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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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BUTTREY FOOD AND DRUG STORES COMPANY
(NAME OF SUBJECT COMPANY)
BUTTREY FOOD AND DRUG STORES COMPANY
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
124234 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
WAYNE S. PETERSON
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
BUTTREY FOOD AND DRUG STORES COMPANY
601 6TH STREET, S.W.
GREAT FALLS, MONTANA 59404
TELEPHONE: (406) 761-3401
FACSIMILE: (406) 454-7251
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING THIS STATEMENT)
Copies to:
CYNTHIA M. DUNNETT, ESQ.
RYAN S. HONG, ESQ.
RIORDAN & MCKINZIE
300 SOUTH GRAND AVENUE
29TH FLOOR
LOS ANGELES, CALIFORNIA 90071
TELEPHONE: (213) 629-4824
FACSIMILE: (213) 229-8550
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Buttrey Food and Drug Stores Company, a
Delaware corporation (the "Company" or "Buttrey"). The principal executive
offices of the Company are located at 601 6th Street, S.W., Great Falls, Montana
59404. The equity securities to which this Solicitation/Recommendation Statement
on Schedule 14D-9 ("Schedule 14D-9") relates is the shares of common stock, par
value $.01 per share (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated as of January 26, 1998 (the "Schedule
14D-1"), filed by Locomotive Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Albertson's, Inc., a Delaware
corporation ("Parent" or "Albertson's") to purchase all outstanding shares of
Common Stock (the "Shares") at $15.50 per share (the "Offer Price"), net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Schedule 14D-1 and the related letter of transmittal (which, as
amended and extended from time to time, together constitute the "Offer"). The
Offer is made pursuant to that certain Agreement and Plan of Merger, dated as of
January 19, 1998 (the "Merger Agreement"), by and among the Company, Purchaser
and Parent.
The principal executive offices of the Purchaser and Albertson's are
located at 250 Parkcenter Boulevard, Boise, Idaho 83726.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its executive officers,
directors or affiliates are described in the Company's Proxy Statement, dated
May 2, 1997, relating to the Company's Annual Meeting of Stockholders held on
May 28, 1997 (the "Proxy Statement") under the headings "Security Ownership of
Certain Beneficial Owners and Management," "Information Concerning Incumbent
Directors," "The Board of Directors," "Executive Officers, Compensation and
Other Information," "Summary Compensation Table," "Option Grants in Last Fiscal
Year," "Option Exercises and Year-End Value Table," "Certain Relationships and
Related Transactions," "Compensation Committee Interlocks and Insider
Participation" and "Report of the Compensation Committee of the Board of
Directors" on pages 2 through 16 of the Proxy Statement.
Sale of Real Property to Parent. In August 1994, in connection with an
assignment from an unrelated third party (the "Assignor") to Parent of the
Assignor's right to purchase one of the Company's stores in Kennewick,
Washington, Parent purchased certain related real property from the Company for
approximately $3.6 million and certain related equipment and inventory from the
Assignor for approximately $2.5 million.
Option Payment Agreements. In connection with the Offer, the Company
intends to enter into separate option payment agreements (collectively, the
"Payment Agreements") with holders of outstanding options to purchase Shares
("Options") under the Company's 1993 Special Option Plan, the Company's 1995
Stock Option Plan ("1995 Option Plan") and the Company's 1996 Nonqualified
Non-Employee Directors Stock Option Plan ("1996 Option Plan") (collectively, the
"Stock Option Plans") and intends to enter into an option payment agreement with
Joseph H. Fernandez, the Company's Chairman of the Board, President and Chief
Executive Officer, with respect to 56,140 shares subject to an option (the
"Performance Option") under the Company's 1990 Nonqualified Performance Stock
Option Plan (as amended, the "1990 Option Plan"). The Payment Agreements will
describe, as applicable, the various termination and acceleration provi-
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sions of the Stock Option Plans that are triggered by the Offer and the Merger
and will provide for the surrender to the Company of all Options, following
consummation of the Offer, for an amount in cash equal to the excess of the
Offer Price over the applicable exercise price per share of the Options and less
all taxes required to be withheld from such payment (the "Option
Consideration"). The Payment Agreement with Mr. Fernandez will describe the
decision of the Board of Directors of the Company (the "Board") to accelerate
the vesting of the Performance Option with respect to 28,070 of the Shares
covered thereby to the time of acceptance of Shares for payment and purchase
pursuant to the Offer and provide for payment of the Option Consideration with
respect to such Shares following consummation of the Offer. The Payment
Agreements for non-employee directors not affiliated with FS&Co. (as defined
below) will also describe the Board's decision to accelerate to the time of
acceptance of Shares for payment and purchase pursuant to the Offer the vesting
of options to purchase an aggregate of 9,524 Shares granted under the 1996
Option Plan. The Payment Agreements will further provide that payment of the
Option Consideration is subject to and contingent upon both the acceptance of
the Shares for payment and purchase pursuant to the Offer and the surrender by
the optionholder of the Options.
Severance and Other Arrangements. Pursuant to a letter agreement dated as
of January 19, 1998 (the "Letter Agreement"), Albertson's has agreed to provide
certain severance and retention benefits to certain employees of the Company,
including the Company's officers, upon consummation of the Offer and the Merger.
Under the severance program, an employee, including any officer, who is
terminated, other than for cause, within six months of the closing of the
purchase of the Company will receive a cash severance payment of 1 1/2 weeks of
pay for each full year of service with the Company, with a minimum payment of
$3,000 for employees with at least one full year of service and $1,500 for
employees with less than one full year of service. Executive officers with
current employment or severance agreements may elect to receive the payment
specified above or the payment provided for in such agreement, but not both. In
addition, the COBRA premiums for medical benefits will be paid for three months
following the last day of employment.
As authorized by the Board at its January 19, 1998 meeting, the Company
will enter into certain retention agreements (the "Retention Agreements") with
all executive officers other than Mr. Fernandez and with certain employees of
the Company. These Retention Agreements, which were approved by Albertson's in
the Letter Agreement, will provide that each of these officers and employees
will receive a specified retention incentive bonus ranging from $20,000 to
$120,000 if such officer or employee remains employed with the Company until 60
days after consummation of the Offer. Further, such bonuses will be paid if
employment is involuntarily terminated prior to the expiration of such 60 day
period, unless such termination is "for cause," and shall also be paid if
employment is terminated by such employee with "good reason," prior to the
expiration of such 60 day period, with "for cause" and "good reason" customarily
defined. The retention incentive bonuses will also be paid in the event that
such officer or employee dies or is permanently disabled prior to the expiration
of such 60 day period.
FS Equity Partners II, L.P., the majority stockholder of the Company (the
"Major Stockholder"), will also enter into agreements with each of Wayne S.
Peterson, Senior Vice President, Chief Financial Officer and Secretary, and
Louis J. Rizzo, Senior Vice President -- Retail Operations and Store
Development, providing that each of these executive officers will receive a
closing bonus of $40,000 and $20,000, respectively, from the Major Stockholder
if such officer remains employed with the Company until the consummation of the
Offer. These bonuses will also be paid if employment is involuntarily terminated
prior to the consummation of the Offer, unless such termination is "for cause"
and shall also be paid if employment is terminated prior to the consummation of
the Offer by the officer for "good reason," with "for cause" and "good reason"
customarily defined. The closing bonus will also be paid upon the death or
permanent disability of such officer. Notwithstanding the foregoing, neither
officer shall be entitled to receive the closing bonus if the Offer is not
consummated for any reason.
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(b)(2) Merger Agreement.
The following is a summary of certain provisions of the Merger Agreement
not discussed elsewhere in this Schedule 14D-9. The summary does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Merger Agreement, a copy of which is filed with the Securities and
Exchange Commission (the "Commission") as Exhibit 1 to the Schedule 14D-9 and is
incorporated herein by reference. Capitalized terms not otherwise defined below
shall have the meanings set forth in the Merger Agreement.
The Offer. In accordance with the terms of the Merger Agreement, Purchaser
will accept for payment and pay for all Shares validly tendered, and not
withdrawn, prior to the Expiration Date. The term "Expiration Date" shall mean
12:00 Midnight, New York City time, on Monday, February 23, 1998, unless and
until Purchaser shall have extended the period of time for which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition. If the Minimum Condition is not satisfied or any of the other
events set forth under "-- Conditions to the Offer" shall have occurred or shall
be determined by Purchaser to have occurred prior to the Expiration Date,
Purchaser reserves the right (but shall not be obligated), subject to the terms
of the Merger Agreement and subject to complying with applicable rules and
regulations of the Commission, to (i) decline to purchase any of the Shares
tendered in the Offer and terminate the Offer and return all tendered Shares to
the tendering stockholders, (ii) waive any or all conditions to the Offer and,
to the extent permitted by applicable law, purchase all Shares validly tendered,
(iii) extend the Offer and, subject to the right of stockholders to withdraw
Shares until the Expiration Date, retain the Shares which have been tendered
during the period or periods for which the Offer is extended or (iv) amend the
Offer.
Subject to the terms of the Merger Agreement, Purchaser may, and under
certain circumstances shall, from time to time, and regardless of whether any of
the events set forth under "-- Conditions to the Offer" shall have occurred,
extend the period of time during which the Offer is open and thereby delay the
acceptance for payment of, and payment for, any Shares by giving oral or written
notice of such extension to the Depositary.
The Merger Agreement provides that Purchaser will not decrease the Offer
Price, change the form of consideration payable in the Offer, decrease the
number of Shares sought in the Offer, change or amend the conditions to the
Offer or impose additional conditions to the Offer, change the Expiration Date
or waive, add or amend any term of or condition to the Offer in any manner
adverse to the holders of the Shares without the written consent of the Company;
provided, however, that if on any scheduled Expiration Date, all conditions to
the Offer shall not have been satisfied or waived, Purchaser may extend the
Expiration Date. In addition, if on any scheduled Expiration Date, all
conditions to the Offer shall not have been satisfied or waived, Purchaser has
agreed to extend the Expiration Date as long as the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall not have expired or been terminated. Purchaser has further agreed
that if on any scheduled Expiration Date any order, decree, ruling or other
action of or an agreement with any United States or state governmental authority
or other agency or commission or United States or state court of competent
jurisdiction (a "Governmental Authority") that has the effect of restraining,
enjoining, prohibiting or delaying the consummation of the Offer or the Merger
or imposing material limitations on the ability of Purchaser to acquire the
Shares shall be in effect, Purchaser will extend the Expiration Date until it
has reached an agreement with the Department of Justice (the "DOJ"), the Federal
Trade Commission (the "FTC") or any other Governmental Authority that has
asserted that consummation of the Offer will violate Antitrust Laws (as defined
below) and any injunction or order prohibiting or limiting the consummation of
the Offer or the Merger shall have become final and non-appealable. If,
immediately prior to any scheduled Expiration Date, all conditions to the Offer
are satisfied as of such Expiration Date but the number of
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Shares tendered and not withdrawn pursuant to the Offer constitute less than 90%
of the Shares outstanding, Purchaser may extend the Offer for a period not to
exceed ten (10) business days; provided that in the event the Offer is so
extended, Parent and Purchaser must irrevocably waive all of the conditions to
the Offer set forth under "-- Conditions to the Offer" (other than the condition
that no law be enacted or any injunction or order be issued which has the effect
of making the acquisition of the Shares by Purchaser illegal or which imposes
material limitations on the ability of Purchaser to acquire the Shares or which
otherwise prohibits the consummation of the transactions contemplated by the
Merger Agreement) that subsequently may not be satisfied during such extension
of the Offer as grounds for its refusal to accept for payment and purchase, or
to pay for, or as grounds for its delay in the acceptance for payment for, any
Shares tendered in the Offer. As used in this Schedule 14D-9, "business day" has
the meaning set forth in Rule 14d-1 under the Securities Exchange Act, as
amended (the "Exchange Act").
The Merger. Pursuant to the Merger Agreement and subject to the Delaware
General Corporations Law ("the DGCL"), as soon as practicable after the
completion of the Offer and satisfaction or waiver, if permissible, of all
conditions to the Merger (as defined below), Purchaser will be merged with and
into the Company and the separate corporate existence of Purchaser will
thereupon cease. The merger, as effected pursuant to the immediately preceding
sentence, is referred to herein as the "Merger," and the Company as the
surviving corporation of the Merger is sometimes herein referred to as the
"Surviving Corporation." The directors of Purchaser immediately prior to the
Effective Time and the officers of the Company immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors are duly elected and
qualified. The parties to the Merger Agreement shall cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
duly executed and vertified certificate of merger, as required by the DGCL. At
the effective time of the Merger (the "Effective Time"), each Share then
outstanding (other than Shares held by Parent or Purchaser and Shares held by
stockholders who properly perfect their dissenters' rights under the DGCL) will
be cancelled and extinguished and converted into the right to receive $15.50 in
cash or any higher price per Share paid in the Offer (the "Merger
Consideration"), without interest.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, capital stock, options
or other rights to acquire Shares, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and any applicable
laws and any agreements to which the Company or its assets may be bound,
financial statements, public filings, conduct of business, employee benefit
plans, ERISA, proprietary property, labor and employment matters, compliance
with laws, tax matters, litigation, environmental matters, material contracts,
conflicts of interest, brokers' and finders' fees, real property leases, title
to properties, absence of liens, insurance, inventory, suppliers, votes required
to approve the Merger Agreement, undisclosed liabilities, product liability,
disclosures in proxy statement and tender offer documents and the absence of
material adverse changes.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and any applicable
laws and any agreements to which Parent or Purchaser or their assets may be
bound, availability of funds to consummate the Offer and the Merger, brokers'
fees, disclosures in proxy statement and tender offer documents, no prior
ownership of Shares and no prior activities by Purchaser.
Conditions to the Offer. The Offer is subject to the Minimum Condition
being satisfied by 12:00 Midnight on February 23, 1998 or such later date as the
Offer may be extended in accordance with the terms of the Merger Agreement.
Notwithstanding any other provisions of the Offer, and subject to the terms of
the Merger Agreement, Purchaser shall not be obligated to accept for payment any
Shares until expiration of the applicable waiting periods under the HSR Act, and
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Purchaser shall not be required to accept for payment, purchase or pay for, and
may delay the acceptance for payment of or payment for, any Shares tendered in
the Offer, or if the Minimum Condition shall not have been satisfied, Purchaser
may terminate or amend the Offer (subject to Purchaser's obligation to extend
the Offer pursuant to the Merger Agreement) if, prior to the time of acceptance
for payment of any such Shares (whether or not any other Shares have theretofore
been accepted for payment or paid for pursuant to the Offer), any of the
following shall have occurred and remain in effect:
(a) a United States or state governmental authority or other agency or
commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect
of making the acquisition of the Shares illegal or imposing material
limitations on the ability of Purchaser to acquire the Shares or otherwise
prohibiting the consummation of the transactions contemplated by the Merger
Agreement subject to Parent's and Purchaser's obligations to reach an
agreement authorizing consummation of the Offer and Merger with the FTC or
DOJ, and any other Governmental Authority that may have asserted that
consummation of the Offer will violate Antitrust Laws, and to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary or required by the FTC or DOJ in connection with the expiration
or termination of the waiting period under the HSR Act as a result of the
transactions contemplated by the Merger Agreement (provided, however, that
the foregoing shall not be construed so as to preclude, prevent or
otherwise limit Parent or Purchaser from instituting or prosecuting or
defending a suit or claim in good faith with respect to any suit,
objection, requirement or other action by the FTC, DOJ or any other such
Governmental Authority or any private party with respect to the
transactions contemplated by the Merger Agreement), and Parent's agreement
not to terminate the Offer so long as any such injunction or order has not
become final and nonappealable;
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the NYSE, and such event
shall have continued to exist for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or
interference with such exchange not related to market conditions), (ii) any
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation by any United
States governmental authority on the extension of credit generally by banks
or other financial institutions, or (iv) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(c) either (i)(A) any of the representations or warranties of the
Company with respect to capital stock, options and other rights to acquire
Shares, authority relative to the Merger Agreement and the vote required
for the approval of the Merger Agreement and the Merger shall not be true
and correct in all material respects or (B) any other representation or
warranty of the Company in the Merger Agreement shall not be true and
correct which inaccuracy, singly or in the aggregate, would have or be
reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary taken as a whole and in either case are not
reasonably capable of being cured by the Company or have not been cured
within ten (10) business days after the giving of written notice to the
Company in each case as if such representations or warranties were made as
of such time on or after January 19, 1998 (unless a representation speaks
as of an earlier date, in which case it shall be deemed to have been made
as of such earlier date), or (ii) the Company shall have failed to perform
any obligation or to comply with any agreement or covenant of the Company
to be performed or complied with by it under the Merger Agreement, which
failure, singly or in the aggregate, would have or be reasonably likely to
have a material adverse effect on the business, operations, properties
(including intangible properties), condition (financial or other-
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wise), results of operations, assets or liabilities of the Company and the
Subsidiary taken as a whole and is not reasonably capable of being cured by
the Company or has not been cured within ten (10) business days after the
giving of written notice to the Company; and the Chief Executive Officer of
the Company shall have provided a certificate to the effect that the
conditions set forth in clauses (i) or (ii) have not occurred on the date
Shares are to be accepted for payment pursuant to the Offer;
(d) since January 19, 1998 there shall have been any material adverse
change in the business, operations, properties (including intangible
properties), condition (financial or otherwise), results of operations,
assets or liabilities of the Company and the Subsidiary, taken as a whole,
excluding any such change occurring at any time after January 19, 1998
caused by (i) a general change in the economy (including any such change
caused by a general change in the markets served by the Company and the
Subsidiary) or (ii) the institution or threat of any suit, arbitration,
mediation, action, proceeding, complaint or grievance which challenges any
of the transactions contemplated by the Merger Agreement or any action
required in connection with the resolution of matters relating to the
Antitrust Laws and excluding any such change occurring on or after the 90th
day following January 19, 1998 caused by the voluntary termination of
employment by employees of the Company or the Subsidiary or a closure of,
or any labor disruption, slowdown or strike relating to, the Company's
principal distribution center located in Great Falls, Montana; provided,
however, that the foregoing right is subject to the Company MAC Right as
described above;
(e) the Board (i) shall have amended, modified or withdrawn its
recommendation of the Offer or the Merger other than as permitted by the
Merger Agreement, (ii) shall have endorsed, approved or recommended any
Superior Proposal or (iii) the Company shall have entered into any
agreement with respect to any Superior Proposal;
(f) any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or Purchaser or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act) of more than 25%
of the Shares (either on a primary or a fully diluted basis); provided,
however, that this provision shall not apply to any person that
beneficially owns more than 25% of the outstanding Shares on January 19,
1998 so long as such person does not further increase its beneficial
ownership beyond the number of Shares such person beneficially owns on
January 19, 1998; or
(g) the Merger Agreement shall have been terminated by the Company or
Parent pursuant to its terms;
which, in the reasonable judgment of Parent and Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to any such condition, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for the
Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser,
may be asserted by Parent or Purchaser regardless of the circumstances giving
rise to such condition and may be waived by Parent or Purchaser in whole or in
part and at any time and from time to time. The failure by Parent or Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
Conditions to the Merger. The respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction of each of the following conditions: (i)
Purchaser shall have commenced the Offer and shall have purchased, pursuant to
the terms and conditions of the Offer, all Shares duly tendered and not
withdrawn, (ii) Parent, Purchaser or an affiliate thereof shall have purchased a
majority of the outstanding Shares pursuant to the Offer, unless such failure to
purchase is a result of a breach of
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Parent's or Purchaser's obligations under the Merger Agreement, (iii) the Merger
Agreement and the Merger shall have been approved and adopted by the requisite
vote of the holders of the Shares, unless Purchaser shall have acquired 90% or
more of the outstanding Shares, (iv) no Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
final non-appealable injunction or other final non-appealable order which is in
effect and has the effect of making the acquisition of Shares by Purchaser
illegal or otherwise prohibiting consummation of the transactions contemplated
by the Merger Agreement; provided, however, that such condition does not modify
Parent's obligation to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary or required by the FTC or the DOJ in
connection with the expiration or termination of the waiting period under the
HSR Act, or by any private party or Governmental Authority or other tribunal
under the Antitrust Laws or in a suit by a private party or Governmental
Authority as a result of the transactions contemplated by the Merger Agreement,
except that either Parent or Purchaser may institute, prosecute or defend a suit
or claim in good faith with respect to any suit, objection, requirement or other
action by the FTC, the DOJ, any other Governmental Authority or any private
party with respect to the transactions contemplated by the Merger Agreement, and
(v) the applicable waiting period under the HSR Act shall have expired or been
terminated.
Board Representation. The Merger Agreement provides that promptly upon the
purchase by Purchaser of the Minimum Shares pursuant to the Offer, Parent will
be entitled to designate up to such number of directors, rounded up to the next
whole number, on the Board as shall give Parent representation on the Board
equal to the product of the total number of directors (giving effect to the
directors designated by Parent pursuant to the Merger Agreement) multiplied by
the percentage, expressed as a decimal, that the aggregate number of Shares
beneficially owned by Purchaser following such purchase bears to the total
number of Shares then outstanding. The Company has agreed to promptly take all
actions necessary to cause Parent's designees to be elected as directors of the
Company, including, increasing the size of the Board and securing the
resignations of incumbent directors. The Company shall cause persons designated
by Parent to constitute the same percentage as persons designated by Parent
shall constitute of the Board of (i) each committee of the Board, (ii) the board
of directors of the Subsidiary (as defined below) and (iii) each committee of
each such board, in each case only to the extent permitted by applicable law.
The Company's obligation to appoint Parent's designees to the Board is subject
to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
In the event that Parent's designees are elected to the Board, until the
Effective Time, the Board shall have at least two (2) directors who are
directors on the date of the Merger Agreement (such directors, the "Independent
Directors"); provided, however, that in such event if the number of Independent
Directors will be reduced below two for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there be only one remaining)
shall be entitled to designate persons to fill such vacancies, who shall be
deemed to be Independent Directors for purposes of the Merger Agreement, or, if
no Independent Director then remains, the other directors shall designate
persons to fill such vacancies who shall not be stockholders, affiliates or
associates of Parent or Purchaser and such persons shall be deemed to be
Independent Directors for purposes of the Merger Agreement. Following the
election of Parent's designees to the Board and prior to the Effective Time, the
affirmative vote of a majority of the Independent Directors shall be required to
(i) amend or terminate the Merger Agreement on behalf of the Company, (ii)
exercise or waive any of the Company's rights, benefits or remedies under the
Merger Agreement or (iii) take any other action by the Board under or in
connection with the Merger Agreement which would adversely affect the rights of
the Company's stockholders under the Merger Agreement; provided, further, that
if there will be no such directors, such actions may be effected by the
unanimous vote of the entire Board.
Stockholders' Meeting; Proxy Statement. If required by applicable law in
order to consummate the Merger, the Company will (i) duly call, give notice of,
convene and hold a special meeting of its
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stockholders as promptly as practicable following the acceptance for payment and
purchase of the Minimum Shares by Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the Merger and the
adoption of the Merger Agreement and (ii) prepare and file with the Commission,
subject to the prior approval of Parent (which approval shall not be
unreasonably withheld), preliminary and final versions of a proxy statement (the
"Proxy Statement") and proxy and other filings relating to such stockholders'
meeting as required by the Exchange Act. Subject to the terms of the Merger
Agreement, the Company has agreed to include in the Proxy Statement the
recommendation of the Board that stockholders of the Company vote in favor of
the approval of the Merger and the adoption of the Merger Agreement.
Employee Benefits. The Merger Agreement provides that, following the
Effective Time, Parent will cause the Surviving Corporation to provide or will
directly provide to the employees of the Subsidiary and the Company who continue
to be so employed employee benefits that are substantially equivalent in the
aggregate to those provided by Parent to similarly situated employees of Parent.
In determining the level of benefits to be received by employees of the
Subsidiary or the Company, Parent will ensure that such employees are credited
for years of service with the Company or the Subsidiary, as such years of
service are currently recognized by the Company and the Subsidiary for purposes
of eligibility, vesting and benefit accrual under its employee benefit plans,
but not for purposes of benefit accrual under any defined benefit pension plan.
Neither Parent nor the Company is required to continue any existing employee
benefit plan applicable to employees of the Company or the Subsidiary following
the Effective Time, except as may be required by any applicable collective
bargaining agreement.
Options. The Merger Agreement provides that, except as limited by the
terms of the Merger Agreement, prior to consummation of the Offer or the
Effective Time or both, the Company may enter into agreements in respect of
outstanding Options, providing for the payment upon surrender of each vested
Option immediately after the consummation of the Offer up to and including the
Effective Time an amount of cash per share subject to each such Option equal to
the excess, if any, of the Option Consideration. Any Options not so surrendered
or exercised prior to the Effective Time shall terminate no later than the
Effective Time in accordance with the terms of the Stock Option Plans or such
agreements with the optionees. The Merger Agreement provides that the Company
may accelerate the vesting of options to purchase 28,070 Shares granted to
Joseph H. Fernandez, Chairman of the Board, President and Chief Executive
Officer, under the 1990 Option Plan, and options to purchase an aggregate of
9,524 Shares granted to certain non-employee directors of the Company under the
1996 Option Plan. The Merger Agreement provides that, upon request of the
Company following consummation of the Offer, Parent shall advance to the Company
sufficient funds to enable the Company to pay the aggregate Option
Consideration.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the
Company has agreed that, except (i) as expressly contemplated by the Merger
Agreement, (ii) as set forth in the applicable schedule thereto or (iii) as
consented to or approved in writing by Parent (such consent not to be
unreasonably withheld, except with respect to items (a), (b)(i) and (b)(v)
below, as to which consent may be withheld at any time and for any reason), the
business of the Company and the Buttrey Food and Drug Company, a Delaware
corporation and a wholly owned subsidiary of the Company (the "Subsidiary"),
will be conducted only in the ordinary course consistent in all material
respects with past practice. The Merger Agreement further provides that prior to
the Effective Time:
(a) each of the Company and the Subsidiary shall not (i) amend its
Certificate of Incorporation or Bylaws, (ii) change the number of
authorized, issued or outstanding shares of its capital stock, except upon
the exercise of certain stock options outstanding on the date of the Merger
Agreement, (iii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of
its capital stock, (iv) make any direct or indirect redemption, retirement,
purchase or other acquisition of any of its capital stock (except for
repurchases of Shares from employees pursuant to existing stock
subscription
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<PAGE> 10
agreements between the Company and certain of its employees); or (v) split,
combine or reclassify its outstanding shares of capital stock.
(b) neither the Company nor the Subsidiary shall, directly or
indirectly, (i) issue, grant or sell or agree or propose to issue, grant or
sell any shares of, or rights of any kind to acquire any shares of the
capital stock of the Company or the Subsidiary, except that the Company may
issue Shares upon the exercise of Options and warrants outstanding on the
date hereof, (ii) other than in the ordinary course of business, incur any
indebtedness for borrowed money, (iii) waive, release, grant or transfer
any intangible rights of material value, except in the ordinary course of
business, (iv) transfer, lease, license, sell, mortgage, pledge, dispose of
or encumber any personal property of the Company or the Subsidiary other
than in the ordinary course of business and consistent with past practice
or (v) transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any real property of the Company or the Subsidiary;
(c) the Company and the Subsidiary shall use their reasonable best
efforts to preserve intact the business organization of the Company and the
Subsidiary, to keep available the services of its operating personnel, to
preserve the goodwill of those having business relationships with each of
them and to carry on their respective businesses in substantially the same
manner as carried on heretofore;
(d) neither the Company nor the Subsidiary will, directly or
indirectly, (i) increase the compensation payable or to become payable by
it to any of its employees, officers, directors, agents or consultants or
under any bonus, insurance, pension or other employee benefit plan or
arrangement made to, for or with any such persons (other than as provided
in certain employment agreements and welfare and benefit plans as in effect
on January 19, 1998, except in accordance with certain collective
bargaining agreements, and except for cost of living adjustments and other
increases in the ordinary course consistent with past practice or other
increases which are reasonably necessary for the operation of the business
of the Company and the Subsidiary), (ii) adopt, or make any payment or
amend any provision, other than as required by existing plans or agreements
as in effect on January 19, 1998 and provisions and actions under existing
stock option plans authorized in connection with the Offer or the Merger,
any bonus, profit sharing, pension, retirement, deferred compensation,
employment or other payment or employee compensation plan, agreement or
arrangement for the benefit of any employee, officer, director, agent or
consultant of the Company or the Subsidiary or modify the terms of any
Option, except as described above, (iii) grant any stock appreciation
rights, (iv) enter into or amend in any respect any employment agreement,
(v) make any loan or advance to, or make any change in its existing
borrowing or lending arrangements for or on behalf of or enter into any
written contract, lease or commitment with, any affiliate, officer or
director of the Company or the Subsidiary (pursuant to an employee benefit
plan or otherwise), (vi) enter into any collective bargaining agreement or
(vii) pay or make any accrual or arrangement for payment of any pension,
retirement allowance or other employee benefit pursuant to any existing
plan, agreement or arrangement to any employee, officer, director, agent or
consultant, or pay or agree to pay or make any accrual or arrangement for
payment to any employee, officer, director, agent or consultant of the
Company or the Subsidiary of any amount relating to unused vacation days,
except payments and accruals made in the ordinary course consistent with
past practice or as required by the terms of any such plan or collective
bargaining agreement;
(e) neither the Company nor the Subsidiary shall, directly or
indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, firm or corporation other than the
Subsidiary, or make any loans or advance to any individual, firm or
corporation except in the ordinary course of its business and consistent
with past practice;
(f) except (i) as set forth on the applicable schedule to the Merger
Agreement, (ii) for replacement of equipment in the ordinary course of
business and (iii) for expenditures not in
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<PAGE> 11
excess of $100,000 per month (with unexpended amounts to carry forward to
future months), neither the Company nor the Subsidiary shall make any
investment of a capital nature either by purchase of stock or securities,
contributions to capital, property transfers or otherwise, or by the
purchase of any property or assets of any other individual, firm or
corporation; provided, that the Company will confer with Parent if the
amount of any capital expenditure would exceed $25,000;
(g) neither the Company nor the Subsidiary shall enter into, modify or
amend in any material respect or take any action to terminate their
respective material contracts;
(h) neither the Company nor the Subsidiary shall take any action,
other than reasonable and usual actions in the ordinary course of business
and consistent with past practice, with respect to accounting policies or
procedures, except for changes required by United States generally accepted
accounting principles;
(i) neither the Company nor the Subsidiary shall, without the consent
of Parent, which consent shall not be unreasonably withheld, make any
material tax election, change any material tax election already made, adopt
any material tax accounting method, change any material tax accounting
method unless required by United States generally accepted accounting
principles, enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment;
(j) neither the Company nor the Subsidiary shall take, or agree to
commit to take, any action that (i) would or is reasonably likely to result
in any of the conditions to the Offer or any of the conditions to the
Merger not being satisfied, (ii) would make any representation or warranty
of the Company contained in the Merger Agreement inaccurate in any material
respect at, or as of any time prior to, consummation of the Offer (provided
that any violation of this covenant will not give rise to any claim for
damage, but may be the subject of a claim for equitable relief), or (iii)
would materially impair the ability of the Company to consummate the Offer
or the Merger in accordance with the terms thereof or materially delay such
consummation, and the Company and the Subsidiary will promptly advise
Parent in writing of any material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary, taken as a whole, or any breach of the
Company's representations or warranties, or any material breach of a
covenant contained in the Merger Agreement of which the Company or the
Subsidiary has knowledge;
(k) neither the Company nor the Subsidiary shall adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
the Subsidiary (other than the Merger);
(l) neither the Company nor the Subsidiary shall pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice, of claims, liabilities or obligations (i) reflected or
reserved against in, or contemplated by, the financial statements (or the
notes thereto) included in all forms, reports, schedules, statements and
other documents required to be filed by the Company since January 1, 1995
under the Exchange Act or the Securities Act of 1933, as amended (the
"Securities Act") or (ii) incurred in the ordinary course of business since
the date of such financial statements;
(m) neither the Company nor the Subsidiary shall permit any insurance
policy naming it as a beneficiary or a loss payable payee to be cancelled
or terminated without notice to Parent, except in the ordinary course of
business and consistent with past practice; and
(n) neither the Company nor the Subsidiary shall enter into an
agreement, commitment or arrangement to do any of the foregoing or
authorize, recommend, propose or announce an intention to do any of the
foregoing.
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<PAGE> 12
Parent and the Company have further agreed that, with the consent of
Parent, the Company may purchase certain software and services required by the
Company to address the "year 2000" problem with respect to the information
services systems of the Company. Alternatively, at the election of Parent,
Parent may agree to provide such services to the Company pursuant to a services
agreement in form and substance reasonably satisfactory to Parent and the
Company.
Negotiations. Pursuant to the Merger Agreement, the Company has agreed to
notify Parent immediately of the existence of any proposal, discussion,
negotiation or inquiry received by the Company, in each case in connection with
the occurrence of any of the following events: (i) the acquisition of the
Company by merger, tender offer, exchange offer, consolidation or otherwise by
any person other than Parent, Purchaser or any affiliate of Parent or Purchaser
(a "Third Party"); (ii) the acquisition by any Third Party of all or
substantially all of the assets of the Company and the Subsidiary, taken as a
whole; (iii) the acquisition by a third party of 50% or more of the outstanding
Shares; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; or (v) the repurchase by
the Company or the Subsidiary of 50% or more of the outstanding Shares (any of
the foregoing, a "Third Party Transaction"). The Company shall immediately
communicate to Parent the terms of any such proposal, discussion, negotiation or
inquiry which it may receive and the identity of the party making such proposal
or inquiry or engaging in such discussion or negotiation. The Company shall
promptly provide to Parent any non-public information concerning the Company
provided to any other party which was not previously provided to Parent. In
addition, the Company has agreed that it will immediately cease any existing
activities, discussions or negotiations with any parties conducted prior to the
date of the Merger Agreement with respect to any Third Party Transaction.
Pursuant to the Merger Agreement, neither the Company, nor the Subsidiary, nor
any affiliate of either of them, nor the directors, officers, employees,
representatives or agents of any of them, may, directly or indirectly, solicit,
initiate, encourage or participate in discussions or negotiations with or the
submission of any offer or proposal by or provide any information to, any
corporation, partnership, person or other entity or group (other than Purchaser
or Parent or any officer or other authorized representative of Purchaser or
Parent) concerning any Third Party Transaction or proposal related thereto or
participate in any negotiation regarding any Third Party Transaction or
otherwise cooperate in any way with or encourage any effort or attempt by any
other person to effectuate a Third Party Transaction; except that the Company or
the Board is not prohibited from (i) disclosing to the Company's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or (ii) from making such disclosure
to the Company's stockholders which, in the judgment of the Board after receipt
of advice from counsel may be required under applicable law. In addition, except
as specified below, the Company may not withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer or the Merger or
approve or recommend, or propose to approve or recommend, any Third Party
Transaction or proposal relating thereto, or enter into any agreement with
respect thereto. Notwithstanding the foregoing, prior to the acceptance for
payment of Shares pursuant to the Offer, the Company may (x) furnish information
and access to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements in response to unsolicited
written requests therefor, and (y) negotiate and participate in discussions and
negotiations with such entity or group concerning a Third Party Transaction or
proposal related thereto if (with respect to clause (y) only) the Board has
determined in its good faith judgment, based as to legal matters on the written
advice of outside legal counsel (i) that the exercise of the directors'
fiduciary duties requires the taking of such action and (ii) after consultation
with all of its principal advisors in connection with the transactions
contemplated in the Merger Agreement, that such Third Party Transaction or
proposal related thereto is a bona fide written proposal that would, upon
consummation thereof, result in a transaction more favorable to the stockholders
of the Company than the transactions contemplated in the Merger Agreement and in
the good faith reasonable judgment of the Board (based in part upon the advice
of all of its principal advisors in connection with the transactions
contemplated by the Merger Agreement) is proposed by a corporation, partnership,
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<PAGE> 13
person or other entity or group with sufficient financial resources available to
it or available from third parties to consummate such transaction (a proposal
that satisfies clauses (i) and (ii) being referred to as a "Superior Proposal").
Moreover, prior to the time of acceptance for payment of Shares, the Board may
withdraw or modify its approval or recommendation of the Offer, the Merger
Agreement or the Merger, approve or recommend a Superior Proposal, or enter into
an agreement with respect to a Superior Proposal, in each case at any time after
the fifth business day following Parent's receipt of written notice advising
Parent that the Board has received a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal, and identifying the person
making such Superior Proposal; provided, however, that the Company may not enter
into an agreement with respect to a Superior Proposal until the Company has
furnished Parent with written notice not later than 12:00 noon (Boise, Idaho
time) five (5) business days in advance of any date on which it intends to enter
into such agreement and has caused its financial and legal advisors to negotiate
with Parent to make such adjustments to the terms and conditions of the Merger
Agreement as would enable the Company to proceed with the transactions
contemplated by the Merger Agreement on such adjusted terms. In order to permit
the Company to enter into an agreement with respect to a Superior Proposal that
the Board has determined is more favorable to the stockholders of the Company
than the Offer and the Merger, the Company may terminate the Merger Agreement,
provided that (i) the Company has complied with all provisions with respect to a
Superior Proposal set forth above; and (ii) the Company makes simultaneous
payment to Parent of the Termination Fee (as defined below).
Indemnification. The Merger Agreement provides that, from and after the
Effective Time, in addition to any indemnification available to any officer or
director by the Company or the Subsidiary, Parent and the Surviving Corporation
shall (in each case to the fullest extent permitted by applicable law)
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer, director, or employee of the Company or the Subsidiary (the
"Indemnified Parties") against any and all losses, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of the Company or the
Subsidiary at or prior to the Effective Time and whether asserted or claimed
prior to, or at or within five (5) years after the Effective Time, and
including, without limitation, any which arise out of or relate to the
transactions contemplated by the Merger Agreement (collectively, the
"Indemnified Liabilities") (and Parent and the Surviving Corporation must pay
reasonable expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law);
provided, however, that neither Parent nor Surviving Corporation is required to
indemnify any Indemnified Party in connection with any proceeding (or portion
thereof) involving any claim, action, suit, proceeding or investigation
initiated by such Indemnified Party unless the initiation of such proceeding (or
portion thereof) was authorized by the Board of Directors of Parent or unless
such proceeding is brought by an Indemnified Party to enforce such Indemnified
Party's indemnification rights under the Merger Agreement. Parent and Surviving
Corporation may not take, or cause to be taken, at any time, any action to
modify or terminate the indemnification arrangements or limitation of liability
provisions contained in the Certificate of Incorporation or Bylaws of either the
Company or the Subsidiary, or in any indemnification agreement entered into by
either the Company or the Subsidiary, in a manner that would adversely affect
the Indemnified Parties. Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to Parent; (ii) after the Effective Time,
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that Parent is not obligated to pay for more than one
counsel for all Indemnified Parties with respect to the same matter unless (A)
Parent and an Indemnified Party shall have mutually agreed to the contrary; or
(B) the
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<PAGE> 14
representation of one or more such Indemnified Party and any other Indemnified
Party pursuant to the preceding sentence in any such proceeding by the same
counsel would be inappropriate due to actual or potential differing interests
between such Indemnified Parties; and (iii) after the Effective Time, Parent and
the Surviving Corporation shall use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that Parent and the Surviving
Corporation will not be liable for any settlement of any claim effected without
their written consent, which consent, however, may not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, must notify Parent, and the Surviving Corporation (but the
failure so to notify Parent and the Surviving Corporation shall not relieve
either such corporation from any liability which it may have under the Merger
Agreement except to the extent such failure materially prejudices Parent or the
Surviving Corporation).
Antitrust. In the Merger Agreement, Parent has agreed to take any action
(including, without limitation, agreeing to hold separate or to divest any of
the businesses, stores, products or assets of Parent or any of its affiliates or
of the Company or the Subsidiary) that may be required (i) by any Governmental
Authority (including the DOJ or the FTC) in order to resolve such objections as
such Governmental Authority may have under the Antitrust Laws to the
transactions contemplated by the Merger Agreement, or (ii) by any court or
similar tribunal, in any suit brought by a private party or Governmental
Authority challenging the transactions contemplated by the Merger Agreement as
violative of any Antitrust Law, in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order that
has the effect of preventing the consummation of any of such transactions. The
Merger Agreement provides that either Parent or Purchaser may institute,
prosecute or defend a suit or claim in good faith with respect to any suit,
objection, requirement or other action by the FTC, the DOJ, any other
Governmental Authority or any private party with respect to the transactions
contemplated by the Merger Agreement. The Merger Agreement further provides that
an entry by a court, in any suit brought by a private party or a Governmental
Authority challenging the transactions contemplated by the Merger Agreement as
violative of any Antitrust Law, of an order or decree permitting the
transactions contemplated by the Merger Agreement, but requiring that any of the
businesses, product lines or assets of Parent or any of its affiliates or of the
Company or the Subsidiary be divested or held separate by Parent, or that would
otherwise limit Parent's freedom of action with respect to, or its ability to
retain, the Company and the Subsidiary or any portion thereof or any of Parent's
or its affiliates' other assets or businesses, shall not (A) be deemed a failure
to satisfy any of the conditions (i) to each party's obligations to effect the
Merger which are specified in the Merger Agreement, or (ii) to the Offer as
described above, or (B) give rise to a right of termination under the Merger
Agreement.
