who in turn shall mutually agree on a third
qualified appraiser who shall determine the fair market value of the home as of
the date of the appraisal. Such appraisal shall be binding on the parties
hereto. The appraisal shall be paid for one-half by the Employee and one-half
by the Company. Notwithstanding the foregoing, the Moving Reimbursement shall
not exceed the lesser of (g)
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$75,000 or (h) the full amount of the Moving Reimbursement reduced by amounts
paid by a subsequent employer for packing and moving expenses from Green Bay and
for any loss he suffers on his Green Bay home.
4. Termination by Employee other than for Good Reason. If the Employee
voluntarily terminates his employment with the Company for any reason
whatsoever, other than in a situation where he has Good Reason for doing so, the
Company shall timely pay any Accrued Obligations.
5. Withholdings and Deductions. Any payment made pursuant to this Section
IV.F. shall be paid, less standard withholdings and other deductions authorized
by Employee or required by law. All amounts due Employee under this Section
IV.F. shall be paid within 14 days after the date of termination (except as
expressly provided Section IV.F.3.) or as earlier required by law, except that
the Accrued Obligations shall be paid no later than 30 days after the date of
termination.
6. Exclusive Remedy. Employee agrees that the payments contemplated by
this Agreement shall constitute the exclusive and sole remedy for any
termination of his employment, and Employee covenants not to assert or pursue
any other remedies, at law or in equity, with respect to any termination of
employment.
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V. NONCOMPETITION.
--------------
Employee agrees that for that portion of the Stated Term during which he
remains in the employ of the Company, he will not, directly or indirectly,
without the prior written consent of the Board, provide consulting services with
or without pay, own, manage, operate, join, control, participate in, or be
connected as a stockholder, partner, employee, director, officer or otherwise
with any other person, entity or organization engaged directly or indirectly in
the business of (i) operating a regional or national mass retail specialty
discounter or (ii) operating a prescription benefit management service or
optical vision management service, or (iii) providing a combination
software/decision support product for reducing health care insurance costs. The
mere ownership by Employee of shares representing less than one percent of the
equity of any publicly traded company, or less than five percent of the equity
of any privately-held company, shall not be prohibited by this Agreement.
VI. UNIQUE SERVICES; INJUNCTIVE RELIEF; SPECIFIC PERFORMANCE.
--------------------------------------------------------
Employee agrees (i) that the services to be rendered by Employee pursuant
to this Agreement, the rights and privileges granted to the Company pursuant to
this Agreement and the rights and privileges granted to Employee by virtue of
his position, are of a special, unique, extraordinary, managerial and
intellectual character, which gives them a peculiar value, the loss of which to
the Company cannot be adequately compensated in damages in any action at law,
(ii) that the Company will or would suffer irreparable injury if Employee were
to compete with the business of the Company or to solicit employees of the
Company in violation of Section V. or VII. of this Agreement, and (iii) that the
Company would by reason of such breach or violation of this Agreement be
entitled to the remedies of injunction, specific performance and other equitable
relief in a court of appropriate jurisdiction. Employee consents to the
jurisdiction of a court of equity to enter provisional equitable relief to
prevent a
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breach or anticipatory breach of Section V. or VII. of this Agreement by
Employee.
VII. SOLICITING EMPLOYEES.
--------------------
Employee, while he is employed by the Company and for the one year period
following termination of his employment, will not directly or indirectly solicit
any employee of the Company or of any subsidiary or affiliate of the Company in
an executive, managerial, sales or marketing capacity to work for any business,
individual, partnership, firm, corporation, or other entity then in competition
with the business of the Company or of any subsidiary or affiliate of the
Company.
VIII. CONFIDENTIAL INFORMATION.
------------------------
Employee agrees that during the Stated Term of this Agreement and at all
times thereafter (notwithstanding the termination of this Agreement or the
expiration of the Stated Term of this Agreement):
A. Employee shall hold in a fiduciary capacity for the benefit of the
Company all secret or Confidential Information, knowledge or data relating to
the Company or any of its affiliated companies, and their respective businesses
that are obtained by Employee during his employment by the Company or any of its
affiliated companies and that are not or do not become public knowledge (other
than by acts by Employee or his representatives in violation of this Agreement).
For the purposes of this Agreement, "Confidential Information" includes
financial information about the Company (including gross profit margins),
contract terms with the Company's vendors and others, customer lists and data,
trade secrets and such other competitively sensitive information to which
Employee has access as a result of his positions with the Company. After
termination of Employee's employment with the Company, he shall not, without the
prior written consent of the Company, or as may otherwise be required by law or
legal process,
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communicate or divulge such Confidential Information to anyone other than the
Company and those designated by it.
B. Employee agrees that all styles, designs, lists, materials, books,
files, reports, computer equipment, pharmacy cards, Company automobiles, keys,
door opening cards, correspondence, records and other documents ("Company
material") used, prepared or made available to Employee, shall be and shall
remain the property of the Company. Upon the termination of employment or the
expiration of this Agreement, all Company materials shall be returned
immediately to the Company, and Employee shall not make or retain any copies
thereof.
IX. SUCCESSORS.
----------
A. This Agreement is personal to Employee and neither it nor any benefits
hereunder shall, without the prior written consent of the Company, be assignable
by Employee.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity that at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise.
X. WAIVER.
------
No waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of this Agreement.
No waiver shall be binding unless in writing and signed by the party waiving the
breach.
XI. MODIFICATION.
------------
This Agreement may not be amended or modified other than by a written
agreement executed by the Employee and (a) the Chairman
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of the Board or (b) a duly authorized member of the Board who is not an officer
or employee of the Company or a subsidiary of the Company.
XII. SAVINGS CLAUSE.
--------------
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not affect other provisions or applications of the
Agreement that can be given effect without the invalid provisions or
applications, and to this end the provisions of this Agreement are declared to
be severable.
XIII. COMPLETE AGREEMENT.
------------------
This Agreement constitutes and contains the entire agreement and
understanding concerning Employee's employment and the other subject matters
addressed herein between the parties and, as of the Effective Date, supersedes
and replaces all prior negotiations and all agreements proposed or otherwise,
whether written or oral, concerning the subject matters of this Agreement,
including the Severance Agreement.
XIV. GOVERNING LAW.
-------------
This Agreement shall be deemed to have been executed and delivered within
the State of Wisconsin, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with, and governed by, the laws of
the State of Wisconsin without regard to principles of conflict of laws.
XV. CAPTIONS.
--------
The captions of this Agreement are not part of the provisions of this
Agreement and shall have no force or effect.
XVI. COMMUNICATIONS.
--------------
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All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if hand delivered or if
mailed by registered or certified mail, postage prepaid, addressed:
If to Employee, to
Jeffrey Jones
4535 Algonquin Trail
Green Bay, WI 54313
If to the Company, to
700 Pilgrim Way
Box 19060
Green Bay, WI 54307-9060
Attention: Chairman of the Board of Directors
with a copy to
Cabot Noble, Inc.