As used in the Schedule 14D-9, "Antitrust Laws" shall mean and include the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, and all other Federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade.
Termination. The Merger Agreement may be terminated and the transactions
contemplated therein abandoned at any time prior to the Effective Time, whether
before or after approval of the stockholders of the Company,
(a) by the mutual written consent of Parent and the Company, pursuant
to action by their respective Boards of Directors;
(b) by Parent if, without any material breach by Parent or Purchaser
of their obligations under the Merger Agreement, the purchase of Shares
pursuant to the Offer will not have occurred within 30 days after the later
of (i) the expiration or termination of the waiting period under the HSR
Act and (ii) the lifting, rescission or termination of any order, decree,
ruling or other action of or agreement with a Governmental Authority
theretofore in effect that has the effect of prohibiting, enjoining,
restraining or delaying the consummation of the Offer or the
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<PAGE> 15
Merger or imposes material limitations on the ability of Purchaser to
acquire Shares, provided that Parent may not terminate the Merger Agreement
on the foregoing basis unless (i) it has reached an agreement authorizing
consummation of the Offer and the Merger with the FTC or DOJ and any other
Governmental Authority that may have asserted that consummation of the
Offer would violate the Antitrust Laws and (ii) any injunction or order
prohibiting or limiting consummation of the Offer or the Merger (whether or
not issued or entered on antitrust grounds) has become final and
non-appealable;
(c) by the Company on or after July 19, 1998, if (i) the Company is
not then in material breach of any of its obligations hereunder; (ii) the
Company gives written notice to Parent (the "Termination Notice") of its
intention to terminate the Merger Agreement; (iii) Parent has not accepted
a majority of the Shares for payment pursuant to the terms of the Offer;
and (iv) Parent does not, within five (5) business days of receipt of the
Company's Termination Notice, give the Company a notice of its intention to
continue the Merger Agreement in effect (a "No Termination Notice"). A No
Termination Notice may not be given by Parent unless the waiting period
under the HSR Act has expired or been terminated and all other obligations
under the Antitrust Laws necessary to consummate the Offer have been
satisfied, including reaching an agreement, if necessary, authorizing
consummation of the Offer and the Merger with the FTC or DOJ and any other
Governmental Authority that may have asserted that consummation of the
Offer would violate Antitrust Laws. A No Termination Notice shall not be
effective (i) at any time when Parent is not using best efforts to lift,
rescind or terminate a temporary, preliminary or appealable injunction or
order (which does not relate to the Antitrust Laws) or (ii) if such notice
does not contain a binding, unconditional undertaking by Parent to accept
Shares pursuant to the terms of the Offer at the earliest practicable date
after such injunction or order has been lifted, rescinded or terminated,
without regard to the satisfaction of any other conditions to the Offer or
any termination event set forth in the Merger Agreement.
(d) by the Company, by action of the Board, if (i) Parent or Purchaser
shall have failed to comply with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by
Purchaser or Parent at or prior to such date of termination, which failure
is material in the context of the transactions contemplated by the Merger
Agreement and is not reasonably capable of being cured or has not been
cured within ten (10) business days after the giving of written notice to
Parent or Purchaser, or (ii) any representation or warranty of Parent or
Purchaser in the Merger Agreement which is qualified as to materiality
shall not be true and correct, or any such representation or warranty that
is not so qualified shall not be true and correct in any material respect,
and in either event is not reasonably capable of being cured by Parent or
Purchaser, or has not been cured as the case may be, within ten (10)
business days of the notice, in each case as if such representation or
warranty was made as of such time on or after January 19, 1998 (unless such
representation speaks as of an earlier date, in which case it shall be
deemed to have been made as of such earlier date);
(e) by the Company, prior to the purchase by Purchaser of at least the
Minimum Shares pursuant to the Offer, in order to permit the Company to
enter into an agreement with respect to a Superior Proposal that the Board
has determined is more favorable to the stockholders of the Company than
the Offer and the Merger, provided that (i) the Company has complied with
all provisions of the Merger Agreement with regard to such Superior
Proposal, including the notice provisions and (ii) the Company makes
simultaneous payment to Parent of the Termination Fee;
(f) by Parent, at any time prior to the purchase of Shares pursuant to
the Offer, if (i) the Board shall have withdrawn, modified, or changed its
recommendation or approval in respect of the Merger Agreement or the Offer
in a manner adverse to Purchaser, (ii) the Board shall have recommended to
the stockholders of the Company any proposal relating to a Third Party
Transaction, (iii) the Company shall have exercised a right with respect to
a Third Party
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<PAGE> 16
Transaction and has, directly or through its representatives, continued
discussions with any Third Party concerning such a proposal relating to a
Third Party Transaction for more than ten (10) business days after the date
of receipt of such proposal or (iv) a proposal relating to a Third Party
Transaction that is publicly disclosed shall have been commenced, publicly
proposed or communicated to the Company which contains a proposal as to
price (without regard to whether such proposal specifies a specific price
or a range of potential prices) and the Company will not have rejected such
proposal within ten (10) business days of its receipt or, if sooner, the
date its existence first becomes publicly disclosed. A right of termination
will not arise solely as a result of the Company or the Board issuing to
its stockholders a communication that contains only the statements
permitted by Rule 14d-9e promulgated under the Exchange Act and within five
(5) business days of issuing such communication the Company publicly
reconfirms its approval and recommendation of the Offer;
(g) by the Company, by action of the Board, if Purchaser shall have
failed to commence the Offer on or before January 26, 1998; provided, that
the Company may not so terminate the Merger Agreement if the Company is at
such time in material breach of its obligations under the Merger Agreement;
(h) by Parent or the Company if any Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, final non-appealable injunction or other final non-appealable
order which is in effect and has the effect of making the acquisition of
Shares by Purchaser illegal or otherwise prohibiting consummation of the
transactions contemplated by the Merger Agreement (provided, however, that
this termination right does not modify Parent's obligation to take, or
cause to be taken, all action, and to do or cause to be done, all things
necessary or required by the FTC or the DOJ in connection with the
expiration or termination of the waiting period under the HSR Act, or by
any Governmental Authority, under the Antitrust Laws or in a suit by a
private party under the Antitrust Laws as a result of the transaction
contemplated by the Merger Agreement, except that either Parent or
Purchaser may institute, prosecute or defend a suit or claim in good faith
with respect to any suit, objection, requirement or other action by the
FTC, the DOJ, any other Governmental Authority or any private party with
respect to the transactions contemplated by the Merger Agreement);
(i) by Parent, by action of its Board of Directors, if prior to the
purchase of Shares pursuant to the Offer, (i) the Company shall have failed
to comply with any of the covenants or agreements contained in the Merger
Agreement to be complied with or performed by the Company prior to the date
of such termination, which failure singly or in the aggregate would have or
is reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary taken as a whole and is not reasonably
capable of being cured or has not been cured within ten (10) business days
after the giving of written notice to the Company or (ii) (A) any of the
representations and warranties made by the Company in the Merger Agreement
and relating to capital stock, options or other rights to acquire Shares,
authority relative to the Merger Agreement or the vote required to approve
the Merger and the Merger Agreement shall not be true and correct in all
material respects or (B) any other representations or warranties of the
Company in the Merger Agreement shall not be true and correct which
inaccuracy singly or in the aggregate would have or is reasonably likely to
have a material adverse effect on the business, operations, properties
(including intangible properties), condition (financial or otherwise),
results of operations, assets or liabilities of the Company and the
Subsidiary taken as a whole, in either case which is not reasonably capable
of being cured by the Company or has not been cured, as the case may be,
within ten (10) business days after the giving of written notice by Parent
to the Company;
(j) by Parent, prior to the purchase of Shares pursuant to the Offer,
if, since January 19, 1998, there shall have been any material adverse
change in the business, operations, properties
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<PAGE> 17
(including intangible properties), condition (financial or otherwise),
results of operations, assets or liabilities of the Company and the
Subsidiary, taken as a whole, excluding any such change occurring at any
time after the date of the Merger Agreement caused by (a) a general change
in the economy (including any such change caused by a general change in the
markets served by the Company and the Subsidiary) or (b) the institution or
threat of any suit, arbitration, mediation, action, proceeding, complaint
or grievance which challenges any of the transactions contemplated by the
Merger Agreement or any action required in connection with the resolution
of matters relating to the Antitrust Laws and excluding any such change
occurring on or after April 20, 1998 (the 90th day following the execution
of the Merger Agreement) caused by the voluntary termination of employment
by employees of the Company or the Subsidiary or a closure of, or any labor
disruption, slowdown or strike relating to, the Company's principal
distribution center located in Great Falls, Montana; and
(k) by the Company, beginning on April 20, 1998 (which is 90 days
after the date of the Merger Agreement) and subject to Purchaser's rights
described below, if, since January 19, 1998, there has been a material
adverse change in the business, operations, properties (including
intangible properties), condition (financial or otherwise), results of
operations, assets or liabilities of the Company and the Subsidiary, taken
as a whole. In order to exercise the foregoing right to terminate the
Merger Agreement (the "Company MAC Right"), the Company must first deliver
to Parent a certificate (the "MAC Certificate") executed by the Company's
Chief Executive Officer or Chief Financial Officer describing in detail the
conditions, events and occurrences causing or contributing to the material
adverse change (the "Termination Conditions") and asserting the Company's
intention to terminate the Merger Agreement. Parent is not required to
respond to a MAC Certificate until the No MAC Deadline. As used in the
Merger Agreement, the "No MAC Deadline" means the later of April 21, 1998
(the 91st day after the date of the Merger Agreement) or five (5) business
days after Parent's receipt of the MAC Certificate. If Parent confirms in
writing (a "No MAC Certificate") on or prior to the No MAC Deadline that it
is electing not to have the Company terminate the Merger Agreement with
respect to the Termination Conditions set forth in the MAC Certificate, the
Company shall not be entitled to so terminate the Merger Agreement. If
Parent exercises this right to prevent the Company's termination of the
Merger Agreement, Parent will not thereafter be entitled, as a result of
any of the conditions, events or occurrences described in such MAC
Certificate, to assert that a material adverse change has occurred, or that
the condition of the Offer relating to material adverse changes has not
been satisfied, or to assert that a representation, warranty or covenant of
the Company under the Merger Agreement has been breached unless the adverse
impact on the business, operations, properties (including intangible
properties), condition (financial or otherwise), results of operations,
assets or liabilities of the Company or the Subsidiary, taken as a whole,
of such conditions, events or occurrences described in the MAC Certificate
increases substantially after the date of such MAC Certificate. In
determining whether the adverse impact of a condition, event or occurrence
described in any MAC Certificate on the Company and the Subsidiary taken as
a whole has increased substantially, the adverse impact resulting from the
passage of time and from the impact of the condition, event or occurrence
at up to the same level and in substantially the same manner as described
in such MAC Certificate will not be taken into account. The Company may
present a new MAC Certificate to Parent at any time (i) if a material
adverse change has occurred as a result of a condition, event or occurrence
not described in a prior MAC Certificate or (ii) if the adverse impact of
any condition, event or occurrence described in the prior MAC Certificate
has increased substantially after the date of the prior MAC Certificate. If
the Company presents a new MAC Certificate the procedures and effect on
Parent's rights described above shall apply with respect to the conditions,
events or occurrences described in the new MAC Certificate. If the Company
delivers a MAC Certificate to Parent and Parent does not deliver a No MAC
Certificate to the Company on or prior to the No MAC Deadline, the Merger
Agreement shall terminate on the day immediately following the No MAC
Deadline.
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<PAGE> 18
Subject to the terms and conditions of the Merger Agreement, in the event
of termination and abandonment of the Merger Agreement, written notice thereof
shall forthwith be given to the other party or parties specifying the provision
thereof pursuant to which such termination is made, and the Merger Agreement
shall forthwith become null and void, and no party thereto (or any of its
directors or officers) will have any liability or further obligation to any
other party thereto except with respect to the obligations regarding
confidentiality, payment of expenses and fees, and payment by the Company of the
Termination Fee (as defined below), if applicable, and except that termination
of the Merger Agreement will not relieve any party from liability for any
willful breach of the Merger Agreement prior to such termination or abandonment.
Termination Fee. If (A) the Company terminates the Merger Agreement, prior
to the purchase by Purchaser of at least the Minimum Shares pursuant to the
Offer, in order to permit the Company to enter into an agreement with respect to
a Superior Proposal, or (B) Parent, at any time prior to the purchase by
Purchaser of Shares pursuant to the Offer, terminates the Merger Agreement on
the basis that (i) the Board has withdrawn, modified, or changed its
recommendation or approval of the Merger Agreement or the Offer in a manner
adverse to Purchaser, (ii) the Board has recommended to the stockholders of the
Company any proposal relating to a Third Party Transaction, (iii) the Company
has exercised a right with respect to a Third Party Transaction and has,
directly or through its representatives, continued discussions with any Third
Party concerning such a proposal relating to a Third Party Transaction for more
than ten (10) business days after the date of receipt of such proposal or (iv) a
proposal relating to a Third Party Transaction is publicly communicated to the
Company which contains a proposal as to price (without regard to whether such
proposal specifies a specific price or a range of potential prices) and the
Company fails to reject such proposal within ten (10) business days of its
receipt or, if sooner, the date its existence first becomes publicly
communicated, then the Company is required to pay to Parent simultaneously with
such termination, in the case of clause (A) of this sentence, and promptly, but
in no event later than two (2) business days thereafter, in the case of clause
(B) of this sentence, a termination fee (the "Termination Fee") of 3% of (x) the
product of $15.50 and the number of Shares outstanding on the date of
termination, plus (y) an amount (which shall not in any event exceed $1 million)
equal to the actual and reasonable documented out-of-pocket expenses incurred by
Parent and Purchaser in connection with the Offer, the Merger and the Merger
Agreement. The Termination Fee shall be payable by wire transfer to such account
as Parent may designate in writing to the Company.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company will
have certain rights under the DGCL to dissent and demand appraisal of, and to
receive payment in cash of the fair value of, their Shares. Such rights to
dissent, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value of the Shares (excluding any element of value
arising from the accomplishment or expectation of the Merger), required to be
paid in cash to such dissenting holders for their Shares. In addition, such
dissenting stockholders would be entitled to receive payment of a fair rate of
interest from the date of consummation of the Merger on the amount determined to
be the fair value of their Shares. In determining the fair value of the Shares,
a Delaware court would be required to take into account all relevant factors.
Accordingly, such determination could be based upon considerations other than,
or in addition to, the market value of the Shares, including, among other
things, asset values and earning capacity. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Therefore, the value so determined in any appraisal
proceeding could be different from the price being paid in the Offer.
In addition, several decisions by Delaware courts have held that, in
certain circumstances, a controlling stockholder of a company involved in a
merger has a fiduciary duty to other stockholders
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<PAGE> 19
which requires that the merger be fair to such other stockholders. In
determining whether a merger is fair to minority stockholders, Delaware courts
have considered, among other things, the type and amount of consideration to be
received by the stockholders and whether there was fair dealing among the
parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A.
Hunt Chemical Corp. that although the remedy ordinarily available to minority
stockholders in a cash-out merger is the right to appraisal described above, a
damages remedy or injunctive relief may be available if a merger is found to be
the product of procedural unfairness, including fraud, misrepresentation or
other misconduct.
Tender Agreement.
The following is a summary of certain provisions of the Tender Agreement.
This summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Tender Agreement, a copy of which is filed
with the Commission as Exhibit 2 to the Schedule 14D-9 and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Tender Agreement.
Pursuant to the Tender Agreement, the Major Stockholder has agreed (i) to
tender all Shares owned by it pursuant to the Offer no later than the fifth
business day following the commencement of the Offer, or, if the Major
Stockholder has not received this Offer to Purchase, the related Letter of
Transmittal and the other tender offer documents distributed herewith and
therewith by such time, within two (2) business days following the receipt of
such documents, and (ii) not to withdraw any Shares so tendered (except in the
event that the Stock Option (as defined below) is exercised).
The Major Stockholder has also agreed in the Tender Agreement that, during
the term thereof, at any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the holders of Shares, however called, or
in connection with any written consent of the holders of Shares, the Major
Stockholder will appear at the meeting or otherwise cause its Shares to be
counted as present thereat for purposes of establishing a quorum and vote or
consent (or cause to be voted or consented) the Shares (i) in favor of the
Merger, and (ii) against any action or agreement that would impede, interfere
with or prevent the Merger, including any other extraordinary corporate
transaction, such as a merger, reorganization or liquidation involving the
Company and any third party or any other proposal of a third party to acquire
the Company. The Major Stockholder has also granted to Parent an irrevocable
proxy to vote its Shares in connection with any meeting of the Company's
stockholders, in the manner provided in clauses (i) and (ii) in the immediately
preceding sentence.
The Major Stockholder has further agreed in the Tender Agreement that,
during the term thereof, it will not (i) except pursuant to the Offer or the
Stock Option, offer to sell, sell, pledge or otherwise dispose of or transfer
any interest in or encumber with any lien any of its Shares; (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of its Shares or any interest therein; (iii) except for
the proxy granted to Parent, grant any proxy, power-of-attorney or other
authorization or consent with respect to its Shares; (iv) deposit any of its
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to such Shares; or (v) take any other action with respect to its Shares
that would, in any way, restrict, limit or interfere with the performance of its
obligations under the Tender Agreement.
In the Tender Agreement, the Major Stockholder has granted to Parent an
irrevocable option (the "Stock Option") to purchase its Shares at a purchase
price of $15.50 per Share. The Stock Option is exercisable, in whole only, if,
on or after January 19, 1998, any third party (i) commences or announces an
intention to commence a bona fide tender offer or exchange offer, the
consummation of which would result in such third party beneficially owning 50%
or more of the then outstanding voting equity of the Company; (ii) acquires
beneficial ownership of Shares that, when aggregated with any Shares already
owned by such third party, would result in such third party beneficially owning
25% or more of the outstanding voting equity of the Company; provided that the
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<PAGE> 20
foregoing shall not apply to any third party that beneficially owns more than
25% of the outstanding voting equity of the Company as of January 19, 1998 and
that does not thereafter increase such ownership percentage by more than an
additional 1% of the outstanding voting equity of the Company; (iii) acquires
assets constituting 25% or more of the total assets or earning power of the
Company taken as a whole; or (iv) enters into an agreement with the Company that
contemplates the acquisition of (x) assets constituting 25% or more of the total
assets or earning power of the Company taken as a whole or (y) beneficial
ownership of 25% or more of the outstanding voting equity of the Company. The
Stock Option is also exercisable, in whole only, on or after January 19, 1998,
if (i) the Board withdraws, modifies or changes its recommendation or approval
in respect of the Merger Agreement or the Offer in a manner adverse to Purchaser
or recommends to the stockholders of the Company any proposal relating to a
Third Party Transaction; (ii) the Company, directly or through its
representatives, continues discussions with any third party concerning a Third
Party Transaction for more than ten (10) business days after the date of receipt
of such third party's proposal relating thereto; or (iii) the Company fails to
reject a publicly communicated proposal relating to a Third Party Transaction
and the possible price or prices to be paid pursuant thereto within ten (10)
days of the earlier of the receipt or the first public disclosure of such
proposal.
Pursuant to the Tender Agreement, the Major Stockholder has agreed not to,
and to use its best efforts to ensure that its officers, directors, employees,
investment bankers, attorneys, accountants and other agents do not, directly or
indirectly: (i) initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal that constitutes or is reasonably likely to
lead to a Third Party Transaction; (ii) enter into any agreement with respect to
any Third Party Transaction; or (iii) in the event of an unsolicited written
proposal in respect of a Third Party Transaction, engage in any negotiations or
discussions with, or provide information or data to, any person (other than
Parent, Purchaser, any of their affiliates or representatives and except for
information that has been previously publicly disseminated by the Company)
relating to any Third Party Transaction.
The Tender Agreement, and all rights and obligations of the parties
thereunder, terminates upon the earliest of (i) the date the Merger Agreement is
terminated in accordance with its terms or the date the Offer is terminated by
Parent or Purchaser as a result of any failure of a condition to the Offer;
provided, however, that the provisions of the Tender Agreement providing for the
Stock Option shall, under certain circumstances, not terminate until at least
sixty (60) days thereafter; (ii) the purchase of all of the Major Stockholder's
Shares pursuant to the Offer or pursuant to the Stock Option; or (iii) July 19,
1998 (which date may be extended, under certain circumstances, to the date of
termination of the Merger Agreement).
Confidentiality Agreement.
The following is a summary of certain provisions of the Confidentiality
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Confidentiality Agreement, a
copy of which is filed with the Commission as Exhibit 7 to the Schedule 14D-9
and is incorporated herein by reference. Capitalized terms not otherwise defined
below shall have the meanings set forth in the Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent has agreed, subject to certain exceptions, to
keep confidential all nonpublic, confidential or proprietary information
concerning the Company which is furnished to Parent by or on behalf of the
Company (the "Confidential Information"), and to use the Confidential
Information solely for the purpose of evaluating a possible transaction
involving the Company and Parent and not in any way detrimental to the Company.
Parent has also agreed in the Confidentiality Agreement that for a period
of two years from the date thereof, unless and until it receives the prior
written invitation or approval of a majority of the Board, neither it nor any of
its affiliates will, among other things, directly or indirectly, alone or with
others (a) negotiate with or provide any information to any party with respect
to, or make any
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<PAGE> 21
statement or proposal to the Board, to any of its agents or to any stockholder
of the Company with respect to, or make any public announcement or proposal or
offer whatsoever (including, but not limited to any "solicitation" of "proxies"
as such terms are defined or used in Regulation 14A of the Exchange Act) with
respect to, or otherwise solicit, seek or offer to effect (i) any form of
business combination or transaction involving the Company or any affiliate
thereof, including, without limitation, a merger, tender or exchange offer or
liquidation of the Company's assets, (ii) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any
affiliate thereof, (iii) any purchase of any securities or assets, or rights to
acquire any securities or assets, of the Company, (iv) any proposal to seek
representation on the Board or otherwise to seek to control or influence the
Board or the management or policies of the Company, (v) any request or proposal
to waive, terminate or amend the provisions of the Confidentiality Agreement, or
(vi) any proposal or other statement inconsistent with the terms of the
Confidentiality Agreement, (b) instigate, encourage or assist any third party to
do any of the foregoing, or (c) become a beneficial owner of any securities of
the Company (other than through purchases by persons affiliated with Parent for
investment in open market transactions not to exceed 1.0% of the Shares).
Parent has further agreed in the Confidentiality Agreement that, for a
period of two years from the date of the Confidentiality Agreement, unless
Parent receives the prior written consent of the Company, Parent will not,
directly or indirectly, solicit any management employee of the Company for
employment and will not initiate, participate in or contribute to any
interference with the Company's employment relationship with any such person;
provided, however, that nothing in the Confidentiality Agreement shall (i)
restrict or preclude Parent's right to make generalized searches for employees
by use of advertisements in the media (including without limitation trade media)
or by engaging search firms which are not targeted or focused on employees of
the Company or (ii) prohibit Parent from the hiring of any employee of the
Company who initially contacts Parent without prior contact by Parent or anyone
acting on Parent's behalf.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Board Action. At a telephonic meeting held on January 12, 1998, the
Board reviewed the status of acquisition discussions with Parent and
particularly considered antitrust matters and agreements and certain closing
conditions to the Offer and the Merger. At a meeting held on January 19, 1998,
the Board reviewed the Offer, the Merger, the Merger Agreement and the Tender
Agreement, and other matters pertaining to the Offer and the Merger. At this
meeting, the Board also received presentations from Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and from the Company's legal counsel. At such
meeting, Morgan Stanley delivered its fairness opinion to the Board, dated as of
January 19, 1998 (the "Fairness Opinion"), that, as of the date of such opinion,
the consideration to be received by the stockholders of the Company in the Offer
and the Merger was fair to such stockholders from a financial point of view. A
copy of the Fairness Opinion is attached to the Schedule 14D-9 as Annex 1 and is
incorporated herein by reference. The Fairness Opinion is described in more
detail below. At the conclusion of the meeting, the Board, by the unanimous vote
of its directors, determined that the Offer, the Merger and the Merger Agreement
are fair to, and in the best interests of, the Company's stockholders and
unanimously approved the Tender Agreement. The Board also unanimously
recommended that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer.
(b) Background.
Background of the Offer. On November 13, 1997, Gary G. Michael, Chairman
of the Board of Directors and Chief Executive Officer of Parent, and Thomas C.
Young, a director of the Company, had a preliminary discussion regarding the
possibility of Parent acquiring the Company. Mr. Young responded to Mr. Michael
that he would discuss the possibility with the Company and Freeman Spogli & Co.,
an affiliate of the Major Stockholder ("FS&Co.").
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<PAGE> 22
On or about November 17, 1998, Mr. Michael spoke via telephone with Ronald
P. Spogli, a partner in FS&Co. and a director of the Company. Mr. Spogli
indicated during such telephone call that the Company and FS&Co. would be
willing to meet with representatives of Parent to discuss Parent's interest in
acquiring the Company.
On November 24, 1997, Mr. Michael and Michael F. Reuling, Executive Vice
President, Store Development of Parent, met with Mr. Young, Mr. Spogli, Bradford
M. Freeman, a partner in FS&Co., and J. Frederick Simmons, also a partner in
FS&Co. and a director of the Company, and continued preliminary discussions
concerning the potential acquisition of the Company by Parent.
On December 19, 1997, Mr. Michael and Mr. Reuling spoke to Mr. Simmons by
telephone concerning a structure for the proposed acquisition and, in addition,
a schedule for conducting due diligence and negotiating a definitive agreement
in respect of the acquisition. At that time, Mr. Michael and Mr. Reuling also
requested that Parent be provided with information concerning the Company's
sales and expenses, as well as summaries of leases to which the Company was a
party.
On December 22, 1997, Parent and the Company entered into a Confidentiality
Agreement pursuant to which Parent agreed, among other things, to treat as
confidential certain information provided to it by or on behalf of the Company.
See Item 3(b)(2) "-- Confidentiality Agreement". Following the execution of the
Confidentiality Agreement, the Company made available to Parent certain
information concerning the Company in order to enable Parent to evaluate further
its interest in the Company.
From December 22, 1997 through January 7, 1998, the parties held a number
of discussions by telephone relating to the structure of the proposed
acquisition and the information concerning the Company which had been delivered
to Parent. The parties also discussed a framework for further due diligence
review of the Company by Parent. Representatives of Parent also discussed with
representatives of FS&Co. Parent's requirement that the Major Stockholder grant
to Parent an option to purchase Shares held by the Major Stockholder, or enter
into such other agreement as Parent would require with respect to the Major
Stockholder's Shares. Representatives of Parent and FS&Co. agreed to continue
discussions on this requirement.
On December 30, 1997, Parent delivered a due diligence request to Mr.
Simmons.
On December 30 and 31, 1997, Mr. Reuling and Mr. Simmons spoke by telephone
regarding the scope of the information the Company would make available to
Parent for purposes of its due diligence review of the Company.
On January 6, 1998, Parent forwarded to Mr. Simmons a revised due diligence
request reflecting the conversations held by Mr. Reuling and Mr. Simmons on
December 30 and 31, 1997.
On January 8 and 9, 1998, Mr. Reuling, Mr. Richard J. Navarro, Group Vice
President and Controller of Parent and Mr. Paul G. Rowan, Vice President,
Business Law of Parent, along with Parent's legal advisors, met with Mr. Simmons
and Mr. William M. Wardlaw, a partner in FS&Co. and a director of the Company,
along with FS&Co.'s and the Company's legal advisors, to negotiate the terms of
the proposed acquisition. The meeting was also attended by Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company, and
Wayne S. Peterson, Senior Vice President, Chief Financial Officer and Secretary
of the Company.
On January 9, 1998, Parent convened a meeting of its Board of Directors at
which Parent's Board unanimously authorized certain officers of Parent to
proceed on behalf of Parent with negotiations related to the proposed
acquisition and, if terms satisfactory to such officers could be reached, to
enter into a definitive agreement or agreements on behalf of the Parent in
respect of such acquisition. On January 12, 1998, the Board met and reviewed the
status of negotiations with Parent and particularly considered antitrust matters
and certain closing conditions.
On January 12, 1998, Mr. Michael and Mr. Reuling spoke with Mr. Spogli and
Mr. Simmons by telephone concerning various issues related to the proposed
acquisition that had been raised during
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<PAGE> 23
the parties' meetings on January 8 and 9, 1998. Such issues included employee
transition issues, antitrust matters, closing conditions and a schedule for
continued negotiations in respect of the proposed acquisition.
Beginning on January 14, 1998, and continuing through the evening of
January 19, 1998, representatives of Parent, the Company and the Major
Stockholder, together with their respective legal advisors, met to continue
negotiations of the terms of the proposed acquisition. On January 14, 1998, the
parties determined conclusively to structure the acquisition as a tender offer
for all of the Shares followed by a merger of Purchaser with and into the
Company, provided that the Major Stockholder would agree to tender its Shares in
the Offer and to grant Parent a proxy with respect to the voting of such Shares
in favor of the Merger. During this period, representatives of Parent conducted
further due diligence of the Company.
Thereafter at its January 19, 1998 meeting, the Board determined that the
terms of the Offer and the Merger were fair to, and in the best interests of,
the stockholders of the Company and resolved unanimously to approve the Merger
Agreement, the Offer and the Merger and to recommend that the Company's
stockholders approve and adopt the Merger Agreement and tender their Shares
pursuant to the Offer. The Board also approved the Tender Agreement.
Additionally, on January 19, 1998, Morgan Stanley delivered to the Board the
Fairness Opinion to the effect that on such date, based on the assumptions,
procedures and matters referred to therein, the consideration to be received by
the holders of the Shares pursuant to the Merger Agreement is fair from a
financial point of view to such holders. See "-- Financial Advisor; Fairness
Opinion".
On the evening of January 19, 1998, Parent, Purchaser and the Company
executed and delivered the Merger Agreement, and Parent, Purchaser and the Major
Stockholder executed and delivered the Tender Agreement.
On the morning of January 20, 1998, Parent issued the following press
release:
Jan. 20, 1998 -- Albertson's, Inc. (NYSE:ABS) announced today that it
has entered into a definitive agreement whereby Albertson's will acquire
Buttrey Food and Drug Stores Company (NASDAQ: BTRY) for $15.50 per share.
Buttrey is headquartered in Great Falls, Montana and is a leading
supermarket and pharmacy retailer operating 43 stores in Montana, North
Dakota and Wyoming.
The agreement calls for a wholly-owned subsidiary of Albertson's to
commence a cash tender offer at $15.50 per share no later than Monday,
January 26, 1998, for all Buttrey outstanding shares. The offer will be
subject to regulatory approval and certain conditions, including the tender
of a majority of the Buttrey shares. Financing is not a condition.
Following the consummation of the offer, Albertson's subsidiary will be
merged with Buttrey and any remaining shares will be converted into the
right to receive $15.50 per share in cash. The transaction was unanimously
approved by the board of directors of Buttrey.
As a part of this transaction, the Buttrey shareholder owning a
majority of the outstanding Buttrey stock has agreed to tender promptly all
its Buttrey shares and has granted Albertson's an option to purchase all
its Buttrey shares under certain circumstances.
"This announcement marks our second acquisition in as many weeks and
is another important step in our acquisition strategy. We will continue to
pursue opportunities that allow us to strengthen our market presence in
existing markets or efficiently enter new markets," said Mr. Gary Michael,
Chairman and Chief Executive Officer of Albertson's.
"This transaction will yield both strategic and financial benefits as
well as continue our program to accelerate top-line growth, increase
profitability and enhance shareholder value. We are joining together two
companies with complementary strengths and a shared commitment to providing
customers with high-quality products at a good value with top-notch
service.
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"We will be obtaining an outstanding retailer with quality stores in
excellent locations. From a strategic standpoint, this transaction will
strengthen our market presence in Montana, North Dakota and Wyoming,
especially in many of the smaller towns where Albertson's does not
currently operate.
"From a financial standpoint, we expect to realize synergies in our
combined purchasing power, distribution efficiencies and merchandising and
systems opportunities. These synergies will enable us to build from the
solid sales and earnings base that Buttrey has created.
"We look forward to welcoming the well-trained, motivated and loyal
employees of Buttrey. Their commitment to customer service is a great fit
with the Albertson's employees who deliver the same outstanding service to
over 700 million customers a year," Mr. Michael concluded.
Albertson's, Inc. is one of the largest retail food-drug chains in the
United States. The Boise, Idaho based company currently operates 866 retail
stores in 20 Western, Midwestern and Southern states.
The tender offer would be made only pursuant to an offer to purchase
and related documents to be filed with the Securities and Exchange
Commission.
Forward-looking statements in this news release, if any, are not
updated to reflect actual results, changes in assumptions or changes in
other factors affecting such forward-looking information. Assumptions and
other information that could cause actual results to differ from those set
forth in the forward-looking information can be found in the Company's Form
10-Q.
On the morning of January 20, 1998, the Company issued the following
press release:
Great Falls, Montana, Jan. 20, 1998 -- Buttrey Food and Drug Stores
Company (NASDAQ: BTRY) today announced that it has entered into a
definitive agreement with Albertson's, Inc. (NYSE:ABS) providing for the
acquisition of Buttrey by Albertson's for $15.50 per share.
Under the terms of the agreement, Albertson's will begin a cash tender
offer on or before January 26, 1998 for all of Buttrey's approximately
8,645,000 outstanding common shares. Buttrey's Board of Directors
unanimously approved the agreement and recommended that Buttrey
stockholders tender their shares pursuant to the offer. After successful
completion of the tender offer, remaining shares of Buttrey will be
acquired at the tender offer price through a merger. Buttrey's Board of
Directors has received the opinion of Morgan Stanley & Co., Incorporated
that the consideration payable in the tender offer and merger is fair, from
a financial point of view, to Buttrey stockholders.
In connection with the acquisition agreement, an affiliate of Freeman
Spogli & Co. Incorporated, Buttrey's largest stockholder, has agreed to
tender its 4,389,879 shares of common stock, which represent 50.8% of
Buttrey's current outstanding stock, and has also granted Albertson's an
option on such shares at $15.50 per share of common stock, which can be
exercised under certain circumstances. The definitive agreement provides
for payment to Albertson's under certain circumstances of a termination fee
and reimbursement of expenses if Buttrey's Board of Directors, in the
exercise of its fiduciary responsibilities, terminates the definitive
agreement or withdraws or modifies its recommendation that Buttrey
stockholders tender their shares pursuant to the offer.
The consummation of the offer is subject to certain customary
conditions, including expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act and antitrust approval.
Financing is not a condition to completion of the transaction.
"I am very proud of the efforts of our associates throughout Buttrey,"
said Joseph H. Fernandez, chairman, president and chief executive officer
of Buttrey. "Through their dedication and commitment to our customers, our
associates have made Buttrey an attractive acquisition opportunity for
Albertson's, one of the most successful food retailers in the world.
Buttrey's
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<PAGE> 25
outstanding associates share a commitment to quality products, superior
service and great prices that fits well with the strengths of Albertson's.
Additionally, Buttrey's network of quality stores in excellent locations
compliments Albertson's impressive network in our trade areas, and offers
Albertson's an opportunity to bring their programs to many new customers."
Representatives of Buttrey and Albertson's have scheduled meetings
with Buttrey employees beginning on Tuesday, January 20, 1998 throughout
Montana and Wyoming to discuss the effects of the transaction and to begin
the process of transition to new ownership.
Buttrey Food and Drug Stores Company is a leading supermarket and
pharmacy retailer with 43 stores operating in Montana, North Dakota and
Wyoming, and two stores under construction. Thirty-five of the 45 stores
have pharmacies and the Company also runs the only mail-order pharmacy
business in the region. Buttrey operates distribution centers in Great
Falls, Montana, and in Salt Lake City, Utah, which provide its stores with
groceries and fresh products. The Company employs over 3,000 associates in
its various locations.
On January 26, 1998, Parent and Purchaser commenced the Offer and issued
the following press release:
Jan. 26, 1998 -- Albertson's, Inc. (NYSE:ABS) announced today that
Locomotive Acquisition Corp., a wholly owned subsidiary, has commenced its
tender offer to purchase all outstanding shares of Buttrey Food and Drug
Stores Company (NASDAQ:BTRY) for $15.50 net per share. The offer and
withdrawal rights are scheduled to expire at 12:00 midnight, New York City
time, on Monday, February 23, 1998, unless the offer is extended by
Albertson's, Inc.
The offer is being made in accordance with the previously announced
merger agreement among Albertson's, Inc., Locomotive Acquisition Corp. and
Buttrey Food and Drug Stores Company. The offer is subject to regulatory
approval and certain conditions, including the tender of a majority of the
outstanding Buttrey shares.
The offer is being made pursuant to a Tender Offer Statement on
Schedule 14D-1 to be filed today by Albertson's, Inc. with the Securities
and Exchange Commission and mailed to Buttrey shareholders. Copies of the
tender offer materials may be obtained from the Information Agent,
Georgeson & Company Inc., at 212-440-9800 or 800-223-2064.
Albertson's, Inc. is one of the largest retail food-drug chains in the
United States. The Boise, Idaho based company currently operates 869 retail
stores in 20 Western, Midwestern and Southern states.
Review of the Offer. In arriving at its decision to approve the
transactions contemplated by the Merger Agreement and to recommend acceptance of
the Offer, the Board considered, among other things, (i) the terms and
conditions of the Offer and the Merger Agreement, including the amount and form
of the consideration being offered to the Company's stockholders; (ii) the fact
that the $15.50 per share price in the Merger Agreement represents a premium of
approximately 44% over the closing sale price of $10.75 per share as reported on
the Nasdaq National Market System on January 16, 1998, the last trading date
prior to authorization and approval of the Merger Agreement by the Board; (iii)
the Board's knowledge of the business, operations, prospects, properties, assets
and historical and projected earnings of the Company, including consideration of
competitive factors and growth prospects in the Company's core markets and
resource limitations on the Company's ability to expand into markets or through
acquisitions; (iv) contacts with and circumstances pertaining to possible
alternative buyers in the supermarket industry, including the Board's view,
based in part on the advice of Morgan Stanley, that financial buyers would be
unable to pay a significant premium over the Company's recent stock price; (v)
prices, premiums and multiples of earnings and cash flow paid in recent
acquisitions of similar companies; (vi) the recent and historical market prices
and trading volume of the Shares; (vii) the degree of certainty that the
transaction will close, including certain provisions in the Merger Agreement
which, in light of the extended period of time which may be necessary to address
antitrust regulatory matters, increase
25
<PAGE> 26
the likelihood that the Offer will close and provide necessary operational
flexibility to the Company prior to closing; and (viii) the presentation of
Morgan Stanley, including the receipt at the meeting of the Board held on
January 19, 1998, of the Fairness Opinion to the effect that, as of such date,
and on the basis of the various factors described to the Board at the January
19, 1998 meeting, the $15.50 in cash per share to be received by the holders of
Shares pursuant to the Merger Agreement is fair from a financial point of view
to such stockholders. In its presentation, Morgan Stanley reviewed and analyzed,
among other things, (a) certain publicly available financial statements and
other information concerning the Company; (b) internal financial statements and
other financial and operating data concerning the Company prepared by management
of the Company; (c) certain financial projections prepared by the management of
the Company; (d) discussions with senior management concerning the past and
current operations and financial condition and prospects of the Company; (e)
reported price and trading activity for the Shares; (f) comparisons of certain
financial performance and stock price and trading information of the Company
with similar information for certain other comparable publicly traded companies
and their securities; (g) the terms of recent comparable business combinations
in comparison with the terms of the proposed transaction; and (h) the Merger
Agreement and certain documents related to the Offer and the Merger, including
the Tender Agreement.
Additionally, the Board considered Parent's requirement that the Tender
Agreement be entered into by the Major Stockholder as a condition of offering a
price of $15.50 per Share, the right of the Major Stockholder to enter into the
Tender Agreement, the background and circumstances pertaining to the Major
Stockholder's execution of the Tender Agreement, that under existing law the
Major Stockholder could have sold its Shares to Parent without the requirement
of any transaction for all outstanding shares and the requirement that the Board
approve the Tender Agreement in connection with the Offer and the Merger. The
Board considered and evaluated the impact of the Tender Agreement on offers or
proposals for a Third Party Transaction and reviewed the circumstances under
which Parent would be able to acquire ownership of a majority of the Shares upon
exercise of the option contained in the Tender Agreement. The Board also
reviewed the voting provisions of the Tender Agreement, and received advice and
analysis from legal counsel and its financial advisor, Morgan Stanley with
respect to the impact of the Tender Agreement on alternative proposals to
acquire the Company. The Board also considered its ability to provide
information to other interested parties and its right, in the exercise of its
fiduciary duties, to review other unsolicited acquisition proposals and to
terminate the Merger Agreement and accept such proposals if the Board determined
that any such proposal was financially superior to the Offer, but evaluated such
right in the context of the Tender Agreement. The Board also considered and
evaluated the possible impact of the Termination Fee on such proposals and
received advice and analysis from legal counsel with respect to the Termination
Fee.
In light of all of the factors set forth above, the Board approved the
Offer, the Merger, the Merger Agreement and the Tender Agreement and the
transactions set forth thereby and determined to recommend that stockholders of
the Company tender their Shares pursuant to the Offer. In view of the variety of
factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not assign relative weights to the specific factors
considered in reaching its decision. Rather, the Board based its decision on the
totality of the information presented to and considered by the Board.
Financial Advisor; Fairness Opinion
Morgan Stanley was retained by the Company to act as its financial advisor
in connection with the Offer, the Merger and related matters based upon Morgan
Stanley's experience and expertise. At the January 19, 1998 meeting of the
Board, Morgan Stanley delivered to the Board an oral opinion, which it confirmed
in writing, to the effect that, as of such date and based upon and subject to
certain matters stated therein, the consideration to be received by the holders
of Shares pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
26
<PAGE> 27
THE FULL TEXT OF THE MORGAN STANLEY OPINION, DATED AS OF JANUARY 19, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS STATEMENT AS ANNEX 1 AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF SHARES ARE URGED TO, AND SHOULD, READ THE MORGAN
STANLEY OPINION CAREFULLY IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS
OF SHARES FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER AGREEMENT NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SHARES AS TO WHETHER SUCH STOCKHOLDER SHOULD TENDER SHARES PURSUANT TO
THE OFFER OR HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE
SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley, among other things, (i)
reviewed certain publicly available financial statements and other information
of the Company; (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the management
of the Company; (iii) analyzed certain financial projections prepared by the
management of the Company; (iv) discussed the past and current operations and
financial condition and the prospects of the Company with senior executives of
the Company; (v) reviewed the reported prices and trading activity for the
Shares; (vi) compared the financial performance of the Company and the prices
and trading activity of the Shares with that of certain other comparable
publicly traded companies and their securities; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable acquisition
transactions; (viii) reviewed the Merger Agreement and certain documents related
to the Offer and the Merger including the Tender Agreement; and (ix) performed
such other analyses and considered such other factors as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company. Morgan Stanley did
not make an independent valuation or appraisal of the assets or liabilities of
the Company, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley also assumed that the Offer and the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Morgan Stanley's
opinion was necessarily based on economic, market and other conditions as in
effect on, and the information made available to Morgan Stanley as of, the date
of the opinion.
The Board retained Morgan Stanley based upon Morgan Stanley's experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and financial advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking,
financing and financial advisory services. In the ordinary course of its
trading, brokerage and financing activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in securities or
senior loans of the Company or Parent. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services to the
Company and FS&Co. and have received fees for the rendering of these services.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
By letter dated as of January 8, 1998 (the "Engagement Letter"), the
Company engaged Morgan Stanley to provide the Company with financial advice and
assistance with respect to the possible sale of the Company. Pursuant to the
Engagement Letter, the Company will pay Morgan
27
<PAGE> 28
Stanley a fee of $1,000,000 in the event that the Company is acquired pursuant
to the Offer or other negotiated purchase during the term of the Engagement
Letter or within one year of termination of the Engagement Letter. The Company
has also agreed to reimburse Morgan Stanley for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services,
including fees and disbursements of its legal counsel. The Company has agreed to
indemnify Morgan Stanley and its directors, officers, agents, employees and
controlling persons for certain costs, expenses and liabilities, including
liabilities under federal securities laws, to which it may be subjected arising
out of or related to its engagement as financial advisor.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except pursuant to the Stock Option Plans, the Buttrey Company
Retirement Estates Plan and for the transactions contemplated by the Offer, the
Merger, the Merger Agreement and the Tender Agreement, no transactions in the
Shares have been effected during the past sixty (60) days by the Company or, to
the best knowledge of the Company, by any executive officer, director, affiliate
or subsidiary of the Company. In connection with the Offer and the Merger, the
Board intends to accelerate the vesting of certain outstanding Options granted
to Mr. Fernandez under the 1990 Option Plan and to certain directors under the
1996 Option Plan. In addition, Options outstanding under the 1993 Option Plan
and under the 1995 Option Plan will, by their terms, vest fully upon
consummation of the Offer. See Item 3(b)(1) for a discussion of certain option
payment arrangements to be entered into by the Company.
(b) To the best of the Company's knowledge, all of the Company's executive
officers, directors and affiliates presently intend to tender all Shares which
are held of record or beneficially owned by such persons pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in Items 3(b) and 4(b) above, no negotiation is
being undertaken or is underway by the Company in response to the Offer, the
Merger, the Merger Agreement or the Tender Agreement that relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any of its subsidiaries, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or its subsidiaries,
(iii) a tender offer for or acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in Items 3(b), 4(a) and 4(b) above, no transaction,
board resolution, agreement in principle, or signed contract is being undertaken
or is underway by the Company in response to the Offer, the Merger, the Merger
Agreement or the Tender Agreement that relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or its subsidiaries, (iii) a tender
offer for or acquisition of securities by or of the Company or (iv) any material
change in the present capitalization or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits
a Delaware corporation such as the Company, from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth below) with an "Interested Stockholder" (defined generally as a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Interested Stockholder unless (a) prior to the date such person became
an Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (b) upon consummation of the
transaction that resulted in the stockholder becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the
28
<PAGE> 29
time the transaction commenced, excluding stock held by directors who are also
officers of the corporation and employee stock ownership plans that do not
provide employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer or (c) on or
subsequent to the date such person became an Interested Stockholder, the
Business Combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of a least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (a) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203; (b)
the corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed by
Section 203, provided that, in addition to any other vote required by law, such
amendment of the certificate of incorporation or by-laws must be approved by the
affirmative vote of a majority of the shares entitled to vote, which amendment
would not be effective until 12 months after the adoption of such amendment and
would not apply to any Business Combination between the corporation and any
person who became an Interested Stockholder of the corporation on or prior to
the date of such adoption; (c) the corporation does not have a class of voting
stock that is (1) listed on a national securities exchange, (2) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association or (3) held of record by more than 2,000 stockholders,
unless any of the foregoing results from action taken, directly or indirectly,
by an Interested Stockholder or from a transaction in which a person became an
Interested Stockholder; or (d) a stockholder become an Interested Stockholder
"inadvertently" and thereafter divests itself of a sufficient number of shares
so that such stockholder ceases to be an Interested Stockholder. Under Section
203, the restrictions described above also do not apply to certain Business
Combinations proposed by an Interested Stockholder following the announcement or
notification or one of certain extraordinary transactions involving the
corporation and a person who had not been an Interested Stockholder during the
previous three years or who became an Interested Stockholder with the approval
of a majority of the corporation's directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (a) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock of
a corporation; (b) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of any stock of the
corporation or such subsidiaries to the Interested Stockholder, except pursuant
to a transaction which effects a pro rata distribution to all stockholders of
the corporation; (c) any transaction involving the corporation or certain
subsidiaries thereof which has the effect of increasing the proportionate share
of the stock of any class or series, or securities convertible into the stock of
any class or series, of the corporation or any such subsidiary which is owned
directly or indirectly by the Interested Stockholder (except as a result of
immaterial changes due to fractional share adjustments); or (d) any receipt of
the Interested Stockholder of the benefit (except proportionately as a
stockholder of such corporation) of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
The foregoing description of Section 203 of the DGCL is not necessarily
complete and is qualified in its entirety by reference to the DGCL.
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<PAGE> 30
The provisions of Section 203 of the DGCL are not applicable to any of the
transactions contemplated by the Merger Agreement or the Tender Agreement, since
the Merger Agreement, the Tender Agreement and the transactions contemplated
thereby have been approved by the Board.
(b) Information Statement. The Information Statement attached as Schedule I
hereto is being furnished in connection with the possible designation by Parent,
pursuant to the Merger Agreement, of certain persons to be appointed to the
Board other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
<C> <S>
1. Agreement and Plan of Merger, dated as of January 19, 1998, by and among the Company,
Purchaser and Parent.*
2. Tender and Option Agreement, dated as of January 19, 1998, by and among Purchaser,
Parent, the Company and the Major Stockholder.*
3. Pages 2 through 16 of the Company's Proxy Statement, dated as of May 2, 1997.*
4. Press release issued by the Company on January 20, 1998.*
5. Fairness Opinion of Morgan Stanley, dated as of January 19, 1998.
6. Letter to Stockholders, dated as of January 26, 1998, from Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company.
7. Confidentiality Agreement, dated as of December 22, 1997, between FS&Co., on behalf
of the Company, and Parent.*
</TABLE>
- ---------------
* Not included in copies mailed to stockholders.
30
<PAGE> 31
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
Dated: January 26, 1998 BUTTREY FOOD AND DRUG STORES
COMPANY
By: /s/ Wayne S. Peterson
--------------------------------------
Name: Wayne S. Peterson
Title: Senior Vice-President, Chief
Financial Officer, and Secretary
31
<PAGE> 32
SCHEDULE I
BUTTREY FOOD AND DRUG STORES COMPANY
601 6TH STREET, S.W.
GREAT FALLS, MONTANA 59404
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about January 26, 1998, as
a part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares at the close of
business on or about January 23, 1998. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Schedule 14D-9 and
the Merger Agreement. You are receiving this Information Statement in connection
with the possible election of persons designated by Parent to a majority of the
seats on the Board. As further set forth below, the Merger Agreement requires
the Company to take all actions necessary to cause Parent's Designees (as
defined below) to be elected to the Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action in connection with this Information
Statement.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on January
26, 1998. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on February 23, 1998, unless the Offer is extended. Purchaser is obligated
to extend the Offer under the circumstances described in Item 3(b)(1) of the
Schedule 14D-9 and as provided in the Merger Agreement.
The information contained in this Information Statement concerning Parent's
Designees has been furnished to the Company by Parent, and the Company assumes
no responsibility for the accuracy or completeness of such information.
BOARD OF DIRECTORS
GENERAL
The common stock of the Company ("Common Stock") is the only class of
voting securities of the Company outstanding. Each Share of Common Stock has one
vote. As of January 19, 1998, there were 8,644,631 shares of Common Stock
outstanding. The Board currently consists of ten members. Each director holds
office until such director's successor is elected and qualified or until such
director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS
Pursuant to the Merger Agreement, following the purchase by Purchaser of
the Minimum Shares pursuant to the Offer, and from time to time thereafter,
Parent shall be entitled to designate up to such number of directors ("Parent's
Designees"), rounded up to the next whole number, on the Board as shall give
Purchaser representation on the Board equal to the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage, expressed as a decimal, that the
aggregate number of Shares beneficially owned by Parent or any affiliate of
Parent following such purchase bears to the total number of Shares then
outstanding, and the Company shall, at such time and promptly take all actions
necessary to cause Parent's Designees to be elected as directors of the Company,
including increasing the size of the Board or securing the resignations of
incumbent directors, or both. The Company shall cause persons designated by
Parent to constitute the same percentage as persons
S-1
<PAGE> 33
designated by Parent shall constitute of the Board to be appointed to (i) each
committee of the Board, (ii) the board of directors of Buttrey Food and Drug
Company, a Delaware Corporation and a wholly owned subsidiary of the Company
(the "Subsidiary") and (iii) each committee of each board, in each case only to
the extent permitted by applicable law. Notwithstanding anything in this
paragraph to the contrary, until the earlier of the time Parent acquires a
majority of the then outstanding Shares and the Effective Time, the Company
shall use its best efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of each subsidiary of the
Company as of the date of the Merger Agreement who are not employees of the
Company shall remain members of the Board and of such boards and committees.
Parent has informed the Company that each of Parent's Designees has
consented to act as a director. It is expected that Parent's Designees may
assume office as described above and that, upon assuming office, Parent's
Designees will thereafter constitute at least a majority of the Board of the
Company.
Biographical information concerning each of the Parent's Designees and the
directors and executive officers of the Company is presented below.
PARENT'S DESIGNEES
Parent will choose the Parent's Designees from among the directors and
officers of Parent and Purchaser listed in Schedule I of the Schedule 14D-1, a
copy of which is being mailed to stockholders of the Company together with this
Schedule 14D-9. Certain biographical information concerning such individuals is
as follows:
<TABLE>
<CAPTION>
PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
<S> <C>
Kathryn Albertson........ Director of Parent. Vice President and a director of the J.A. and
Kathryn Albertson Foundation, Inc., President and a director of
Alscott, Inc., from 1993 to 1997. Grandmother of J.B. Scott.
A. Gary Ames............. Director of Parent. President and Chief Executive Officer, U S WEST
International, a telecommunications company and a wholly-owned sub-
sidiary of U S WEST, Inc. since July 1995. President and Chief
Executive Officer, U S West Communications from 1990 to 1995. Mr.
Ames is a director of Fixtech, Tektronix, Inc. and Telewest.
Cecil D. Andrus.......... Director of Parent. Chairman of the Andrus Center for Public
Policy, a public policy forum located at Boise State University
dealing in natural resource issues, since January 1995 and of
counsel to the Gallatin Group, a consulting firm, since February
1995. Elected Governor of the State of Idaho in 1987 and served
until January 1995. Mr. Andrus serves as a director of Coeur
d'Alene Mines Corp., KeyCorp. and the J.A. and Kathryn Albertson
Foundation, Inc.
John B. Carley........... Director of Parent. Chairman of the Executive Committee of the
Board of Directors since February 1996 and formerly President and
Chief Operating Officer of Parent. Mr. Carley is a director of
Boise Cascade Office Products Corporation, Idaho Power Company and
AgriBeef Co.
Paul I. Corddry.......... Director of Parent. Served as Senior Vice President, Europe, of
H.J. Heinz Company, a worldwide provider of processed food products
and services until his retirement in 1992. Mr. Corddry has been
Chairman and a director of Bzircus Entertainment Corporation since
1994 and is a director of Ameristar Casinos, Inc.
John B. Fery............. Director of Parent. Served as Chairman of the Board of Boise
Cascade Corporation, a timber and paper products company until his
retirement in 1995 and as Chief Executive Officer from 1972 to
1994. Mr. Fery is a director of Hewlett-Packard Company, The Boeing
Company and U.S. Bancorp.
</TABLE>
S-2
<PAGE> 34
<TABLE>
<CAPTION>
PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
<S> <C>
Clark A. Johnson......... Director of Parent. Chairman of the Board, Chief Executive Officer
and a director of Pier 1 Imports, Inc., a retailer of imported
goods. Mr. Johnson is also a director of Pier 1 Imports, Inc.,
Heritage Media Corporation, InterTan, Inc. and Metromedia
International Group.
Charles D. Lein.......... Director of Parent. President and Chief Operating Officer of
Stuller Settings, Inc., a jewelry manufacturing company since
January 1994. Formerly Chairman of the Board, President and Chief
Executive Officer of Black Hills Jewelry Manufacturing Co. from
1982 to 1993. Mr. Lein is a director of Stuller Settings, Inc. and
First National Bank of Lafayette.
Warren E. McCain......... Director of Parent. Served as Chairman of the Executive Committee
of the Board of Directors of Parent until his retirement in
February 1996 and as Chairman of the Board and Chief Executive
Officer of Parent from 1976 to 1991. Mr. McCain is a director of
Pope and Talbot.
Beatriz Rivera........... Director of Parent. Member of the Public Utilities Commission of
the State of New Mexico since 1995. Formerly owner of Infiniti of
Albuquerque, an automobile dealership, from 1990 to 1995.
J.B. Scott............... Director of Parent. Chairman of the Board and a director of
Alscott, Inc. Grandson of Kathryn Albertson. Mr. Scott is President
and a director of the J.A. and Kathryn Albertson Foundation, Inc.
Thomas L. Stevens, Jr.... Director of Parent. Served as President, Los Angeles
Trade-Technical College (LATTC) until his retirement in 1996. Mr.
Stevens was a member of the Board of Directors of the Federal
Reserve Bank of San Francisco, Los Angeles Branch, until his
retirement from LATTC.
Will M. Storey........... Director of Parent. Served as Executive Vice President and Chief
Financial Officer, American President Companies, a provider of
container transportation services until his retirement in 1995. Mr.
Storey is a director of Eagle-Pitcher Industries, Inc. and T.I.S.
Mortgage Investment Company.
Steven D. Symms.......... Director of Parent. President of Symms, Lehn & Associates, Inc., a
consulting firm since January 1993. Elected United States Senator
from the State of Idaho in 1980 and served until January 1993. Vice
President and Secretary of Boise Air Service, Inc. since 1983. Mr.
Symms is a director of Symms, Lehn & Associates, Inc., Boise Air
Service, Inc. and Symms Fruit Ranch, Inc.
Gary G. Michael.......... Chairman of the Board and Chief Executive Officer of Parent since
1991. Mr. Michael is Chairman of the Board of Directors of the
Federal Reserve Bank of San Francisco and a director of Boise
Cascade Corporation and Questar Corporation.
Richard L. King.......... President and Chief Operating Officer of Parent since February
1996. Previously served as Senior Vice President and Regional
Manager of Parent from November 1994; Group Vice President,
Merchandising of Parent from January 1994; and Vice President,
Rocky Mountain Division of Parent from 1992.
Carl W. Pennington....... Executive Vice President, Corporate Merchandising of Parent since
February 1996. Previously served as Senior Vice President,
Corporate Merchandising of Parent from 1994 and Senior Vice
President and Regional Manager of Parent from 1988.
Michael F. Reuling....... Executive Vice President, Store Development of Parent since 1986.
Thomas R. Saldin......... Executive Vice President, Administration and General Counsel of
Parent since 1991.
Ronald D. Walk........... Executive Vice President, Retail Operations of Parent since
February 1996. Previously served as Senior Vice President and
Regional Manager of Parent from 1984.
Thomas E. Brother........ Senior Vice President, Distribution of Parent since 1991.
</TABLE>
S-3
<PAGE> 35
<TABLE>
<CAPTION>
PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
<S> <C>
William H. Emmons........ Senior Vice President and Regional Manager of Parent since Febru-
ary 1996. Previously served as Vice President, North Texas Division
of Parent from 1993 and Vice President, Texas Division of Parent
from 1988.
Dennis C. Lucas.......... Senior Vice President and Regional Manager of Parent since February
1996. Previously served as Vice President, Oregon Division of
Parent from 1995 and Vice President, Midwest Division of Parent
from 1993 and Division Manager, Midwest Division of Parent from
1992.
A. Craig Olson........... Senior Vice President, Finance and Chief Financial Officer of
Parent since 1991.
David G. Simonson........ Senior Vice President and Regional Manager of Parent from February
1996. Previously served as Vice President, Southern California
Division of Parent from 1991.
Patrick S. Steele........ Senior Vice President, Information Systems and Technology of Parent
since 1993 and Group Vice President, Management Information Systems
of Parent from 1990.
Steven D. Young.......... Senior Vice President, Human Resources of Parent since 1993 and
Group Vice President, Human Resources of Parent from 1991.
Robert K. Banks.......... Group Vice President, Real Estate of Parent since December 1996.
Previously served as Vice President, Real Estate of Parent from
1990.
David G. Dean............ Group Vice President, Procurement of Parent since 1991.
Peggy Jo Jones........... Group Vice President, Employee Development and Communications of
Parent since November 1993. Previously served as Vice President,
Employee Development and Communications of Parent from September
1993; and Vice President, Retail Accounting of Parent from 1992.
Richard J. Navarro....... Group Vice President and Controller of Parent since 1993 and Vice
President and Controller of Parent from 1989.
Kaye L. O'Riordan........ Vice President and Corporate Secretary of Parent since May 1997.
Corporate Secretary and Senior Attorney of Parent from January
1990.
Carol L. Wood............ Assistant Corporate Secretary of Parent since September 1981 and
Coordinator of Stockholder Communications of Parent since 1982.
</TABLE>
MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY
The following sets forth certain information concerning the members of the
Board as of January 19, 1998:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ------------------------ --- --------------------------------------- --------
<S> <C> <C> <C>
Joseph H. Fernandez 45 Chairman of the Board, President and 1993
Chief Executive Officer
Matt L. Figel+ 37 Director 1990
Robert P. Gannon* 53 Director 1992
Michael P. Malone+ 57 Director 1992
J. Frederick Simmons* 43 Director 1990
Peter J. Sodini* 56 Director 1990
Ronald P. Spogli* 49 Director 1990
William M. Wardlaw 51 Director 1990
Thomas C. Young+ 48 Director 1992
Wayne S. Peterson 39 Senior Vice President, Chief Financial 1995
Officer and Director
</TABLE>
- ---------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
S-4
<PAGE> 36
Mr. Fernandez became the President, Chief Operating Officer and a Director
of the Company in March 1993, became the Chief Executive Officer in September
1993, and was elected as Chairman of the Board in August 1996. From April 1991
to February 1993, Mr. Fernandez served as Executive Vice President and Chief
Operating Officer for Kings Super Markets, Inc.
Mr. Figel founded Doramar Capital, a private investment firm, in January
1997. From October 1986 to December 1996, Mr. Figel was employed by FS&Co. (or
its affiliates). FS&Co. is a private investment company that was founded in
1983. Mr. Figel became a Director of the Company in October 1990. Mr. Figel is
also a member of the Board of Directors of Calmar Inc.
Mr. Gannon became a Director of the Company in May 1992. Mr. Gannon was
appointed the President of Montana Power Company in January 1990, Vice Chairman
in January 1996, Chief Executive Officer in July 1997 and Chairman of the Board
in January 1998.
Mr. Malone became a Director of the Company in August 1992. Since January
1991, Mr. Malone has served as the President of Montana State University.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons became a Director of the Company in October 1990. Mr. Simmons
is also a member of the Board of Directors of EnviroSource, Inc.
Mr. Sodini became a Director of the Company in October 1990 and, from
October 1990 until March 1993, served as the Company's Chairman of the Board.
Since March 1996, Mr. Sodini has served as the Chief Executive Officer and
Chairman of the Board of The Pantry, Inc. From November 1995 to February 1996,
Mr. Sodini worked as an independent consultant. From December 1991 to October
1995, Mr. Sodini served as Chief Executive Officer and a Director of Purity
Supreme, Inc. ("Purity") and, from March 1993 to October 1995, also served as
the Chairman of the Board of Purity. Mr. Sodini also served as President of
Purity from December 1991 until August 1994. Mr. Sodini is also a member of the
Boards of Directors of The Pantry, Inc. and Pamida Holding Corporation.
Mr. Spogli is a founding partner of FS&Co. Mr. Spogli became a Director of
the Company in October 1990. Mr. Spogli is the Chairman of the Board and a
Director of EnviroSource, Inc. and also serves on the Boards of Directors of
Calmar Inc. and Brylane Inc.
Mr. Wardlaw joined FS&Co. in March 1988 and became a general partner in
January 1991. Mr. Wardlaw became a Director of the Company in October 1990. Mr.
Wardlaw is also a member of the Board of Directors of Calmar Inc.
Mr. Young became a Director of the Company in August 1992. Since December
1994, Mr. Young has served as a Director of the Portland branch of the Federal
Reserve Bank of San Francisco. Since October 1984, he has served as President,
Chief Executive Officer and Chairman of the Board of Northwest National Bank and
Chairman of the Board of Northwest Bancshares, Inc. Mr. Young has also served as
President of Admiralty Leasing, Inc. since October 1984.
Mr. Peterson became a Director of the Company in May 1995, Senior Vice
President of the Company in April 1995, Vice President and Chief Financial
Officer in June 1991, and Secretary in November 1991. From October 1990 until
June 1991, Mr. Peterson served as Vice President and Controller of the Company.
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee, which presently consists of
Messrs. Malone, Young and Figel, met once during the fiscal year ended February
1, 1997 ("1996"). The Compensation
S-5
<PAGE> 37
Committee, which presently consists of Messrs. Gannon, Simmons, Sodini and
Spogli, met once during 1996, and took various actions by unanimous written
consent.
The Audit Committee recommends to the Board of Directors the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit services
and the fees for audit and other services; reviews outstanding accounting and
auditing issues with the independent auditors; and supervises or conducts such
additional projects as may be relevant to its duties. The Audit Committee is
also responsible for reviewing and making recommendations with respect to the
Company's financial condition, its financial controls and accounting practices
and procedures.
The Compensation Committee recommends to the Board of Directors
compensation policies and guidelines for the Company's executives and oversees
the granting of incentive compensation, if any, to such persons. The
Compensation Committee also administers the Company's bonus and stock option
plans.
MEETINGS AND REMUNERATION
During 1996, the Board of Directors held five meetings and took various
actions by unanimous written consent. Each incumbent director other than Messrs.
Wardlaw and Sodini attended at least 75% of the aggregate of (i) the total
number of meetings held by the Board of Directors during 1996 and (ii) the total
number of meetings held by all committees of the Board of Directors on which he
served during that period.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified. Except
for non-employee directors of the Company who are not affiliated with FS&Co.
(each, an "Outside Director"), directors do not receive compensation for
services on the Board of Directors or on any committees of the Board of
Directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the Board of Directors and on any committees. In 1996, Messrs.
Gannon, Malone and Young (who at the time were the only Outside Directors of the
Company) each received compensation for their services of $1,500 for each Board
meeting attended. In addition, in 1996, Mr. Malone received an annual retainer
of $5,000 and, at their election and in lieu of such annual retainer, Messrs.
Gannon and Young each received an option to purchase 3,125 Shares at an exercise
price of $6.40 per share pursuant to the Company's 1996 Option Plan. In 1997,
Outside Directors of the Company, other than Mr. Malone, (currently Messrs.
Figel, Gannon, Sodini and Young) each received (i) $1,500 for each regular Board
meeting attended, plus (ii) either (x) an annual retainer of $5,000, or (y) at
such director's election in lieu of such annual retainer, an option to purchase
Shares in an amount and at an exercise price calculated pursuant to the terms of
the 1996 Option Plan. See "Stock Options -- 1996 Option Plan." In 1997, Mr.
Malone waived his right to any compensation for his services as an Outside
Director.
STOCK OPTIONS
1996 Option Plan. The Company has adopted its 1996 Option Plan which
provides for the granting of non-qualified stock options to Outside Directors of
the Company. The 1996 Option Plan permits each Outside Director to elect, on the
date of each annual meeting at which he or she is elected or reelected, to
receive an option to purchase Shares in lieu of being paid that part of the
director's fee that is not dependent upon attendance at meetings or services as
a chairperson for the ensuing year (the "Retainer Fee"). If the Outside Director
makes such an election, on the six-month anniversary of the date of the election
(the "Date of Grant"), such Outside Director will be granted an option
exercisable for a number of Shares equal to the amount of the Outside Director's
Retainer Fee divided by 20% of the fair market value of a Share at the close of
business on the Date of Grant. The exercise price for any such option will be
80% of the fair market value of Common Stock on the Date of Grant. These options
vest and are exercisable on the date of the annual
S-6
<PAGE> 38
meeting of stockholders following the Date of Grant. All options granted under
the 1996 Option Plan expire on the earlier of the tenth anniversary of the Date
of Grant or six months after the recipient of the option ceases to be a
director. As of February 1, 1997, an aggregate of 75,000 Shares have been
reserved for issuance under the 1996 Option Plan. As of January 19, 1998,
options covering 15,774 Shares were granted under the 1996 Option Plan, none of
which had been exercised. The Company has accelerated options granted in
November 1997 under the 1996 Option Plan covering 9,524 Shares so that such
options will be exercisable upon consummation of the Offer. The Company intends
to enter into Payment Agreements with respect to options granted under the 1996
Option Plan. See "Item 3(b)(1) of Schedule 14D-9 -- Option Payment Agreements."
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held
by all executive officers of the Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
------------------------- ---- ----------------------------------- -----------------
<S> <C> <C> <C>
Joseph H. Fernandez...... 45 Chairman of the Board, President 1993
and Chief Executive Officer
Joseph M. Livorsi........ 51 Senior Vice President -- Sales and 1996
Merchandising
Wayne S. Peterson........ 39 Senior Vice President, Chief 1990
Financial Officer and Secretary
Louis J. Rizzo........... 52 Senior Vice President -- Retail 1994
Operations and Store Development
John E. Sullivan......... 44 Vice President -- Human Resources 1990
Craig A. Wright.......... 34 Vice President -- Non-Perishables 1995
Merchandising
</TABLE>
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. No arrangement exists between any
executive officer and any other person or persons pursuant to which any
executive officer was or is to be selected as an executive officer, other than
as provided for Mr. Fernandez in his employment agreement with the Company. See
"-- Compensation -- Employment and Severance Agreements." None of the executive
officers has any family relationship to any nominee for director or to any other
executive officer of the Company. Set forth below is a brief description of the
business experience for the previous five years of all executive officers of the
Company except Messrs. Fernandez and Peterson. For information concerning the
business experience of Messrs. Fernandez and Peterson, see "Board of Directors."
Mr. Livorsi became Senior Vice President, Sales and Merchandising of the
Company in October 1996. From July 1995 until July 1996, Mr. Livorsi was Senior
Vice President, Sales and Merchandising for Price Chopper Supermarkets in
Schenectady, New York. From July 1986 to July 1995, Mr. Livorsi held senior
marketing and merchandising positions with Randall's Food Markets in Houston,
Texas.
Mr. Rizzo became Senior Vice President -- Merchandising and Store
Operations of the Company in April 1995, and Senior Vice President -- Retail
Operations and Store Development in October 1996. From February 1994 until April
1995, Mr. Rizzo served as Vice President -- Sales and Merchandising of the
Company. From June 1991 until October 1993, Mr. Rizzo served as Vice President
and Director of Marketing for the eastern division of Safeway Stores, Inc.
Mr. Sullivan has served as Vice President -- Human Resources of the Company
since October 1990.
Mr. Wright became Vice President -- Support Services of the Company in
April 1995, and Vice President -- Non-Perishables Merchandising in October 1996.
From January 1995 to April 1995,
S-7
<PAGE> 39
Mr. Wright served as Director -- Support Services. From June 1993 to January
1995, Mr. Wright served as Director -- Information Technology, and from October
1990 to June 1993 he served as Manager -- Store Systems/Front-End Operations.
COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid or
accrued by the Company for each of the fiscal years ended January 28, 1995
("1994"), February 3, 1996 ("1995") and February 1, 1997 ("1996"), for (i) the
Company's Chief Executive Officer, and (ii) each of the other four most highly
compensated executive officers of the Company who were serving as executive
officers at February 1, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS(1)($) COMPENSATION(2)($) OPTIONS(#) COMPENSATION($)
- ---------------------- ---- --------- ----------- ------------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Fernandez 1996 300,417 0 0 130,000(3) 11,658(4)
Chairman of the 1995 247,500 200,561 0 30,000(5) 8,923
Board, President and 1994 225,000 25,000 0 15,000(6) 47,248
Chief Executive
Officer
Louis J. Rizzo 1996 145,000 0 0 12,000(3) 11,585(7)
Senior Vice 1995 140,000 40,518 0 12,000(5) 9,338
President -- 1994 127,679 0 0 0 31,783
Retail Operations
and Store
Development
Wayne S. Peterson 1996 125,100 0 0 12,000(3) 11,388(8)
Senior Vice 1995 117,500 69,006 0 12,000(5) 11,285
President, Chief 1994 105,600 0 0 0 6,798
Financial Officer
and Secretary
John E. Sullivan 1996 104,500 0 0 8,000(3) 9,873(9)
Vice President -- 1995 100,000 28,942 0 8,000(5) 7,737
Human Resources 1994 95,000 0 0 0 3,562
Craig A. Wright(11) 1996 90,000 0 0 8,000(3) 7,627(10)
Vice President-- 1995 80,000 23,153 0 8,000(5) 6,178
Non-Perishables 1994 51,437 0 0 0 3,134
Merchandising
</TABLE>
- ---------------
(1) Other than for Mr. Fernandez and Mr. Peterson, represent payments made to
executive officers in March of each year for the prior fiscal year pursuant
to the Buttrey Key Management Incentive Plan. See "Bonus Plan" below.
Amounts paid to Mr. Fernandez in each of 1994 and 1995 include $25,000
payments made pursuant to the terms of his employment agreement. See
"Employment and Severance Agreements" below. In addition, amounts paid to
Mr. Fernandez and Mr. Peterson in 1995 include cash bonuses of $70,000 and
$35,000, respectively, as consideration for additional contributions made
by them on behalf of the Company.
(2) Other than the limited special rights attached to certain of the shares
covered by options as described in "Stock Option Plans" below, during each
of 1994, 1995 and 1996, no executive officer named above received
perquisites and other personal benefits, securities or property in an
aggregate amount in excess of the lesser of $50,000 or 10% of the total of
such officer's salary and bonus, nor did any such officer receive any
restricted stock award, stock appreciation right or payment under any long
term incentive plan.
S-8
<PAGE> 40
(3) Consists of options to purchase Shares granted in 1996 pursuant to the 1995
Option Plan. See "Stock Option Plans."
(4) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE (as defined under "-- Retirement
Plan" below) for the account of Mr. Fernandez; (ii) $845 represents the
amount of insurance premiums paid by the Company with respect to life
insurance; (iii) $666 represents the imputed amount of insurance premiums
set aside by the Company for the benefit of Mr. Fernandez towards the
Company's own long-term disability program; and (iv) $2,687 represents the
imputed amount of insurance premiums set aside by the Company for the
benefit of Mr. Fernandez towards the Company's own medical plan.
(5) Consists of options to purchase Shares granted in May 1995 pursuant to the
1995 Option Plan. See "Stock Option Plans."
(6) Consists of options to purchase 15,000 Shares granted in February 1994
pursuant to the 1993 Option Plan. See "Stock Option Plans."
(7) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Rizzo, (ii)
$838 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $593 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Rizzo
towards the Company's own long-term disability program; and (iv) $2,695
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Rizzo towards the Company's own medical
plan.
(8) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Peterson;
(ii) $721 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $510 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Peterson
towards the Company's own long-term disability program; and (iv) $2,698
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Peterson towards the Company's own medical
plan.
(9) Of this amount, (i) $6,152 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Sullivan;
(ii) $600 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $423 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Sullivan
towards the Company's own long-term disability program; and (iv) $2,698
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Sullivan towards the Company's own medical
plan.
(10) Of this amount, (i) $4,045 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Wright; (ii)
$519 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $385 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Wright
towards the Company's own long-term disability program; and (iv) $2,677
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Wright towards the Company's own medical
plan.
(11) Mr. Wright was a Named Executive Officer in 1996, but not a Named Executive
Officer for the fiscal year ended January 31, 1998 ("1997"). For 1997, the
Named Executive Officers are Messrs. Fernandez, Peterson, Sullivan and
Livorsi.
Bonus Plan. The Company has adopted the Buttrey Key Management Incentive
Plan (as amended, the "Bonus Plan") pursuant to which the Compensation Committee
annually establishes guidelines for incentive compensation to be paid to the
Company's officers and key employees. The amount of an individual's bonus award
is based on the attainment of specified Company perform-
S-9
<PAGE> 41
ance objectives, such as the achievement of target sales and cash flow
objectives, and is determined as a percentage of the recipient's base salary.
Retirement Plan. The Company maintains the Buttrey Company Retirement
Estates (the "BCRE"), a retirement plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Employees become eligible to participate in the BCRE upon the later of the
attainment of age 21 or the completion of one year of service. The BCRE provides
for contributions by participants and by the Company. Participants can make
pretax contributions up to the maximum amount permitted under Section 401(k) of
the Code. The Company also makes annual contributions (in the form of cash or
Common Stock) to the BCRE, the amount of which is determined by the Board of
Directors in its discretion each year. Seventy-five percent of the Company's
contribution is allocated to participants as a percentage of their compensation
("Profit Sharing Contributions"), and the remaining 25% is allocated in
proportion to the amount of contributions made by each participant ("Matching
Contributions"). In March 1997, the Board of Directors of the Company authorized
the Company to contribute a total of $1.0 million in cash to the BCRE as the
Company's contribution for 1996.
Stock Option Plans
1990 Option Plan. The Company has adopted the 1990 Option Plan, which
provides for the granting of non-qualified stock options to officers, key
employees and consultants of the Company, including Directors who are also
employees. As of February 1, 1997, an aggregate of 451,500 shares of Common
Stock have been reserved for issuance under the 1990 Option Plan.
The 1990 Option Plan is administered by the Compensation Committee. Options
terminate at the earlier of (i) 90 days after the participant's termination of
employment by the Company (unless such termination results from the
participant's death or disability, or the participant dies within 90 days after
such termination of employment, in which case the option terminates 180 days
after the date of the participant's termination of employment), (ii) ten years
from the date of grant, or (iii) on the effective date of certain dissolutions,
liquidations or sales of all of the business, properties and assets of the
Company or upon certain reorganizations, mergers or consolidations.
All options granted under the 1990 Option Plan currently will vest and
become exercisable in full upon a determination by the Compensation Committee
that the Company, on a consolidated basis, has achieved 100% of the amount of a
specified operating cash flow and total net cash flow from operations for any
one of the four fiscal years of the Company beginning with the fiscal year ended
January 1997 and ending with the fiscal year ended January 2000. Upon a
determination by the Compensation Committee that the Company has not achieved
the required levels of operating cash flow and total net cash flow from
operations by January 29, 2000, the options which remain unvested shall
nevertheless vest and become exercisable as of October 5, 2000. The Compensation
Committee periodically reviews the 1990 Option Plan and may, in good faith,
adjust the specified cash flow levels to reflect unanticipated major events such
as catastrophic occurrences and mergers and acquisitions. The Compensation
Committee may, in its sole discretion, elect to accelerate the vesting of all or
any portion of any option.
The holders of options granted under the 1990 Option Plan (other than Mr.
Fernandez) have been granted limited special rights (the "Limited Rights") with
respect to all of the shares of Common Stock covered by such options (the
"Related Options"). The Limited Rights become exercisable in circumstances where
the Company, in its sole discretion, has accelerated the Related Options in
connection with a business combination or sale of all or substantially all of
the assets or capital stock of the Company, in each case in which the holders of
the Company's Common Stock receive all cash consideration (an "Extraordinary
Corporate Event"). Upon the exercise of a Limited Right, the Related Option
ceases to be exercisable to the extent of the shares with respect to which the
Limited Right is exercised, and an optionee would receive, for each share of
underlying
S-10
<PAGE> 42
Common Stock, a cash payment equal to the excess of (i) the cash per share of
Common Stock received by the holders of Common Stock in connection with the
Extraordinary Corporate Event, over (ii) the option price per share of Common
Stock underlying the Related Option.
1995 Option Plan. The Company has adopted the 1995 Option Plan which
provides for the granting of either non-qualified or incentive stock options to
officers and key employees of the Company, including directors who are also
employees. Notwithstanding the foregoing, only officers and key employees who do
not own capital stock possessing more than 10% of the total combined voting
power or value of all classes of capital stock of the Company or the Subsidiary
shall be eligible to receive grants of options. As of February 1, 1997, an
aggregate of 500,000 shares of Common Stock have been reserved for issuance
under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee. Options
terminate as determined by the Compensation Committee and specified in each
Option Agreement; provided, that such termination date shall be not later than
ten years from the date such option is granted, subject to earlier termination
upon an optionee's termination of employment, in connection with certain
extraordinary corporate transactions, or as otherwise set forth in each
particular Option Agreement.
The purchase price per share of the shares of Common Stock underlying each
option and the vesting schedule for each option will be determined by the
Compensation Committee; provided, that the option price of any incentive stock
option shall not be less than the fair market value of the underlying shares at
the time the incentive stock option is granted, as determined by the
Compensation Committee in accordance with the formula specified in the 1995
Option Plan.
Option Payment Agreements. In connection with the Offer, the Company
intends to enter into the Payment Agreements with holders of Options under the
Stock Option Plans, and intends to enter into an option payment agreement with
Joseph H. Fernandez, the Company's Chairman of the Board, President and Chief
Executive Officer, with respect to 56,140 shares subject to the Performance
Option under the 1990 Option Plan. The Payment Agreements will describe, as
applicable, the various termination and acceleration provisions of the Stock
Option Plans that are triggered by the Offer and the Merger and will provide for
the surrender to the Company of all options, following consummation of the
Offer, for an amount in cash equal to the excess of the Offer Price over the
applicable exercise price per share of such options and less all taxes required
to be withheld from such payment (the "Option Consideration"). The Payment
Agreement with Mr. Fernandez will describe the Board's decision to accelerate
the vesting of the Performance Option with respect to 28,070 of the Shares
covered thereby to the time of acceptance of Shares for payment and purchase
pursuant to the Offer and provide for payment of the Option Consideration with
respect to such Shares following consummation of the Offer. The Payment
Agreements for Outside Directors will also describe the Board's decision to
accelerate to the time of acceptance of Shares for payment and purchase pursuant
to the Offer the vesting of options to purchase an aggregate of 9,524 Shares
granted under the 1996 Option Plan. The Payment Agreements will further provide
that payment of the Option Consideration is subject to and contingent upon both
the acceptance of the Shares for payment and purchase pursuant to the Offer and
the surrender by the optionholder of the options.
Employment and Severance Agreements.
In March 1993, the Company entered into a three-year employment agreement
with Mr. Fernandez which has been amended to continue through March 1, 2001. As
amended, the employment agreement currently provides for a base salary of
$350,000 and for an incentive bonus to be paid pursuant to the terms of the
Company's Bonus Plan. See "Bonus Plan." The employment agreement provides for
Mr. Fernandez to be employed by the Company as Chairman of the Board, President
and Chief Executive Officer until the earlier of March 1, 2001 or the date that
such employment shall have been terminated as provided therein. In addition, the
employment agreement provides that, so long as Mr. Fernandez remains an employee
of the Company, the Company will
S-11
<PAGE> 43
include Mr. Fernandez in the Company's slate of nominees for directors at each
such election of directors. Pursuant to the terms of the employment agreement,
in the event Mr. Fernandez is terminated without cause or resigns for good
reason (as such terms are defined in the employment agreement), or in the event
that Mr. Fernandez should die or become permanently disabled, the Company is
required to pay Mr. Fernandez's base salary for a period of twenty-four
consecutive months from the date of such event. Mr. Fernandez' employment
agreement provides that, in the event that Mr. Fernandez is terminated by the
Company for cause or Mr. Fernandez otherwise terminates his employment under
certain circumstances, then, subject to certain exceptions, Mr. Fernandez will
not compete with the Company for a period of 12 months after such termination.