3000 K St., NW
Washington, DC 20007
Attn: Robert Haft
Either party may change the address at which notice shall be given by written
notice given in the above manner.
XVII. ARBITRATION.
-----------
Except as otherwise provided in Section VI. of this Agreement, any dispute,
controversy or claim arising out of or in respect of this Agreement (or its
validity, interpretation or enforcement), the employment relationship or the
subject matter of this Agreement shall at the request of either party be
submitted to and settled by arbitration conducted in Green Bay, Wisconsin in
accordance with the Employment Dispute Resolution Rules of the American
Arbitration Association. The arbitration shall be governed by the Federal
Arbitration Act (9 U.S.C. (S)(S) 1-16). The arbitration of such issues,
including the determination of any amount of damages suffered, shall be final
and binding upon the parties to the maximum extent permitted by law. The
arbitrator in such action shall not be authorized to
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ignore, change, modify, add to or delete from any provision of this Agreement.
Judgment upon the award rendered by the arbitrator may be entered by any court
having jurisdiction thereof. The arbitrator shall award reasonable expenses
(including reimbursement of the assigned arbitration costs and reasonable
attorneys' fees) to the prevailing party upon application therefor.
XVIII. EXECUTION.
---------
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same Agreement. Photographic copies of such signed counterparts may be used
in lieu of the originals for any purpose.
XIX. LEGAL COUNSEL.
-------------
In entering this Agreement, the parties represent that they have relied
upon the advice of their respective attorneys, who are attorneys of their own
choice, and that the terms of this Agreement have been completely read and
explained to them by their attorneys, and that those terms are fully understood
and voluntarily accepted by them.
XX. LIMITATION ON PAYMENTS.
----------------------
A. Notwithstanding anything contained herein to the contrary, prior to the
payment of any amounts pursuant to Section IV.F.3. hereof, an independent
national accounting firm designated by the Company (the "Accounting Firm") shall
compute whether there would be any "excess parachute payments" payable to the
Employee, within the meaning of Section 280G of the Internal Revenue Code of
1986, as amended (the "Code"), taking into account the total "parachute
payments," within the meaning of Section 280G of the Code, payable to the
Employee by the Company or any successor thereto under this Agreement and any
other plan, agreement or otherwise. If there would be any excess parachute
payments, the Accounting Firm will compute the net after-tax proceeds to the
Employee, taking into account the excise tax
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imposed by Section 4999 of the Code, if (i) the payments hereunder were reduced,
but not below zero, such that the total parachute payments payable to the
Employee would not exceed three (3) times the "base amount" as defined in
Section 280G of the Code, less One Dollar ($1.00), or (ii) the payments
hereunder were not reduced. If reducing the payments hereunder would result in
a greater after-tax amount to the Employee, such lesser amount shall be paid to
the Employee. If not reducing the payments hereunder would result in a greater
after-tax amount to the Employee, such payments shall not be reduced. The
determination by the Accounting Firm shall be binding upon the Company and the
Employee subject to the application of Section XX.B. hereof.
B. As a result of the uncertainty in the application of Sections 280G of
the Code, it is possible that excess parachute payments will be paid when such
payment would result in a lesser after-tax amount to the Employee; this is not
the intent hereof. In such cases, the payment of any excess parachute payments
will be void ab initio as regards any such excess. Any excess will be treated
as a loan by the Company to the Employee. The Employee will return the excess
to the Company, within fifteen (15) business days of any determination by the
Accounting Firm that excess parachute payments have been paid when not so
intended, with interest at an annual rate equal to the rate provided in Section
1274(d) of the Code (or 120% of such rate if the Accounting Firm determines that
such rate is necessary to avoid an excise tax under Section 4999 of the Code)
from the date the Employee received the excess until it is repaid to the
Company.
C. All fees, costs and expenses (including, but not limited to, the cost
of retaining experts) of the Accounting Firm shall be borne by the Company and
the Company shall pay such fees, costs and expenses as they become due. In
performing the computations required hereunder, the Accounting Firm shall assume
that taxes will be paid for state and federal purposes at the highest possible
marginal tax rates which could be applicable to the Employee in the year of
receipt of the payments, unless the Employee agrees otherwise.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
SHOPKO STORES, INC. Jeffrey Jones
By: __________________________ ______________________________
Its: _________________________
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Exhibit 10.1
VOTING AGREEMENT
THIS VOTING AGREEMENT (this "Agreement"), dated as of September 7, 1996, by
and among SUPERVALU INC., a Delaware corporation ("SVU"), Supermarket Operators
of America, Inc., a Delaware corporation and a wholly owned subsidiary of SVU
("Supermarket"), Cabot Noble, Inc., a Delaware corporation ("Cabot Noble") and
Robert M. Haft, for himself and as the holder of a voting proxy for Mary Z.
Haft, in the capacity as a member of Hamilton Morgan, L.L.C., a Delaware limited
liability company ("Haft").
R E C I T A L S
A. Cabot Noble, ShopKo Stores, Inc., a Minnesota corporation ("ShopKo"), and
Phar-Mor, Inc., a Pennsylvania corporation ("Phar-Mor"), are concurrently
herewith entering in a certain Agreement and Plan of Reorganization, a copy of
which is attached hereto as Exhibit A, pursuant to which the existing
shareholders of ShopKo and Phar-Mor shall exchange their shares of ShopKo common
stock, par value $.01 per share ("ShopKo Shares"), and Phar-Mor common stock,
par value $.0l per share ("Phar-Mor Shares"), respectively, for shares of the
common stock of Cabot Noble (the "Reorganization Agreement").
B. The execution and delivery of this Agreement is a condition precedent to
the Reorganization Agreement.
NOW, THEREFORE, in consideration of the premises and the representations,
warranties and agreements herein contained, the parties hereby agree as follows:
Section 1.VOTING.
(a) ShopKo Shareholders Meeting. At the meeting of ShopKo's shareholders
convened to consider and vote upon the adoption of the ShopKo Plan,
SVU shall vote, or cause any of its affiliates (including, without
limitation, Supermarket) which beneficially own ShopKo Shares to vote,
in favor of approval and adoption of the ShopKo Plan, that aggregate
number of ShopKo Shares then beneficially owned by SVU and/or any such
affiliates equal to not less than 19.9% of all the outstanding ShopKo
Shares.
(b) Phar-Mor Shareholders Meeting. At the meeting of Phar-Mor's
shareholders convened to consider and vote upon the adoption of the
Phar-Mor Plan, Haft shall vote all of the Phar-Mor Shares then owned
of record by Haft in favor of the approval and adoption of the Phar-
Mor Plan, and, to the extent permitted by the terms of the governing
instruments of Hamilton Morgan, L.L.C. ("Hamilton Morgan"), shall use
his reasonable efforts to cause Hamilton Morgan to vote all of the
Phar-Mor Shares then beneficially owned by Hamilton Morgan in favor of
the approval and adoption of the Phar-Mor Plan.