In March 1993, the Company also entered into a separate agreement with Mr.
Fernandez pursuant to which he will be entitled to receive severance payments of
up to six months' salary upon an involuntary termination of his employment,
other than for cause (as defined therein), upon a resignation for good reason
(as defined therein), or in the event that Mr. Fernandez should die or become
permanently disabled, in each case at any time after the expiration of his term
of employment as specified in his employment agreement (or any subsequent
employment agreement with the Company).
The Company has entered into agreements with Messrs. Peterson, Rizzo and
Sullivan pursuant to which these individuals will be entitled to receive
severance payments of up to six months' salary either upon an involuntary
termination of employment, other than for cause (as defined therein), or upon a
resignation for good reason (as defined therein).
Pursuant to the Letter Agreement, Parent has agreed to provide certain
severance and retention benefits Parent would provide to certain employees of
the Company, including the Company's officers, upon consummation of the Offer
and the Merger. Under the severance program, an employee, including any officer,
who is terminated, other than for cause, within six months of the closing of the
purchase of the Company will receive a cash severance payment of 1 1/2 weeks of
pay for each full year of service with the Company, with a minimum payment of
$3,000 for employees with at least one full year of service and $1,500 for
employees with less than one full year of service. Executive officers with
current employment or severance agreements may elect to receive the payment
specified above or the payment provided for in such agreement, but not both. In
addition, the COBRA premiums for medical benefits will be paid for three months
following the last day of employment.
As authorized by the Board at its January 19, 1998 meeting and approved by
Albertson's in the Letter Agreement, the Company will enter into certain
retention agreements (the "Retention Agreements") with, among others, all
executive officers other than Mr. Fernandez and with certain employees of the
Company. These Retention Agreements will provide that each of these officers and
employees will receive a specified retention incentive bonus ranging from
$20,000 to $120,000 if such officer or employee remains employed with the
Company until 60 days after consummation of the Offer. Further, such bonuses
will be paid if employment is involuntarily terminated prior to the expiration
of such 60 day period, unless such termination is "for cause," and shall also be
paid if employment is terminated by such employee with "good reason," prior to
the expiration of such 60 day period, with "for cause" and "good reason"
customarily defined. The retention incentive bonuses will also be paid in the
event that such officer or employee dies or is permanently disabled prior to the
expiration of such 60 day period.
The Major Stockholder will also enter into agreements with each of Wayne S.
Peterson, Senior Vice President, Chief Financial Officer and Secretary and Louis
J. Rizzo, Senior Vice President -- Retail Operations and Store Development,
providing, that, each of these executive officers will receive a closing bonus
of $40,000 and $20,000, respectively, from the Major Stockholder if such officer
remains employed with the Company until the consummation of the Offer. These
bonuses will also be paid if employment is involuntarily terminated prior to the
consummation of the Offer, unless such termination is "for cause" and shall also
be paid if employment is terminated by the officer for
S-12
<PAGE> 44
"good reason," with "for cause" and "good reason" customarily defined. The
closing bonus will also be paid upon the death or permanent disability of such
officer. Notwithstanding the foregoing, neither officer shall be entitled to
receive the closing bonus if the Offer is not consummated for any reason.
STOCK OPTIONS.
The following table sets forth information concerning options granted to
the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRA- -----------------------
NAME (#) FISCAL YEAR ($/SH) TION DATE 5%($) 10%($)
- ---------------------- ---------- ------------ ----------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Fernandez... 30,000(1) 55.2% 7.125 2/28/06 134,662 339,862
100,000(2) 7.375(3) 8/29/06 464,625 1,172,625
Louis J. Rizzo........ 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
Wayne S. Peterson..... 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
John E. Sullivan...... 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
Craig A. Wright....... 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
</TABLE>
- ---------------
(1) These options vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(2) 20% of these options were vested and exercisable on their date of grant. The
remaining 80% vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(3) $7.375 is initial exercise price. Beginning in 1997, the option exercise
price will increase 5% on March 1 and September 1 of each year over then
existing exercise price.
The following table sets forth information concerning the aggregate number
of options exercised during 1996 by each of the Named Executive Officers, and
outstanding options held by each such officer at February 1, 1997.
OPTION EXERCISES AND YEAR-END VALUE TABLE
<TABLE>
<CAPTION>
VALUE OF UNEXERCISED
IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS AT
UNEXERCISED OPTIONS AT FEBRUARY 1, 1997($)
SHARES ACQUIRED VALUE REALIZED FEBRUARY 1, 1997(#) EXERCISABLE/
NAME ON EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
- -------------------- --------------- -------------- ------------------------- ----------------------
<S> <C> <C> <C> <C>
Joseph H.
Fernandez......... -- -- 72,456/181,140 73,138/174,408
Louis J. Rizzo...... -- -- 6,000/ 18,000 3,000/ 16,500
Wayne S. Peterson... -- -- 6,000/ 26,334 3,000/ 29,668
John E. Sullivan.... -- -- 4,000/ 31,666 2,000/ 42,072
Craig A. Wright..... -- -- 4,000/ 8,000 2,000/ 11,000
</TABLE>
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market as of January 31, 1997 was $8.25 per share.
S-13
<PAGE> 45
As of February 1, 1997, options for the purchase of 134,438 shares of
Common Stock, at a purchase price of $6.67 per share, and options for the
purchase of 56,140 shares of Common Stock, at a purchase price of $7.125 per
share, were outstanding under the 1990 Option Plan, and options for the purchase
of 260,922 shares remained available for issuance. Also as of February 1, 1997,
options for the purchase of 2,000 shares of Common Stock, at a purchase price of
$7.50 per share, options for the purchase of 111,000 shares of Common Stock, at
a purchase price of $7.75 per share, options for the purchase of 135,400 shares
of Common Stock, at a purchase price of $7.125 per share, options for the
purchase of 100,000 shares of Common Stock, at a purchase price of $7.375 per
share, and options for the purchase of 2,000 shares of Common Stock, at a
purchase price of $8.125 per share, were outstanding under the 1995 Option Plan,
and options for the purchase of 160,300 shares remained available for issuance.
In addition, as of February 1, 1997, options for the purchase of 6,250 shares of
Common Stock, at a purchase price of $6.40 per share, were outstanding under the
1996 Option Plan. As of February 1, 1997, options for the purchase of 22,456
shares of Common Stock, at a purchase price of $7.125 per share, and options for
the purchase of 15,000 shares of Common Stock, at a purchase price of $6.725 per
share, were outstanding under the 1993 Option Plan. On March 21, 1997, the Board
of Directors of the Company granted options to purchase an aggregate of 17,100
shares of Common Stock, at a purchase price of $9.375 per share, to a total of
57 employees of the Company (excluding executive officers and directors)
pursuant to the 1995 Option Plan. As of March 21, 1997, none of the options
described in this paragraph had been exercised.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1993, Mr. Fernandez purchased 112,280 shares of Common Stock at a
price of $7.125 pursuant to a Stock Subscription Agreement. Of the purchase
price for these shares, $400,000 was paid using a full recourse promissory note,
bearing interest at 7% per annum, payable quarterly, and secured by a pledge to
the Company of the 112,280 shares of Common Stock. In February 1994, Mr.
Fernandez executed a full recourse unsecured promissory note in the amount of
$40,000 in favor of the Company, bearing interest at 7% per annum, and payable
quarterly. As amended, these two promissory notes are due and payable in full on
March 1, 1998.
In April 1997, Mr. Fernandez executed two additional full recourse
promissory notes in favor of the Company, one in the amount of $125,000 which is
secured by a pledge to the Company of the 112,280 shares of Common Stock
purchased by Mr. Fernandez in March 1993, and one in the amount of $75,000 which
is unsecured. Each of these promissory notes bears interest at 9.25% per annum,
payable quarterly, and becomes due and payable in full on March 1, 2001.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of Messrs. Gannon,
Simmons, Sodini and Spogli, each an independent non-employee director of the
Company. During 1996, none of the members of the Company's Compensation
Committee had any interlocking relationships as defined by the Commission. For
the fiscal year ending February 1, 1998, the Compensation Committee is comprised
of Messrs. Gannon, Simmons, Sodini and Spogli.
In July 1991, the Company entered into a one-year renewable consulting
agreement with Mr. Sodini which in 1996 provided for a fee of $75,000 and
certain medical benefits through December 1996. This arrangement terminated on
December 31, 1996.
S-14
<PAGE> 46
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 19, 1998 by (i) each person who is
known by the Company to be the beneficial owner of more than 5% of the Common
Stock, (ii) each director and certain executive officers of the Company,
individually, and (iii) all current directors and executive officers as a group:
<TABLE>
<CAPTION>
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNERSHIP OUTSTANDING
BENEFICIAL OWNER(1) OF COMMON STOCK COMMON STOCK
----------------------------------------------- -------------------- ------------
<S> <C> <C>
Freeman Spogli & Co.(2)........................ 4,389,879 50.8%
J. Frederick Simmons.........................
Ronald P. Spogli.............................
William M. Wardlaw...........................
Merrill Lynch & Co., Inc.(3)................... 516,900 6.0
Franklin Resources, Inc.(4).................... 656,000 7.6
Pioneering Management Corporation(5)........... 546,500 6.3
Joseph H. Fernandez(6)......................... 345,292 4.0
Robert P. Gannon(7)............................ 6,206 *
Michael P. Malone.............................. 1,100 *
Peter J. Sodini(8)............................. 47,381 *
Matt L. Figel(8)............................... 2,381 *
Thomas C. Young(7)............................. 6,506 *
Joseph M. Livorsi(9)........................... 15,000 *
Wayne S. Peterson(10).......................... 29,084 *
Louis J. Rizzo(11)............................. 35,000 *
John E. Sullivan(12)........................... 50,127 *
Craig A. Wright(13)............................ 10,310 *
All directors and executive officers as a group
(14 persons)................................. 4,938,266(14) 55.0%
</TABLE>
- ---------------
* Less than 1%.
(1) Except as otherwise indicated in this table and the notes thereto, the
persons named have sole voting power and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) All shares indicated are owned of record by the Major Stockholder, of which
FS&Co. is the general partner. As general partner, FS&Co. has the sole
power to vote and dispose of such shares. Messrs. Simmons, Spogli and
Wardlaw (all of whom are directors of the Company), Mr. Bradford M. Freeman
and Mr. John M. Roth are general partners of FS&Co., and as such may be
deemed to be the beneficial owners of the shares of Common Stock indicated
as beneficially owned by FS&Co. The business address of FS&Co., its general
partners and the Major Stockholder is 11100 Santa Monica Boulevard, Suite
1900, Los Angeles, California 90025.
(3) As reported in a Schedule 13G dated February 14, 1997 filed jointly with
the Securities and Exchange Commission (the "Commission") by Merrill Lynch
& Co., Inc. ("Merrill Lynch"), Merrill Lynch Group, Inc. ("ML Group"),
Princeton Services, Inc. ("PSI"), Merrill Lynch Asset Management, L.P.
("MLAM") and Merrill Lynch Global Allocation Fund, Inc. ("Merrill Fund"),
Merrill Lynch, ML Group, PSI, MLAM and Merrill Fund have claimed shared
voting and dispositive power with respect to all such shares. Merrill
Lynch, ML Group and PSI are parent holding companies and have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G; MLAM is an investment adviser registered under
S-15
<PAGE> 47
Section 203 of the Investment Advisers Act of 1940 (the "Advisers Act");
and Merrill Fund is an investment company registered under Section 8 of the
Investment Company Act of 1940. The business address of Merrill Lynch and
ML Group is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The business address for PSI, MLAM and Merrill Fund
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(4) As reported in a Schedule 13G dated February 12, 1997 filed jointly with
the Commission by Franklin Resources, Inc. ("FRI"), Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc. ("FAS"), FAS
has claimed sole voting and dispositive power with respect to all such
shares. The securities of the Company reported in the Schedule 13G are
beneficially owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries (the "Advisor Subsidiaries") of FRI, the
principal shareholders of which are Messrs. Johnson and Johnson
(collectively, the "Principal Shareholders"). FRI, the Principal
Shareholders and each of the Advisor Subsidiaries have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G. The business address of FRI, Charles B. Johnson and Rupert H.
Johnson, Jr. is 777 Mariners Island Boulevard, San Mateo, California 94404.
The business address for FAS is One Parker Plaza, Sixteenth Floor, Ft. Lee,
New Jersey 07024.
(5) As reported in a Schedule 13G dated January 5, 1998 filed with the
Commission by Pioneering Management Corporation ("Pioneering"), Pioneering
has claimed sole voting and dispositive power with respect to all such
shares. Pioneering is an investment adviser registered under Section 203 of
the Advisers Act. The business address of Pioneering is 60 State Street,
Boston, Massachusetts 02109.
(6) Amount includes 134,956 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 90,570 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 7,486 shares held by the Buttrey Company Retirement Estates,
the Company's retirement plan (the "BCRE") for the account of Mr.
Fernandez, based on a plan statement of the BCRE dated December 31, 1997.
(7) Amount includes 5,506 shares issuable upon exercise of options which will
become fully exercisable as of, or will become exercisable within 60 days
of, January 19, 1998.
(8) Amount includes 2,381 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998.
(9) Amount includes 9,000 shares issuable upon exercise of options which will
become fully exercisable as of, or become exercisable within 60 days of,
January 19, 1998, and an additional 6,000 shares issuable upon exercise of
options which will become fully exercisable if the Offer is consummated.
(10) Amount includes 15,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 9,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 818 shares held by the BCRE for the account of Mr. Peterson,
based on a plan statement of the BCRE dated December 31, 1997.
(11) Amount includes 15,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 9,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated.
(12) Amount includes 10,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 6,000 shares
S-16
<PAGE> 48
issuable upon exercise of options which will become fully exercisable if
the Offer is consummated. Amount also includes 794 shares held by the BCRE
for the account of Mr. Sullivan, based on a plan statement of the BCRE
dated December 31, 1997.
(13) Amount includes 10,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 6,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 310 shares held by the BCRE for the account of Mr. Wright,
based on a plan statement of the BCRE dated December 31, 1997.
(14) Amount includes an aggregate of 209,730 shares issuable upon exercise of
options which are exercisable as of, or will become exercisable within 60
days of, January 19, 1998, and an additional 126,570 shares issuable upon
exercise of options which will become fully exercisable if the Offer is
consummated. Amount also includes an aggregate of 9,408 shares held by the
BCRE for the accounts of Messrs. Fernandez, Peterson, Rizzo, Sullivan and
Wright, based on a plan statement of the BCRE dated December 31, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires the Company's
directors and certain of its officers, and persons who own more than 10 percent
of a registered class of the Company's equity securities (collectively,
"Insiders") to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16 forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16 filing requirements for 1996, with the exception of
Mr. Wright, who filed a late Form 5 in April 1997 to report his sale of 700
shares of Company Common Stock in July 1995.
S-17
<PAGE> 49
[MORGAN STANLEY & CO. LETTERHEAD]
January 19, 1998
Board of Directors
Buttrey Food and Drug Stores Company
601 6th Street, S.W.
Great Falls, MT 59404
Gentlemen:
We understand that Buttrey Food and Drug Stores Company ("Buttrey" or the
"Company"), Albertson's Inc. ("Albertson's") and a wholly owned subsidiary of
Albertson's ("Acquisition Sub") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Tender Offer") for all
outstanding shares of common stock par value of $.01 per share (the "Common
Stock") of Buttrey for $15.50 per share in cash, and (ii) the subsequent merger
(the "Merger") of Acquisition Sub with and into Buttrey. Pursuant to the Merger,
Buttrey will become a wholly owned subsidiary of Albertson's and each
outstanding share of Common Stock, other than shares held in treasury or held by
Albertson's or any affiliate of Albertson's or as to which dissenters' rights
have been perfected, will be converted into the right to receive $15.50 per
share in cash. The terms and conditions of the Tender Offer and the Merger are
more fully set forth in the Merger Agreement. We further understand that
approximately 51% of the outstanding shares of Common Stock are owned by FS
Equity Partners II, L.P. ("Freeman Spogli") and that, concurrently with the
execution of the Merger Agreement, Freeman Spogli will enter into a Tender and
Option Agreement (the "Tender Agreement") pursuant to which Freeman Spogli will
agree, among other things, to tender the shares of Common Stock held by it in
the Tender Offer and to grant to Albertson's proxy with respect to the voting of
such shares. The terms and conditions of the Tender Agreement are more fully set
forth therein.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement, the Tender Agreement and certain
related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation
<PAGE> 50
or appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. In addition, we have assumed the Tender
Offer and the Merger will be consummated in accordance with the terms set forth
in the Merger Agreement. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit; and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Freeman Spogli and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Tender Offer and the Merger. In addition, we express no opinion or
recommendation as to whether the holders of Common Stock should tender their
shares in connection with the Tender Offer.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ NEIL B. MORGANBESSER
------------------------------------
Neil B. Morganbesser
Principal
<PAGE> 1
EXHIBIT 99.1
================================================================================
AGREEMENT AND PLAN OF MERGER
AMONG
ALBERTSON'S, INC.,
LOCOMOTIVE ACQUISITION CORP.
AND
BUTTREY FOOD AND DRUG STORES COMPANY
Dated as of January 19, 1998
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I THE TENDER OFFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
1.1 The Offer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.
1.2 SEC Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3.
1.3 Company Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.
ARTICLE II THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
2.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
2.2 Filing; Closing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
2.3 Effective Date of the Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
2.4 Certificate of Incorporation and Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.
2.5 Directors and Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
ARTICLE III CONVERSION OF AND SURRENDER AND PAYMENT FOR
COMMON STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
3.1 Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6.
3.2 Closing of Transfer Books . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
3.3 Surrender of Certificates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.
3.4 Funding of Paying Agent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
3.5 Company Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.
ARTICLE IV CERTAIN EFFECTS OF MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
4.1 Effect of Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
4.2 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.
ARTICLE V REPRESENTATIONS AND WARRANTIES OF THE ACQUIROR
AND NEWCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.2 Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.3 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.
5.4 Proxy Statement; Offer Documents; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 11.
5.5 Financing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11.
5.6 No Prior Activities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
5.7 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
5.8 No Prior Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
</TABLE>
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ARTICLE VI REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
6.1 Corporate Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12.
6.2 Capital Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
6.3 Options or Other Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
6.4 Authority Relative to Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13.
6.5 No Violation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
6.6 Governmental Authorizations and Regulations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14.
6.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
6.8 Financial Statements and Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
6.9 Absence of Certain Changes or Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15.
6.10 Benefit Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16.
6.11 ERISA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.
6.12 Environmental Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18.
6.13 Real Estate Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19.
6.14 Title to Properties; Absence of Liens and Encumbrances . . . . . . . . . . . . . . . . . . . . . . . . 20.
6.15 Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20.
6.16 Proprietary Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
6.17 Labor Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21.
6.18 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.
6.19 Material Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22.
6.20 Proxy Statement; Offer Documents; Other Information . . . . . . . . . . . . . . . . . . . . . . . . . 22.
6.21 Brokers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
6.22 Suppliers and Customers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
6.23 Inventories . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
6.24 Potential Conflict of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23.
6.25 Vote Required . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
6.26 No Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
6.27 Product Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
6.28 Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
ARTICLE VII COVENANTS AND AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
7.1 Stockholders Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24.
7.2 Conduct of the Business of the Company Prior to the Effective Date . . . . . . . . . . . . . . . . . . 25.
7.3 Company Board Representation; Section 14(f) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28.
7.4 Access to Properties and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29.
7.5 Negotiations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30.
7.6 Acquiror Vote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.
7.7 Employee Benefits. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31.
7.8 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32.
7.9 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.
7.10 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33.
7.11 Antitrust . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34.
7.12 Notices of Certain Events . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.
</TABLE>
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7.13 Stockholder Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.
7.14 Consents and Approvals . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35.
7.15 Certain Supplier Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.
7.16 Year 2000 Services. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36.
7.17 Recovery of Certain Amounts Owed. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.
ARTICLE VIII CONDITIONS PRECEDENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37.
8.1 Conditions to Each Party's Obligation to Effect the Merger . . . . . . . . . . . . . . . . . . . . . . 37.
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.
9.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38.
9.2 Termination Fee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.
9.3 Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.
9.4 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.
ARTICLE X MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.
10.1 Survival . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.
10.2 Expenses and Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.
10.3 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.
10.4 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.
10.5 Publicity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.
10.6 Assignment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.
10.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44.
10.8 Invalidity, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.
10.9 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.
10.10 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.
10.11 Definition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45.
</TABLE>
iii.
<PAGE> 5
EXHIBITS
EXHIBIT A CONDITIONS TO THE OFFER
EXHIBIT B CERTIFICATE OF MERGER
SCHEDULES
SCHEDULE 3.5 COMPANY STOCK OPTION PLANS
SCHEDULE 6.1 CORPORATE ORGANIZATION
SCHEDULE 6.3 OPTIONS OR OTHER RIGHTS
SCHEDULE 6.5 VIOLATIONS OF/CONSENTS REQUIRED BY MATERIAL
CONTRACTS
SCHEDULE 6.7 LITIGATION INVOLVING THE COMPANY OR THE SUBSIDIARY
SCHEDULE 6.9 ABSENCE OF CERTAIN CHANGES OR EVENTS
SCHEDULE 6.10 BENEFIT PLANS
SCHEDULE 6.11 ERISA
SCHEDULE 6.12 COMPLIANCE WITH ENVIRONMENTAL LAWS
SCHEDULE 6.13 LEASED REAL ESTATE
SCHEDULE 6.14 TITLE TO PROPERTIES; ABSENCE OF LIENS AND
ENCUMBRANCES
SCHEDULE 6.15 TAX MATTERS
SCHEDULE 6.16A LIST OF PROPRIETARY PROPERTY
SCHEDULE 6.17 LABOR MATTERS
SCHEDULE 6.18 INSURANCE
SCHEDULE 6.19 MATERIAL CONTRACTS
SCHEDULE 6.22 SUPPLIERS
SCHEDULE 7.2 CONDUCT OF BUSINESS OF COMPANY PRIOR TO THE EFFECTIVE DATE
SCHEDULE 10.11 DEFINITION
iv.
<PAGE> 6
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER ("Agreement") dated as of January 19, 1998
among Albertson's, Inc., a Delaware corporation (the "Acquiror"), Locomotive
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of the
Acquiror ("Newco"), and Buttrey Food and Drug Stores Company, a Delaware
corporation (the "Company").
WHEREAS, the Boards of Directors of Newco, the Acquiror and the Company
deem advisable and in the best interests of their respective stockholders the
merger of Newco with and into the Company (the "Merger") upon the terms and
conditions set forth herein and in accordance with the General Corporation Law
of the State of Delaware (the "General Corporation Law") (the Company and Newco
being hereinafter sometimes referred to as the "Constituent Corporations" and
the Company, following the effectiveness of the Merger, being hereinafter
sometimes referred to as the "Surviving Corporation");
WHEREAS, in furtherance thereof, it is proposed that Newco make an offer
to purchase for cash (the "Offer") all of the issued and outstanding shares of
Common Stock, $.01 par value, of the Company (the "Common Stock") at a price
per share equal to the Price Per Share (as defined in Section 1.1 hereof),
subject to the terms and conditions set forth herein and in Exhibit A attached
hereto;
WHEREAS, the Boards of Directors of the Acquiror, Newco and the Company
have approved the Offer, and have approved the Merger following expiration of
the Offer, upon the terms and subject to the conditions set forth herein;
WHEREAS, the Board of Directors of the Company has further determined
that the consideration to be paid for each share of Common Stock in the Offer
and the Merger is fair to the holders of such shares and has resolved to
recommend that the holders of such shares accept the Offer and approve this
Agreement and the Merger upon the terms and subject to the conditions set forth
herein; and
WHEREAS, FS Equity Partners II, L.P., a California limited partnership
(the "Major Stockholder"), concurrently herewith is entering into that certain
Tender and Option Agreement (the "Stockholder Agreement"), dated as of the date
hereof, with the Acquiror and Newco, pursuant to which the Major Stockholder
will agree, among other things, to tender the shares of Common Stock held by it
in the Offer and to grant the Acquiror a proxy with respect to the voting of
such shares upon the terms and subject to the conditions set forth therein.
NOW, THEREFORE, in consideration of the mutual representations,
warranties, covenants, agreements and conditions contained herein, and in order
to set forth the terms and conditions of the Offer and the Merger and the mode
of carrying the same into effect, the parties hereby agree as follows:
1.
<PAGE> 7
ARTICLE I
THE TENDER OFFER
1.1 The Offer.
(a) So long as none of the events set forth in paragraphs
(a) through (g) in Exhibit A attached hereto shall have occurred and be
continuing, Newco shall, as soon as practicable but in no event later than five
Business Days (as defined in Section 1.3) from the date hereof, commence the
Offer to purchase all of the outstanding shares of Common Stock of the Company
at a price of $15.50 per share, in cash (the "Price Per Share") and subject to
(i) at least that number of shares of Common Stock equivalent to a majority of
the total issued and outstanding shares of Common Stock on the date such shares
are purchased pursuant to the Offer (the "Minimum Shares") being validly
tendered and not withdrawn prior to the expiration of the Offer (the "Minimum
Condition") and (ii) the satisfaction of the other conditions set forth in
Exhibit A attached hereto, any of which conditions may be waived by Newco in
its sole discretion, Newco shall not withdraw the Offer and shall at the
earliest time following the expiration of the Offer and subject to the terms of
the Offer accept for payment, purchase and pay for all shares of Common Stock
duly tendered and not withdrawn. The Offer shall be made pursuant to an Offer
to Purchase and related Letter of Transmittal in forms reasonably satisfactory
to the Company and containing terms set forth in this Agreement, the Minimum
Condition and the other conditions set forth in Exhibit A attached hereto,
which terms and conditions shall not be amended without the prior written
consent of the Company.
(b) Neither the Acquiror nor Newco will, without the prior
written consent of the Company, decrease the Price Per Share payable in the
Offer, decrease the number of shares of Common Stock sought pursuant to the
Offer or change the form of consideration payable in the Offer, change or amend
the conditions to the Offer (including the conditions set forth in Exhibit A
attached hereto) or impose additional conditions to the Offer, change the
expiration date of the Offer, or otherwise amend, add or waive any term or
condition of the Offer in any manner adverse to the holders of shares of Common
Stock; provided, however, that if on any scheduled expiration date of the
Offer, which shall initially be twenty Business Days after the date the Offer
is commenced, all conditions to the Offer have not been satisfied or waived,
(i) Newco may, from time to time, extend the expiration date of the Offer and
(ii) Newco shall from time to time after consultation with the Company extend
the expiration date of the Offer as long as (A) the waiting period under the
HSR Act (as defined below) shall not have expired or been terminated or (B) any
order, decree, ruling or other action of or agreement with a Governmental
Authority (as defined below) that has the effect of restraining, enjoining,
prohibiting or delaying the consummation of the Offer or the Merger or imposing
material limitations on the ability of Newco to acquire shares of Common Stock
shall be in effect. Subject to the terms and conditions of this Agreement,
Acquiror agrees that it shall extend the expiration date of the Offer and shall
not terminate the Offer under clause (a) of Exhibit A or Section 9.1(b) or (h)
of this Agreement until it has reached an agreement authorizing consummation of
the Offer and the Merger with the FTC or DOJ (each, as defined below) and any
other Governmental Authority that may have asserted that consummation of the
Offer will violate Antitrust Laws and any injunction or order prohibiting or
limiting consummation of the Offer or the Merger has become final and
non-appealable. Each such extension shall be reasonable under the
circumstances, with the parties acknowledging that
2.
<PAGE> 8
they wish to consummate the purchase of shares pursuant to the Offer as
expeditiously as possible. If, immediately prior to the expiration date of the
Offer (as it may be extended), the shares of Common Stock tendered and not
withdrawn pursuant to the Offer constitute less than 90% of the number of
outstanding shares of Common Stock, Newco may extend the Offer for a period not
to exceed ten Business Days, notwithstanding that all conditions to the Offer
are satisfied as of such expiration date of the Offer; provided that in the
event the Offer is extended pursuant to this sentence then Acquiror and Newco
shall no longer be able to rely on the provisions of subparagraphs (b), (c),
(d), (e), (f) or (g) of Exhibit A, or Sections 9.1(b), (f), (h), (i) and (j)
hereof, then or in the future as grounds for its refusal to accept for payment
and purchase, or to pay for, or as grounds for its delay in the acceptance for
payment for, any shares of Common Stock tendered in the Offer. Acquiror and
Newco will subject to the terms and conditions of this Agreement use their best
efforts to consummate the Offer. Assuming the prior satisfaction or waiver of
all the conditions to the Offer set forth in Exhibit A, and subject to the
terms and conditions of this Agreement, the Acquiror shall cause Newco to
accept for payment and pay for, in accordance with the terms of the Offer, all
shares of Common Stock tendered pursuant to the Offer as soon as permitted
recognizing that the parties wish to close as expeditiously as possible
following expiration or termination of the waiting period under the HSR Act.
The Acquiror shall provide or cause to be provided to Newco, on a timely basis,
the funds necessary to purchase any shares of Common Stock that Newco becomes
obligated to purchase pursuant to the Offer.
1.2 SEC Filings. On or before January 26, 1998, the Acquiror and/or
Newco shall file with the Securities and Exchange Commission (the
"Commission"), with respect to the Offer, a Tender Offer Statement on Schedule
14D-1 (the "Schedule 14D-1"). The Schedule 14D-1 will comply in all material
respects with the provisions of applicable federal securities laws and will
incorporate by reference to the Offer to Purchase, the related Letter of
Transmittal and any related summary advertisement (the Schedule 14D-1, the
Offer to Purchase, the Letter of Transmittal and such other documents being
collectively referred to herein as the "Offer Documents"). The Company and its
counsel shall be given an opportunity to review and comment upon the Offer
Documents and any amendments or supplements thereto, prior to the filing
thereof with the Commission, and Acquiror and Newco shall in good faith
consider such comments. The Acquiror and Newco agree to provide to the Company
and its counsel any comments which the Acquiror, Newco or their counsel may
receive from the Staff of the Commission with respect to the Offer Documents
promptly after receipt thereof. The Acquiror, Newco and the Company agree to
correct promptly any information provided by any of them for use in the Offer
Documents which shall have become false or misleading in any material respect,
and the Acquiror and Newco further agree to take all steps necessary to cause
the Schedule 14D-1 as so corrected to be filed with the Commission, and the
other Offer Documents as so corrected to be disseminated to the Company's
stockholders, in each case as and to the extent required by applicable federal
securities laws. Notwithstanding the foregoing, the Acquiror and Newco hereby
agree that the Offer Documents to be transmitted to the stockholders of the
Company shall include provisions pursuant to which the depositary or exchange
agent selected by the Acquiror, Newco and the Company will make payment of the
Price Per Share, to any holder who validly tenders at least 45,000 shares of
Common Stock in the Offer on or prior to its expiration date, by wire transfer
of the Price Per Share to such holder within one Business Day of the date that
such shares of Common Stock are accepted for payment and purchased by Newco.
3.
<PAGE> 9
Commission a Solicitation/Recommendation Statement on Schedule 14D-9 (the
"Schedule 14D-9"), which will comply in all material respects with the
provisions of applicable federal securities laws. The Acquiror and its counsel
shall be given an opportunity to review and comment upon the Schedule 14D-9 and
any amendments or supplements thereto, prior to the filing thereof with the
Commission, and the Company shall in good faith consider any such comments.
The Company agrees to provide to the Acquiror and Newco and their counsel any
comments which the Company or its counsel may receive from the Staff of the
Commission with respect to the Schedule 14D-9 promptly after receipt thereof.
The Company, Acquiror and Newco agree to correct promptly any information
provided by any of them for use in the Schedule 14D-9 which shall have become
false or misleading in any material respect, and the Company further agrees to
take all steps necessary to cause such Schedule 14D-9 as so corrected to be
filed with the Commission and disseminated to the Company's stockholders as and
to the extent required by applicable federal securities laws. Subject to the
fiduciary duties of the Board of Directors of the Company, under applicable
law, the Offer Documents shall contain the recommendations of the Board of
Directors of the Company that the Company's stockholders accept the Offer.
Acquiror, Newco and the Company each hereby agree promptly to provide such
information necessary to the preparation of the exhibits and schedules to the
Schedule 14D-9 and the Offer Documents which the respective party responsible
therefor shall reasonably request.
1.3 Company Action.
(a) The Company hereby approves of and consents to the
Offer and represents that its Board of Directors has (i) determined that each
of the Offer and Merger is fair to and in the best interests of the Company's
stockholders, (ii) approved the Merger and the making of the Offer and (iii)
resolved to recommend acceptance of the Offer by the Company's stockholders and
approval and adoption of this Agreement and authorization of the Merger by the
stockholders of the Company; provided, however, that such recommendation may be
withdrawn, modified or amended in accordance with Section 7.5(b). The Company
represents that Morgan Stanley & Co. Incorporated ("Morgan Stanley") has
delivered to the Company's Board of Directors its written opinion that as of
the date hereof, based upon the factors considered by Morgan Stanley in
connection with the transactions contemplated by this Agreement, the Price Per
Share to be received by the holders of shares of Common Stock pursuant to the
Offer, this Agreement and the Merger is fair, from a financial point of view,
to such holders receiving the Price Per Share and that a copy of such opinion
will be promptly delivered to the Acquiror.
(b) Promptly upon execution of this Agreement and in
connection with the Offer, the Company shall furnish Newco with or cause Newco
to be furnished with such information, including lists of the stockholders of
the Company, mailing labels and lists of securities positions, each as of a
recent date, and shall thereafter render such assistance as the Acquiror or
Newco may reasonably request in communicating the Offer to the Company's
stockholders. Subject to the requirements of applicable law, and except for
such steps as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Merger, the Acquiror and Newco and each
of their respective affiliates and associates shall hold in confidence the
information contained in any of such labels and lists, will use such
information only in connection with the Offer and the Merger, and, if this
Agreement is terminated, will promptly deliver to the Company all copies of
such information then in their
4.
<PAGE> 10
possession. Without limiting the generality of the foregoing, upon receipt of
a request from the Acquiror or Newco under Rule 14d-5 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), the Company
will comply with Rule 14d-5(a) by a notice to the Acquiror given no later than
the first Business Day (as defined in Rule 14d-1(b)(7) of the Exchange Act)
after the date of the Acquiror's request, and shall elect to comply with Rule
14d-5(c) within one Business Day thereof.
ARTICLE II
THE MERGER
2.1 The Merger. Upon the terms and conditions hereinafter set forth
and in accordance with the General Corporation Law, at the Effective Date (as
defined in Section 2.3), Newco shall be merged with and into the Company and
thereupon the separate existence of Newco shall cease, and the Company, as the
Surviving Corporation, shall continue to exist under and be governed by the
General Corporation Law.
2.2 Filing; Closing. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Section 8 hereof (other
than the condition set forth in Section 8.1(a), which may not be waived), Newco
and the Company will either (i) cause a Certificate of Merger, in substantially
the form of Exhibit B attached hereto (the "Certificate of Merger"), to be
executed and filed with the Secretary of State of the State of Delaware as
provided in Section 251 of the General Corporation Law, or (ii) in the event
Newco shall have acquired 90% or more of the outstanding shares of each class
of capital stock of the Company, cause a Certificate of Ownership to be
executed and filed with the Secretary of State of the State of Delaware as
provided in Section 253 of the General Corporation Law. Prior to such filing,
a closing shall be held at the offices of Skadden, Arps, Slate, Meagher & Flom,
919 Third Avenue, New York, New York 10022, or such other place as the parties
shall agree, for the purpose of confirming the satisfaction or waiver, as the
case may be, of the conditions set forth in Section 8 of this Agreement (the
"Closing"). The Closing shall occur no later than the second Business Day
after satisfaction or waiver of the conditions set forth in Section 8 (other
than the condition set forth in Section 8.1(a), which may not be waived).
2.3 Effective Date of the Merger. The Merger shall become effective
immediately upon the filing, in accordance with Section 251 or Section 253, as
the case may be, of the General Corporation Law, of the Certificate of Merger
or a Certificate of Ownership, as the case may be, with the Secretary of State
of the State of Delaware in accordance therewith. The date and time of such
filing is herein sometimes referred to as the "Effective Date."
2.4 Certificate of Incorporation and Bylaws. Upon the effectiveness
of the Merger, the Certificate of Incorporation of the Company shall be the
certificate of incorporation of the Surviving Corporation, and the Bylaws of
Newco as in effect on the Effective Date shall be the Bylaws of the Surviving
Corporation; provided that such Certificate and Bylaws of the Surviving
Corporation shall not be inconsistent with the provisions of Section 7.8
hereof.
5.
<PAGE> 11
2.5 Directors and Officers. The persons who are directors of Newco
immediately prior to the Effective Date and the officers of the Company shall,
after the Effective Date and in accordance with the Certificate of Merger or
Certificate of Ownership, as the case may be, serve as the directors and
officers, respectively, of the Surviving Corporation, in each case such
directors and officers to serve until their successors have been duly elected
and qualified in accordance with the Certificate of Incorporation and Bylaws of
the Surviving Corporation.
ARTICLE III
CONVERSION OF AND SURRENDER AND
PAYMENT FOR COMMON STOCK
3.1 Conversion. At the Effective Date, by virtue of the Merger and
without any action on the part of the holders thereof:
(a) Each issued and outstanding share of the Common Stock
of the Company, other than (i) shares of Common Stock owned of record by the
Acquiror or Newco, (ii) Dissenting Stock (as hereinafter defined) or (iii)
shares of Common Stock held in the treasury of the Company, shall be
automatically converted into the right to receive the Price Per Share in cash.
(b) Each issued and outstanding share of the Common Stock
of Newco shall be converted into one (1) validly issued, fully paid and
nonassessable share of common stock, $.01 par value (the "New Common Stock"),
of the Surviving Corporation.
(c) All shares of Common Stock which are held by the
Company as treasury shares or which are owned of record by the Acquiror or
Newco shall be canceled and retired and cease to exist, without any conversion
thereof or payment with respect thereto.
(d) The right of any stockholder of the Company to receive
the Price Per Share shall be subject to and reduced by the amount of any
required tax withholding obligation.
Notwithstanding any provision of this Agreement to the contrary, shares
of the Common Stock with respect to which appraisal rights have been demanded
and perfected in accordance with Section 262(d) of the General Corporation Law
(the "Dissenting Stock") shall not be converted into the right to receive cash
at or after the Effective Date, and the holder thereof shall be entitled only
to such rights as are granted by the General Corporation Law. Notwithstanding
the preceding sentence, if any holder of shares of Common Stock who demands
appraisal of such shares under the General Corporation Law shall effectively
withdraw his demand for such appraisal (in accordance with Section 262(k) of
the General Corporation Law) or becomes ineligible for such appraisal (through
failure to perfect or otherwise) then, as of the Effective Date or the
occurrence of such event, whichever last occurs, such holder's Dissenting Stock
shall cease to be Dissenting Stock and shall be converted into and represent
the right to receive cash, without interest thereon, as provided in this
Section 3.1. The Company shall give the Acquiror (i) prompt notice of any
written demands for appraisal, withdrawals of demands for appraisal and any
other instrument served pursuant to Section 262 of the General Corporation Law
received by the
6.
<PAGE> 12
Company and (ii) the opportunity to participate in all negotiations and
proceedings with respect to demands for appraisal under such Section. Except
with the prior written consent of Acquiror, prior to the Effective Date, the
Company will not voluntarily make any payment with respect to any demands for
appraisal and will not settle or offer to settle any such demands.
3.2 Closing of Transfer Books. At the Effective Date, the stock
transfer books of the Company shall be closed, and no transfer of shares of
Common Stock of the Company shall thereafter be made. If, after the Effective
Date, certificates previously representing shares of Common Stock are presented
to the Surviving Corporation or the Paying Agent (as defined in Section 3.3),
they shall be canceled and exchanged for cash as provided in Section 3.1(a),
subject to applicable law in the case of Dissenting Stock.
3.3 Surrender of Certificates.
(a) The Company. From and after the Effective Date, such
bank and trust company as Newco, at least five days prior to the mailing of the
Proxy Statement (as defined in Section 7.1), shall designate and the Company
shall approve (which approval shall not be unreasonably withheld), shall act as
paying agent (the "Paying Agent") in effecting the exchange for cash of
certificates that, prior to the Effective Date, represented shares of Common
Stock entitled to payment in cash pursuant to Section 3.1(a). As soon as
practicable after the Effective Date, the Paying Agent shall send a notice and
transmittal form to each holder of record of Common Stock immediately prior to
the Effective Date, advising such holder of the effectiveness of the Merger and
the procedure for surrendering to the Paying Agent (who may appoint forwarding
agents with the approval of Newco) the certificate or certificates to be
exchanged pursuant to the Merger. Upon the surrender for exchange of such a
certificate, together with such letter of transmittal duly completed and
properly executed in accordance with instructions thereto and such other
documents as may be required pursuant to such instructions, the holder shall be
paid promptly, without interest thereon and subject to any required withholding
of taxes, the amount of cash to which such holder is entitled hereunder, and
such certificate shall forthwith be canceled. Until so surrendered and
exchanged, each certificate which immediately prior to the Effective Date
represented outstanding shares of the Common Stock (other than Dissenting Stock
and shares of Common Stock owned by the Acquiror or Newco) shall represent
solely the right to receive the cash into which the Common Stock it theretofore
represented shall have been converted pursuant to Section 3.1(a), subject to
any required withholding of taxes. If any payment for Common Stock is to be
made to a person other than the person in whose name the certificates for such
shares surrendered or registered, it shall be a condition of the exchange that
the person requesting such exchange shall pay to the Paying Agent any transfer
or other taxes required by reason of the delivery of such check to a person
other than the registered owner of the certificate surrendered or shall
establish to the satisfaction of the Paying Agent that such tax has been paid
or is not applicable.
(b) Newco. The Acquiror, as the sole stockholder of Newco,
shall, upon surrender to the Surviving Corporation of certificates representing
the common stock, $1.00 par value, of Newco, receive a certificate representing
the number of shares of New Common Stock into which the capital stock of Newco
shall have been converted pursuant to Section 3.1(b).
7.
<PAGE> 13
3.4 Funding of Paying Agent. Prior to the Effective Date, the
Company and Newco shall enter into an agreement (the "Payment Agreement") with
the Paying Agent. Prior to the filing of the Certificate of Merger or the
Certificate of Ownership, as the case may be, Newco shall deposit or cause to
be deposited with the Paying Agent in trust for the benefit of stockholders of
the Company, cash in an aggregate amount equal to the product obtained by
multiplying (i) the number of shares of Common Stock outstanding (and not owned
of record by the Acquiror or Newco) immediately prior to the Effective Date, by
(ii) the Price Per Share. The deposit made by Newco pursuant to the preceding
sentence is hereinafter referred to as the "Payment Fund." The Payment
Agreement shall provide, among other things, that (a) the Paying Agent shall
maintain the Payment Fund as a separate fund to be held for the benefit of the
holders of the Common Stock of the Company, which shall be promptly applied by
the Paying Agent to making the payments provided for in Section 3.3, (b) any
portion of the Payment Fund that has not been paid to holders of the Common
Stock pursuant to Section 3.3 prior to that date which is six months from the
Effective Date shall be paid to the Surviving Corporation, and any holders of
Common Stock who shall not have theretofore complied with Section 3.3 shall
thereafter look only to the Acquiror and the Surviving Corporation for payment
of the amount of cash to which they are entitled under this Agreement, (c) the
Payment Fund shall not be used for any purpose that is not provided for herein,
(d) the Paying Agent may invest, if so directed by Acquiror or the Surviving
Corporation, the Payment Fund in obligations of the United States government or
any agency or instrumentality thereof, or in obligations that are guaranteed or
insured by the United States government or any agency or instrumentality
thereof, (e) any net profit resulting from, or interest or income produced by,
such investments shall be payable to the Surviving Corporation on demand, and
(f) all expenses of the Paying Agent shall be paid directly by the Surviving
Corporation. Promptly following the date which is six months from the
Effective Date, the Paying Agent shall return to the Surviving Corporation all
cash and any other instruments in its possession relating to the transactions
described in this Agreement, and the Paying Agent's duties shall terminate.
Thereafter, each holder of a certificate formerly representing Common Stock
other than the Dissenting Stock may surrender such certificate to the Surviving
Corporation and (subject to applicable abandoned property, escheat and similar
laws) receive in exchange therefor the consideration payable in respect thereto
pursuant to Section 3.1(a) hereof, without interest, but shall have no greater
rights against the Surviving Corporation than may be accorded to general
creditors of the Surviving Corporation under the General Corporation Law.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable for the Price Per Share to any holder of a certificate
formerly representing Common Stock if such amount is delivered to a public
official pursuant to any applicable abandoned property, escheat or similar law.
3.5 Company Stock Option Plans. Prior to consummation of the Offer
or the Effective Date or both, the Company may, subject to the penultimate
sentence of this Section 3.5 and Schedule 3.5, enter into agreements in respect
of outstanding options to purchase shares of Common Stock (the "Options")
pursuant to the Company's 1990 Nonqualified Performance Stock Option Plan, 1993
Special Option Plan, 1995 Stock Option Plan and the 1996 Nonqualified
Non-Employee Directors Stock Option Plan (collectively, the "Stock Option
Plans"), providing for the payment upon surrender of each vested Option
immediately after the consummation of the Offer up to and including the
Effective Date of an amount of cash per share subject to each such Option equal
to the excess, if any, of the Price Per Share over the exercise price of such
Option
8.
<PAGE> 14
less an amount equal to all taxes required to be withheld from such payment
(the "Spread Per Share"). Any Options not so surrendered or exercised prior to
the Effective Date shall terminate no later than the Effective Date in
accordance with the terms of the Stock Option Plans or such agreements with
optionees. The Company may accelerate the vesting of outstanding Options in
accordance with Schedule 3.5. Upon request of the Company following
consummation of the Offer, the Acquiror shall advance to the Company sufficient
funds to enable the Company to pay the aggregate Spread Per Share.
ARTICLE IV
CERTAIN EFFECTS OF MERGER
4.1 Effect of Merger. On and after the Effective Date, the
Surviving Corporation shall possess all the rights, privileges, powers and
franchises of a public as well as of a private nature, and be subject to all
the restrictions, disabilities and duties of each of the Constituent
Corporations; and all and singular rights, privileges, powers and franchises of
each of the Constituent Corporations, and all property, real, personal and
mixed, and all debts due to either of the Constituent Corporations on whatever
account, as well for stock subscriptions as all other things in action or
belonging to each of the Constituent Corporations, shall be vested in the
Surviving Corporation; and all property, rights, privileges, powers and
franchises, and all and every other interest shall be thereafter as effectually
the property of the Surviving Corporation as they were of the Constituent
Corporations, and the title to any real estate vested by deed or otherwise, in
either of the Constituent Corporations shall not revert or be in any way
impaired; but all rights of creditors and all liens upon any property of either
of the Constituent Corporations shall be preserved unimpaired, and all debts,
liabilities and duties of the Constituent Corporations shall thenceforth attach
to the Surviving Corporation and may be enforced against it to the same extent
as if said debts, liabilities and duties had been incurred or contracted by it.
4.2 Further Assurances. If at any time after the Effective Date the
Surviving Corporation shall consider or be advised that any further deeds,
assignments or assurances in law or any other acts are necessary, desirable or
proper (a) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, the title to any property or right of the Constituent
Corporations acquired or to be acquired by reason of, or as a result of, the
Merger, or (b) otherwise to carry out the purposes of this Agreement, the
Constituent Corporations agree that the Surviving Corporation and its proper
officers and directors shall and will execute and deliver all such deeds,
assignments and assurances in law and do all acts necessary, desirable or
proper to vest, perfect or confirm title to such property or right in the
Surviving Corporation and otherwise to carry out the purposes of this
Agreement, and that the proper officers and directors of the Constituent
Corporations and the proper officers and directors of the Surviving Corporation
are fully authorized in the name of the Constituent Corporations or otherwise
to take any and all such action.
9.
<PAGE> 15
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE
ACQUIROR AND NEWCO
The Acquiror and Newco jointly and severally represent and warrant to
the Company as follows:
5.1 Corporate Organization. Each of the Acquiror and Newco is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, with all requisite corporate
power and authority to own, operate and lease its properties and to carry on
its business as it is now being conducted, except where the failure to be so
organized, existing and in good standing or to have such power, authority, and
governmental approvals would not have, individually or in the aggregate, a
material adverse effect on Acquiror and its Subsidiaries, taken as a whole.
5.2 Authority Relative to Agreement. Each of the Acquiror and Newco
has full corporate power and authority to execute and deliver this Agreement
and to consummate the transactions contemplated on its part hereby. The
execution, delivery and performance by each of the Acquiror and Newco of this
Agreement and the consummation of the transactions contemplated on their parts
hereby have been duly authorized by all necessary corporate action (including,
without limitation, stockholder action) on the part of the Acquiror and Newco.
No other action on the part of the Acquiror or Newco is necessary to authorize
the execution and delivery of this Agreement by the Acquiror and Newco or the
performance by the Acquiror and Newco of their respective obligations
hereunder. This Agreement has been duly executed and delivered by each of the
Acquiror and Newco, and is a legal, valid and binding obligation of each of the
Acquiror and Newco, enforceable against each of the Acquiror and Newco in
accordance with its terms, except to the extent that its enforceability may be
limited by applicable bankruptcy, insolvency, reorganization or other laws
affecting the enforcement of creditors' rights generally or by general
equitable principles.
5.3 No Violation. The execution, delivery and performance of this
Agreement by each of the Acquiror and Newco and the consummation by each of
them of the transactions contemplated hereby, will not (i) violate or conflict
with any provision of any material law applicable to the Acquiror or Newco or
by which any property or asset of either of them is bound, (ii) require the
consent, waiver, approval, license or authorization of or any filing by the
Acquiror or Newco with any public authority (other than (a) the filing of a
pre-merger notification report under The Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations promulgated
thereunder (collectively, the "HSR Act"), (b) in connection with or in
compliance with the provisions of the Exchange Act, the General Corporation
Law, the "takeover" or "blue sky" laws of various states, (c) applicable state
statutes and regulations regulating the sale of various items and services sold
by the Acquiror or Newco, and (d) any other filings and approvals expressly
contemplated by this Agreement), (iii) conflict with or result in any breach of
any material provision of the respective certificate of incorporation or
by-laws of the Acquiror and Newco in any material respect or (iv) violate,
conflict with, result in a breach of or the acceleration of any obligation
under, or constitute a default (or an event which with notice or the lapse of
time or both would become a default) under, or give to others any right of
10.
<PAGE> 16
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or other encumbrance on any property or asset of the
Acquiror, Newco, or any of their respective subsidiaries (collectively, the
"Subsidiaries") pursuant to any provision of any indenture, mortgage, lien,
lease, agreement, contract, instrument, order, judgment, ordinance, regulation
or decree to which the Acquiror or Newco is subject or by which the Acquiror or
Newco or any of their property or assets is bound, except in the case of
clauses (i), (ii) and (iv) where failure to give such notice, make such
filings, or obtain such authorizations, consents or approvals, or where such
violations, conflicts, breaches or defaults, individually or in the aggregate,
would not prevent or delay consummation of the Offer or the Merger, or
otherwise adversely effect the ability of the Acquiror or Newco to consummate
the transactions contemplated by this Agreement or to perform their respective
obligations hereunder.
5.4 Proxy Statement; Offer Documents; Other Information. Neither
the Offer Documents nor any of the information supplied or to be supplied in
writing by either the Acquiror or Newco for inclusion in the Schedule 14D-9,
the Proxy Statement (as defined in Section 7.1) and any other documents to be
filed with the Commission or any regulatory agency in connection with the
transactions contemplated hereby, including any amendment or supplement to such
documents, will, at the respective times such documents are filed, and, with
respect to the Schedule 14D-9, the Proxy Statement and the Offer Documents,
when first published, sent or given to stockholders of the Company, contain any
untrue statement of a material fact, or omit to state any material fact
necessary in order to make the statements made therein in light of the
circumstances under which they are made not misleading or, in the case of the
Schedule 14D-9 and the Proxy Statement or any amendment thereof or supplement
thereto, at the time of the Meeting (as defined in Section 7.1) and at the
Effective Date, contain any untrue statement of a material fact, or omit to
state any material fact required to be stated therein or necessary in order to
make the statements made therein, in light of the circumstances under which
they are made, not false or misleading or necessary to correct any statement in
any earlier communication with respect to the Offer or the solicitation of
proxies for the Meeting which shall have become false or misleading. If, at
any time prior to the Effective Date, any event relating to the Acquiror or any
of its affiliates, officers or directors is discovered by the Acquiror that
should be set forth in an amendment or supplement to the Schedule 14D-9, the
Proxy Statement or the Offer Documents, the Acquiror will promptly inform the
Company, and such amendment or supplement will be promptly filed with the
Commission and appropriate state securities administrators, and disseminated to
the stockholders of the Company, to the extent required by applicable federal
and state securities laws. All documents which the Acquiror or Newco files or
is responsible for filing with the Commission and any regulatory agency in
connection with the Offer or the Merger (including, without limitation, the
Offer Documents and the Proxy Statement) will comply as to form and content in
all material respects with the provisions of applicable law. Notwithstanding
the foregoing, neither the Acquiror nor Newco makes any representation or
warranty with respect to any information that has been supplied by the Company
or the Subsidiary or their auditors, attorneys, financial advisors, other
consultants or advisors specifically for use in the Offer Documents, or in any
other documents to be filed with the Commission or any regulatory agency in
connection with the transactions contemplated hereby.
5.5 Financing. The Acquiror and Newco have funds or other financial
resources available sufficient to consummate the Offer and the Merger on the
terms contemplated by this
11.
<PAGE> 17
Agreement, and at the expiration of the Offer and the Effective Date of the
Merger, the Acquiror and Newco will have available all of the funds necessary
for the acquisition of all shares of Common Stock pursuant to the Offer and the
Merger, as the case may be, and to perform their respective obligations under
this Agreement.
5.6 No Prior Activities. Newco has not incurred nor will it incur
any liabilities or obligations, except those incurred in connection with its
organization and with the negotiation of this Agreement and the performance
hereof, and the consummation of the transactions contemplated hereby, including
the Merger. Except as contemplated by this Agreement, Newco has not engaged in
any business activities of any type or kind whatsoever, or entered into any
agreements or arrangements with any person or entity, or become subject to or
bound by any obligation or undertaking. As of the date hereof, the authorized
capital stock of Newco consists of 1,000 shares of common stock, par value
$1.00 per share, 100 shares of which have been issued, and all of which are
owned beneficially and of record by the Acquiror.
5.7 Brokers. Neither the Acquiror nor Newco has paid or become
obligated to pay any fee or commission to any broker, finder, investment banker
or other intermediary in connection with this Agreement.
5.8 No Prior Ownership. To the best knowledge of the Acquiror and
Newco, none of the Acquiror, Newco or any of their respective affiliates,
beneficially or of record owns any shares of Common Stock of the Company, other
than shares of Common Stock, if any, held by or for the account of employees or
former employees of the Acquiror, Newco or any of their respective affiliates
pursuant to any of such employees' employee benefit plans or arrangements.
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to the Acquiror and Newco as
follows:
6.1 Corporate Organization. Each of the Company and its subsidiary,
Buttrey Food and Drug Company (the "Subsidiary"), is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, with all requisite corporate power and authority to own, operate and
lease its properties and to carry on its business as it is now being conducted,
and is qualified or licensed to do business and is in good standing in each
jurisdiction in which the failure to be so qualified or licensed, in the
aggregate, would have or be reasonably likely to have a material adverse effect
on the business, operations, properties (including intangible properties),
condition (financial or otherwise), results of operations, assets or
liabilities of the Company and the Subsidiary, taken as a whole. True and
complete copies of the Certificate of Incorporation and the Bylaws of the
Company and the Subsidiary have been delivered to Acquiror and Newco. Such
Certificates of Incorporation and Bylaws are in full force and effect. Neither
the Company nor the Subsidiary is in violation of any material provision of its
Certificate of Incorporation or Bylaws in any material respect. Except for the
Subsidiary, the Pharmacy Corporation (as defined below) and as set forth in
Schedule 6.1, neither the Company nor the Subsidiary owns (i) any equity
interest in any corporation or other entity or (ii) marketable
12.
<PAGE> 18
securities where the Company's or the Subsidiary's equity interest in any
entity exceeds five percent of the outstanding equity of such entity on the
date hereof. Other than the Pharmacy Corporation (as defined in the next
sentence), the Subsidiary is the only subsidiary, direct or indirect, of the
Company. The Subsidiary owns 490 shares of the common stock, $100 par value,
of N.D. Pharmacy, Inc., a corporation organized under the laws of the State of
North Dakota (the "Pharmacy Corporation").
6.2 Capital Stock. As of the date hereof, (i) the authorized
capital stock of the Company consists in its entirety of 15,000,000 shares of
Common Stock, $.01 par value, 8,644,631 of which are issued and outstanding and
none of which are held in the Company's treasury, 199,722 shares of Non-Voting
Common Stock, $.01 par value, none of which are issued and outstanding, and
1,000,000 shares of Preferred Stock, $.01 par value, none of which is issued
and outstanding, (ii) the authorized capital stock of the Subsidiary consists
in its entirety of 1,000 shares of common stock, $.01 par value, all of which
is issued and outstanding and owned beneficially and of record by the Company,
and (iii) the authorized capital stock of the Pharmacy Corporation consists in
its entirety of 2,000 shares of Common Stock, $100 par value, 490 shares of
which are issued and outstanding and owned beneficially and of record by the
Subsidiary, and 510 shares of which are issued and outstanding and owned
beneficially and of record by Robert Treitline. All of the outstanding shares
of capital stock of the Subsidiary and all of the outstanding shares of capital
stock of the Pharmacy Corporation owned by the Subsidiary are held free and
clear of all liens, charges, encumbrances, options, rights of first refusal or
limitations or agreements regarding voting rights of any nature, are duly
authorized and have been validly issued and are fully paid and nonassessable.
6.3 Options or Other Rights. Except as set forth on Schedule 6.3 or
as contemplated by this Agreement, there is no outstanding right, subscription,
warrant, call, unsatisfied preemptive right, option or other agreement or
arrangement of any kind to purchase or otherwise to receive from the Company or
the Subsidiary any of the outstanding, authorized but unissued, unauthorized or
treasury shares of the capital stock or any other security of the Company or
the Subsidiary and there is no outstanding security of any kind convertible
into or exchangeable for such capital stock. Except as set forth on Schedule
6.3, there are no voting trusts or other agreements or understandings to which
the Company, the Subsidiary or the Pharmacy Corporation is a party with respect
to the voting of the capital stock of the Company, the Subsidiary or the
Pharmacy Corporation.
6.4 Authority Relative to Agreement. The Company has full corporate
power and authority to execute and deliver this Agreement and to consummate the
transactions contemplated on its part hereby. The execution, delivery and
performance by the Company of this Agreement and the consummation of the
transactions contemplated on its part hereby have been duly authorized by its
Board of Directors, and (other than the approval of the voting stockholders as
provided in Section 7.1 hereof) no other action on the part of the Company or
its stockholders is necessary to authorize the execution and delivery of this
Agreement by the Company or the consummation of the transactions contemplated
on its part hereby. This Agreement has been duly executed and delivered by the
Company, and is a legal, valid and binding obligation of the Company,
enforceable against the Company in accordance with its terms, except to the
extent that
13.
<PAGE> 19
its enforceability may be limited by applicable bankruptcy, insolvency,
reorganization or other laws affecting the enforcement of creditors' rights
generally or by general equitable principles.
6.5 No Violation. Except as set forth on Schedule 6.5, the
execution, delivery and performance of this Agreement by the Company and the
consummation by it of the transactions contemplated hereby will not (i)
materially violate or conflict with any provision of any material law
applicable to the Company or the Subsidiary or by which a material amount of
their property or assets of either of them is bound, (ii) require any consent,
waiver, approval, license or authorization of or any filing by the Company or
the Subsidiary with any public authority (other than (a) the filing of a
premerger notification report under the HSR Act, (b) in connection with or in
compliance with the provisions of the Exchange Act, the General Corporation Law
or the "takeover" or "blue sky" laws of various states, (c) state statutes and
regulations regulating the sale of certain items and services sold or provided
by the Company and the Subsidiary, (d) any such consent, waiver, approval,
license, authorization or filing the failure to obtain or make would not
materially impact the Company's operations and (e) any other filings and
approvals expressly contemplated by this Section 6.5), (iii) conflict with or
result in any breach of any material provision of the certificate of
incorporation or by-laws of the Company or the Subsidiary in any material
respect or (iv) materially violate, conflict with or result in a breach of or
the acceleration of any obligation under, or constitute a default (or an event
which with notice or the lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or other encumbrance on
any material property or asset of the Company or the Subsidiary pursuant to any
provision of any material indenture, mortgage, lien, lease, agreement, contract
or instrument (the "Company Agreements") or any material order, judgment,
ordinance, regulation or decree to which the Company or the Subsidiary is
subject or by which the Company or the Subsidiary or a material amount of their
property or assets is bound. Schedule 6.5 sets forth a list of all material
third party consents and approvals required to be obtained under any Company
Agreement prior to the consummation of the transactions contemplated by this
Agreement.
6.6 Governmental Authorizations and Regulations. The Company and
the Subsidiary hold all governmental licenses, permits and other authorizations
material to the conduct of their businesses. Such material governmental
licenses, permits and other authorizations are valid and sufficient in all
material respects for all business presently carried on by the Company and the
Subsidiary, and the Company knows of no threatened suspension, cancellation or
invalidation of any such material license, permit or other authorization.
Neither the Company nor the Subsidiary is in material conflict with, or is in
material default or violation of, (i) any material law, rule, regulation,
order, judgment, ordinance, regulation or decree applicable to the Company or
the Subsidiary or by which a material amount of the property or assets of
either of them is bound or affected, or (ii) any material indenture, mortgage,
lien, lease, agreement, instrument, contract, note, bond, license, permit,
franchise or other material authorization or obligation to which the Company or
the Subsidiary is a party or by which the Company or the Subsidiary or a
material amount of the property or assets of either of them is bound or
affected. No notice, charge, claim, action or assertion has been received by
the Company or the Subsidiary or has been filed, commenced or, to the Company's
knowledge, threatened against the Company or the Subsidiary alleging any such
material conflict, default or violation.
14.
<PAGE> 20
6.7 Litigation. Except as set forth on Schedule 6.7, and except for
actions which are instituted or, to the Company's knowledge, threatened after
the date hereof challenging or seeking to prevent, or which arise as a result
of, directly or indirectly, the consummation of the transactions contemplated
by this Agreement or the Stockholder Agreement, there are no material suits,
claims, arbitrations, mediations, actions, proceedings, unfair labor practice
complaints or grievances pending or, to the best of the Company's or the
Subsidiary's knowledge, threatened or, to the best of the Company's or the
Subsidiary's knowledge, investigations pending or threatened against the
Company or the Subsidiary or with respect to a material amount of the property
or assets of either of them before any court, arbitrator, administrator or
governmental or regulatory authority or body. Neither the Company nor the
Subsidiary nor a material amount of the property or assets of either of them is
subject to any material order, judgment, injunction or decree.
6.8 Financial Statements and Reports. The Company has filed with
the Commission all forms, reports, schedules, statements and other documents
required to be filed by it since January 1, 1995 under the Exchange Act or the
Securities Act of 1933, as amended (the "Securities Act"). The reports,
statements and registration statements referred to in the immediately preceding
sentence (including, without limitation, any financial statements or schedules
or other information incorporated by reference therein) are referred to in this
Agreement as the "Company SEC Filings." As of the respective times such
documents were filed or, as applicable, became effective, the Company SEC
Filings complied as to form and content, in all material respects, with the
requirements of the Securities Act, and the Exchange Act, as the case may be,
and the rules and regulations promulgated thereunder, and did not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. The Subsidiary
is not required to file any material forms, reports, schedules, statements or
other documents with the Commission. The financial statements of the Company
included in the Company SEC Filings were prepared from, and are, in all
material respects, in accordance with, the books and records of the Company and
the Subsidiary, comply in all material respects with applicable accounting
requirements and the published rules and regulations of the Commission with
respect thereto were prepared, in all material respects, in accordance with
United States generally accepted accounting principles (as in effect from time
to time) applied on a consistent basis (except as may be indicated therein or
in the notes thereto) and present fairly in all material respects the
consolidated financial position, results of operations and cash flows of the
Company and the Subsidiary as of the dates and for the periods indicated
subject, in the case of unaudited interim consolidated financial statements, to
normal recurring year-end adjustments and any other adjustments described
therein which adjustments will not be material either singly or in the
aggregate. (The unaudited consolidated balance sheet of the Company and the
Subsidiary as of November 1, 1997 included in the Form 10-Q for the Company's
fiscal quarter ended November 1, 1997 is hereinafter called the "Company
Balance Sheet," and November 1, 1997 is hereinafter called the "Company Balance
Sheet Date.")
6.9 Absence of Certain Changes or Events. Since the Company Balance
Sheet Date and except as disclosed on Schedule 6.9, the business of the Company
and the Subsidiary have been conducted in the ordinary course, and there has
not been (i) from the Company Balance Sheet Date to the date of this Agreement
any material adverse change in the business, operations, properties (including
intangible properties), condition (financial or otherwise), results of
15.
<PAGE> 21
operations, assets or liabilities of the Company and the Subsidiary, taken as a
whole, excluding any such change or changes caused by a general change in the
economy (including any such change caused by a general change in the markets
served by the Company and the Subsidiary); (ii) any material indebtedness
incurred by the Company or the Subsidiary for borrowed money, other than in the
ordinary course of business; (iii) any declaration, setting aside or payment of
any dividend or other distribution or payment in cash, stock or property in
respect of shares of its capital stock; (iv) any material increase in the
compensation payable or to become payable by the Company or the Subsidiary to
any of their employees, officers or directors or in any bonus, insurance,
pension or other employee benefit plan, payment or arrangement made to, for or
with any such directors, officers or key employees (other than as provided on
Schedule 6.10, except in accordance with collective bargaining agreements set
forth on Schedule 6.17, and except for cost of living adjustments and other
increases in the ordinary course and consistent with past practice and other
increases which are reasonably necessary for the operation of the business of
the Company and the Subsidiary); (v) any entry by the Company or the Subsidiary
into any commitment or transaction out of the ordinary course of business which
is material to the Company and the Subsidiary taken as a whole; or (vi) any
action taken, other than reasonable and usual actions in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures, except for changes required by generally accepted accounting
principles.
6.10 Benefit Plans. Except as disclosed on Schedule 6.10 or Schedule
6.11 and for plans, programs, arrangements or agreements that provide only
immaterial benefits, neither the Company nor the Subsidiary has outstanding any
employment agreement with any officer or employee of the Company or the
Subsidiary and neither the Company, the Subsidiary nor any other entity ("ERISA
Affiliate") that, together the Company or the Subsidiary would be deemed a
"single employer" for purposes of Section 4001(b)(1) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), sponsors, maintains,
contributes to or is required to contribute to, any bonus, incentive
compensation, deferred compensation, profit sharing, stock option, stock bonus,
stock purchase, stock appreciation right or other stock-based incentive,
savings, change in control, severance, or termination pay, salary continuation,
consulting, hospitalization or other medical, life, disability or other
insurance, profit-sharing, retirement (including, without limitation, health
and life insurance benefits provided after retirement) or pension plan
(including, without limitation, Company Employee Benefit Plans as defined in
Section 6.11 hereof), program, agreement or arrangement with or for the benefit
of any current or former director, officer, employee, consultant, agent, or
independent contractor of the Company or the Subsidiary, or for the benefit of
any group of such persons ("Company Plans"). Except as provided in Schedule
6.10 or as required by the terms of a collective bargaining agreement, neither
the Company, the Subsidiary nor any ERISA
16.
<PAGE> 22
Affiliate has any formal plan or commitment to create any additional Company
Plan or modify an existing Company Plan in any material respect that would
affect any current or former employee or director of the Company, the
Subsidiary or any ERISA Affiliate. With respect to each of the Company Plans,
the Company has heretofore delivered to Acquiror true and complete copies of
(i) the plan document (including all amendments thereto) or a written
description of any Company Plan that is not otherwise in writing; (ii) if the
Company Plan is funded through a trust or any other funding vehicle, a copy of
the trust or other funding agreement (including all amendments thereto); and
(iii) all contracts relating to the Company Plans with respect to which the
Company, the Subsidiary or any ERISA Affiliate may have any material liability.
Except as disclosed on Schedule 6.10, neither the Company nor the Subsidiary
has made, or entered into any agreement to make, any payment that could
reasonably be expected to be treated as an "excess parachute payment" as
defined in Section 280G of the Internal Revenue Code of 1986, as amended (the
"Code"). Each of the Company Plans has been operated and administered in all
material respects in accordance with their terms and all applicable material
laws, including, without limitation, ERISA and the Code. There are no material
actions, suits or claims pending, other than routine claims for benefits and
proceedings relating to "qualified domestic relations orders" (within the
meaning of Code Section 414(p)), with respect to the Company Plans or their
operation, administration or maintenance. Except as provided in Schedule 6.10,
none of the Company Plans or any other agreement or arrangement with respect to
which the Company or the Subsidiary may have any liability could give rise to
the payment of any material amount that would fail to be deductible for federal
income tax purposes by reason of Section 162(m) of the Code. No Company Plan
provides material amounts of benefits, including without limitation, death or
medical benefits (whether or not insured), with respect to current or former
employees after retirement or other termination of service other than (i)
coverage mandated by applicable law, (ii) death benefits or retirement benefits
under any "employee pension benefit plan," as that term is defined in Section
3(2) of ERISA, (iii) deferred compensation benefits accrued as liabilities on
the books of the Company, the Subsidiary or any ERISA Affiliate, or (iv)
benefits, the full cost of which is borne by the current or former employee (or
his beneficiary). Except as disclosed on Schedule 6.10, the consummation of
the transactions contemplated hereunder will not result in the payment,
vesting, acceleration or enhancement of any material benefit under any Company
Plan. Only the first sentence of this Section 6.10 shall apply to any Company
Plan that is a "multiemployer plan" as defined in Section 3(37) of ERISA
("Multiemployer Plan").
6.11 ERISA. Set forth on Schedule 6.10 and Schedule 6.11 are all of
the employee benefit plans, as defined in Section 3(3) of ERISA that are
sponsored, or are being maintained or contributed to, or are required to be
contributed to, by the Company, the Subsidiary, or any ERISA Affiliate
("Company Employee Benefit Plans"), including but without limitation, any
Multiemployer Plan. The Company has furnished Acquiror (a) a true and complete
copy of the current plan document and summary plan description (if applicable),
together with the current summary of material modifications issued with respect
to such summary plan description for each Company Employee Benefit Plan (or
written description of any Company Employee Benefit Plan that is not otherwise
in writing), (b) a true and complete copy of the most recently filed Form 5500
(including the related schedules) with respect to each Company Employee Benefit
Plan for which such form is required to be filed, and (c) a true and complete
copy of any trust agreement, insurance contract or other agreement or
arrangement serving as a source of funding for any benefits payable under any
Company Employee Benefit Plan. No"prohibited transactions" (as such term is
defined in Section 4975 of the Code or in Part 4 of Subtitle B of Title I of
ERISA) have occurred with respect to the Company Employee Benefit Plans that
could result, individually or in the aggregate, in the imposition of a material
amount of taxes or penalties. With respect to each of the Company Employee
Benefit Plans that is intended to qualify for favorable income tax treatment
under Section 401(a) of the Code, (i) the Internal Revenue Service ("IRS") has
issued a favorable determination letter with respect to such plan; (ii) the
Company will furnish Acquiror with a copy of the determination letter most
recently issued by the IRS with respect to such plan within two days of the
date of this Agreement; and (iii) to the best
17.
<PAGE> 23
knowledge of the Company, no event has occurred from the date of each such
favorable determination letter that would materially and adversely affect the
tax-qualified status of the plan in question. With respect to the Company
Employee Benefit Plans, neither the Company, the Subsidiary, nor any ERISA
Affiliate has incurred any material liabilities as a result of the violation of
or the failure to comply with any applicable provision of ERISA, the Code, any
other applicable provision of law, or any provision of such plan. None of the
Company Employee Benefit Plans is subject to Section 302 of ERISA or Section
412 of the Code and no plan at any time sponsored, maintained, contributed to
or required to be contributed to by the Company or the Subsidiary is or was
subject to Title IV of ERISA. Neither the Company nor the Subsidiary has any
reasonable risk of incurring any material liability under Sections 4064 or 4069
of ERISA. Neither the Company, the Subsidiary, nor any ERISA Affiliate has
failed to make any material contribution to, or to make any material payment
under, the Company Employee Benefit Plans (including, without limitation,
Multiemployer Plans) that it was required to make pursuant to the terms of the
plans or pursuant to applicable law and all such material amounts properly
accrued through the Closing with respect to the current plan year thereof will
be paid by the Company, the Subsidiary or such ERISA Affiliate prior to the
Closing, or will be properly recorded in the Company's financial statements or
books and records. There is no pending or, to the best knowledge of the
Company, threatened material legal action, proceeding or investigation against
or involving the Company Employee Benefit Plans which could result individually
or in the aggregate in material liabilities to such plans, the Company or the
Subsidiary. With respect to any Company Employee Benefit Plan that is a
Multiemployer Plan (i) neither the Company, the Subsidiary nor any ERISA
Affiliate has, since September 26, 1980 through the date hereof, made or
suffered a "complete withdrawal" or a "partial withdrawal," as such terms are
respectively defined in Section 4203 and 4205 of ERISA, that individually or in
the aggregate could result in a material liability, (ii) through the date
hereof no event has occurred that presents a material risk of a complete or
partial withdrawal that, individually or in the aggregate, could result in a
material liability, and (iii) except as listed in Schedule 6.11, neither the
Company, the Subsidiary nor any ERISA Affiliate has any material contingent
liability under Section 4204 of ERISA. The Company has provided to Acquiror a
list of all Multiemployer Plans that are subject to Title IV of ERISA to which
the Company and the Subsidiary contribute or are required to contribute. All
representations made by the Company in this Section 6.11 are likewise true with
respect to the Subsidiary. Except as expressly referenced herein, the term
"Company Employee Benefit Plan" shall not include any Multiemployer Plan for
purposes of this Section 6.11.
6.12 Environmental Matters.
(a) Schedule 6.14 discloses all real property owned by the
Company and the Subsidiary, and Schedule 6.13 discloses all real property
leased or operated by the Company and the Subsidiary (collectively, the
"Company Real Properties").
(b) Except as disclosed in the Company SEC Filings or set
forth on Schedule 6.12, (i) none of the Company, the Subsidiary or, to the
Company's knowledge, any of the Company Real Properties fails to comply in any
material respect with any Environmental Laws; (ii) no governmental agency or
third party has alleged that the Company, the Subsidiary or, to the Company's
knowledge, the Company Real Properties is in material violation of, or subject
to any administrative or judicial proceeding pursuant to, any Environmental Law
in any material respect;
18.
<PAGE> 24
(iii) to the Company's knowledge, there has not occurred, nor is there
presently occurring, any Release or Releases of any amount of any Hazardous
Materials on, into or beneath the surface of the Company Real Properties or any
property located adjacent to the Company Real Properties in a manner which
materially and adversely affects the Company Real Properties or the Company and
the Subsidiary, taken as a whole; (iv) neither the Company nor the Subsidiary
has disposed, or allowed or arranged for any third parties to dispose, of any
amount of any Hazardous Materials upon any of the Company Real Properties in a
manner which materially and adversely affects the Company Real Properties or
the Company and the Subsidiary, taken as a whole; (v) neither the Company nor
the Subsidiary has received any notice that either of them or any of the
Company Real Properties is a potentially responsible party for a federal or
state environmental cleanup site or sites or for corrective actions under any
Environmental Law with respect to any material matters; and (vi) the Company
has delivered to the Acquiror copies of all material audits, environmental
assessments or environmental studies undertaken by or in the possession of the
Company or the Subsidiary with respect to their operations or the Company Real
Properties.
(c) For purposes of this Agreement, "Hazardous Materials"
shall mean asbestos, petroleum products, underground tanks of any type and all
other materials now or hereafter defined as "hazardous substances", "hazardous
wastes", "toxic substances", "solid wastes", or otherwise now or hereafter
listed or regulated pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et
seq. ("CERCLA"); the Resource Conservation and Recovery Act, 42 U.S.C. Section
Section 6901 et seq. ("RCRA"), and any amendments thereto; the Hazardous
Materials Transportation Act, 49 U.S.C. Section Section 1801 et seq. ("HMTA");
the Clean Water Act, the Safe Drinking Water Act; the Atomic Energy Act; the
Federal Insecticide, Fungicide, and Rodenticide Act; the Clean Air Act; and any
other similar federal, state or local statute, regulation, ordinance, order,
decree, or any other law, common law theory or reported decision of any state
or federal court, as now or at any time hereafter in effect, relating to, or
imposing liability or standards of conduct concerning any hazardous, toxic or
dangerous waste, substance or material.
(d) For purposes of this Agreement, "Environmental Laws"
means any and all federal, state and local laws (including, without limitation,
common law), statutes, ordinances, rules, regulations, judgments, orders,
decrees, permits, licenses, or other governmental restrictions or requirements
relating to health, pollution, the environment (including, without limitation,
ambient air, surface water, groundwater, land surface or subsurface strata),
the release or threatened release, discharge, emission, of any Hazardous
Materials or materials containing Hazardous Materials, or otherwise relating to
the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials or the pollution of the
environment or the protection of human health, including, without limitation,
CERCLA, RCRA and HMTA.
(e) For purposes of this Agreement, "Release" shall mean
releasing, spilling, leaking, pumping, pouring, emitting, emptying,
discharging, escaping, leaching, disposing or dumping.
6.13 Real Estate Leases. Schedule 6.13 sets forth a list as of the
date of this Agreement of (i) all real property which is leased by the Company
or the Subsidiary (the "Leased Real
19.
<PAGE> 25
Property"); (ii) all material options held by the Company or the Subsidiary or
contractual obligations on the part of the Company or the Subsidiary to
purchase or acquire any interest in real property; and (iii) all options
granted by the Company or the Subsidiary or contractual obligations on the part
of the Company or the Subsidiary to sell or dispose of any material interest in
real property. True and complete copies of all leases and all material
amendments and modifications thereto entered into by the Company or the
Subsidiary with respect to the Leased Real Property (the "Leases") have
heretofore been delivered by the Company to the Acquiror. The Leases are in
full force and effect and constitute binding obligations of the Company or the
Subsidiary and, to the best of its knowledge, the other parties thereto, and,
to the best knowledge of the Company and the Subsidiary (i) there are no
material defaults thereunder by the Company or the Subsidiary and (ii) to the
Company's knowledge, no event has occurred which (with notice, lapse of time or
both or occurrence of any other event) would constitute a material default by
the Company or the Subsidiary or by any other party thereto.
6.14 Title to Properties; Absence of Liens and Encumbrances.
Schedule 6.14 lists all real property owned by the Company or the Subsidiary as
of the date of this Agreement. The Company and/or the Subsidiary has good and
marketable title to all of the real property listed on Schedule 6.14 free and
clear of all Encumbrances (as defined below) except for Permitted Encumbrances
(as defined below). The term "Permitted Encumbrances" means (i) statutory
liens for current taxes or assessments not due or delinquent or the validity of
which is being contested in good faith, (ii) mechanics, workers, repairmen's
and other similar liens arising or incurred in the ordinary course of business,
(iii) such other liens, imperfections in title, charges, easements,
restrictions and other encumbrances, if any, which in the aggregate are not
material in amount (to the extent they relate to monetary obligations) and do
not materially and adversely affect the use of the property subject thereto (as
such property is used on the date hereof), and (iv) liens securing obligations
reflected on the Company Balance Sheet and other encumbrances and matters
specifically set forth on Schedule 6.14. Except for leased assets, the Company
and the Subsidiary have good and marketable title to all of their material
tangible personal property used in their businesses, including, without
limitation, those reflected in the Company Balance Sheet (other than assets
disposed of in the ordinary course of business since the Company Balance Sheet
Date), free and clear of all liens, charges, pledges, security interests or
other encumbrances ("Encumbrances"), except liens for taxes not yet due and
payable and such liens or other imperfections of title, if any, as would not,
in the aggregate, materially and adversely affect the operation of the business
of the Company or the Subsidiary, and except as reflected or disclosed in the
Company Balance Sheet, the Company SEC Filings or on Schedule 6.14.
6.15 Tax Matters. Except as disclosed on Schedule 6.15, the Company
and the Subsidiary have timely filed all material tax returns which the Company
and/or the Subsidiary (as the case may be) are required to file ("Tax Returns")
with respect to all federal, state, local, foreign or other governmental
income, franchise, payroll, F.I.C.A., unemployment, withholding, real property,
personal property, sales, payroll, disability and all other material taxes
imposed on the Company or the Subsidiary or with respect to any of their
respective properties, or otherwise payable by them, including interest and
penalties, if any, in respect thereof (collectively, "Company Taxes"), and have
paid or provided for all Company Taxes shown to be due thereon. The Company
has made available copies of all such Tax Returns to the Acquiror. Except as
set forth on Schedule 6.15, (i) neither the Company nor the Subsidiary has
filed or entered into, or is
20.
<PAGE> 26
otherwise bound by, any election, consent or extension agreement that extends
any applicable statute of limitations with respect to taxable periods of the
Company and (ii) the Company is not a party to any contractual obligation
requiring the indemnification or reimbursement of any person with respect to
the payment of any material Company Tax. Except as set forth on Schedule 6.15,
to the Company's knowledge, no action or proceeding is pending or threatened by
any governmental authority for any audit, examination, deficiency, assessment
or collection from the Company or the Subsidiary of any material Company Taxes,
no unresolved claim for any deficiency, assessment or collection of any
material Company Taxes has been asserted against the Company or the Subsidiary,
and all resolved assessments of Company Taxes have been paid or are reflected
in the Company Balance Sheet. Except as set forth on Schedule 6.15, no power
of attorney has been granted by the Company or the Subsidiary, and is currently
in force, with respect to any matter relating to Company Taxes. Except as set
forth on Schedule 6.15, all material tax deficiencies asserted or assessed
against the Company have been paid. The Company has made available to the
Acquiror true and complete copies of all employment contracts which relate to
any and all employees of the Company or the Subsidiary. Except as set forth on
Schedule 6.15, neither the Company nor the Subsidiary has been a member of an
affiliated group other than the group in which the Company is the parent.