<PAGE>
(c) Effect of Pending Litigation. Notwithstanding any other provision
hereof, the obligations of SVU and Haft under Sections 1(a) and (b)
hereof, respectively, are subject to the absence of any judgment,
decree, injunction, ruling or order of any court, governmental
department, authority, commission, agency or instrumentality which
would prohibit, restrict or delay the consummation of the
Reorganization or the Parent Buy-Back.
Section 2. NO SOLICITATION. Each of SVU and Haft shall not, Haft, to the
extent permitted by the terms of the governing instruments of Hamilton
Morgan, shall use his reasonable efforts to cause Hamilton Morgan not
to, and SVU shall cause its subsidiaries and its officers, directors,
agents, representatives and affiliates not to, directly or indirectly:
initiate, solicit or encourage, or take any action to facilitate the
making of any offer or proposal which constitutes or is reasonably
likely to lead to any Takeover Proposal (as defined below), or, in the
event of any unsolicited Takeover Proposal, engage in negotiations or
provide any confidential information or data to any person relating to
any Takeover Proposal. Each of SVU and Haft shall notify the other, as
well as Phar-Mor and ShopKo, orally and in writing of any inquiries,
offers or proposals concerning any Takeover Proposal (including,
without limitation, the terms and conditions of any such inquiry,
offer or proposal and the identity of the person making it), within 24
hours of the receipt of knowledge thereof and shall give the other
party five days' advance notice of any agreement to be entered into
with or any information to be supplied to any person making such
inquiry, offer or proposal in accordance with the penultimate sentence
of this Section 2. Each party hereto shall immediately cease and cause
to be terminated all existing discussions and negotiations, if any,
with any parties conducted heretofore with respect to any Takeover
Proposal. As used in this Section 2, "Takeover Proposal" shall mean
any tender or exchange offer, proposal for a merger, consolidation or
other business combination involving ShopKo or Phar-Mor, or any
proposal or offer to acquire in any manner a substantial equity
interest in, or a substantial portion of the assets of, ShopKo or
Phar-Mor other than pursuant to the transactions contemplated by the
Reorganization Agreement. Nothing in this Section 2 shall limit or be
deemed to limit the ability of the directors of ShopKo or Phar-Mor,
acting in their capacity as such, to take action consistent with their
fiduciary obligations.
Section 3. NO TRANSFER.
(a) Neither SVU nor any of its affiliates (including, without limitation,
Supermarket) shall sell, pledge, assign, otherwise transfer or dispose
of, or authorize, propose or agree to the sale, pledge or other
transfer or disposition of, any ShopKo Shares which it has agreed to
vote hereunder.
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(b) Except as set forth on Schedule 3(b) hereto, Haft shall not and, to
the extent permitted by the terms of the governing instruments of
Hamilton Morgan, shall use his reasonable efforts to cause Hamilton
Morgan not to, sell, pledge, assign or otherwise transfer or dispose
of, or authorize, propose or agree to the sale, pledge, assignment or
other transfer or disposition of, any of his or its Phar-Mor Shares.
Notwithstanding the foregoing, Haft may, and may cause or seek to
cause Hamilton Morgan to, sell, pledge, assign or otherwise transfer
or dispose of, or authorize, propose or agree to the sale, pledge,
assignment or other transfer or disposition of, any Phar-Mor Shares,
provided that (i) at least five (5) business days' prior written
notice thereof (stating the identity of the intended recipient and the
number of Phar-Mor Shares subject thereto) is provided to SVU and (ii)
any such intended recipient of Phar-Mor Shares agrees to be bound by
the terms of this Agreement, including, without limitation, the
obligation to vote such Phar-Mor Shares in favor of the approval and
adoption of the Phar-Mor Plan.
Section 4. BEST EFFORTS; ADDITIONAL AGREEMENTS AND PROVISIONS. Subject to the
terms and conditions of this Agreement, each of the parties hereto
agrees to use its best efforts to take, or cause to be taken, all
action and to do, or cause to be done, all things necessary, proper,
or advisable to consummate and make effective the transactions
contemplated by this Agreement and the Reorganization Agreement. If
any further action is necessary or desirable to carry out the purposes
of this Agreement or the Reorganization Agreement, each party to this
Agreement shall take all such action. The parties hereto agree to use
their respective reasonable efforts to challenge any action, including
using all reasonable efforts to have any order or injunction vacated
or reversed, brought against any of the parties hereto seeking a
temporary restraining order or preliminary or permanent injunctive
relief which would prohibit, or materially interfere with, the
consummation of the transactions contemplated by this Agreement and
the Reorganization Agreement. Notwithstanding the foregoing, no party
shall be obligated to expend any material amounts to satisfy its
undertaking under this Section 4. In addition, nothing in this Section
4 shall limit or be deemed to limit the ability of the directors of
ShopKo or Phar-Mor, acting in their capacity as such, to take action
consistent with their fiduciary obligations.
Section 5. TERMINATION OF SUPPLY AGREEMENT. SVU hereby agrees that, effective
as of the Effective Date, it shall release ShopKo and its affiliates
from any and all obligations under that certain Food Products Supply
Agreement dated as of October 8, 1991, by delivery to ShopKo of a
written termination notice executed by a duly authorized officer of
SVU.
Section 6. REPRESENTATIONS AND WARRANTIES. SVU and Supermarket, jointly and
severally, on the one hand, and Haft on the other hand, with respect
to itself or themselves, represents and warrants to the other as
follows:
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(a) Organization; Standing and Power. Each of SVU and Supermarket is a
corporation duly organized, validly existing and in good standing
under the laws of the state of its incorporation or formation, has all
requisite power and authority to own, lease and operate its properties
and to carry on its business as now being conducted.
(b) Authority. The party has the requisite power and authority to enter
into this Agreement, and to perform such party's obligations hereunder
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 authorized by the
Board of Directors of each of SVU and Supermarket. No other
proceedings on such party's part are necessary to authorize the
execution, delivery and performance of this Agreement and the
transactions contemplated hereby. This Agreement has been duly
executed and delivered by such party and constitutes a valid and
binding obligation of such party, enforceable in accordance with its
terms, except as may be limited by applicable bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium and other similar
laws of general application that may affect the enforcement of rights
of creditors and other obligees generally and by general equitable
principles.
(c) Authority to Vote Shares. Supermarket owns of record and Supermarket
and SVU own beneficially a total of 14,731,667 ShopKo Shares and have
the authority to vote all such ShopKo Shares. Hamilton Morgan owns
beneficially a total of 4,852,185 Phar-Mor Shares.
(d) Noncontravention. Neither the execution and delivery of this
Agreement, nor the consummation of any of the transactions
contemplated hereby or by the Reorganization Agreement, nor compliance
with any of the provisions hereof, will violate, conflict with, or
<PAGE>
(e) Litigation. There is no claim, action, proceeding or investigation
pending or, to the best knowledge of such party after diligent
inquiry, threatened against or relating to such party before any court
or governmental or regulatory authority or body and such party is not
subject to any outstanding order, writ, injunction or decree which, if
determined adversely, individually or in the aggregate, could
reasonably be expected to materially negatively impact the ability of
such party to perform such party's obligations hereunder.
Section 7. TERMINATION.
(a) This Agreement may be terminated at any time prior to the Effective
Date by any party: (i) upon termination of the Reorganization
Agreement pursuant to Section 6.1 thereof; or (ii) if the Effective
Date shall not have occurred on or before March 31, 1997.
(b) In the event of termination of this Agreement pursuant to Section 7(a)
hereof, this Agreement shall forthwith become void and there shall be
no liability or obligation on the part of any party hereto; provided,
however, that nothing herein shall release any party hereto from any
liability for any breach of this Agreement.
Section 8. MISCELLANEOUS.
(a) No Survival of Representations and Warranties. None of the
representations and warranties contained in Section 6 shall survive
consummation of the Reorganization. This Section 8(a) shall not limit
any covenant or agreement of the parties hereto which by its terms
contemplates performance after the Effective Date.
(b) Notices. All notices and other communications hereunder shall be in
writing (including telex or similar writing) and shall be deemed given
if delivered in person or by messenger, cable, telegram or telex or
facsimile transmission or by a reputable overnight delivery service
which provides for evidence of receipt to the parties at the following
addresses or telecopier numbers (or at such other address, or telecopy
number for a party as shall be specified by like notice):
if to Haft to:
3000 K Street, N.W.
Suite 105
Washington, D.C. 20007-5116
if to SVU or Supermarket, to:
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11840 Valley View Road
Eden Prairie, MN 55440
Attn: General Counsel
with a copy to:
Elliott Stein, Esq.
Wachtell, Lipton, Rosen, and Katz
51 West 52nd Street
New York, NY 10019
if to Cabot Noble, to:
3000 K Street, N.W.
Suite 105
Washington, D.C. 20007-5116
Attn: Robert Haft, Chairman of the Board
with a copy to:
Morris F. DeFeo, Jr., Esq.
Swidler & Berlin, Chartered
3000 K Street, N.W.
Washington, D.C. 20007-5116
(c) Interpretation. When reference is made in this Agreement to Exhibits
or Sections, such reference shall be to an Exhibit to or Section of
this Agreement unless otherwise indicated. The headings contained in
this Agreement are for reference purposes only and shall not affect in
any way the meaning or interpretation of this Agreement.
(d) Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts
have been signed by each of the parties and delivered to the other
parties, it being understood that all parties need not sign the same
counterpart.
(e) Entire Agreement. This Agreement (including the documents and
instruments referred to herein), constitutes the entire agreement and
supersedes all prior and contemporaneous agreements and
understandings,
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both written and oral, among the parties with respect to the subject
matter hereof.
(f) Severability; Savings. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or
enforceability of any other provisions of this Agreement, which shall
remain in full force and effect. Whenever possible, each provision of
this Agreement will be interpreted in such manner as to be effective
and valid under applicable law; provided, that if any provision of
this Agreement is held to be prohibited by or invalid under applicable
law, such provision will be ineffective only to the extent of such
prohibition or invalidity, without invalidating the remainder of this
Agreement.
(g) 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 of such state.
(h) Assignment. Neither this Agreement nor any of the rights, interests or
obligations hereunder shall be assigned by any party hereto, whether
by operation of law or otherwise, without the express prior written
consent of each of the other parties hereto, except as expressly
contemplated by Section 3(b) hereof. Subject to the preceding
sentence, this Agreement will be binding upon, inure to the benefit of
and be enforceable by the parties and their respective successors,
heirs, legal representatives and permitted assigns.
(i) Remedies. Notwithstanding any other provision of this Agreement, no
party hereto shall have any liability for monetary damages with
respect to this Agreement. The parties agree that, in the event of a
breach by a party of any of its obligations hereunder, the only remedy
available to the nonbreaching party or parties shall be specific
performance or injunctive relief.
(j) No Third Party Beneficiaries. This Agreement is not intended to confer
upon any Person other than the parties hereto any rights or remedies
hereunder.
(k) Defined Terms. All capitalized terms used herein and not defined
herein shall have the meaning set forth in the Reorganization
Agreement.
[The remainder of this page is intentionally blank]
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<PAGE>
IN WITNESS WHEREOF, each of the parties hereto have caused this Agreement
to be signed by their respective officers thereunto duly authorized as of the
date first above written.
SUPERVALU INC.
BY: /s/ JEFFREY GIRARD
--------------------------
NAME: JEFFREY GIRARD
TITLE: EXECUTIVE
VICE PRESIDENT
SUPERMARKET OPERATORS OF AMERICA, INC.
BY: /s/ JEFFREY GIRARD
------------------
NAME: JEFFREY GIRARD
TITLE: PRESIDENT
CABOT NOBLE, INC.
BY: /s/ ROBERT M. HAFT
------------------
NAME: ROBERT M. HAFT
TITLE: CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
/s/ ROBERT M. HAFT
--------------------------
ROBERT M. HAFT
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<PAGE>
Exhibit 10.2
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into
as of this 7th day of September, 1996, by and between Cabot Noble, Inc., a
Delaware corporation ("Buyer"), SUPERVALU INC., a Delaware corporation ("SVU"),
and Supermarket Operators of America, Inc., a Delaware corporation and a wholly
owned subsidiary of SVU ("Seller").
RECITALS
A. ShopKo, Inc., a Minnesota corporation ("ShopKo"), Phar-Mor, Inc., a
Pennsylvania corporation ("Phar-Mor"), and Buyer are, concurrently herewith,
entering into a certain Agreement and Plan of Reorganization, pursuant to which
the existing shareholders of ShopKo, (including Seller) and Phar-Mor will
exchange their shares of ShopKo common stock and Phar-Mor common stock,
respectively, for shares of the common stock of Buyer (the "Reorganization
Agreement"). (Shares of Buyer common stock received by Seller pursuant to the
Reorganization (as defined in the Reorganization Agreement) are referred to as
the "Shares".)
B. As an integral part of the Reorganization, Seller agrees to sell, and Buyer
agrees to purchase for the price and on the terms hereinafter set forth, the
Shares.
AGREEMENTS
NOW, THEREFORE, in order to implement said sale and purchase, and in
consideration of the mutual agreements set forth herein, and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree as follows:
SECTION 1. DEFINITIONS.
1.1 DEFINED TERMS. As used herein, the following terms shall have the
following meanings:
CLOSING shall have the meaning set forth in Section 2.4.
CLOSING DATE shall have the meaning set forth in Section 2.3.
INDEMNIFIED PARTY AND INDEMNIFYING PARTY shall have the meanings set
forth in Section 7.2 of this Agreement.