6.16 Proprietary Property. To the best knowledge of the Company,
Schedule 6.16A contains a complete and accurate list of all material trade
names, logos, trademarks, trade secrets, service marks, copyrights and other
intellectual property rights (collectively "Proprietary Property"), including
all contracts, agreements and licenses relating thereto, owned by the Company
or the Subsidiary or in which either of them has any rights. To the Company's
knowledge, neither the Company nor the Subsidiary has materially infringed or
is now materially infringing on any Proprietary Property belonging to any other
person, firm or corporation. The Company and the Subsidiary own or hold
material licenses or other material rights to use all Proprietary Property
necessary for them to conduct their respective businesses as they are being
conducted. Neither the Company nor the Subsidiary has granted any licenses
with respect to any of their respective Proprietary Property. Neither the
Company nor the Subsidiary has received any notice, nor does the Company know,
of any material conflict or claimed material conflict with respect to the
rights of others to the use of their corporate name or any of their Proprietary
Property.
6.17 Labor Matters. Schedule 6.17 lists, as of the date of this
Agreement, all collective bargaining agreements which relate to any of the
employees of the Company and the Subsidiary. As of the date of this Agreement,
except as set forth on Schedule 6.17, neither the Company nor the Subsidiary
knows of any activity or proceedings of any labor union (or representatives
thereof) to organize any unorganized employees employed by the Company or the
Subsidiary, nor of any strikes, slowdowns, work stoppages, lockouts or threats
thereof, by or with respect to any of the employees of the Company or the
Subsidiary. Except as set forth on Schedule 6.17, as of the date of this
Agreement, neither the Company nor the Subsidiary has received notice of any
material claim, or has knowledge of any facts which are likely to give rise to
any material claim, that they have not complied in any respect with any laws
relating to the employment of labor, including, without limitation, any
provisions thereof relating to wages, hours, collective bargaining, the payment
of social security and similar taxes, equal employment opportunity, employment
discrimination or employment safety.
21.
<PAGE> 27
6.18 Insurance. Schedule 6.18 lists, as of the date of this
Agreement, all material policies of fire, products liability, general
liability, vehicle, worker's compensation, directors' and officers' liability,
title and other insurance owned or held by or covering the Company or the
Subsidiary or any of their property or assets which are material to the
business of the Company and the Subsidiary, taken as a whole. As of the date
of this Agreement, there is no material claim pending under any of such
policies as to which coverage has been questioned, denied or disputed by the
underwriters of such policies and to the best of the Company's knowledge as of
the date of this Agreement there is no basis for an underwriter of such policy
to deny any such pending material claim. As of the date of this Agreement, all
of such policies are in full force and effect in all material respects, and no
notice of cancellation or termination has been received with respect to any
such policy which has not been replaced or cannot be replaced on substantially
similar terms prior to the date of such cancellation or termination. All
premiums due and payable under such policies have been paid. Except as set
forth on Schedule 6.18 no insurance policy or arrangement provides for any
retrospective premium adjustment, experience based liability or loss sharing
arrangement affecting the Company or the Subsidiary except adjustments,
liabilities or loss sharing arrangements which would not be material in amount.
6.19 Material Contracts. Schedule 6.19 lists, as of the date of this
Agreement, (i) all contracts in the nature of mortgages, indentures, promissory
notes, loan or credit agreements or similar instruments under which the Company
and the Subsidiary have borrowed or may borrow at least $200,000 and (ii) all
contracts or other written agreements, whether or not made in the ordinary
course of business, which are material to the business of the Company and the
Subsidiary taken as a whole (other than Leases and agreements relating to real
property listed on Schedule 6.14 hereof), but excluding in the case of clause
(ii) any contract or agreement which (x) does not require or involve payments
of at least $100,000 in the aggregate in any given calendar year, or (y) would
be terminable by the Company and/or the Subsidiary on less than 90 days prior
notice without payment of a material termination penalty. Neither the Company
nor the Subsidiary is in material default and no event has occurred which
(whether with or without notice, lapse of time or the happening or occurrence
of any other event) would constitute a material default under any of the
contracts or agreements listed on Schedule 6.19.
6.20 Proxy Statement; Offer Documents; Other Information. Neither
the Schedule 14D-9 nor any of the information supplied or to be supplied in
writing by the Company for inclusion in the Proxy Statement and any other
documents, including the Offer Documents, to be filed with the Commission or
any regulatory agency in connection with the transactions contemplated hereby,
including any amendment or supplement to such documents, will, at the
respective times such documents are filed, and, with respect to the Proxy
Statement and the Offer Documents, when first published, sent or given to
stockholders of the Company, contain any untrue statement of material fact, or
omit to state any material fact necessary in order to make the statements made
therein in light of the circumstances under which they are made not misleading
or, in the case of the Offer Documents and the Proxy Statement or any amendment
thereof or supplement thereto, at the time of the Meeting and at the Effective
Date, contain any untrue statement of a material fact, or omit to state any
material fact required to be stated therein or necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading or necessary to correct any statement in any
earlier communication with respect to the Offer or the solicitation of proxies
for the Meeting which shall
22.
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have become false or misleading. If, at any time prior to the Effective Date,
any event relating to the Company or any of its affiliates, officers or
directors is discovered by the Company that should be set forth in an amendment
or supplement to the Proxy Statement or the Offer Documents, the Company will
promptly inform the Acquiror, and such amendment or supplement will be promptly
filed with the Commission and appropriate state securities administrators, and
disseminated to the stockholders of the Company, to the extent required by
applicable federal and state securities laws. All documents which the Company
files or is responsible for filing with the Commission and any regulatory
agency in connection with the Offer or the Merger (including, without
limitation, the Schedule 14D-9 and the Proxy Statement) will comply as to form
and content in all material respects with the provisions of applicable law.
Notwithstanding the foregoing, neither the Company nor the Subsidiary makes any
representations or warranties with respect to any information that has been
supplied by the Acquiror or Newco, or their auditors, attorneys, financial
advisors, other consultants or advisors specifically for use in the Schedule
14D-9 and the Proxy Statement, or in any other documents to be filed with the
Commission or any regulatory agency in connection with the transactions
contemplated hereby.
6.21 Brokers. Neither the Company nor the Subsidiary has paid or
become obligated to pay any fee or commission to any broker, finder, investment
banker or other intermediary in connection with this Agreement, except that the
Company has retained Morgan Stanley to provide a "fairness opinion" and advice
on certain matters pursuant to that certain Letter Agreement between Morgan
Stanley and the Company dated January 8, 1998.
6.22 Suppliers and Customers. Except as set forth in Schedule 6.22,
the Company has no commitment or obligation to continue to utilize the services
of, or otherwise to do business with, any licensor, vendor, supplier or
licensee of the Company or the Subsidiary which is not terminable by the
Company on less than 60 days notice without penalty and which required
aggregate payments within the 12 months preceding the date of this Agreement in
excess of $200,000 or which is reasonably likely to require payments during the
12 months following the date of this Agreement in excess of $200,000.
6.23 Inventories. As of the date of the Company Balance Sheet, the
inventories shown on the Company Balance Sheet consisted in all material
respects of items of a quantity and quality usable or saleable in the ordinary
course of business net of reserves. All of such inventories were acquired in
the ordinary course of business and have been replenished in all material
respects in the ordinary course of business consistent with past practice. All
such inventories are valued on the Company Balance Sheet in accordance with
generally accepted accounting principles applied on a basis consistent with the
Company's past practices, and provision has been made or reserves have been
established on the Company Balance Sheet, in each case in an amount believed by
the Company as of the date of this Agreement to be adequate, for all
slow-moving, obsolete or unusable inventories.
6.24 Potential Conflict of Interest. As of the date of this
Agreement, except as set forth in the Company SEC Filings filed prior to the
date hereof, since February 1, 1997, there have been no transactions,
agreements, arrangements or understandings between the Company or the
Subsidiary, on the one hand, and their respective affiliates, on the other
hand, that would be required to be disclosed under Item 404 of Regulation S-K
under the Securities Act.
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6.25 Vote Required. The affirmative vote of the holders of a
majority of the outstanding shares of Common Stock is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve this Agreement and the transactions contemplated hereby.
6.26 No Undisclosed Liabilities. Neither the Company nor the
Subsidiary has any material liabilities or obligations of any nature (absolute,
accrued, contingent or otherwise) that were not fully reflected or reserved
against in the Company Balance Sheet, except for liabilities and obligations of
a nature not required to be reflected or reserved against in the Company
Balance Sheet in accordance with generally accepted accounting principles or
incurred in the ordinary course of business and consistent with past practice
since the date thereof.
6.27 Product Liability. There are not presently pending or, to the
Company's knowledge, threatened any material civil, criminal or administrative
actions, suits, demands, claims, hearings, notices of violation,
investigations, proceedings or demand letters relating to any alleged material
hazard or alleged material defect in design, manufacture, materials or
workmanship, including any failure to warn or alleged breach of express or
implied warranty or representation, relating to any product distributed or sold
by or on behalf of the Company or the Subsidiary. Neither the Company nor the
Subsidiary has extended to any of its customers any material written,
non-uniform product warranties, indemnifications or guarantees.
6.28 Full Disclosure. Neither any representation or warranty by the
Company in this Agreement nor any statement by the Company in any Schedules
hereto omits to state any material fact necessary in order to make the
representations, warranties or statements made herein or therein, in the light
of the circumstances under which they were made, not misleading.
ARTICLE VII
COVENANTS AND AGREEMENTS
7.1 Stockholders Meeting.
(a) The Company agrees, subject to Section 7.1(b), Section
9.1(e) and applicable law, that this Agreement shall be submitted at a meeting
(the "Meeting") of its stockholders duly called and held pursuant to Section
251(c) of the General Corporation Law. As soon as practicable after the
acquisition by Newco of the Minimum Shares pursuant to the Offer, the Company
shall take all action, to the extent necessary to consummate the Merger, in
accordance with applicable law, its Certificate of Incorporation and Bylaws, to
convene a meeting of its stockholders promptly to consider and vote upon the
approval of the Merger and to obtain the necessary approval of the Merger and
the Agreement by its stockholders, and the Company shall prepare and file with
the Commission, subject to the prior approval of Acquiror, which approval
Acquiror shall not unreasonably withhold, preliminary and final versions of a
proxy statement and proxy and other filings relating to the Meeting as required
by the Exchange Act. The term "Proxy Statement" shall mean such proxy
statement at the time it is first mailed, sent or given to stockholders, and
all duly filed amendments or revisions made thereto, if any, similarly mailed,
sent or given to such stockholders. Except as otherwise permitted by Section
7.5, the
24.
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Company shall include in the Proxy Statement the recommendation of the Board of
Directors of the Company that stockholders of the Company vote in favor of the
approval of the Merger and the adoption of this Agreement. Notice of the
Meeting shall be mailed to the stockholders of the Company along with the Proxy
Statement. The Company, the Acquiror and Newco each shall use its reasonable
best efforts to obtain and furnish the information required to be included in
the Proxy Statement, and the Company, after consultation with Newco, shall
respond promptly to any comments made by the Commission with respect to the
Proxy Statement and cause the Proxy Statement and proxy to be mailed to its
stockholders at the earliest practicable time.
(b) Notwithstanding the preceding paragraph or any other
provision of this Agreement, in the event Newco owns 90% or more of the
outstanding shares of each class of the capital stock of the Company following
expiration of the Offer, the Company shall not be required to call the Meeting
or to file or mail the Proxy Statement, and the parties hereto shall, at the
request of the Acquiror and subject to Article VIII, take all necessary and
appropriate action to cause the Merger to become effective, as soon as
practicable following such expiration, without a meeting of stockholders of the
Company in accordance with Section 253 of the General Corporation Law.
7.2 Conduct of the Business of the Company Prior to the Effective
Date. Except (i) as set forth on Schedule 7.2, (ii) as expressly permitted by
this Agreement or (iii) as otherwise consented to or approved in writing by
Acquiror, the Company agrees that prior to the Effective Date:
(a) the business of the Company and the Subsidiary shall be
conducted only in the ordinary course and consistent in all material respects
with past practice;
(b) each of the Company and the Subsidiary shall not (i)
amend its Certificate of Incorporation or Bylaws, (ii) change the number of
authorized, issued or outstanding shares of its capital stock, except upon the
exercise of stock options outstanding on the date hereof described on Schedule
7.2, (iii) declare, set aside or pay any dividend or other distribution or
payment in cash, stock or property in respect of shares of its capital stock,
(iv) make any direct or indirect redemption, retirement, purchase or other
acquisition of any of its capital stock (except for repurchases of Common Stock
from employees pursuant to existing stock subscription agreements between the
Company and certain of its employees described on Schedule 7.2) or (v) split,
combine or reclassify its outstanding shares of capital stock;
(c) neither the Company nor the Subsidiary shall, directly
or indirectly, (i) issue, grant or sell or agree or propose to issue, grant or
sell any shares of, or rights of any kind to acquire any shares of the capital
stock of the Company or the Subsidiary, except that the Company may issue
shares of Common Stock upon the exercise of Options and warrants outstanding on
the date hereof, (ii) other than in the ordinary course of business, incur any
indebtedness for borrowed money, (iii) waive, release, grant or transfer any
intangible rights of material value, except in the ordinary course of business,
(iv) transfer, lease, license, sell, mortgage, pledge, dispose of or encumber
any personal property of the Company or the Subsidiary other than in the
ordinary course of business and consistent with past practice or
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(v) transfer, lease, license, sell, mortgage, pledge, dispose of or encumber
any real property of the Company or the Subsidiary;
(d) the Company and the Subsidiary shall use their
reasonable best efforts to preserve intact the business organization of the
Company and the Subsidiary, to keep available the services of its operating
personnel, to preserve the goodwill of those having business relationships with
each of them and to carry on their respective businesses in substantially the
same manner as carried on heretofore;
(e) neither the Company nor the Subsidiary will, directly
or indirectly, (i) increase the compensation payable or to become payable by it
to any of its employees, officers, directors, agents or consultants or under
any bonus, insurance, pension or other employee benefit plan or arrangement
made to, for or with any such persons (other than as provided in employment
agreements and welfare and benefit plans set forth on Schedule 6.10 as in
effect on the date hereof, except in accordance with collective bargaining
agreements set forth on Schedule 6.17, and except for cost of living
adjustments and other increases in the ordinary course consistent with past
practice or other increases which are reasonably necessary for the operation of
the business of the Company and the Subsidiary), (ii) adopt, or make any
payment or amend any provision, other than as required by existing plans or
agreements as in effect on the date hereof and provisions and actions under
existing stock option plans authorized in connection with the Offer or the
Merger, any bonus, profit sharing, pension, retirement, deferred compensation,
employment or other payment or employee compensation plan, agreement or
arrangement for the benefit of any employee, officer, director, agent or
consultant of the Company or the Subsidiary or modify the terms of any Option
except in accordance with Section 3.5, (iii) grant any stock appreciation
rights, (iv) enter into or amend in any respect any employment agreement, (v)
make any loan or advance to, or make any change in its existing borrowing or
lending arrangements for or on behalf of or enter into any written contract,
lease or commitment with, any affiliate, officer or director of the Company or
the Subsidiary (pursuant to an employee benefit plan or otherwise), (vi) enter
into any collective bargaining agreement, or (vii) pay or make any accrual or
arrangement for payment of any pension, retirement allowance or other employee
benefit pursuant to any existing plan, agreement or arrangement to any
employee, officer, director, agent or consultant, or pay or agree to pay or
make any accrual or arrangement for payment to any employee, officer, director,
agent or consultant of the Company or the Subsidiary of any amount relating to
unused vacation days, except payments and accruals made in the ordinary course
consistent with past practice or as required by the terms of any such plan or
collective bargaining agreement;
(f) neither the Company nor the Subsidiary shall, directly
or indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, firm or corporation other than the
Subsidiary, or make any loans or advances to any individual, firm or
corporation except in the ordinary course of its business and consistent with
past practices;
(g) except (i) as set forth on Schedule 7.2, (ii) for
replacement of equipment in the ordinary course of business and (iii) for
expenditures not in excess of $100,000 per month (with unexpended amounts to
carry forward to future months), neither the Company nor the
26.
<PAGE> 32
Subsidiary shall make any investment of a capital nature either by purchase of
stock or securities, contributions to capital, property transfers or otherwise,
or by the purchase of any property or assets of any other individual, firm or
corporation; provided, that the Company will confer with Acquiror if the amount
of any capital expenditure would exceed $25,000;
(h) neither the Company nor the Subsidiary shall enter
into, modify or amend in any material respect or take any action to terminate
their respective material contracts;
(i) neither the Company nor the Subsidiary shall take any
action, other than reasonable and usual actions in the ordinary course of
business and consistent with past practice, with respect to accounting policies
or procedures, except for changes required by generally accepted accounting
principles;
(j) neither the Company nor the Subsidiary shall, without
the consent of Acquiror, which consent shall not be unreasonably withheld, make
any material Tax election, change any material Tax election already made, adopt
any material Tax accounting method, change any material Tax accounting method
unless required by United States generally accepted accounting principles,
enter into any closing agreement, settle any Tax claim or assessment or consent
to any Tax claim or assessment or any waiver of the statute of limitations for
any such claim or assessment;
(k) neither the Company nor the Subsidiary shall take, or
agree to commit to take, any action that (i) would or is reasonably likely to
result in any of the conditions to the Offer set forth in Exhibit A or any of
the conditions to the Merger set forth in Article VIII not being satisfied,
(ii) would make any representation or warranty of the Company contained herein
inaccurate in any material respect at, or as of any time prior to, consummation
of the Offer (provided that any violation of this covenant will not give rise
to any claim for damages, but may be the subject of a claim for equitable
relief), or (iii) would materially impair the ability of the Company to
consummate the Offer or the Merger in accordance with the terms hereof or
materially delay such consummation and the Company and the Subsidiary will
promptly advise the Acquiror in writing of any material adverse effect on the
business, operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of the
Company and the Subsidiary, taken as a whole or any breach of the Company's
representations or warranties, or any material breach of a covenant contained
herein of which the Company or the Subsidiary has knowledge;
(l) neither the Company nor the Subsidiary shall adopt a
plan of complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or the
Subsidiary (other than the Merger);
(m) neither the Company nor the Subsidiary shall pay,
discharge or satisfy any material claims, liabilities or obligations (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the ordinary course of business and
consistent with past practice, of claims, liabilities or obligations (i)
reflected or reserved against in, or contemplated by, the financial statements
(or the notes thereto) included in the
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<PAGE> 33
Company SEC Filings or (ii) incurred in the ordinary course of business since
the date of such financial statements;
(n) neither the Company nor the Subsidiary shall permit any
insurance policy naming it as a beneficiary or a loss payable payee to be
cancelled or terminated without notice to the Acquiror, except in the ordinary
course of business and consistent with past practice; and
(o) neither the Company nor the Subsidiary shall enter into
an agreement, commitment or arrangement to do any of the things described in
clauses (a) through (n) of this Section 7.2, or authorize, recommend, propose
or announce an intention to do any of such things.
The consent of Acquiror required by this Section 7.2 will not be
unreasonably withheld subject to the following qualifications: (i) consent to
actions described in clauses (b) and (c)(i) and (c)(v) may be withheld at any
time for any reason and (ii) it shall be unreasonable to withhold such consent
120 days or more after the date of this Agreement unless the action would
materially and adversely affect the value of the business of the Company and
the Subsidiary to the Acquiror.
7.3 Company Board Representation; Section 14(f).
(a) Promptly upon the purchase by the Acquiror or any of
its Subsidiaries of the Minimum Shares pursuant to the Offer, and from time to
time thereafter, the Acquiror shall be entitled to designate up to such number
of directors, rounded up to the next whole number, on the Board of the Company
(the "Board") as shall give the Acquiror representation on the Board equal to
the product of the total number of directors on the Board (giving effect to the
directors elected pursuant to this sentence) multiplied by the percentage,
expressed as a decimal, that the aggregate number of shares of Common Stock
beneficially owned by the Acquiror or any affiliate of the Acquiror following
such purchase bears to the total number of shares of Common Stock then
outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause the Acquiror's designees to be elected as directors of the
Company, including increasing the size of the Board or securing the
resignations of incumbent directors, or both. The Company shall cause persons
designated by the Acquiror to constitute the same percentage as persons
designated by the Acquiror shall constitute of the Board of (i) each committee
of the Board, (ii) the board of directors of the Subsidiary and (iii) each
committee of each such board, in each case only to the extent permitted by
applicable law. Notwithstanding the foregoing, until the earlier of (i) the
time the Acquiror acquires a majority of the then outstanding shares of Common
Stock, and (ii) the Effective Date, the Company shall use its best efforts to
ensure that all the members of the Board and each committee of the Board and
such boards and committees of the Subsidiary as of the date hereof who are not
employees of the Company shall remain members of the Board and of such boards
and committees.
(b) The Company shall promptly take all actions required
pursuant to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder in order to fulfill its obligations under this Section 7.3, and
shall include in the Schedule 14D-9 such information with respect to the
Company and its officers and directors as is required under Section 14(f) and
Rule 14f-1 to fulfill such obligations. The Acquiror and Newco shall supply to
the Company and
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<PAGE> 34
be solely responsible for any information with respect to either of them and
their nominees, officers, directors and affiliates required by such Section
14(f) and Rule 14f-1.
(c) In the event that the Acquiror's designees are elected
to the Company's Board of Directors, until the Effective Date, the Company's
Board of Directors shall have at least two directors who are directors on the
date hereof (the "Independent Directors"); provided, however, that in such
event if the number of Independent Directors will be reduced below two for any
reason whatsoever, any remaining Independent Directors (or Independent
Director, if there be only one remaining) shall be entitled to designate
persons to fill such vacancies who shall be deemed to be Independent Directors
for purposes of this Agreement or, if no Independent Director then remains, the
other directors shall designate persons to fill such vacancies who shall not be
stockholders, affiliates or associates of the Acquiror or Newco and such
persons shall be deemed to be Independent Directors for purposes of this
Agreement. Notwithstanding anything in this Agreement to the contrary, in the
event that the Acquiror's designees are elected to the Company's Board of
Directors after the acceptance for payment of shares of Common Stock pursuant
to the Offer and prior to the Effective Date, the affirmative vote of a
majority of the Independent Directors shall be required to (i) amend or
terminate this Agreement by the Company, (ii) exercise or waive any of the
Company's rights, benefits or remedies hereunder or (iii) take any other action
by the Company's Board of Directors under or in connection with this Agreement
which would adversely affect the rights of Company stockholders under this
Agreement; provided, however, that if there will be no such directors, such
actions may be effected by the unanimous vote of the entire Board of Directors
of the Company. The provisions of this Section 7.3 are in addition to and
shall not limit any rights which the Acquiror, Newco or any of their affiliates
may have as a holder or beneficial owner of shares of Common Stock as a matter
of law with respect to the election of directors or otherwise; provided, that
none of Acquiror, Newco or such affiliates shall take any action to remove or
replace the Independent Directors prior to the Effective Date.
7.4 Access to Properties and Records. The Company and the
Subsidiary shall afford to the Acquiror and its accountants, counsel and
representatives, reasonable access during normal business hours throughout the
period prior to the Effective Date to all of their respective properties,
books, contracts, commitments and written records (including but not limited to
tax returns), and shall make reasonably available their respective officers and
employees to answer fully and promptly questions put to them thereby (so long
as such questions are not outside of the scope of purpose of this Section 7.4);
provided that no investigation pursuant to this Section 7.4 shall alter any
representation or warranties of any party hereto or conditions to the
obligation of the parties hereto; provided, further, that such access shall not
unreasonably interfere with the normal business operations of the Company or
the Subsidiary. The Acquiror and Newco agree to provide the Company and the
Subsidiary with reasonable notice prior to visiting any such property for the
purpose of any such investigation, including notice of the purpose and reason
for such investigation. Notwithstanding the foregoing, the Acquiror and Newco
agree that, it will obtain the approval of the Chief Executive Officer or the
Chief Financial Officer of the Company (not to be unreasonably withheld) prior
to any such investigation to be conducted at any of the warehouses or retail
stores of the Company or the Subsidiary.
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7.5 Negotiations.
(a) Following the execution of this Agreement by the
Company, neither the Company nor the Subsidiary nor any affiliate of either of
them as of the date of this Agreement, nor the directors, officers, employees,
representatives or agents of any of them, shall, directly or indirectly,
solicit, initiate encourage or participate in discussions or negotiations with
or the submission of any offer or proposal by or provide any information to,
any corporation, partnership, person, or other entity or group (other than
Newco or Acquiror or an officer or other authorized representative of Newco or
Acquiror) concerning any Third Party Transaction (as defined in Section 9.2(b))
or proposal related thereto or, participate in any negotiation regarding any
Third Party Transaction or otherwise cooperate in any way with or encourage any
effort or attempt by any other person to effectuate a Third Party Transaction.
Notwithstanding the foregoing, prior to the acceptance for payment of shares of
Common Stock pursuant to the Offer, the Company may (x) furnish information and
access to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements in response to unsolicited
written requests therefor, and (y) negotiate and participate in discussions and
negotiations with such entity or group concerning a Third Party Transaction or
proposal related thereto if (with respect to clause (y) only) the Board has
determined in its good faith judgement, based as to legal matters and the
written advise of outside legal counsel (i) that the exercise of the directors'
fiduciary duties requires the taking of such action and, (ii) after
consultation with all of its principal advisors in connection with the
transactions contemplated herein, that such Third Party Transaction or proposal
related thereto is a bona fide written proposal that would, upon consummation
thereof, result in a transaction more favorable to the stockholders of the
Company than the transactions contemplated herein and in the good faith
reasonable judgement of the Board (based in part upon the advise of all of its
principal advisors in connection with the transactions contemplated herein) is
proposed by a corporation, partnership, person or other entity or group with
sufficient financial resources available to it or available from third parties
to consummate such transaction (a proposal that satisfies clauses (i) and (ii)
being referred to herein as a "Superior Proposal"). The Company will
immediately notify the Acquiror of the existence of any proposal, discussion,
negotiation or inquiry received by the Company, and the Company shall
immediately communicate to the Acquiror the terms of any proposal, discussion,
negotiation or inquiry which it may receive and the identity of the party
making such proposal or inquiry or engaging in such discussion or negotiation.
The Company shall promptly provide to the Acquiror any non-public information
concerning the Company provided to any other party which was not previously
provided to the Acquiror. Nothing contained in this Section 7.5 shall prohibit
the Company or its Board of Directors from disclosing to the Company's
stockholders a position with respect to a tender offer by a third party
pursuant to Rule 14d-9 and Rule 14e-2 promulgated under the Exchange Act, or
from making such disclosure to the Company's stockholders which, in the
judgment of the Board of Directors, after receipt of advice from counsel, may
be required under applicable law, provided, that the Company may not, except as
permitted by Section 7.5(b), withdraw or modify, or propose to withdraw or
modify, its position with respect to the Offer or the Merger or approve or
recommend, or propose to approve or recommend any Third Party Transaction or
proposal relating thereto, or enter into any agreement with respect thereto.
The Company shall immediately cease any existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any of the
foregoing. The Company agrees not to
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release any third party from, or waive any provision of, any confidentiality
agreement to which the Company is a party.
(b) Except as set forth herein, neither the Board of
Directors of the Company nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to the Acquiror
or Newco, the approval or recommendation by such Board of Directors or any such
committee of the Offer, this Agreement or the Merger, (ii) approve or recommend
or propose to approve or recommend, any proposal related to a Third Party
Transaction or (iii) enter into any agreement with respect to any such
proposal. Notwithstanding the foregoing, prior to the time of acceptance for
payment of shares of Common Stock pursuant to the Offer, the Board of Directors
of the Company may (subject to the terms of this and the following sentence)
withdraw or modify its approval or recommendation of the Offer, this Agreement
or the Merger, approve or recommend a Superior Proposal, or enter into an
agreement with respect to a Superior Proposal, in each case at any time after
the fifth Business Day following the Acquiror's receipt of written notice
advising the Acquiror that the Board of Directors has received a Superior
Proposal, specifying the material terms and conditions of such Superior
Proposal and identifying the person making such Superior Proposal; provided,
however, that the Company shall not enter into an agreement with respect to a
Superior Proposal unless the Company shall have furnished the Acquiror with
written notice not later than 12:00 noon (Boise time) five Business Days in
advance of any date that it intends to enter into such agreement and shall have
caused its financial and legal advisors to negotiate with the Acquiror to make
such adjustments in the terms and conditions of this Agreement as would enable
the Company to proceed with the transactions contemplated hereby on such
adjusted terms. In addition, if the Company enters into an agreement with
respect to any Third Party Transaction, it shall concurrently with entering
into such agreement pay, or cause to be paid, to the Acquiror the Termination
Fee (as defined in Section 9.2(a)), plus any amounts payable at said time for
reimbursement of expenses pursuant to the provisions of Section 9.2(a).
7.6 Acquiror Vote. Acquiror shall vote all shares of Common Stock
and all proxies it holds in favor of the Merger. After the date hereof, and
prior to the expiration of the Offer the Acquiror shall not purchase, offer to
purchase, or enter into any contract, agreement or understanding regarding the
purchase of shares of Common Stock of the Company, except pursuant to the terms
of the Stockholder Agreement, the Offer and the Merger.
7.7 Employee Benefits.
(a) The Acquiror will cause the Surviving Corporation to
provide or will directly provide to the employees of the Subsidiary and the
Company employee benefits that are substantially equivalent in the aggregate to
those provided by Acquiror to similarly situated employees of Acquiror, and in
determining the level of benefits under its employee benefit plans will provide
full credit for years of service with the Company or the Subsidiary, as such
years of service are currently recognized by the Company and the Subsidiary for
its employee benefits for purposes of eligibility, vesting and benefit accrual
but not for purposes of benefit accrual with respect to any "defined benefit
pension plan." Nothing contained herein shall be deemed to require the
Acquiror or the Company to continue in effect following the closing any
existing Company Plan, except as may be required by any applicable collective
bargaining agreement.
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(b) The Board of Directors of the Company shall adopt
resolutions, effective immediately prior to the Closing, terminating each tax
qualified defined contribution retirement plan sponsored, maintained,
contributed to or required to be contributed to by the Company, the Subsidiary
or any ERISA Affiliate, except any such plan required to be maintained by any
applicable collective bargaining agreement.
7.8 Indemnification.
(a) From and after the Effective Date, in addition to any
indemnification available to any officer or director by the Company or the
Subsidiary, the Acquiror and Surviving Corporation shall (in each case to the
fullest extent permitted by applicable law) indemnify, defend and hold harmless
each person who is now, or has been at any time prior to the date hereof or who
becomes prior to the Effective Date, an officer, director or employee of the
Company or the Subsidiary (the "Indemnified Parties") against any and all
losses, damages, costs, expenses, liabilities or judgments, or amounts that are
paid in settlement of, or in connection with, any claim, action, suit,
proceeding or investigation based in whole or in part on or arising in whole or
in part out of the fact that such person is or was a director, officer or
employee of the Company or the Subsidiary at or prior to the Effective Date and
whether asserted or claimed prior to, or at or within 5 years after the
Effective Date, and including, without limitation, any which arise out of or
relate to the transactions contemplated by this Agreement (collectively, the
"Indemnified Liabilities") (and the Acquiror and Surviving Corporation shall
pay reasonable expenses in advance of the final disposition of any such action
or proceeding to each Indemnified Party to the fullest extent permitted by
law); provided, however, that neither the Acquiror nor Surviving Corporation
shall be required to indemnify any Indemnified Party in connection with any
proceeding (or portion thereof) involving any claim, action, suit, proceeding
or investigation initiated by such Indemnified Party unless the initiation of
such proceeding (or portion thereof) was authorized by the Board of Directors
of the Acquiror or unless such proceeding is brought by an Indemnified Party to
enforce rights under this Section 7.8. The Acquiror and Surviving Corporation
shall not take, or cause to be taken, at any time, any action to modify or
terminate the indemnification arrangements or limitation of liability
provisions contained in the Certificate of Incorporation or Bylaws of either
the Company or the Subsidiary, or in any indemnification agreements entered
into by either the Company or the Subsidiary, in a manner that would adversely
affect the Indemnified Parties. Without limiting the foregoing, in the event
any such claim, action, suit, proceeding or investigation is brought against
any Indemnified Party (whether arising before or after the Effective Date), (i)
any counsel retained by the Indemnified Parties for any period after the
Effective Date shall be reasonably satisfactory to the Acquiror; (ii) after the
Effective Date, the Acquiror or Surviving Corporation shall pay all reasonable
fees and expenses of counsel for the Indemnified Parties promptly as statements
therefor are received; provided that Acquiror shall not be obligated to pay for
more than one counsel for all Indemnified Parties with respect to the same
matter unless (A) the Acquiror and an Indemnified Party shall have mutually
agreed to the contrary; or (B) the representation of one or more such
Indemnified Party and any other Indemnified Party pursuant to the preceding
sentence in any such proceeding by the same counsel would be inappropriate due
to actual or potential differing interests between such Indemnified Parties;
and (iii) after the Effective Date, the Acquiror and Surviving Corporation
shall use all reasonable efforts to assist in the vigorous defense of any such
matter, provided that the Acquiror and Surviving Corporation shall not be
liable for any settlement of any claim effected
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without their written consent, which consent, however, shall not be
unreasonably withheld. Any Indemnified Party wishing to claim indemnification
under this Section 7.8, upon learning of any such claim, action, suit,
proceeding or investigation, shall notify the Acquiror and Surviving
Corporation (but the failure so to notify the Acquiror and Surviving
Corporation shall not relieve either such corporation from any liability which
it may have under this Section 7.8 except to the extent such failure materially
prejudices the Acquiror or Surviving Corporation).
(b) This Section 7.8 shall survive the closing of all of
the transactions contemplated hereby, is intended to benefit the Company, the
Subsidiary, the Surviving Corporation and each of the Indemnified Parties (each
of whom shall be entitled to enforce this Section 7.8 against the Acquiror or
the Surviving Corporation, as the case may be) and shall be binding on all
successors and assigns of the Surviving Corporation and the Acquiror.
7.9 Confidentiality. The terms of the Confidentiality Agreement,
dated December 22, 1997 (the "Acquiror Confidentiality Agreement") between the
Company and the Acquiror are herewith incorporated by reference and shall
continue in full force and effect until the Effective Date shall have occurred,
and if this Agreement is terminated or if the Effective Date shall not have
occurred for any reason whatsoever, the Acquiror Confidentiality Agreement
shall thereafter remain in full force and effect in accordance with its terms.
Notwithstanding the foregoing, the Company hereby expressly consents to the
disclosure of any information subject to the Acquiror Confidentiality Agreement
required to be disclosed by applicable law in connection with the consummation
of the transactions contemplated by this Agreement; provided, that the Acquiror
shall consult with the Company prior to the disclosure of any such information.
7.10 Best Efforts. Subject to the terms and conditions hereof, each
of the parties hereto agrees to use their reasonable best efforts to take, or
cause to be taken, all action and to do, or cause to be done, all things
necessary to satisfy the conditions set forth herein as soon as practicable,
including, without limitation, reasonable best efforts necessary (i) to have
removed or rescinded any and all temporary, preliminary or permanent
injunctions or other orders, and (ii) to defend against any and all claims,
actions, suits, proceedings, investigations or litigation, including, without
limitation, any injunctions or other orders or claims, actions, suits,
proceedings or investigations which arise out of or relate to the transactions
contemplated by this Agreement, and including those described in Section 8.1(b)
of this Agreement. Notwithstanding the foregoing, nothing in this Agreement
shall be deemed to require the Company, the Acquiror or Newco to commence any
litigation against any entity in order to facilitate the consummation of any of
the transactions contemplated hereby; provided, however, that in the event the
Acquiror or Newco elects to commence any such litigation, the Company shall use
its reasonable best efforts to cooperate fully in the prosecution of such
litigation. Except for any such litigation that may be commenced by the
Acquiror or Newco pursuant to Section 7.11, no party hereto will take any
action for the purpose of or that may have the effect of delaying, impairing or
impeding the receipt of any required consent, authorization, order or approval
or the making of any required filing or registration. In case at 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 the
Company, the Acquiror and Newco shall use all reasonable efforts to take, or
cause to be taken, all such necessary actions.
33.
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7.11 Antitrust.
(a) Notwithstanding anything contained in Section 7.10 of
this Agreement to the contrary, the Acquiror and the Company each agree to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary or required by the United States Federal Trade Commission (the
"FTC") or the United States Department of Justice (the "DOJ") in connection
with the expiration or termination of the waiting period under the HSR Act as a
result of the transactions contemplated by this Agreement; provided, however,
that nothing set forth in this Section 7.11 shall be construed so as to
preclude, prevent or otherwise limit the Acquiror or Newco from instituting or
prosecuting or defending a suit or claim in good faith with respect to any
suit, objection, requirement or other action by the FTC, the DOJ, any other
such governmental authority or any private party with respect to the
transactions contemplated hereby. The Acquiror shall pay all filing fees
incurred in connection with such filings under the HSR Act. Each party hereto
shall promptly inform the other of any material communication from the FTC, the
DOJ or any other government or governmental authority regarding any of the
transactions contemplated hereby. If either the Acquiror or the Company or any
of their respective affiliates receives a request for additional information or
documentary material from any such government or governmental authority with
respect to the transactions contemplated by this Agreement, then such party
shall endeavor in good faith to make, or cause to be made, as soon as
reasonably practicable and after consultation with the other party, an
appropriate response in compliance with such request. The Acquiror shall
advise the Company, and the Company shall advise the Acquiror, promptly in
respect of any understandings, undertakings or agreements (oral or written)
which it proposes to make or enter into with the FTC, the DOJ or any other
governmental authority in connection with the transactions contemplated hereby.
Except as otherwise provided in this Section 7.11, the Acquiror agrees to
resolve any objections as may be asserted with respect to the transactions
contemplated hereby under the Antitrust Laws (as defined hereafter) by the
applicable government or governmental authority (including, without limitation,
the Antitrust Division of the DOJ or the FTC). Except as otherwise provided in
this Section 7.11, if any suit is threatened or instituted challenging any of
the transactions contemplated hereby as violative of any Antitrust Law, the
Acquiror shall take such action (including, without limitation, agreeing to
hold separate or to divest any of the businesses, stores, products or assets of
the Acquiror or any of its affiliates or of the Company or the Subsidiary) as
may be required (i) by the applicable government or governmental authority
(including, without limitation, the Antitrust Division of the DOJ or the FTC)
in order to resolve such objections as such government or governmental
authority may have to such transactions under such Antitrust Law, or (ii) by
any court or similar tribunal, in any suit brought by a private party or
governmental authority challenging the transactions contemplated hereby as
violative of any Antitrust Law, in order to avoid the entry of, or to effect
the dissolution of, any injunction, temporary restraining order or other order
that has the effect of preventing the consummation of any of such transactions.
The entry by a court, in any suit brought by a private party or governmental
authority challenging the transactions contemplated hereby as violative of any
Antitrust Law, of an order or decree permitting the transactions contemplated
hereby, but requiring that any of the businesses, product lines or assets of
the Acquiror or any of its affiliates or of the Company or the Subsidiary be
divested or held separate by the Acquiror, or that would otherwise limit the
Acquiror's freedom of action with respect to, or its ability to retain, the
Company and the Subsidiary or any portion thereof or any of the Acquiror's or
its affiliates' other assets or businesses, shall not be deemed a failure to
satisfy
34.
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the conditions specified in Section 8.1 or Exhibit A of this Agreement or give
rise to a right of termination under Section 9.1. Notwithstanding anything
contained in this Agreement to the contrary, the Company shall in no event
prior to the date on which the Offer is consummated be required to divest or
hold separate or otherwise take or commit to take any action that limits its
freedom of action with respect to, or its ability to retain, the Subsidiary or
any portion thereof, or any of its other assets, stores, businesses or
products.
(b) For purposes of this Agreement, "Antitrust Laws" shall
mean and include the Sherman Act, as amended, the Clayton Act, as amended, the
HSR Act, the Federal Trade Commission Act, as amended, and all other Federal
and state statutes, rules, regulations, orders, decrees, administrative and
judicial doctrines, and other laws that are designed or intended to prohibit,
restrict or regulate actions having the purpose or effect of monopolization or
restraint of trade.
7.12 Notices of Certain Events. The Company and the Acquiror shall,
upon obtaining knowledge of any of the following, promptly notify the other of
(i) any notice or other communication from any person alleging that the consent
of such person is or may be required in connection with the Offer and the
Merger; (ii) any notice or other communication from any governmental or
regulatory agency or authority in connection with the Offer and the Merger;
(iii) any actions, suits, claims, investigations or other judicial proceedings
commenced or threatened against the Company or the Subsidiary which, if pending
on the date of this Agreement, would have been required to have been disclosed
pursuant to Section 6.7 or which relates to the consummation of the Offer or
the Merger; (iv) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which would cause any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect at or
prior to the Effective Date; and (v) any material failure of the Company, the
Acquiror or Newco, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it hereunder;
provided, however, that the delivery of any notice pursuant to this Section
7.12 shall not limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
7.13 Stockholder Litigation. The Company shall give the Acquiror the
opportunity to participate in the defense or settlement of any stockholder
litigation against the Company and its directors relating to any of the
transactions contemplated by this Agreement; provided, however, that no such
settlement shall be agreed to without the Acquiror's consent.