LIEN shall mean with respect to any property or asset, any mortgage,
lien, pledge, charge, security interest, encumbrance or other adverse claim or
restriction of any kind in respect of such property or asset. For purposes of
this Agreement, any restriction or limitation with respect to
<PAGE>
a security or other ownership interest (including any restriction on the right
to vote, sell or otherwise dispose of such security or ownership interest) shall
constitute a "Lien" thereon. For the purposes of this Agreement, a Person shall
be deemed to own subject to a Lien any property or asset which it has acquired
or holds subject to the interest of a vendor or lessor under any conditional
sale relating to such property or asset.
PERSON shall mean an individual, corporation, partnership, limited
liability company, association, trust or other entity or organization, including
a government or political subdivision or agency or instrumentality thereof.
PURCHASE PRICE shall have the meaning set forth in Section 2.2 of this
Agreement.
SHORT-TERM PROMISSORY NOTE shall mean that certain promissory note to be
issued by Buyer to Seller at the Closing, to mature on January 31, 1997,
substantially in the form attached hereto as Exhibit A.
STOCK PLEDGE AGREEMENT shall mean that certain stock pledge agreement to be
executed and delivered at Closing, substantially in the form attached hereto as
Exhibit B.
1.2 OTHER DEFINITIONAL PROVISIONS. For purposes of this Agreement, the
following additional rules of construction shall apply:
(a) All capitalized terms used herein and not defined herein shall
have the meaning set forth in the Reorganization Agreement.
(b) Wherever from the context it appears appropriate, each term stated
in either the singular or plural shall include the singular and the plural, and
pronouns stated in the masculine, feminine or neuter gender shall include the
masculine, the feminine and the neuter; and
(c) The term "including" shall not be limiting or exclusive, unless
specifically indicated to the contrary.
SECTION 2. PURCHASE AND SALE OF SHARES.
2.1 SALE OF SHARES.
Subject to the provisions of this Agreement, at the Closing, Seller shall
sell, and Buyer shall purchase, the Shares.
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2.2 PURCHASE PRICE
The purchase price for the Shares (the "Purchase Price") shall be
$248,438,339, payable to Seller at the Closing as follows:
(a) Cash in the amount of $208,038,339 by wire transfer of immediately
available funds, to a bank account designated to Buyer in writing
at least two (2) business days prior to the Closing; and
(b) The Short-Term Promissory Note in a principal amount equal to
$40,400,000.
2.3 TIME AND PLACE OF CLOSING. Closing shall be held at the offices of
Swidler & Berlin, Chartered, 3000 K Street, N.W., Washington, D.C., on the
Effective Date of the Reorganization (the "Closing Date").
2.4 THE CLOSINGS. At the closing ("Closing"):
(a) Seller shall deliver to Buyer certificates representing the
Shares, duly endorsed (or accompanied by duly executed stock
powers), for transfer to Buyer;
(b) Buyer shall pay to Seller the cash portion of the Purchase Price
and shall deliver to Seller the Short-Term Promissory Note all as
set forth in Section 2.2 hereof;
(c) Seller and Buyer shall each execute and deliver the Stock Pledge
Agreement and any other documents and instruments contemplated
thereby; and
(d) Buyer shall deliver to Seller a certificate or certificates
representing that number of Shares pledged pursuant to the Stock
Pledge Agreement.
2.5 FURTHER ASSURANCES. From and after the Closing Date, Buyer, SVU and
Seller shall do, execute, acknowledge and deliver or cause to be done, executed,
acknowledged and delivered, all such further acts, deeds, assignments,
documents, instruments, transfers, conveyances, discharges, releases, assurances
and consents as Buyer, SVU or Seller may, from time to time, reasonably request
to confirm, perfect and evidence the transfers and transactions contemplated by
this Agreement and the Stock Pledge Agreement.
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<PAGE>
SECTION 3. REPRESENTATIONS AND WARRANTIES OF SELLER AND SVU.
In order to induce Buyer to enter into this Agreement, Seller and SVU
hereby, jointly and severally, represent and warrant to Buyer that the following
statements are true, correct and complete as of the date on which made and will
be true, correct and complete as of the Closing Date.
3.1 INCORPORATION; AUTHORIZED SHARES. Each of Seller and SVU is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has all requisite power and authority to own, lease
and operate its properties and to carry on its business as now being conducted.
3.2 SHARES. As of the date of this Agreement, Seller is the owner of
14,731,667 ShopKo Common Shares. As of the Closing, Seller will be the record
owner, and Seller and SVU will be the beneficial owners, of the Shares, free and
clear of all Liens. Other than this Agreement and the Reorganization Agreement,
there are no agreements relating to the issuance, sale, or transfer of the
Shares or otherwise regarding the Shares.
3.3 AUTHORITY OF SELLER. Each of Seller and SVU has the power to execute,
deliver, and perform this Agreement and Seller has the power to execute, deliver
and perform the Stock Pledge Agreement. Each of Seller and SVU has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and the Stock Pledge Agreement, and has full corporate power to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated by this Agreement and the Stock Pledge Agreement, in
each case, to the extent that Seller or SVU is a party hereto or thereto. The
execution and delivery of this Agreement and the Stock Pledge Agreement and
consummation of the transactions set forth herein and therein have been duly
authorized by its respective board of directors and no other proceedings on its
part are necessary to authorize the execution, delivery and performance of the
Agreement or the Stock Pledge Agreement or the transactions contemplated herein
or therein.
3.4 BINDING EFFECT. This Agreement constitutes the legal, valid and
binding obligation of Seller and SVU enforceable against Seller and SVU in
accordance with its terms, and the Stock Pledge Agreement will constitute, when
duly executed and delivered in accordance with its terms, the legal, valid and
binding obligation of Seller, enforceable against Seller in accordance with its
terms, in each case, subject to bankruptcy, insolvency and similar laws of
general application affecting rights and remedies of creditors and other
obligees and to general equitable principles.
3.5 NONCONTRAVENTION. Neither the execution and delivery of this Agreement
by SVU and Seller nor the execution and delivery of the Stock Pledge Agreement
by Seller, nor the consummation of any of the transactions contemplated hereby
or thereby, nor compliance with any of the provisions hereof or thereof, will
violate, conflict with, or result in a breach of any provisions of, or
constitute a default (or an event which, with notice or lapse of time or both,
would constitute
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<PAGE>
a default) under, or result in the termination or suspension of, or accelerate
the performance required by, or result in a right of termination or acceleration
under, or result in the creation of any Lien upon any of the properties or
assets of such party under, any of the terms, conditions or provisions of the
respective certificate of incorporation or by-laws of such party or any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or
instrument to which it is a party or to which it or its properties may be
subject, or any statute, rule, regulation, judgment, order, decree or other
legal requirement applicable to such party.