7.14 Consents and Approvals. Subject to the provisions of Section
7.11, each of the Company, the Acquiror and Newco shall take all reasonable
actions necessary to comply promptly with all legal requirements that may be
imposed on it with respect to this Agreement and the transactions contemplated
hereby (which requirements shall include, without limitation, those identified
in Schedule 6.5,) and shall promptly cooperate with and furnish information to
each other in connection with any such requirements imposed upon any of them or
any of their subsidiaries in connection with this Agreement and the
transactions contemplated hereby. Subject to the provisions of Section 7.11,
each of the Company, the Acquiror and Newco shall, and shall cause its
subsidiaries to, take all reasonable actions necessary to obtain (and shall
cooperate with each other in obtaining) any consent, authorization, order or
approval of, or any exemption by,
35.
<PAGE> 41
any Governmental Authority (as defined below) or other public or private third
party required to be obtained or made by the Acquiror, Newco, the Company or
any of their subsidiaries in connection with the Merger or the taking of any
action contemplated thereby or by this Agreement.
7.15 Certain Supplier Agreements. The Company shall use its
reasonable best efforts to assist the Acquiror in obtaining modifications
desired by the Acquiror to any arrangements with the principal suppliers of the
Company and the Subsidiary, such modifications to take effect from and after
the Effective Date or the acceptance of shares of Common Stock for payment
pursuant to the Offer, whichever occurs first.
7.16 Year 2000 Services. When the Company has determined the
particular management information services and software it requires in order
to address the "year 2000 problem" it will provide written notice (the
"Notice") to Acquiror describing the services and software it requires and the
cost and payment schedule for such services and software. Within thirty (30)
days of receipt of such Notice (but Acquiror shall not be required to respond
prior to sixty (60) days from the date hereof), Acquiror shall permit the
Company to purchase such services and software without violation of any
representation, warranty or covenant under this Agreement or, at Acquiror's
election, Acquiror and the Company will enter into a services agreement in form
and substance reasonably satisfactory to Acquiror and the Company under which
the Acquiror will provide management information services and software to
address the "year 2000 problem" to (i) acquire inventory, (ii) ensure that
stores may transmit orders and receive inventory, (iii) provide necessary
interfaces between Acquiror's systems and the Company's and the Subsidiary's
general ledger software and such other interfaces as are necessary to permit
operation of the Company's and the Subsidiary's business as historically
conducted. Acquiror will provide such services at its cost and expense while
the Merger Agreement is in force and effect (but not for less than one hundred
eighty (180) days from the date hereof) and shall continue such services after
termination of the Merger Agreement until the Company and the Subsidiary are
able to obtain and implement a fully operational system to provide the software
and systems necessary to address year 2000 problems and permit operation of the
Company's and the Subsidiary's business as historically conducted. After the
termination of the Merger Agreement but not before one hundred eighty (180)
days from the date hereof, the Company and the Subsidiary shall pay a
reasonable fee for the services provided by Acquiror which shall be mutually
agreed upon by the parties. In the event that Acquiror is unable to provide
the services described hereunder within 60 days of the date of the Notice (but
not before ninety (90) days from the date hereof) or provide reasonable
assurances that it will be able to provide such services in accordance with the
timetable required by the Company, the Company and the Subsidiary shall be free
to purchase the services and software described in the Notice to address year
2000 problems and permit operation of the Company and the Subsidiary's business
as historically conducted without violating any representation, warranty or
covenant under this Agreement. The parties will cooperate in good faith to
implement the intent and purpose of this Section and to establish security
procedures to protect the integrity of the data and preserve its
confidentiality.
36.
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7.17 Recovery of Certain Amounts Owed. Prior to the Effective Date,
the Company shall use its reasonable best efforts to cause all amounts payable
under those certain promissory notes of Joseph Fernandez in favor of the
Company described on Schedule 6.10 to be repaid in full.
ARTICLE VIII
CONDITIONS PRECEDENT
8.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligations of each party to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following conditions:
(a) This Agreement and the Merger contemplated hereby shall
have been approved and adopted by the requisite vote of the holders of the
outstanding shares of Common Stock of the Company entitled to vote thereon at
the Meeting, unless Newco shall have acquired 90% or more of the outstanding
shares of each class of capital stock of the Company;
(b) No United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction (collectively, "Governmental Authority") shall have enacted,
issued, promulgated, enforced or entered any statute, rule, regulation, final
non-appealable injunction or other final non-appealable order which is in
effect and has the effect of making the acquisition of Common Stock by Newco
illegal or otherwise prohibiting consummation of the transactions contemplated
by this Agreement; provided however, that this condition shall not modify
Acquiror's obligation to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary or required by the FTC or the DOJ in
connection with the expiration or termination of the waiting period under the
HSR Act, or by any private party or Governmental Authority or other tribunal
under the Antitrust Laws or in a suit by a private party or governmental
authority as a result of the transactions contemplated by this Agreement, all
as further specified in and subject to Section 1.1 and Section 7.11 of this
Agreement;
(c) Any waiting period applicable to the Offer and the
Merger under the HSR Act shall have expired or been terminated;
(d) Newco shall have commenced the Offer pursuant to
Article I hereof, and Newco shall have purchased, pursuant to the terms and
conditions of such Offer, all shares of Common Stock duly tendered and not
withdrawn; and
(e) The Acquiror, Newco or their affiliates shall have
purchased a majority of the outstanding shares of Common Stock, except that
this condition shall not apply if the Acquiror, Newco or their affiliates shall
have failed to purchase shares of Common Stock pursuant to the Offer in breach
of their obligations under this Agreement.
37.
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ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. This Agreement may be terminated and the Merger
may be abandoned at any time prior to the Effective Date, whether before or
after approval by the stockholders of the Company:
(a) by the mutual written consent of the Acquiror and the
Company, pursuant to action by their respective Boards of Directors;
(b) by the Acquiror if, without any material breach by the
Acquiror or Newco of their obligations under this Agreement, the purchase of
shares of Common Stock pursuant to the Offer will not have occurred within 30
days after the later of (i) the expiration or termination of the waiting period
under the HSR Act and (ii) the lifting, rescission or termination of any order,
decree, ruling or other action of or agreement with a Governmental Authority
theretofore in effect that has the effect of prohibiting, enjoining,
restraining or delaying the consummation of the Offer or the Merger or imposes
material limitations on the ability of Newco to acquire shares of Common Stock;
provided that Acquiror may not terminate under this clause (b) unless it has
reached an agreement authorizing consummation of the Offer and the Merger with
the FTC or DOJ and any other Governmental Authority that may have asserted that
consummation of the Offer would violate the Antitrust Laws and any injunction
or order prohibiting or limiting consummation of the Offer or the Merger has
become final and non-appealable;
(c) by the Company on or after July 19, 1998, if (i) the
Company is not then in material breach of any of its obligations hereunder;
(ii) the Company gives written notice to Acquiror (the "Termination Notice") of
its intention to terminate this Agreement; (iii) Acquiror has not accepted a
majority of the shares of Common Stock for payment pursuant to the terms of the
Offer; and (iv) Acquiror does not, within five Business Days of receipt of the
Company's Termination Notice, give the Company a notice of its intention to
continue this Agreement in effect (a "No Termination Notice"). A No
Termination Notice may not be given by the Acquiror unless the waiting period
under the HSR Act has expired or been terminated and all other obligations
under the Antitrust Laws necessary to consummate the Offer have been satisfied,
including reaching an agreement, if necessary, authorizing consummation of the
Offer and the Merger with the FTC or DOJ and any other Governmental Authority
that may have asserted that consummation of the Offer would violate the
Antitrust Laws. A No Termination Notice shall not be effective (i) at any time
when Acquiror is not using best efforts to lift, rescind or terminate a
temporary, preliminary or appealable injunction or order (which does not relate
to the Antitrust Laws) of the type described in clause (a) of Exhibit A, or
(ii) if such notice does not contain a binding, unconditional undertaking by
Acquiror to accept shares of Common Stock pursuant to the terms of the Offer at
the earliest practicable date after such injunction or order has been lifted,
rescinded or terminated, without regard to the satisfaction of any other
conditions to the Offer set forth in Exhibit A or any termination event set
forth in Section 9.1.
(d) by the Company, by action of its Board of Directors, if
(i) the Acquiror or Newco shall have failed to comply with any of the covenants
or agreements contained in this Agreement to be complied with or performed by
the Acquiror or Newco at or prior to such date
38.
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of termination, which failure is material in the context of the transactions
contemplated by this Agreement and is not reasonably capable of being cured or
has not been cured within ten Business Days after the giving of written notice
to the Acquiror or Newco, or (ii) any representation or warranty of the
Acquiror or Newco in this Agreement which is qualified as to materiality shall
not be true and correct, or any such representation or warranty that is not so
qualified shall not be true and correct in any material respect, in either
event is not reasonably capable of being cured by the Acquiror or Newco, or has
not been cured as the case may be, within ten Business Days of notice, in each
case as if such representation or warranty was made as of such time on or after
the date of the Agreement (unless such representation speaks as of an earlier
date, in which case it shall be deemed to have been made as of such earlier
date);
(e) by the Company, prior to the purchase by Newco of at
least the Minimum Shares pursuant to the Offer, in order to permit the Company
to enter into, pursuant to Section 7.5, an agreement with respect to a Superior
Proposal that the Board of Directors of the Company has determined is more
favorable to the stockholders of the Company than the Offer and the Merger,
provided that (i) the Company has complied with all provisions of said Section
7.5, including the notice provision set forth therein, and (ii) the Company
makes simultaneous payment to the Acquiror of the Termination Fee;
(f) by the Acquiror, at any time prior to the purchase of
shares of Common Stock pursuant to the Offer, if (i) the Board of Directors of
the Company shall have withdrawn, modified, or changed its recommendation or
approval in respect of this Agreement or the Offer in a manner adverse to
Newco, (ii) the Board of Directors of the Company shall have recommended to the
stockholders of the Company any proposal relating to a Third Party Transaction,
(iii) the Company shall have exercised a right with respect to a Third Party
Transaction referenced in Section 7.5 and has, directly or through its
representatives, continued discussions with any Third Party concerning such a
proposal relating to a Third Party Transaction for more than ten Business Days
after the date of receipt of such proposal or (iv) a proposal relating to a
Third Party Transaction that is publicly disclosed shall have been commenced,
publicly proposed or communicated to the Company which contains a proposal as
to price (without regard to whether such proposal specifies a specific price or
a range of potential prices) and the Company will not have rejected such
proposal within ten Business Days of its receipt or, if sooner, the date its
existence first becomes publicly disclosed; provided, further, that nothing
contained in this Section 9.1(f) or any other provision hereof shall give rise
to a right of termination solely as a result of the Company or the Board of
Directors of the Company issuing to its stockholders a communication that
contains only the statements permitted by Rule 14d-9e promulgated under the
Exchange Act and within five Business Days of issuing such communication the
Company publicly reconfirms its approval and recommendation of the Offer;
(g) by the Company, by action of its Board of Directors, if
Newco shall have failed to commence the Offer on or before that date which is
five Business Days from the date hereof; provided, that the Company may not
terminate this Agreement pursuant to this Section 9.1(g) if the Company is at
such time in material breach of its obligations under this Agreement;
39.
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(h) by the Acquiror or the Company if any Governmental
Authority shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, final non-appealable injunction or other final
non-appealable order which is in effect and has the effect of making the
acquisition of Common Stock by Newco illegal or otherwise prohibiting
consummation of the transactions contemplated by this Agreement (provided,
however, that this termination event shall not modify Acquiror's obligation to
take, or cause to be taken, all action, and to do, or cause to be done, all
things necessary or required by the FTC or the DOJ in connection with the
expiration or termination of the waiting period under the HSR Act, or by any
Governmental Authority, under the Antitrust Laws or in a suit by a private
party under the Antitrust Laws as a result of the transactions contemplated by
this Agreement, all as further specified in and subject to Section 7.11 of this
Agreement and subject to Section 1.1);
(i) by the Acquiror, by action of its Board of Directors,
if prior to the purchase of shares of Common Stock pursuant to the Offer, (i)
the Company shall have failed to comply with any of the covenants or agreements
contained in this Agreement to be complied with or performed by the Company
prior to the date of such termination, which failure singly or in the aggregate
would have or is reasonably likely to have a material adverse effect on the
business, operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of the
Company and the Subsidiary taken as a whole and is not reasonably capable of
being cured or has not been cured within ten Business Days after the giving of
written notice to the Company or (ii) (A) any of the representations or
warranties set forth in Sections 6.2, 6.3, 6.4 and 6.25 shall not be true and
correct in all material respects or (B) any other representations or warranties
of the Company in this Agreement shall not be true and correct which inaccuracy
singly or in the aggregate would have or is reasonably likely to have a
material adverse effect on the business, operations, properties (including
intangible properties), condition (financial or otherwise), results of
operations, assets or liabilities of the Company and the Subsidiary taken as a
whole, in either case which is not reasonably capable of being cured by the
Company or has not been cured, as the case may be, within ten Business Days
after the giving of written notice to the Company; and
(j) by the Acquiror prior to the purchase of shares of
Common Stock pursuant to the Offer, if, since the date of this Agreement, there
shall have been any material adverse change in the business, operations,
properties (including intangible properties), condition (financial or
otherwise), results of operations, assets or liabilities of the Company and the
Subsidiary, taken as a whole, excluding any such change occurring at any time
after the date of this Agreement caused by (a) a general change in the economy
(including any such change caused by a general change in the markets served by
the Company and the Subsidiary) or (b) the institution or threat of any suit,
arbitration, mediation, action, proceeding, complaint or grievance which
challenges any of the transactions contemplated by this Agreement or any action
required in connection with the resolution of matters relating to the Antitrust
Laws and excluding any such change occurring on or after the 90th day following
the execution of this Agreement caused by the voluntary termination of
employment by employees of the Company or the Subsidiary or a closure of, or
any labor disruption, slowdown or strike relating to, the Company's principal
distribution center located in Great Falls, Montana.
40.
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(k) by the Company, beginning 90 days after the date of
this Agreement, if since the date of this Agreement there has been a material
adverse change in the business, operations, properties (including intangible
properties), condition (financial or otherwise), results of operations, assets
or liabilities of the Company and the Subsidiary, taken as a whole. In order
to exercise its right to terminate this Agreement pursuant to this Section
9.1(k) (the "Company MAC Right"), the Company shall first deliver to Acquiror a
certificate (the "MAC Certificate") executed by the Company's Chief Executive
Officer or Chief Financial Officer describing in detail the conditions, events
and occurrences causing or contributing to the material adverse change (the
"Termination Conditions") and asserting the Company's intention to terminate
this Agreement pursuant to this Section 9.1(k). Acquiror shall not be required
to respond to a MAC Certificate until the No MAC Deadline. As used herein, the
"No MAC Deadline" shall mean the later of the 91st day after the date of this
Agreement or five Business Days after Acquiror's receipt of the MAC
Certificate. If the Acquiror confirms in writing (a "No MAC Certificate") on
or prior to the No MAC Deadline that it is electing not to have the Company
terminate the Agreement pursuant to this Section 9.1(k) with respect to the MAC
Conditions set forth in the MAC Certificate, the Company shall not be entitled
to so terminate this Agreement. If the Acquiror exercises this right to
prevent the Company's termination of this Agreement, the Acquiror shall not
thereafter be entitled, as a result of any of the conditions, events or
occurrences described in such MAC Certificate, to assert that a material
adverse change has occurred pursuant to Section 9.1(j), or that the condition
of subparagraph (d) of Exhibit A has not been satisfied, or to assert that a
representation, warranty or covenant of the Company under this Agreement has
been breached unless the adverse impact on the business, operations, properties
(including intangible properties), condition (financial or otherwise), results
of operations, assets or liabilities of the Company or the Subsidiary, taken as
a whole, of such conditions, events or occurrences described in the MAC
Certificate increases substantially after the date of such MAC Certificate. In
determining whether the adverse impact of a condition, event or occurrence
described in any MAC Certificate on the Company and the Subsidiary taken as a
whole has increased substantially the adverse impact resulting from the passage
of time and from the impact of the condition, event or occurrence at up to the
same level and in substantially the same manner as described in such MAC
Certificate shall not be taken into account. The Company may present a new MAC
Certificate to the Acquiror any time (i) if a material adverse change has
occurred as a result of a condition, event or occurrence not described in a
prior MAC Certificate or (ii) if the adverse impact of any condition, event or
occurrence described in the prior MAC Certificate has increased substantially
after the date of the prior MAC Certificate. If the Company presents a new MAC
Certificate the procedures and affect on the Acquiror's rights described in
this Section 9.1(k) shall apply with respect to the conditions, events or
occurrences described in the new MAC Certificate. If the Company delivers a
MAC Certificate to the Acquiror and Acquiror does not deliver a No MAC
Certificate to the Company on or prior to the No MAC Deadline, this Agreement
shall terminate on the day immediately following the No MAC Deadline.
Subject to the terms and conditions of this Agreement, in the
event of such termination and abandonment, written notice thereof shall
forthwith be given to the other party or parties specifying the provision
hereof pursuant to which such termination is made, and this Agreement shall
forthwith become null and void, and no party hereto (or any of its directors or
officers) shall have any liability or further obligation to any other party to
this Agreement except
41.
<PAGE> 47
as provided in Sections 7.9, 9.2 or 10.2 and except that nothing herein will
relieve any party from liability for any wilful breach of this Agreement prior
to such termination or abandonment.
9.2 Termination Fee.
(a) If (i) the Acquiror shall have terminated this
Agreement pursuant to Section 9.1(f), or (ii) the Company shall have terminated
this Agreement pursuant to Section 9.1(e), then in any such case the Company
shall pay simultaneously with such termination, if pursuant to Section 9.1(e),
and promptly, but in no event later than two Business Days thereafter if
pursuant to Section 9.1(f), to the Acquiror a termination fee (the "Termination
Fee") equal to 3% of the amount equal to (A) $15.50 multiplied by (B) the
number of shares of Common Stock outstanding on the date of termination, plus
an amount (which shall not in any event exceed $1 million) equal to the
Acquiror's and Newco's actual and reasonable documented out-of-pocket expenses
incurred by the Acquiror and Newco in connection with the Offer, the Merger and
this Agreement. The Termination Fee shall be payable by wire transfer to such
account as the Acquiror may designate in writing to the Company.
(b) For purposes of this Agreement, "Third Party
Transaction" shall mean the occurrence of any of the following events: (i) the
acquisition of the Company by merger, tender offer, exchange offer,
consolidation or otherwise by any person other than the Acquiror, Newco or any
affiliate thereof (a "Third Party"); (ii) the acquisition by any Third Party of
all or substantially all of the total assets of the Company and the Subsidiary,
taken as a whole; (iii) the acquisition by a Third Party of 50% or more of the
outstanding shares of Common Stock of the Company; (iv) the adoption by the
Company of a plan of liquidation or the declaration or payment of an
extraordinary dividend; or (v) the repurchase by the Company or the Subsidiary
of 50% or more of the outstanding shares of Common Stock of the Company.
9.3 Amendment. Subject to the applicable provisions of the General
Corporation Law, this Agreement may be amended by the parties hereto solely by
action taken by their respective Boards of Directors, but no amendment shall be
made which decreases the amount of cash into which shares of Common Stock of
the Company are to be converted as provided in Section 3.1(a) hereof or which
in any way materially and adversely affects the rights of such stockholders
without the further approval of such stockholders. This Agreement may not be
amended except by an instrument in writing signed on behalf of each of the
parties hereto.
9.4 Waiver. At any time prior to the Effective Date, the parties
hereto, by action taken by their respective Boards of Directors, may (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties of the other party contained herein or in any documents delivered
pursuant hereto, and (iii) waive compliance by the other party with any of the
agreements or conditions herein. 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.
42.
<PAGE> 48
ARTICLE X
MISCELLANEOUS
10.1 Survival. All representations, warranties and agreements
contained in this Agreement or in any instrument delivered pursuant to this
Agreement shall terminate and be extinguished at the Effective Date or the
earlier date of termination of this Agreement pursuant to Section 9.1, as the
case may be, except that the agreements set forth in Article I, Article II and
in Sections 3.4, 7.7, 7.8 and 7.9 will survive the Effective Date indefinitely,
and those set forth in Sections 9.2 and 10.5 will survive the termination of
this Agreement indefinitely, and other than any covenant the breach of which
has resulted in the termination of this Agreement.
10.2 Expenses and Fees. If the Offer is consummated, all reasonable
fees and expenses incurred in connection with the Agreement, the Offer and the
Merger and the transactions contemplated thereby will be paid by the party
incurring such fees and expenses of the Company and may be paid by the
Surviving Corporation at the closing of the Offer. Notwithstanding the
foregoing, the Company agrees to pay, no later than on the Effective Date, all
reasonable fees, expenses and disbursements of counsel to the Company incurred
in connection with the Merger.
10.3 Notices. All notices and other communications given or made
pursuant hereto shall be in writing and shall be deemed to have been given or
made if in writing and delivered personally or sent by regular mail or by
telecopier to the parties at the following addresses:
(a) if to Newco or the Acquiror, to:
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Attention: Gary G. Michael, Chairman
Telephone: 208-395-6200
Telecopy: 208-395-6225
with a copy to:
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, Idaho 83726
Attention: Thomas R. Saldin, Esq.
Telephone: 208-395-6200
Telecopy: 208-395-6672
43.
<PAGE> 49
with copies to:
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center, Suite 3800
San Francisco, California 94111
Attention: Theodore J. Kozloff, Esq.
Telephone: 415-984-6400
Telecopy: 415-984-2698
(b) if to the Company or the Subsidiary, to:
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
Attention: Joseph H. Fernandez
Telephone: 406-454-7404
Telecopy: 406-454-7251
with copies to:
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, California 90071
Attention: Richard J. Welch, Esq.
Telephone: 213-229-8510
Telecopy: 213-229-8550
or at such other addresses as shall be furnished by the parties by like notice,
and such notice or communication shall be deemed to have been given or made as
of the date so delivered or mailed.
10.4 Headings. The headings contained in this Agreement are inserted
for convenience only and do not constitute a part of this Agreement.
10.5 Publicity. The parties hereto shall not, and shall cause their
affiliates not to, issue or cause the publication of any press release or other
announcement with respect to the Offer, the Merger or this Agreement without
consulting with all other parties and their respective counsel.
10.6 Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefits of the parties hereto and their
respective successors and permitted assigns. Neither this Agreement nor any of
the rights, interests or obligations shall be assigned by any of the parties
hereto without the prior written consent of the other parties. This Agreement
is not intended to confer upon any other person any rights or remedies
hereunder.
10.7 Counterparts. This Agreement may be executed in two or more
counterparts, all of which shall be considered one and the same agreement and
each of which shall be deemed an original.
44.
<PAGE> 50
10.8 Invalidity, Etc. In the event that any provision of this
Agreement shall be deemed contrary to law or invalid or unenforceable in any
respect by a court of competent jurisdiction, the remaining provisions shall
remain in full force and effect to the extent that such provisions can still
reasonably be given effect in accordance with the intentions of the parties,
and the invalid and unenforceable provisions shall be deemed, without further
action on the part of the parties, modified, amended and limited solely to the
extent necessary to render the same valid and enforceable.
10.9 Specific Performance. Each of the parties hereto acknowledges
and agrees that the other parties hereto would be irreparably damaged in the
event any of the provisions of this Agreement were not performed in accordance
with their specific terms or were otherwise breached. Accordingly, each of the
parties hereto agrees that they each shall be entitled to an injunction or
injunctions to prevent breaches of the provisions of this Agreement and to
enforce specifically this Agreement and the terms and conditions hereof in any
action instituted in any court of the United States or any state having
competent jurisdiction, in addition to any other remedy to which such party may
be entitled, at law or in equity.
10.10 Governing Law. The validity and interpretation of this
Agreement shall be governed by the laws of the State of Delaware, without
reference to the conflict of laws principles thereof.
10.11 Definition. For purposes of this Agreement, "knowledge of the
Company or of the Subsidiary" or words of similar import shall mean the actual
knowledge of the officers and directors of the Company on Schedule 10.11.
45.
<PAGE> 51
IN WITNESS WHEREOF, the Acquiror, Newco and the Company have caused this
Agreement to be signed by their respective officers thereunto duly authorized,
all as of the date first written above.
ACQUIROR:
ALBERTSON'S, INC.
By: /s/ MICHAEL F. REULING
--------------------------------
Name: Michael F. Reuling
Title: Executive Vice President
NEWCO:
LOCOMOTIVE ACQUISITION CORP.
By: /s/ MICHAEL F. REULING
--------------------------------
Name: Michael F. Reuling
Title: Vice President
COMPANY:
BUTTREY FOOD AND DRUG STORES COMPANY
By: /s/ JOSEPH H. FERNANDEZ
--------------------------------
Name: Joseph H. Fernandez
Title: Chairman, President and
Chief Executive Officer
Albertson's, Inc. ("Acquiror"), hereby guarantees the due performance of
any and all obligations and/or liabilities of Newco under or arising out of
this Agreement and the transactions contemplated hereby during the period up to
and including the Effective Date.
ACQUIROR:
ALBERTSON'S, INC.
By: /s/ MICHAEL F. REULING
--------------------------------
Name: Michael F. Reuling
Title: Executive Vice President
46.
<PAGE> 52
EXHIBIT A
CONDITIONS TO THE OFFER
Certain Conditions of the Offer. The Offer shall be conditioned upon a
minimum of a majority of the total issued and outstanding shares of Common
Stock, as defined in the Agreement, on the date such shares are purchased
pursuant to the Offer (the "Minimum Shares") being validly tendered and not
withdrawn prior to 12:01 A.M., New York City time, [twenty Business Days after
the date the Offer is commenced] or such later date as the Offer may be
extended by an amendment to this Agreement in accordance with the provisions of
Section 1.1 or as the Offer shall be extended as provided in the Agreement.
Moreover, notwithstanding any other provision of the Offer, and subject to the
terms and conditions of the Agreement, Newco shall not be obligated to accept
for payment any shares of Common Stock until expiration of all applicable
waiting periods under the HSR Act, and Newco shall not be required to accept
for payment, purchase or pay for, and may delay the acceptance for payment of
or payment for, any shares of Common Stock tendered in the Offer, or if the
Minimum Shares shall not have been validly tendered pursuant to the Offer and
not withdrawn, may terminate or amend the Offer, subject to the terms and
conditions of the Agreement and Newco's obligation to extend the Offer pursuant
to Section 1.1 if, prior to the time of acceptance for payment of any such
shares of Common Stock (whether or not any other shares of Common Stock have
theretofore been accepted for payment or paid for pursuant to the Offer), any
of the following shall occur and remain in effect:
(a) a United States or state governmental authority or
other agency or commission or United States or state court of competent
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
statute, rule, regulation, injunction or other order which is in effect and has
the effect of making the acquisition of Common Stock by Newco illegal or
imposes material limitations on the ability of Newco to acquire shares of
Common Stock or otherwise prohibiting consummation of the transactions
contemplated by this Agreement, subject to Acquiror's and Newco's obligations
pursuant to Sections 1.1 and 7.11 of the Agreement and Acquiror's agreement not
to terminate the Offer as long as any such injunction or order has not become
final and non-appealable;
(b) there shall have occurred (i) any general suspension
of, or limitation on prices for, trading in securities on the NYSE, and such
event shall have continued to exist for a period in excess of 24 hours
(excluding suspensions or limitations resulting solely from physical damage or
interference with such exchanges not related to market conditions), (ii) a
declaration of a banking moratorium or any suspension of payments in respect of
banks in the United States, (iii) any limitation by any United States
governmental authority on the extension of credit generally by banks or other
financial institutions or (iv) in the case of any of the foregoing existing at
the time of the commencement of the Offer, a material acceleration or worsening
thereof;
1.
<PAGE> 53
(c) either (i) (A) any of the representations or warranties
of the Company in the Agreement set forth in Sections 6.2, 6.3, 6.4 and 6.25
shall not be true and correct in all material respects or (B) any other
representations or warranties of the Company in the Agreement shall not be true
and correct which inaccuracy singly or in the aggregate would have or be
reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition (financial
or otherwise), results of operations, assets or liabilities of the Company and
the Subsidiary taken as a whole and in either case are not reasonably capable
of being cured by the Company or have not been cured within ten Business Days
after the giving of written notice to the Company in each case as if such
representations or warranties were made as of such time on or after the date of
the Agreement (unless a representation speaks as of an earlier date, in which
case it shall be deemed to have been made as of such earlier date); or (ii) the
Company shall have failed to perform any obligation or to comply with any
agreement or covenant of the Company to be performed or complied with by it
under the Agreement, which failure singly or in the aggregate would have or be
reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition (financial
or otherwise), results of operations, assets or liabilities of the Company and
the Subsidiary taken as a whole and is not reasonably capable of being cured
by the Company or has not been cured within ten Business Days after the giving
of written notice to the Company; and the Chief Executive Officer of the
Company shall have provided a certificate to the effect that the conditions set
forth in clauses (i) or (ii) have not occurred on the date shares are to be
accepted for payment pursuant to the Offer;
(d) since the date of this Agreement and subject to Section
9.1(k) of the Agreement, there shall have been any material adverse change in
the business, operations, properties (including intangible properties),
condition (financial or otherwise), results of operations, assets or
liabilities of the Company and the Subsidiary, taken as a whole, excluding any
such change occurring at any time after the date of this Agreement caused by
(i) a general change in the economy (including any such change caused by a
general change in the markets served by the Company and the Subsidiary) or (ii)
the institution or threat of any suit, arbitration, mediation, action,
proceeding, complaint or grievance which challenges any of the transactions
contemplated by this Agreement or any action required in connection with the
resolution of matters relating to the Antitrust Laws, and excluding any such
change occurring after the 90th day following the execution of this Agreement
caused by the voluntary termination of employment by employees of the Company
or the Subsidiary or a closure of, or any labor disruption, slowdown or strike
relating to, the Company's principal distribution center located in Great
Falls, Montana;
(e) the Board of Directors of the Company (i) shall have
amended, modified or withdrawn its recommendation of the Offer or the Merger,
subject to Sections 7.5 and 9.1(e), (ii) shall have endorsed, approved or
recommended any Superior Proposal in accordance with Section 7.5 or (iii) the
Company shall have entered into any agreement with respect to any Superior
Proposal in accordance with Section 7.5;
(f) any person or group (as defined in Section 13(d)(3) of
the Exchange Act), other than the Acquiror or Newco or any of their respective
subsidiaries or affiliates, shall have
2.
<PAGE> 54
become the beneficial owner (as defined in Rule 13d-3 promulgated under the
Exchange Act) of more than 25% of the outstanding shares of Common Stock
(either on a primary or a fully diluted basis); provided, however, that this
provision shall not apply to any person that beneficially owns more than 25% of
the outstanding shares of Common Stock on the date hereof so long as such
person does not further increase its beneficial ownership beyond the number of
shares of Common Stock such person beneficially owns on the date of the
Agreement; or
(g) the Agreement shall have been terminated by the Company
or the Acquiror pursuant to its terms;
which, in the reasonable judgment of the Acquiror and Newco, in any such case,
and regardless of the circumstances (including any action or inaction by the
Acquiror or Newco) giving rise to any such conditions, makes it inadvisable to
proceed with the Offer and/or with such acceptance for payment of or payment
for shares of Common Stock. The foregoing conditions are for the sole benefit
of the Acquiror and Newco and may be asserted by the Acquiror and Newco
regardless of the circumstances giving rise to such condition or may be waived
by the Acquiror and Newco in whole or in part at any time and from time to
time. The failure by the Acquiror or Newco at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right and each such
right shall be deemed an ongoing right that may be asserted at any time and
from time to time.
3.
<PAGE> 1
EXHIBIT 99.2
TENDER AND OPTION AGREEMENT
TENDER AND OPTION AGREEMENT, dated as of January 19, 1998 (the
"Agreement"), by and among Albertson's Inc., a Delaware corporation
("Acquiror"), Locomotive Acquisition Corp., a Delaware corporation and
wholly-owned subsidiary of Acquiror ("Newco"), and FS Equity Partners II, L.P.,
a California limited partnership (the "Stockholder").
WHEREAS, the Stockholder is the owner of 4,389,879 shares (the
"Shares") of Common Stock, par value $.01 per share (the "Common Stock"), of
Buttrey Food and Drug Stores Company (the "Company");
WHEREAS, the Acquiror, Newco and the Company have entered into an
Agreement and Plan of Merger, dated as of the date hereof (as amended from time
to time, the "Merger Agreement"), which provides, among other things, that,
upon the terms and subject to the conditions therein, Newco will make a cash
tender offer (the "Offer") for all of the outstanding shares of Common Stock
and after expiration of the Offer will merge with the Company (the "Merger");
and
WHEREAS, as a condition to the willingness of Acquiror and Newco to
enter into the Merger Agreement, Acquiror has requested that the Stockholder
agree, and in order to induce Acquiror and Newco to enter into the Merger
Agreement, the Stockholder has agreed, to enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants and agreements set forth herein, and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, and subject to the terms and conditions set forth herein,
the parties hereto hereby agree as follows:
1. Representations and Warranties of the Stockholder. The
Stockholder represents and warrants to the Acquiror as follows:
a. The Stockholder is the sole record and beneficial
owner (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), which meaning will apply for all purposes of this
Agreement) of the Shares and there exist no liens, claims, security interests,
options, proxies, voting agreements, charges, obligations, understandings,
arrangements or other encumbrances of any nature whatsoever, except for
restrictions applicable thereto under federal and state securities laws
("Liens"), affecting the Shares.
<PAGE> 2
b. The Shares and the certificates representing the
Shares are now and at all times during the term hereof will be held by the
Stockholder, or by a nominee or custodian for the benefit of the Stockholder
free and clear of all Liens, except for any Liens arising hereunder. Upon
transfer to Acquiror by the Stockholder of the Shares hereunder, Acquiror will
have good and marketable title to the Shares, free and clear of all Liens.
c. Except for the Shares, the Stockholder does not,
directly or indirectly, beneficially own or have any option, warrant or other
right to acquire any securities of the Company nor is the Stockholder subject
to any contract, commitment, arrangement, understanding or relationship that
allows or obligates it to vote or acquire any securities of the Company.
d. The Stockholder is a limited partnership duly formed,
validly existing and in good standing under the laws of California and has full
partnership power and authority to execute, deliver and perform this Agreement
and to consummate the transactions contemplated hereby. The execution,
delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby have been duly and validly authorized by the
Stockholder. This Agreement has been duly and validly executed and delivered
by the Stockholder and, assuming due authorization, execution and delivery by
Acquiror and Newco, constitutes a valid and binding agreement of the
Stockholder, enforceable against the Stockholder in accordance with its terms,
except to the extent that enforceability may be limited by applicable
bankruptcy, reorganization, insolvency, moratorium or other laws affecting the
enforcement of creditors' rights generally and by general principles of equity,
regardless of whether such enforceability is considered in a proceeding in
equity or at law.
e. The execution and delivery of this Agreement by the
Stockholder does not, and the performance by the Stockholder of its obligations
hereunder will not, constitute a violation of, conflict with, result in a
default (or an event which, with notice or lapse of time or both, would result
in a default) under, or result in the creation of any Lien on any Shares under,
(i) any material contract, commitment, agreement, partnership agreement,
understanding, arrangement or restriction of any kind to which the Stockholder
is a party or by which the Stockholder is bound, (ii) any material judgment,
writ, decree, order or ruling applicable to the Stockholder or (iii) any
material law applicable to the Stockholder.
f. To the Stockholder's knowledge, neither the execution
and delivery of this Agreement nor the performance by the Stockholder of its
obligations hereunder will require any consent, authorization or approval of,
filing with or notice to, any court, administrative agency or other
governmental body or authority, other than any required notices or filings
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
state antitrust laws or the federal securities laws.
g. Except as set forth on Schedule 6.7 to the Merger
Agreement and except for actions instituted or, to the Stockholder's knowledge,
threatened after the date hereof
2
<PAGE> 3
challenging or seeking to prevent, or which arise as a result, directly or
indirectly, of the consummation of the transactions contemplated by this
Agreement or the Merger Agreement and solely with respect to matters set forth
in this Section 1(g) in which the Stockholder or any of its partners or
employees is a party, (i) there are no material suits, claims, arbitrations,
mediations, actions or proceedings pending or, to the best of the Stockholder's
knowledge, threatened or, to the best of the Stockholder's knowledge,
investigations pending or threatened against the Company or the Subsidiary or
with respect to any material property or assets of either of them before any
Governmental Authority and (ii) neither the Company nor the Subsidiary, nor a
material amount of the property or assets of either of them, is subject to any
material order, judgment, injunction or decree.
h. As of the date hereof, except as set forth on
Schedule 6.24 to the Merger Agreement or in the Company SEC Filings filed prior
to the date hereof, since February 1, 1997, there have been no transactions,
agreements, arrangements or understandings between the Company or the
Subsidiary, on the one hand, and the Stockholder or any of its partners or
employees, on the other hand, that would be required to be disclosed under Item
404 of Regulation S-K under the Securities Act.
i. Neither the Company nor the Subsidiary has any
outstanding liabilities or obligations to the Stockholder or any of its
partners or employees that were not fully reflected or reserved against in the
Company Balance Sheet, except for immaterial travel and other expenses related
to service as a director and obligations relating to service as a director
(including indemnity obligations).
2. Representations and Warranties of Acquiror and Newco.
Acquiror and Newco jointly and severally represent and warrant to the
Stockholder as follows:
a. Each of Acquiror and Newco is duly organized and
validly existing and in good standing under the laws of the State of Delaware,
has the requisite corporate power and authority to execute and deliver this
Agreement and to consummate the transactions contemplated hereby, and has taken
all necessary corporate action to authorize the execution, deliver and
performance of this Agreement. This Agreement has been duly and validly
executed and delivered by each of Acquiror and Newco and constitutes the legal,
valid and binding obligation of each of Acquiror and Newco, enforceable against
each of Acquiror and Newco in accordance with its terms, except to the extent
that enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium or other laws affecting the enforcement of creditors'
rights generally and by general principles of equity, regardless of whether
such enforceability is considered in a proceeding in equity or at law.
b. The execution and delivery of this Agreement by each
of Acquiror and Newco does not, and the performance by each of Acquiror and
Newco of its obligations hereunder will not, constitute a violation of,
conflict with, or result in a default (or an event which, with notice or lapse
of time or both, would result in a default) under, its certificate of
incorporation or bylaws or any contract, commitment, agreement, understanding,
arrangement
3
<PAGE> 4
or restriction of any kind to which Acquiror or Newco is a party or by which
Acquiror or Newco is bound or any judgment, writ, decree, order or ruling
applicable to Acquiror or Newco.
c. Neither the execution and delivery of this Agreement
nor the performance by each of Acquiror and Newco of its obligations hereunder
will violate any order, writ, injunction, judgment, law, decree, statute, rule
or regulation applicable to Acquiror or Newco or require any consent,
authorization or approval of, filing with, or notice to, any court,
administrative agency or other governmental body or authority, other than any
required notices or filings pursuant to the HSR Act, state antitrust laws or
the federal securities laws.
3. Tender of Shares.
a. Acquiror and Newco jointly and severally agree:
i. subject to the conditions of the Offer set
forth in Exhibit A to the Merger Agreement and the other terms and conditions
of the Merger Agreement, that Newco will commence the Offer within five (5)
Business Days (as defined in the Merger Agreement) after the execution of this
Agreement;
ii. subject to the conditions of the Offer set
forth in Exhibit A to the Merger Agreement and the other terms and conditions
of the Merger Agreement, that Newco will purchase all shares of Common Stock
tendered pursuant to the Offer as promptly as practicable following
commencement of the Offer and that Newco will consummate the Merger in
accordance with the terms of the Merger Agreement; and
iii. not to decrease the price per share to be
paid to the Company's stockholders in the Offer below $15.50 per share (the
"Tender Offer Price"). The provisions of Section 3(a) shall survive the
termination of this Agreement.
b. The Stockholder will (i) tender the Shares into the
Offer promptly, and in any event no later than the fifth Business Day following
the commencement of the Offer, or, if the Stockholder has not received the
Offer Documents by such time, within two Business Days following receipt of
such documents, and (ii) not withdraw any Shares so tendered (except in the
event the Stock Option is exercised). Upon the purchase of all the Shares
pursuant to the Offer in accordance with this Section 3, this Agreement will
terminate. The Stockholder will receive the same price per Share received by
other stockholders of the Company in the Offer with respect to Shares tendered
by it in the Offer. In the event that, notwithstanding the provisions of the
first sentence of this Section 3(b), any Shares are for any reason withdrawn
from the Offer or are not purchased pursuant to the Offer, such Shares will
remain subject to the terms of this Agreement. The Stockholder acknowledges
that Newco's obligation to accept for payment and pay for the Shares in the
Offer is subject to all the terms and conditions of the Offer. On the date the
Shares are accepted for payment and purchased
4
<PAGE> 5
by Newco pursuant to the Offer, Newco or Acquiror, as the case may be, shall
make payment by wire transfer to the Stockholder of the purchase price for such
Shares to an account designated by the Stockholder in the Offer Documents.
c. The Stockholder hereby agrees to permit Acquiror to
publish and disclose in the Offer Documents and, if approval of the
stockholders of the Company is required under applicable law, the Proxy
Statement, its identity and ownership of Common Stock and the nature of its
commitments, arrangements and understandings under this Agreement.