3.6 INVESTMENT INTENT. Seller is acquiring the Short-Term Promissory Note
for its own account, for investment and without any present view to making a
public offering or distribution of the same. Neither Seller nor SVU shall
resell, transfer or dispose of the Short-Term Promissory Note in violation of
the Securities Act of 1933, as amended, or applicable state securities laws.
SECTION 4. REPRESENTATIONS AND WARRANTIES OF BUYER.
In order to induce Seller and SVU to enter into this Agreement, Buyer
hereby represents and warrants to Seller and SVU that the following statements
are true, correct and complete as of the date on which made and will be true,
correct and complete as of the Closing Date.
4.1 ORGANIZATION, OWNERSHIP, ETC., OF BUYER. Buyer is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Buyer has all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being conducted.
4.2 AUTHORITY OF BUYER. Buyer has the power to execute, deliver, and
perform this Agreement and the Stock Pledge Agreement. Buyer has taken all
necessary action to authorize the execution, delivery and performance of this
Agreement and the Stock Pledge Agreement, and has full corporate power to
perform its obligations hereunder and thereunder and to consummate the
transactions contemplated by this Agreement and the Stock Pledge Agreement. The
execution and delivery of this Agreement and the Stock Pledge Agreement and
consummation of the transactions set forth herein and therein have been duly
authorized by its board of directors and no other proceedings on its part are
necessary to authorize the execution, delivery and performance of this Agreement
or the Stock Pledge Agreement or the transactions contemplated herein or
therein.
4.3 BINDING EFFECT. This Agreement constitutes and, when executed and
delivered in accordance with its terms, the Stock Pledge Agreement will
constitute, the legal, valid, and binding obligation of Buyer enforceable
against it in accordance with its terms, in each case, subject to bankruptcy,
insolvency and similar laws of general application affecting rights and remedies
of creditors and other obligees and to general equitable principles.
4.4 VALID ISSUANCE. The Short-Term Promissory Note, when issued and
delivered against delivery of the Shares as provided herein, will be duly
authorized and validly issued and will
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constitute the legal, valid and binding obligation of Buyer, enforceable against
it in accordance with its terms, subject to bankruptcy, insolvency and similar
laws of general application affecting rights and remedies of creditors and other
obligees and to general equitable principles.
4.5 NONCONTRAVENTION. Neither the execution and delivery of this
Agreement or the Stock Pledge Agreement by Buyer, nor the consummation of any of
the transactions contemplated hereby or thereby, nor compliance with any of the
provisions hereof or thereof, will violate, conflict with, or result in a breach
of any provisions of, or constitute a default (or an event which, with notice or
lapse of time or both, would constitute a default) under, or result in the
termination or suspension of, or accelerate the performance required by, or
result in a right of termination or acceleration under, or result in the
creation of any Lien (other than that created by the Stock Pledge Agreement)
upon any of the properties or assets of Buyer under, any of the terms,
conditions or provisions of Buyer's certificate of incorporation or by-laws, or
any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or
instrument to which it is a party or to which it or its properties may be
subject, or any statute, rule, regulation, judgment, order, decree or other
legal requirement applicable to Buyer.
SECTION 5. CONDITIONS TO OBLIGATIONS OF SELLER AND SVU.
The obligations of Seller and SVU to proceed to Closing shall be subject to
the fulfillment (or waiver by Seller and SVU), on or prior to the Closing Date,
of each of the following conditions:
(a) The representations and warranties of Buyer contained herein
shall have been true and correct when made and shall be true and
correct as of the Closing Date; and Buyer shall have performed and
complied with all agreements, covenants and obligations hereunder
which by the terms hereof are to be performed or complied with on or
before such Closing Date;
(b) All corporate and other proceedings of Buyer in connection with
the transactions contemplated by this Agreement, and all documents and
instruments incident to such corporate proceedings, shall be
reasonably satisfactory in substance and form to Seller, SVU and their
counsel, and Seller and SVU and their counsel shall have received all
such documents and instruments, or copies thereof, certified if
requested, as may be reasonably requested; and
(c) The Reorganization shall have been consummated pursuant to the
Reorganization Agreement.
SECTION 6. CONDITIONS TO OBLIGATIONS OF BUYER.
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The obligation of Buyer to proceed to Closing shall be subject to the
fulfillment (or waiver by Buyer), on or prior to the Closing Date, of each of
the following conditions:
(a) The representations and warranties of Seller and SVU contained
herein shall have been true and correct when made and shall be true
and correct as of the Closing Date; and Seller and SVU shall have
performed and complied with all agreements, covenants and conditions
hereunder which by the terms hereof are to be performed or complied
with on or before such Closing Date;
(b) All corporate and other proceedings of Seller and SVU in
connection with the transactions contemplated by this Agreement, and
all documents and instruments incident to such corporate proceedings,
shall be reasonably satisfactory in substance and form to Buyer and
its counsel, and Buyer and its counsel shall have received all such
documents and instruments, or copies thereof, certified if requested,
as may be reasonably requested;
(c) The Reorganization shall have been consummated pursuant to the
Reorganization Agreement; and
(d) Buyer shall have received a financing commitment or other
reasonable assurances from one or more underwriters, placement agents
or other financing sources (on terms and conditions reasonably
acceptable to each of Buyer, Phar-Mor and ShopKo) that Buyer (together
with its Subsidiaries from and after the Effective Date) may obtain
financing of at least $100 million, and all documents and deliveries
necessary to consummate such financing shall be completed at or before
Closing and held in escrow pending the Effective Date.
SECTION 7. INDEMNIFICATION.
7.1 RIGHT TO INDEMNIFICATION.
Seller and SVU, jointly and severally, hereby indemnify, hold
harmless and agree to reimburse, Buyer from and against any and all claims,
losses, damages, costs (including, without limitation, court costs and
attorneys' fees), expenses and liabilities (collectively, "Claims") suffered,
incurred, or sustained by Buyer on account of any misrepresentation, breach of
warranty, or nonfulfillment of any agreement on the part of SVU or Seller under
this Agreement. Buyer hereby indemnifies, holds harmless and agrees to reimburse
SVU and Seller from and against any and all Claims suffered, incurred or
sustained by SVU or Seller on account of any misrepresentation, breach of
warranty, or nonfulfillment of any agreement on the part of Buyer under this
Agreement.
7.2 RIGHT TO CONTEST. Before being required to make any payment pursuant
to Section 7.1 hereof, Seller and SVU, on the one hand, or Buyer, on the other
hand, whichever is the
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indemnifying party (the "Indemnifying Party"), may, at its expense, elect to
undertake and control the defense of, and take all necessary steps properly to
contest any, claim, liability or action in respect thereof involving third
parties or to prosecute such contest or action to conclusion or settlement
satisfactory to the party to be indemnified (the "Indemnified Party"), subject
to the consent of the Indemnified Party. The Indemnified Party shall notify the
Indemnifying Party of any claims to indemnification involving third parties it
may wish to assert pursuant to Section 7.1 hereof as soon as reasonably
practicable; thereafter, the Indemnified Party shall, at the expense of the
Indemnifying Party, cooperate fully with the Indemnifying Party in the conduct
of any such contest or action. If the Indemnifying Party does not make such
election, it shall be bound by whatever result is obtained by the Indemnified
Party respecting such third party matter.
SECTION 8. TERMINATION; BREACH.
8.1 TERMINATION. In the event the Reorganization Agreement is terminated
pursuant to Section 6.1 of the Reorganization Agreement, then this Agreement
shall terminate simultaneously therewith and neither party shall have any
further obligation hereunder; provided, however, that nothing in this section
shall release any party hereto from liability for any breach of this Agreement.
8.2 BREACH. The parties agree and understand that the transactions
contemplated herein are material parts of and integral to the Reorganization and
that, in the event a party breaches its obligations hereunder, monetary damages
may be insufficient to compensate the other party. Accordingly, the parties
agree that, in the event of a breach by a party of any of its obligations
hereunder, the other party shall be entitled to all remedies available at law or
in equity (including the remedies of injunction or specific performance.)
SECTION 9. MISCELLANEOUS.
9.1. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The representations and
warranties contained herein shall survive Closing.
9.2 NOTICES. All notices and other communications hereunder shall be in
writing (including telex or similar writing) and shall be deemed given if
delivered in person or by messenger, cable, telegram or telex or facsimile
transmission or by a reputable overnight delivery service which provides for
evidence of receipt to the parties at the following addresses or telecopier
numbers (or at such other address, or telecopy number for a party as shall be
specified by like notice):
If to SVU or Seller, to:
11840 Valley View Road
Eden Prairie, MN 55440
Attn: General Counsel
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with a copy to:
Elliott Stein, Esq.
Wachtel, Lipton, Rosen and Katz
51 West 52nd Street
New York, NY 10019
If to Buyer, to:
3000 K Street, N.W.
Suite 105
Washington, D.C. 20007-5116
Attn: Robert Haft, Chairman of the Board
with a copy to:
Morris F. DeFeo, Jr., Esq.
Swidler & Berlin, Chartered
3000 K Street, N.W.
Washington, D.C. 20007-5116
9.3 INTERPRETATION. When reference is made in this Agreement to Exhibits
or Sections, such reference shall be to an Exhibit to or Section of this
Agreement unless otherwise indicated. The headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.4 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
9.5 ENTIRE AGREEMENT. This Agreement (including the documents and
instruments referred to herein), together with the Reorganization Agreement,
constitute all of the agreements with respect to the subject matter set forth
herein and supersede all prior and contemporaneous agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof.
9.6 SEVERABILITY; SAVINGS. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, which shall remain in full force and
effect. Whenever possible, each provision of this Agreement will be interpreted
in such manner as to be effective and valid under applicable law; provided, that
if any provision of this Agreement is held to be prohibited by or invalid under
applicable law, such
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provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of this Agreement.
9.7 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 of such state.
9.8 ASSIGNMENT. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be assigned by any party hereto, whether by
operation of law or otherwise, without the express prior written consent of each
of the other parties hereto. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by the parties
and their respective successors, heirs, legal representatives and permitted
assigns.
9.9 AMENDMENT. This Agreement may be amended only by a written instrument
signed by Buyer, Seller and SVU.
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IN WITNESS WHEREOF, each party hereto has caused this Agreement to be
signed by its respective officer thereunto duly authorized as of the date first
above written.
SuperValu Inc.
By: /s/ Jeffrey Girard
--------------------------------------
Name: Jeffrey Girard
Title: Executive Vice President
Supermarket Operators of America, Inc.
By: /s/ Jeffrey Girard
--------------------------------------
Name: Jeffrey Girard
Title: President
Cabot Noble, Inc.
By: /s/ Robert M. Haft
--------------------------------------
Name: Robert M. Haft
Title: Chairman of the Board and Chief
Executive Officer
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EXHIBIT 99.1
700 Pilgrim Way
[LOGO OF SHOPKO STORES] P.O. Box 19060
Green Bay, WI 54307-9060
414-497-2211
PHAR-MOR, INC., AND SHOPKO STORES, INC., TO COMBINE, CREATING NEW RETAILING
COMPANY WITH 232 STORES IN 29 STATES IN A TRANSACTION VALUED AT $1 BILLION,
INCLUDING ASSUMPTION OF DEBT
ShopKo Shareholders to Receive Consideration Valued at
$17.25 to $18.00 Per Share
SUPERVALU's 46% ShopKo Interest to Be Bought Out Immediately after Completion
for $16.86 Per Share of ShopKo Stock
YOUNGSTOWN, Ohio and GREEN BAY, Wis., Sept. 9 /PRNewswire/ -- Phar-Mor,
Inc. (Nasdaq: PMOR) and ShopKo Stores, Inc. (NYSE: SKO) today announced that
they have signed an agreement to combine their two companies under a new holding
company. The new company, which will be called Cabot Noble, Inc., intends to
file for listing on the New York Stock Exchange.
Upon completion of the transaction, the new company will, based on the
recent results of each retailer, have estimated combined annual sales of
approximately $3.2 billion and 232 stores in 29 states. Robert Haft, current
Chairman and CEO of Phar-Mor, will be Chairman and CEO of Cabot Noble. David
Schwartz will remain President of Phar-Mor and Dale Kramer will remain President
and CEO of ShopKo.
The two companies overlap in only one market so the combination will create
minimal store redundancy. Phar-Mor and ShopKo will continue to be headquartered
in Youngstown, Ohio, and Green Bay, Wisconsin, respectively, and both companies
expect to maintain vendor relationships and policies regarding their employees,
customers and communities.
Terms of the Transaction
The combination will be accomplished through share exchanges with a new
holding company, Cabot Noble, Inc. ShopKo and Phar-Mor will continue as separate
operating subsidiaries of Cabot Noble.
Under the terms of the proposed share exchanges:
Each share of ShopKo common stock will be exchanged for 2.4 shares of Cabot
Noble stock, subject to adjustment if the value of the exchange consideration
falls outside a range of $17.25 - $18.00 per share (based on the average daily
closing sale prices of the Phar-Mor shares over a specified 30-day time period).
Each share of Phar-Mor common stock will be exchanged for one share of
Cabot Noble stock.
Upon completion of the share exchanges, SUPERVALU INC. (NYSE: SVU), which
currently owns 46 percent of ShopKo, will sell the Cabot Noble common stock it
receives in the share exchange to Cabot Noble for an aggregate purchase price of
approximately $248.4 million, consisting of approximately $208 million in cash
and $40.4 million in a short-term note maturing January 31, 1997. This
represents a purchase price of $16.86 per share of ShopKo held by SUPERVALU
prior to the share exchange.
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At the September 6, 1996 closing price of $16.25 for ShopKo, the value of
the share exchange represents a 6% to 11% premium for the ShopKo shares. Based
on the average closing price of ShopKo common stock over the last 30 days, the
value of the share exchange represents a 14% to 19% premium for the ShopKo
shares. After the repurchase of Cabot Noble shares from SUPERVALU described
above, the ShopKo public shareholders will hold approximately 77 percent of the
combined company, compared to their current 54 percent ownership of ShopKo.
The share exchanges and repurchase are expected to be accretive to both
ShopKo and Phar-Mor shareholders. Economies of scale in logistics and buying
are expected to have an additional accretive impact. The management of both
companies believes there is a potential annual savings of approximately $15-$20
million. The savings are expected to be phased in over the period from six to
24 months after the combination is completed.
The transaction is valued at approximately $1 billion, including the
assumption of debt. It is expected that upon consummation of the proposed share
exchange (including the repurchase of shares from SUPERVALU) the new publicly
traded company, Cabot Noble, Inc., will have approximately 52.5 million shares
outstanding, subject to adjustment based on the exchange ratio, the exercise of
other rights to purchase shares, and other factors. The two companies expect to
conclude the transaction by December, subject to receipt of necessary approvals.
Rational For the Transaction
As a result of this business combination, the new company will have an
expanded geographic reach and the opportunity to reduce operating costs through
administrative efficiencies and economies of scale in logistics and buying.
ShopKo has 130 stores in 15 states, primarily in the Midwest, Pacific Northwest,
and Mountain regions. Phar-Mor has 102 stores in 18 states, primarily in Ohio,
Pennsylvania, and Virginia. About two-thirds of the two companies'
merchandising is in similar merchandise categories, particularly in the area of
pharmacy, health and beauty aids, and general merchandise. Based on current
sales figures, the companies will have nearly $500 million of combined annual
pharmacy sales, an additional $500 million of sales in drug store-related
products, and approximately $1 billion in general merchandise sales. The
remaining $1 billion in combined new company sales includes revenues from
ShopKo's ProVantage, Inc., health care subsidiary and other merchandise areas
that the companies do not now share.
"This friendly merger brings together two companies with complementary
strengths and a single merchandising philosophy -- to give consumers value,"
said Mr. Haft. "Both Phar-Mor and ShopKo are focused retailers with the
commitment and management skills necessary to succeed in a demanding retail
environment that is undergoing steady consolidation. Operating as separate
entities under a single corporate heading, we will be able to achieve a
cross-fertilization of creative ideas while leveraging general and
administrative expenses.
"We envision that Phar-Mor, with its strong position in the food and
promotional greeting card businesses, will help ShopKo expand in those areas.
At the same time, we believe that Phar-Mor will be able to leverage ShopKo's
expertise in systems and computers and that it will be able to add in-store
optical, basic clothing assortments, jewelry and home products. We also believe
that ShopKo's high-growth ProVantage subsidiary, which specializes in
prescription benefit management (PBM), vision benefit management (VBM) and
health decision support services (DSS), is a valuable asset with significant
earnings and capital formulation opportunities. Based on the opportunity to
achieve savings and expand our product lines, both companies determined that
this business combination will help provide for a stronger retail format and
create opportunities to build shareholder value.
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"I look forward to working with the outstanding merchants at ShopKo, including
President Dale Kramer, Chief Operating Officer Bill Podany, and Chief Financial
Officer Jeff Jones. We believe this combination will create a successful retail
company that differentiates itself by offering outstanding health services,
specialty categories and general merchandise retailing."
"This business combination clearly provides tremendous benefits for our
customers as well as our shareholders," said Dale P. Kramer, ShopKo President
and CEO. "As one of the largest discount companies in the nation, we will
increase our buying power, gain greater efficiencies, further enhance our
respective merchandising strategies, and build off each other's strengths to
provide exciting shopping and even greater value to our customers.
"We at ShopKo are excited about Robert Haft's visionary leadership and
expect to benefit from his entrepreneurial expertise and success in a wide range
of retail categories as well as his financial acumen. With his commitment to
growing the organization, we believe this alliance has extraordinary potential."
Closing Conditions
The transaction is subject to a number of customary closing conditions,
including but not limited to financing of at least $100 million, regulatory
approvals and the approval of Phar-Mor and ShopKo shareholders. SUPERVALU has
indicated its intention to vote 46% of the ShopKo shares in favor of the
transaction. Robert Haft has agreed to use his reasonable efforts to cause
Hamilton Morgan, L.L.C., to vote the approximately 40% of the Phar-Mor shares it
beneficially owns in favor of the transaction. Hamilton Morgan is jointly owned
by Robert Haft and FoxMeyer Health Corporation. FoxMeyer Health Corporation has
not reached a conclusion as to its position on the transaction. There can be no
assurance that these conditions will be satisfied or when satisfaction of these
conditions occur.
The ShopKo dividend of $0.11 per share payable on September 15 to the
holders of record on September 1 will be paid as announced. Pursuant to the
combination agreement with Phar-Mor, ShopKo will not declare any dividends
pending completion of the transaction. It is expected that Cabot Noble will not
pay cash dividends on its common stock following completion of the transaction.
ShopKo Stores, Inc., is a leading regional retailer operating 130 stores in
15 states, concentrated in the Upper Midwest, Mountain, and Pacific Northwest
states and ProVantage, Inc., which specializes in prescription benefit
management (PBM), vision benefit management (VBM), and health decision support
services (DSS). ShopKo had sales of $1.97 billion in fiscal 1996 (52 weeks ended
February 24, 1996). Its sales for the first quarter of this year (ended June 15,
1996) were $611 million, with first quarter net earnings of $5.8 million,
or $0.18 per share.
Phar-Mor is a retail drug store chain operating 102 stores in 18 states,
concentrated in Ohio, Pennsylvania and Virginia. The company reported sales of
$1.1 billion for the 52 weeks ended June 29, 1996, with pro forma net income of
$3.3 million, or $0.27 per share. For the fourth quarter (ended June 29, 1996)
revenues were $264.8 million. The company had a net loss for the quarter of
$2.7 million or $0.22 per share.
This press release contains forward-looking statements regarding projected
financial results, including, without limitation, projected sales, accretion to
earnings and cost savings. The actual results of ShopKo, Phar-Mor and Cabot
Noble may differ materially from those contained in the forward-looking
statements. Factors that may cause such differences are identifiable in ShopKo's
and Phar-Mor's Current Reports on Form 8-K dated September 7, 1996.
SOURCE ShopKo Stores, Inc.
-0- 09/09/96
/CONTACT: Gary Holmes of Phar-Mor Public Affairs. 212-484-7736; Daniel
O'Leary or John Ficarro of Phar-Mor Investor Relations, 330-740-2020; or Larry
Clark, ShopKo Investor Relations, 414-496-4113 or Sheree Olson of ShopKo Public
Affairs, 414-496-4186/
(SKO PMOR SVU)