4. Option to Purchase.
a. The Stockholder hereby grants to Acquiror, subject to
the terms and conditions hereof, an irrevocable option (the "Stock Option") to
purchase the Shares at a purchase price per share of $15.50 per Share (the
"Exercise Price"), in the manner set forth in this Section 4. At any time
prior to the termination of the Stock Option hereunder, Acquiror (or a wholly
owned subsidiary of Acquiror) may exercise the Stock Option, in whole only, if
on or after the date hereof:
i. any corporation, partnership, individual,
trust, unincorporated association, or other entity or "person" (as defined in
Section 13(d)(3) of the Exchange Act) other than Acquiror or any of its
"affiliates" (as defined in the Exchange Act) (a "Third Party"), will have:
A. commenced or announced an intention
to commence a bona fide tender offer or exchange offer for any shares of Common
Stock, the consummation of which would result in "beneficial ownership" (as
defined in the Exchange Act) by such Third Party (together with all such Third
Party's affiliates and "associates" (as defined in the Exchange Act)) of 50% or
more of the then outstanding voting equity of the Company (either on a primary
or a fully diluted basis);
B. acquired beneficial ownership of
shares of Common Stock that, when aggregated with any shares of Common Stock
already owned by such Third Party, its affiliates and associates, would result
in the aggregate beneficial ownership by such Third Party, its affiliates and
associates of 25% or more of the then outstanding voting equity of the Company
(either on a primary or a fully diluted basis); provided, however, that "Third
Party" for purposes of this clause (B) does not include any corporation,
partnership, person, other entity or group that beneficially owns more than 25%
of the outstanding voting equity of the Company (either on a primary or a fully
diluted basis) as of the date hereof and that does not, after the date hereof,
increase such ownership percentage by more than an additional 1% of the
outstanding voting equity of the Company (either on a primary or a fully
diluted basis);
C. acquired assets constituting 25% or
more of the total assets or earning power of the Company taken as a whole;
5
<PAGE> 6
D. entered into an agreement with the
Company that contemplates the acquisition of (x) assets constituting 25% or
more of the total assets or earning power of the Company taken as a whole or
(y) beneficial ownership of 25% or more of the outstanding voting equity of the
Company; or
ii. any of the events described in Section 9.1(e)
or 9.1(f) of the Merger Agreement that would allow the Company or Acquiror to
terminate the Merger Agreement has occurred (after the passage of any time
periods set forth in such sections but without the necessity of the Company or
Acquiror having terminated the Merger Agreement).
In the event that Acquiror wishes to exercise the Stock
Option, Acquiror shall give written notice (the "Option Notice", with the date
of the Option Notice being hereinafter called the "Notice Date") to the
Stockholder specifying the place and date (not earlier than three nor later
than ten Business Days from the Notice Date) for closing such purchase (a
"Closing"). Acquiror's obligation to purchase the Shares upon any exercise of
the Stock Option and the Stockholder's obligation to sell the Shares upon any
exercise of the Stock Option are subject (at the election of Acquiror and the
Stockholder, respectively,) to the conditions that (i) no preliminary or
permanent injunction or other order prohibiting the purchase, issuance or
delivery of the Shares issued by any Governmental Authority will be in effect
and (ii) any applicable waiting period required for the purchase of Shares
under the HSR Act will have expired or an agreement shall have been reached
with Governmental Authorities with respect to the Antitrust Laws authorizing
consummation of the transactions contemplated hereby, provided that if such
injunction or other order has become final and nonappealable, the Stock Option
shall terminate; and provided further, that if the Stock Option is not
exercisable because either of the circumstances described in clauses (i) or
(ii) exist, then the Stock Option shall be exercisable for the ten Business Day
period commencing on the date that the circumstances set forth in clauses (i)
or (ii) cease to exist, but in no event shall the Stock Option be exercisable
after the date set forth in Section 9(c). Acquiror's obligation to purchase
the Shares upon exercise of the Stock Option is further subject (at Acquiror's
election) to the condition that there will have been no material breach of the
representations, warranties, covenants or agreements of the Stockholder
contained in this Agreement or of the Company contained in the Merger Agreement
which breach has not been cured within ten Business Days of the receipt of
written notice thereof from the Acquiror. The Stockholder's obligation to sell
the Shares upon exercise of the Stock Option and the Stockholder's obligations
under Section 7 are subject (at the Stockholder's election) to the further
conditions that there will have been no material breach of the representations,
warranties, covenants or agreements of Acquiror or Newco contained in this
Agreement or contained in the Merger Agreement, which breach has not been cured
within ten Business Days of the receipt of written notice thereof from the
Stockholder. Acquiror agrees to use its best efforts to cause any such waiting
period or injunction or order to be terminated or lifted and to obtain all
necessary regulatory approvals under the Antitrust Laws.
b. At the Closing, (i) the Stockholder shall deliver to
Acquiror the certificate or certificates representing the Shares in proper form
for transfer upon exercise of
6
<PAGE> 7
the Stock Option in the denominations designated by Acquiror in the Option
Notice and (ii) Acquiror shall pay the aggregate purchase price for the Shares
by wire transfer of immediately available funds to an account designated by the
Stockholder in writing to Acquiror in the amount equal to the product of the
Exercise Price and the number of the Shares.
c. In the event that Acquiror or Newco pays a price
higher than $15.50 per share for Shares tendered into the Offer, the Exercise
Price shall be increased to equal such higher price.
d. The Stockholder has granted the Stock Option to
Acquiror in order to induce Acquiror to enter into and consummate the
transactions contemplated by the Merger Agreement. Acquiror and Newco covenant
and agree that they will perform their respective obligations under the Merger
Agreement. The provisions of this Section 4(d) are intended both for the
benefit of the Stockholder and for the benefit of the Company and the other
stockholders of the Company and may not be modified, waived or amended without
the consent of the Company.
5. Transfer of the Shares.
a. During the term of this Agreement, the Stockholder
will not offer to sell, sell, pledge or otherwise dispose of or transfer any
interest in or encumber with any Lien any of the Shares, (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of the Shares or any interest therein; (iii) grant any
proxy, power-of-attorney or other authorization or consent in or with respect
to the Shares; (iv) deposit the Shares into a voting trust or enter into a
voting agreement or arrangement with respect to the Shares; or (v) take any
other action with respect to the Shares that would in any way restrict, limit
or interfere with the performance of its obligations hereunder.
b. The Stockholder agrees to place the following legend
on any and all certificates evidencing the Shares:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE
SUBJECT TO CERTAIN RESTRICTIONS ON TRANSFER PURSUANT TO THAT
CERTAIN TENDER AND OPTION AGREEMENT, DATED AS OF JANUARY 19,
1998, BY AND BETWEEN ALBERTSON'S, INC. , LOCOMOTIVE
ACQUISITION CORP. AND FS EQUITY PARTNERS II, L.P. ANY
TRANSFER OF SUCH SHARES OF COMMON STOCK IN VIOLATION OF THE
TERMS OF SUCH AGREEMENT SHALL BE NULL AND VOID AND OF NO
EFFECT WHATSOEVER.
7
<PAGE> 8
6. Certain Other Agreements. The Stockholder shall notify
Acquiror immediately if any proposals are received by, any information is
requested from, or any negotiations or discussions are sought to be initiated
or continued with the Stockholder or its officers, directors, employees,
investment bankers, attorneys, accountants or other agents (each of such
actions, an "Interest"), in each case in connection with any Third Party
Transaction indicating, in connection with such notice, the name of the person
indicating such Interest and the terms and conditions of any related proposals
or offers. The Stockholder agrees to cease immediately and cause to be
terminated immediately any existing activities, discussions or negotiations
with any parties conducted heretofore with respect to any Third Party
Transaction. In addition, the Stockholder agrees to keep Acquiror informed, on
a current basis, of the status and terms of any Third Party Transaction. The
Stockholder furthermore agrees not to, and will use its best efforts to ensure
that its officers, directors, employees, investment bankers, attorneys,
accountants and other agents do not, directly or indirectly: (i) initiate,
solicit or encourage, or take any action to facilitate the making of, any offer
or proposal that constitutes or is reasonably likely to lead to any Third Party
Transaction, (ii) enter into any agreement with respect to any Third Party
Transaction or (iii) in the event of an unsolicited written proposal in respect
of a Third Party Transaction, engage in negotiations or discussions with, or
provide any information or data to, any person (other than Acquiror, any of its
affiliates or representatives and except for information that has been
previously publicly disseminated by the Company) relating to any Third Party
Transaction. The obligations provided for in this Section 6 shall become
effective immediately following the execution and delivery of this Agreement by
the parties hereto.
7. Voting of Shares; Grant of Irrevocable Proxy; Appointment of
Proxy.
a. The Stockholder hereby agrees that, during the term
of this Agreement, at any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the holders of Common Stock, however
called, or in connection with any written consent of the holders of Common
Stock, the Stockholder will appear at the meeting or otherwise cause the Shares
to be counted as present thereat for purposes of establishing a quorum and vote
or consent (or cause to be voted or consented) the Shares (i) in favor of the
Merger and (ii) against any action or agreement that would impede, interfere
with or prevent the Merger, including any other extraordinary corporate
transaction, such as a merger, reorganization or liquidation involving the
Company and a third party or any other proposal of a third party to acquire the
Company and (iii) if requested by Acquiror, in favor of a stockholder
resolution proposed by Acquiror in accordance with applicable provisions of the
Delaware General Corporation Law (the "DGCL") the purpose of which is to cause
the Offer and the Merger to be consummated and which does not relate to the
election of directors.
b. The Stockholder hereby irrevocably grants to, and
appoints, Acquiror and any nominee thereof, its proxy and attorney- in-fact
(with full power of substitution) during the term of this Agreement, for and in
the name, place and stead of the Stockholder, to vote the Shares, or grant a
consent or approval in respect of the Shares, in connection with any meeting of
the stockholders of the Company (i) in favor of the Merger and (ii) against any
8
<PAGE> 9
action or agreement that would impede, interfere with or prevent the Merger,
including any other extraordinary corporate transaction, such as a merger,
reorganization or liquidation involving the Company and a third party or any
other proposal of a third party to acquire the Company.
c. The Stockholder represents that all proxies
heretofore given in respect of the Shares, if any, are not irrevocable, and
hereby revokes all such proxies given with respect to the Shares.
d. The Stockholder hereby affirms that the irrevocable
proxy set forth in this Section 7 is given in connection with the execution of
the Merger Agreement and that such irrevocable proxy is given to secure the
performance of the duties of the Stockholder under this Agreement. The
Stockholder hereby further affirms that the irrevocable proxy set forth in this
Section 7 is coupled with an interest and is intended to be irrevocable in
accordance with the provisions of Section 212(e) of the DGCL.
8. Adjustments. The number and types of securities subject to
this Agreement will be appropriately adjusted in the event of any stock
dividends, stock splits, recapitalization, combinations, exchanges of shares or
the like or any other action that would have the effect of changing the
Stockholder's ownership of the Company's capital stock.
9. Termination. Except as otherwise specifically provided
herein, all obligations under this Agreement will terminate on the earliest of
(a) the date the Merger Agreement is terminated in accordance with its terms or
the date the Offer is terminated by Acquiror or Newco as a result of any
failure of a condition of the Offer; provided, however, that the provisions of
Sections 4(a) shall not terminate until sixty (60) days thereafter (or such
later time as permitted by Section 4(a)) if the Merger Agreement was terminated
pursuant to Section 9.1(e) or (f) thereof or the Offer was not consummated due
to the occurrence of the condition set forth in clause (e) of Exhibit A to the
Merger Agreement, (b) the purchase of all the Shares pursuant to the Offer in
accordance with Section 3 or pursuant to the Stock Option, or (c) on July 19,
1998; provided, that such date shall be extended to the date of termination of
the Merger Agreement if the Company has given notice of termination under
Section 9.1(c) of the Merger Agreement and Acquiror has given the No
Termination Notice. The provisions of Section 13 shall survive any termination
of this Agreement.
10. Effectiveness. This Agreement shall not be effective unless
and until it shall have been approved by the Company's Board of Directors.
11. Brokerage. Acquiror, Newco and the Stockholder represent and
warrant to the other that the negotiations relevant to this Agreement have been
carried on by Acquiror and Newco, on the one hand, and the Stockholder, on the
other hand, directly with the other, and that there are no claims for finder's
fees or brokerage commissions or other like payments in connection with this
Agreement or the transactions contemplated hereby. Acquiror and Newco, on the
one hand, and each Stockholder, on the other hand, will indemnify and hold
9
<PAGE> 10
harmless the other from and against any and all claims or liabilities for
finder's fees or brokerage commissions or other like payments incurred by
reason of action taken by him, it or any of them, as the case may be.
12. Miscellaneous.
a. Except for the representations and warranties set
forth in Section 1(b), all representations and warranties contained herein will
terminate upon the termination of this Agreement.
b. Any provisions of this Agreement may be waived at any
time by the party that is entitled to the benefits thereof. No such waiver,
amendment or supplement will be effective unless in writing and is signed by
the party or parties sought to be bound thereby. Any waiver by any party of a
breach of any provision of this Agreement will not operate as or be construed
to be a waiver of any other breach of such provisions or of any breach of any
other provision of this Agreement. The failure of a party to insist upon
strict adherence to any term of this Agreement or one or more sections hereof
will not be considered a waiver or deprive that party of the right thereafter
to insist upon strict adherence to that term or any other term of this
Agreement.
c. This Agreement contains the entire agreement among
the parties in respect to the subject matter hereof, and supersedes all prior
agreements among the parties with respect to such matters. This Agreement may
not be amended, changed, supplemented, waived or otherwise modified, except
upon the delivery of a written agreement executed by the parties hereto.
d. This Agreement will be governed by and construed in
accordance with the laws of the State of Delaware applicable to contracts made
and performed in that state. Each party hereto hereby (i) irrevocably and
unconditionally submits in any legal action or proceeding relating to this
Agreement, or for recognition and enforcement of any judgment in respect
thereof, to the exclusive general jurisdiction of the state and federal courts
in the state of Delaware, and appellate courts from any thereof and (ii)
consents that any action or proceeding may be brought in such courts and waives
any objection that it may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or proceeding was brought
in an inconvenient court and agrees not to plead or claim the same. Each of
the parties hereto acknowledges and agrees that in the event of any breach of
this Agreement, each non-breaching party would be irreparably and immediately
harmed and could not be made whole by monetary damages. It is accordingly
agreed that the parties hereto (i) will waive, in any action for specific
performance, the defense of adequacy of a remedy at law and (ii) will be
entitled, in addition to any other remedy to which they may be entitled at law
or in equity, to compel specific performance of this Agreement in any action
instituted in any state or federal court sitting in Wilmington, Delaware.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Merger Agreement.
10
<PAGE> 11
e. The descriptive headings contained herein are for
convenience and reference only and will not affect in any way the meaning or
interpretation of this Agreement.
f. All notices and other communications hereunder will
be in writing and will be given (and will be deemed to have been duly given
upon receipt) by delivery in person, by telecopy, or by registered or certified
mail, postage prepaid, return receipt requested, addressed as follows:
If to Stockholder to:
FS Equity Partners II, L.P.
11100 Santa Monica Boulevard
Suite 1900
Los Angeles, CA 90025
Attention: J. Frederick Simmons
Telephone: (310) 444-1822
Telecopy: (310) 444-1870
with a copy to:
Riordan & McKinzie
300 S. Grand Avenue, 29th Floor
Los Angeles, CA 90071
Attention: Richard J. Welch, Esq.
Telephone: (213) 229-8510
Telecopy: (213) 229-8550
If to Acquiror or Newco to:
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, ID 83726
Attention: Gary G. Michael, Chairman
Telephone: (208) 395-6200
Telecopy: (208) 395-6225
11
<PAGE> 12
with a copy to:
Albertson's, Inc.
250 Parkcenter Boulevard
P.O. Box 20
Boise, ID 83726
Attention: Thomas R. Saldin, Esq.
Telephone: (208) 395-6200
Telecopy: (208) 395-6672
and:
Skadden, Arps, Slate, Meagher & Flom
Four Embarcadero Center, Suite 3800
San Francisco, CA 94111
Attention: Theodore J. Kozloff, Esq.
Telephone: (415) 984-6400
Telecopy: (415) 984-2698
or to such other address as any party may have furnished to the other parties
in writing in accordance herewith.
g. This Agreement may be executed in any number of
counterparts, each of which will be deemed to be an original, but all of which
together will constitute one agreement.
h. This Agreement is binding upon and is solely for the
benefit of the parties hereto and their respective successors, legal
representatives and assigns. Neither this Agreement nor any of the rights,
interests or obligations under this Agreement may be assigned by any of the
parties hereto without the prior written consent of the other parties.
i. If any term or other provision of this Agreement is
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other terms and provisions of this Agreement will
nevertheless remain in full force and effect as long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party hereto. Upon any such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the parties
hereto will negotiate in good faith to modify this Agreement so as to effect
the original intent of the parties as closely as possible in an acceptable
manner to the end that the transactions contemplated by this Agreement are
consummated to the extent possible.
j. All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity will be
cumulative and not alternative,
12
<PAGE> 13
and the exercise of any thereof by either party will not preclude the
simultaneous or later exercise of any other such right, power or remedy by such
party.
13. Expenses. Except as provided in Section 4 hereof, all fees
and expenses incurred by any one party hereto shall be borne by the party
incurring such fees and expenses.
14. Further Assurances; Stockholder Capacity.
a. The Stockholder shall, upon request of Acquiror or
Newco, execute and deliver any additional documents and take such further
actions as may reasonably be deemed by Acquiror or Newco to be necessary or
desirable to carry out the provisions hereof and to vest the power to vote the
Shares as contemplated by Section 7 hereof in Acquiror.
b. Nothing in this Agreement shall be construed to
prohibit any affiliate of the Stockholder who is a member of the Board of
Directors of the Company from taking any action solely in his capacity as a
member of the Board of Directors of the Company to the extent specifically
permitted by the Merger Agreement or as required by applicable law.
13
<PAGE> 14
IN WITNESS WHEREOF, the Acquiror, Newco and the Stockholder have
caused this Agreement to be signed by their respective officers or
representatives thereunto duly authorized, all as of the date first written
above.
ACQUIROR:
ALBERTSON'S, INC.
By: /s/ MICHAEL F. REULING
----------------------------------
Name: Michael F. Reuling
-----------------------------
Title: Executive Vice President
----------------------------
NEWCO:
LOCOMOTIVE ACQUISITION CORP.
By: /s/ MICHAEL F. REULING
----------------------------------
Name: Michael F. Reuling
-----------------------------
Title: Vice President
----------------------------
STOCKHOLDER:
FS EQUITY PARTNERS II, L.P.
By: Freeman Spogli & Co.
Its: General Partner
By: /s/ WILLIAM M. WARDLAW
----------------------------------
Name: William M. Wardlaw
Title: General Partner
<PAGE> 1
EXHIBIT 99.3
Directors. Any proxy given by a stockholder may be revoked at any time before
it is exercised, by filing with the Secretary of the Company an instrument
revoking it, by delivering a duly executed proxy bearing a later date, or by
the stockholder's attending the 1997 Annual Meeting and expressing a desire to
vote his or her shares in person.
Proxies for the 1997 Annual Meeting are being solicited by mail directly
and through brokerage and banking institutions. The Company will pay all
expenses in connection with the solicitation of proxies. In addition to the use
of mails, proxies may be solicited by directors, officers and regular employees
of the Company personally or by telephone. The Company does not expect to pay
any fees or compensation for the solicitation of proxies but may reimburse
brokers and other persons holding stock in their names, or in the names of
nominees for their expenses in sending proxy materials to principals and
obtaining their proxies.
All stockholders are urged to complete, sign and promptly return the
enclosed proxy card.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of April 23, 1997 by (i) each
person who is known by the Company to be the beneficial owner of more than 5%
of the Common Stock, (ii) each director and Named Executive Officer of the
Company, individually, and (iii) all current directors and executive officers
as a group:
<TABLE>
<CAPTION>
Amount and Nature of Percent of
Name of Beneficial Ownership Outstanding
Beneficial Owner(1) of Common Stock Common Stock
------------------- -------------------- ------------
<S> <C> <C>
Freeman Spogli & Co.(2)..................... 4,389,879 50.8%
J. Frederick Simmons......................
Ronald P. Spogli..........................
William M. Wardlaw........................
Merrill Lynch & Co., Inc.(3)................ 516,900 6.0
Franklin Resources, Inc.(4)................. 656,000 7.6
Pioneering Management Corporation(5)........ 566,500 6.6
Joseph H. Fernandez(6)...................... 225,445 2.6
Robert P. Gannon(7)......................... 3,825 *
Michael P. Malone........................... 1,100 *
Peter J. Sodini............................. 45,000 *
Matt L. Figel............................... 0 *
Thomas C. Young(7).......................... 4,125 *
Wayne S. Peterson(8)........................ 41,478 *
Louis J. Rizzo(9)........................... 32,000 *
John E. Sullivan(10)........................ 53,289 *
Craig A. Wright(11)......................... 8,310 *
All directors and executive
officers as a group (15) persons.......... 4,804,451(12) 55.6%
</TABLE>
- -------------
* Less than 1%.
(1) Except as otherwise indicated in this table and the notes thereto, the
persons named have sole voting power and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) All shares indicated are owned of record by FS Equity Partners II, L.F.
("FSEP"), of which Freeman Spogli & Co. ("FS&Co.") is the general partner.
As general partner, FS&Co. has the sole power to vote and dispose of such
shares. Messrs. Simmons, Spogli and Wardlaw (all of whom are directors of
the Company), Mr. Bradford M. Freeman and Mr. John Roth are general
partners of FS&Co., and as such may be deemed to be the beneficial owners
of the shares of Common Stock indicated as beneficially owned by FS&Co.
The business address of FS&Co., its general partners and FSEP is 11100
Santa Monica Boulevard, Suite 1900, Los Angeles, California 90025.
2
<PAGE> 2
(3) As reported in a Schedule 13G dated February 14, 1997 filed jointly with
the Securities and Exchange Commission (the "Commission") by Merrill Lynch
& Co., Inc. ("Merrill Lynch"), Merrill Lynch Group, Inc. ("ML Group"),
Princeton Services, Inc. ("PSI), Merrill Lynch Asset Management, L.P.
("MLAM") and Merrill Lynch Global Allocation Fund, Inc. ("Merrill Fund"),
Merrill Lynch, ML Group, PSI, MLAM and Merrill Fund have claimed shared
voting and dispositive power with respect to all such shares. Merrill
Lynch, ML Group and PSI are parent holding companies and have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G; MLAM is an investment adviser registered under Section 203 of
the Investment Advisers Act of 1940 (the "Advisers Act"); and Merrill Fund
is an investment company registered under Section 8 of the Investment
Company Act of 1940.
(4) As reported in a Schedule 13G dated February 12, 1997 filed jointly with
the Commission by Franklin Resources, Inc. ("FRI"), Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc. ("FAS"), FAS
has claimed sole voting and dispositive power with respect to all such
shares. The securities of the Company reported in the Schedule 13G are
beneficially owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries (the "Advisor Subsidiaries") of FRI, the
principal shareholders of which are Messrs. Johnson and Johnson
(collectively, the "Principal Shareholders"). FRI, the Principal
Shareholders and each of the Advisor Subsidiaries have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G.
(5) As reported in a Schedule 13G dated January 21, 1997 filed with the
Commission by Pioneering Management Corporation ("Pioneering"), Pioneering
has claimed sole voting power with respect to all such shares, sole
dispositive power with respect to 20,000 of such shares, and shared
dispositive power with respect to 546,500 of such shares. Pioneering is an
investment adviser registered under Section 203 of the Advisers Act.
(6) Amount includes 107,456 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 5,709 shares held by the Buttrey Company
Retirement Estates, the Company's retirement plan (the "BCRE") for the
account of Mr. Fernandez, based on a plan statement of the BCRE dated
December 31, 1996.
(7) Amount includes 3,125 shares issuable upon exercise of options which will
become fully exercisable on, and only if the recipient continues to serve
as a Director until the Company's 1997 Annual Meeting of Stockholders.
(8) Amount includes 12,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 16,212 shares held by the BCRE for the account
of Mr. Peterson, based on a plan statement of BCRE dated December 31, 1996.
(9) Amount includes 12,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997.
(10) Amount includes 8,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 5,956 shares held by the BCRE for the account of
Mr. Sullivan, based on a plan statement of the BCRE dated December 31,
1996.
(11) Amount includes 8,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, April 23,
1997. Amount also includes 310 shares held by the BCRE for the account of
Mr. Wright, based on a plan statement of the BCRE dated December 31, 1996.
(12) Amount includes an aggregate of 156,706 shares issuable upon exercise of
options which are exercisable as of, or will become exercisable within 60
days of, April 23, 1997. Amount also includes an aggregate of 28,187 shares
held by the BCRE for the accounts of Messrs. Fernandez, Peterson, Rizzo,
Sullivan and Wright, based on a plan statement of the BCRE dated December
31, 1996.
3
<PAGE> 3
PROPOSAL 1 - ELECTION OF DIRECTORS
Ten directors are to be elected at the 1997 Annual Meeting to serve
until the next annual meeting of stockholders and until their respective
successors have been elected and qualified. In the absence of instructions to
the contrary, proxies covering shares of Common Stock will be voted in favor of
the election of the persons listed below. In the event that any nominee for
election as director should become unavailable to serve, it is intended that
votes will be cast, pursuant to the enclosed proxy, for such substitute nominee
as may be nominated by the Company. Management has no present knowledge that
any of the persons named will be unavailable to serve.
No arrangement or understanding exists between any nominee and any
other person or persons pursuant to which any nominee was or is to be selected
as a director or nominee, other than as provided for Mr. Fernandez in his
employment agreement with the Company. See "Executive Officers, Compensation
and Other Information - Compensation - Employment and Severance Agreements."
None of the nominees has any family relationship to any other nominee or to any
executive officer of the Company.
INFORMATION CONCERNING INCUMBENT DIRECTORS
Information is set forth below concerning the incumbent directors, all
of whom are also nominees for election as directors, and the year in which each
incumbent director was first elected as a director of the Company. Each nominee
has furnished the information as to his beneficial ownership of Common Stock as
of April 23, 1997 and, if not employed by the Company, the nominee's principal
occupation. Each nominee has consented to being named in this Proxy Statement
as a nominee for director and has agreed to serve as a director if elected.
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- --------
<S> <C> <C> <C>
Joseph H. Fernandez 44 Chairman of the Board, President 1993
and Chief Executive Officer
Matt L. Figel+ 37 Director 1990
Robert P. Gannon* 52 Director 1992
Michael P. Malone+ 57 Director 1992
J. Frederick Simmons* 42 Director 1990
Peter J. Sodini* 56 Director 1990
Ronald P. Spogli* 49 Director 1990
William M. Wardlaw 50 Director 1990
Thomas C. Young+ 47 Director 1992
Wayne S. Peterson 39 Director 1995
</TABLE>
- ----------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
Mr. Fernandez became the President, Chief Operating Officer and a
Director of the Company in March 1993, became the Chief Executive Officer in
September 1993, and was elected as Chairman of the Board in August 1996. From
April 1991 to February 1993, Mr. Fernandez served as Executive Vice President
and Chief Operating Officer for Kings Super Markets, Inc.
Mr. Figel founded Boramar Capital, a private investment firm, in
January 1997. From October 1986 to December 1996, Mr. Figel was employed by
FS&Co. (or its affiliates). FS&Co. is a private investment company that was
founded in 1983. Mr. Figel became a Director of the Company in October 1990.
Mr. Figel is also a member of the Board of Directors of Calmar Inc.
Mr. Gannon became a Director of the Company in May 1992. Mr. Gannon has
served as Vice Chairman of Montana Power Company since January 1996 and as
President since January 1990. Mr. Gannon also served as Chief Operating Officer
of Montana Power Company from June 1992 until January 1996.
4.
<PAGE> 4
Mr. Malone became a Director of the Company in August 1992. Since January
1991, Mr. Malone has served as the President of Montana State University.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons became a Director of the Company in October 1990. Mr. Simmons
is also a member of the Board of Directors of EnviroSource, Inc.
Mr. Sodini became a Director of the Company in October 1990 and, from
October 1990 until March 1993, served as the Company's Chairman of the Board.
Since March 1996, Mr. Sodini has served as the Chief Executive Officer and
Chairman of the Board of The Pantry, Inc. From November 1995 to February 1996,
Mr. Sodini worked as an independent consultant. From December 1991 to October
1995, Mr. Sodini served as Chief Executive Officer and a Director of Purity
Supreme, Inc. ("Purity") and, from March 1993 to October 1995, also served as
the Chairman of the Board of Purity. Mr. Sodini also served as President of
Purity from December 1991 until August 1994. Mr. Sodini is also a member of the
Boards of Directors of The Pantry, Inc. and Pamida Holding Corporation.
Mr. Spogli is a founding partner of FS&Co. Mr. Spogli became a Director of
the Company in October 1990. Mr. Spogli is the Chairman of the Board and a
Director of EnviroSource, Inc. and also serves on the Boards of Directors of
Calmar Inc. and Brylane Inc.
Mr. Wardlaw joined FS&Co. in March 1988 and became a general partner in
January 1991. Mr. Wardlaw became a Director of the Company in October 1990. Mr.
Wardlaw is also a member of the Board of Directors of Calmar Inc.
Mr. Young became a Director of the Company in August 1992. Since December
1994, Mr. Young has served as a Director of the Portland branch of the Federal
Reserve Bank of San Francisco. Since October 1984, he has served as President,
Chief Executive Officer and Chairman of the Board of Northwest National Bank
and Chairman of the Board of Northwest Bancshares, Inc. Mr. Young has also
served as President of Admiralty Leasing, Inc. since October 1984.
Mr. Peterson became a Director of the Company in May 1995, Senior Vice
President of the Company in April 1995, Vice President and Chief Financial
Officer in June 1991, and Secretary in November 1991. From October 1990 until
June 1991, Mr. Peterson served as Vice President and Controller of the Company.
5.
<PAGE> 5
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee, which presently consists
of Messrs. Malone, Young and Figel, met once during the fiscal year ended
February 1, 1997 ("1996"). The Compensation Committee, which presently consists
of Messrs. Gannon, Simmons, Sodini and Spogli, met once during 1996, and took
various actions by unanimous written consent.
The Audit Committee recommends to the Board of Directors the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit
services and the fees for audit and other services; reviews outstanding
accounting and auditing issues with the independent auditors; and supervises or
conducts such additional projects as may be relevant to its duties The Audit
Committee is also responsible for reviewing and making recommendations with
respect to the Company's financial condition, its financial controls and
accounting practices and procedures.
The Compensation Committee recommends to the Board of Directors
compensation policies and guidelines for the Company's executives and oversees
the granting of incentive compensation, if any, to such persons. The
Compensation Committee also administers the Company's bonus and stock option
plans. See "Report of the Compensation Committee of the Board of Directors."
MEETINGS AND REMUNERATION
During 1996, the Board of Directors held five meetings and took various
actions by unanimous written consent. Each incumbent director other than
Messrs. Wardlaw and Sodini attended at least 75% of the aggregate of (i) the
total number of meetings held by the Board of Directors during 1996 and (ii)
the total number of meetings held by all committees of the Board of Directors
on which he served during that period.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified.
Except for non-employee directors of the Company who are not affiliated with
FS&Co. (each, an "Outside Director"), directors do not receive compensation for
services on the Board of Directors or on any Committees of the Board of
Directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the Board of Directors and on any Committees. In 1996, Messrs.
Gannon, Malone and Young (who at the time were the only Outside Directors of
the Company) each received compensation for their services of $1,500 for each
Board meeting attended. In addition, Mr. Malone received an annual retainer of
$5,000 and, at their election and in lieu of such annual retainer, Messrs.
Gannon and Young each received an option to purchase 3,125 shares of Buttrey
Common Stock at an exercise price of $6.40 per share pursuant to the Company's
1996 Directors Plan (as defined below). In 1997, Outside Directors of the
Company (currently Messrs. Figel, Gannon, Malone, Sodini and Young) each will
receive (i) $1,500 for each regular Board meeting attended, plus (ii) either
(x) an annual retainer of 45,000, or (y) at such director's election in lieu of
such annual retainer, an option to purchase shares of Buttrey Common Stock in
an amount and at an exercise price calculated pursuant to the terms of the 1996
Directors Plan. See "Executive Officers, Compensation and Other Information --
Stock Options -- 1996 Directors Plan."
6.
x
<PAGE> 6
EXECUTIVE OFFICERS, COMPENSATION AND OTHER INFORMATION
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held
by all executive officers of the Company.
<TABLE>
<CAPTION>
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
---- --- ------------------------- -----------------
<S> <C> <C> <C>
Joseph H. Fernandez 44 Chairman of the Board, President and 1993
Executive Officer
Joseph M. Livorsi 50 Senior Vice President-Sales and 1996
Merchandising
Wayne S. Peterson 39 Senior Vice President, Chief Financial 1990
Officer and Secretary
Louis J. Rizzo 51 Senior Vice President-Retail Operations 1994
and Store Development
John E. Sullivan 44 Vice President - Human Resources 1990
Craig A. Wright 33 Vice President - Non-Perishables 1995
Merchandising
</TABLE>
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. No arrangement exists between any
executive officer and any other person or persons pursuant to which any
executive officer was or is to be selected as an executive officer, other than
as provided for Mr. Fernandez in his employment agreement with the Company. See
"--Compensation -- Employment and Severance Agreements." None of the executive
officers has any family relationship to any nominee for director or to any other
executive officer of the Company. Set forth below is a brief description of the
business experience for the previous five years of all executive officers of the
Company except Messrs. Fernandez and Peterson. For information concerning the
business experience of Messrs. Fernandez and Peterson, see "Information
Concerning Incumbent Directors."
Mr. Livorsi became Senior Vice President, Sales and Merchandising of the
Company in October 1996. From July 1995 until July 1996, Mr. Livorsi was Senior
Vice President, Sales and Merchandising for Price Chopper Supermarkets in
Schenectady, New York. From July 1986 to July 1995, Mr. Livorsi held senior
marketing and merchandising positions with Randall's Food Markets in Houston,
Texas.
Mr. Rizzo became Senior Vice President-Merchandising and Store Operations
of the Company in April 1995, and Senior Vice President - Retail Operations and
Store Development in October 1996. From February 1994 until April 1995, Mr.
Rizzo served as Vice President - Sales and Merchandising of the Company. From
June 1991 until October 1993, Mr. Rizzo served as Vice President and Director of
Marketing for the eastern division of Safeway Stores, Inc.
Mr. Sullivan has served as Vice President-Human Resources of the Company
since October 1990.
Mr. Wright became Vice President-Support Services of the Company in April
1995, and Vice President - Non-Perishables Merchandising in October 1996. From
January 1995 to April 1995, Mr. Wright served as Director-Support Services.
From June 1993 to January 1995, Mr. Wright served as Director-Information
Technology, and from October 1990 to June 1993 he served as Manager-Store
Systems/Front-End Operations.
7
<PAGE> 7
COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid or
accrued by the Company for each of the fiscal years ended January 28, 1995
("1994"), February 3, 1996 ("1995") and February 1, 1997 ("1996"), for (i) the
Company's Chief Executive Officer, and (ii) each of the other four most highly
compensated executive officers of the Company who were serving as executive
officers at February 1, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG TERM
ANNUAL COMPENSATION COMPENSATION
---------------------------------------------------- ------------
OTHER SECURITIES
NAME AND PRINCIPAL ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS(1)($) COMPENSATION(2)($) OPTIONS(#) COMPENSATION($)
- ------------------------ ---- --------- ----------- ------------------ ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Fernandez 1996 300,417 0 0 130,000(3) 11,658(4)
Chairman of the Board, 1995 247,500 200,561 0 30,000(5) 8,923
President and Chief 1994 225,000 25,000 0 15,000(6) 47,248
Executive Officer
Louis J. Rizzo 1996 145,000 0 0 12,000(3) 11,585(7)
Senior Vice President - 1995 140,000 40,518 0 12,000(5) 9,338
Retail Operations and 1994 127,679 0 0 0 31,783
Store Development
Wayne S. Peterson 1996 125,100 0 0 12,000(3) 11,388(8)
Senior Vice President, 1995 117,500 69,006 0 12,000(5) 11,285
Chief Financial Officer 1994 105,600 0 0 0 6,798
and Secretary
John E. Sullivan 1996 104,500 0 0 8,000(3) 9,873(9)
Vice President - Human 1995 100,000 28,942 0 8,000(5) 7,737
Resources 1994 95,000 0 0 0 3,562
Craig A. Wright 1996 90,000 0 0 8,000(3) 7,627(10)
Vice President - 1995 80,000 23,153 0 8,000(5) 6,178
Non-Perishables 1994 51,437 0 0 0 3,134
Merchandising
</TABLE>
- ------------
(1) Other than for Mr. Fernandez and Mr. Peterson, represent payments made to
executive officers in March of each year for the prior fiscal year pursuant
to the Buttrey Food and Drug Company Key Management Incentive Plan. See
"Bonus Plan" below. Amounts paid to Mr. Fernandez in each of 1994 and 1995
include $25,000 payments made pursuant to the terms of his employment
agreement. See "Employment and Severance Agreements" below. In addition,
amounts paid to Mr. Fernandez and Mr. Peterson in 1995 include cash bonuses
of $70,000 and $35,000, respectively, as consideration for additional
contributions made by them on behalf of the Company.
(2) Other than the limited special rights attached to certain of the shares
covered by options as described in "Stock Options" below, during each of
1994, 1995 and 1996, no executive officer named above received perquisites
and other personal benefits, securities or property in an aggregate amount
in excess of the lesser of $50,000 of 10% of the total of such officer's
salary and bonus, nor did any such officer receive any restricted stock
award, stock appreciation right or payment under any long term incentive
plan.
(3) Consists of options to purchase shares of Common Stock granted in 1996
pursuant to the Company's 1995 Option Plan (as defined below). See
"--Stock Options."
(4) Of this amount, (i) 7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Fernandez;
(ii) $845 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $666 represents the imputed amount
of insurance premiums set
8.
<PAGE> 8
aside by the Company for the benefit of Mr. Fernandez towards the
Company's own long-term disability program; and (iv) $2,687 represents the
imputed amount of insurance premiums set aside by the Company for the
benefit of Mr. Fernandez towards the Company's own medical plan.
(5) Consists of options to purchase shares of Common Stock granted in May
1995 pursuant to the Company's 1995 Option Plan. See "--Stock Options."
(6) Options to purchase 15,000 shares of Common Stock granted in February
1994 outside of the Company's option plans. See "--Stock Options."
(7) Of this amount, (i) 7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Rizzo, (ii)
$838 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $593 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Rizzo
towards the Company's own long-term disability program; and (iv) $2,695
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Rizzo towards the Company's own medical
plan.
(8) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Peterson;
(ii) $721 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $510 represents the imputed amount
of insurance premiums set aside by the Company for the benefit of Mr.
Peterson towards the Company's own long-term disability program; and (iv)
$2,698 represents the imputed amount of insurance premiums set aside by
the Company for the benefit of Mr. Peterson towards the Company's own
medical plan.
(9) Of this amount, (i) $6,152 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Sullivan;
(ii) $600 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $423 represents the imputed amount
of insurance premiums set aside by the Company for the benefit of Mr.
Sullivan towards the Company's own long-term disability program; and (iv)
$2,698 represents the imputed amount of insurance premiums set aside by
the Company for the benefit of Mr. Sullivan towards the Company's own
medical plan.
(10) Of this amount, (i) $4,045 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Wright; (ii)
$519 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $385 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Wright
towards the Company's own long-term disability program; and (iv) $2,677
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Wright towards the Company's own medical
plan.
Bonus Plan. The Company has adopted the Buttrey Food and Drug Company
Key Management Incentive Plan (as amended, the "Bonus Plan") pursuant to which
the Compensation Committee annually establishes guidelines for incentive
compensation to be paid to the Company's officers and key employees. The amount
of an individual's bonus award is based on the attainment of specified Company
performance objectives, such as the achievement of target sales and cash flow
objectives, and is determined as a percentage of the recipient's base salary.
See "Report of the Compensation Committee of the Board of Directors."
Retirement Plan. The Company maintains the Buttrey Company Retirement
Estates (the "BCRE"), a retirement plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Employees become eligible to participate in the BCRE upon the later of
the attainment of age 21 or the completion of one year of service. The BCRE
provides for contributions by participants and by the Company. Participants can
make pre-tax contributions up to the maximum amount permitted under Section
401(k) of the Code. The Company also makes annual contributions (in the form of
cash or Buttrey Common Stock) to the BCRE, the amount of which is determined by
the Board of Directors in its discretion each year. Seventy-five percent of the
Company's contribution is allocated to participants as a percentage of their
compensation ("Profit Sharing Contributions"), and the remaining 25% is
allocated in proportion to the amount of contributions made by each
9.
<PAGE> 9
participant ("Matching Contributions"). In March 1997, the Board of Directors
of the Company authorized the Company to contribute a total of $1.0 million in
cash to the BCRE as the Company's contribution for 1996.
Participants' interests in their own contributions and in the Matching
Contributions on their behalf are fully vested. Participants become vested in
the Profit Sharing Contributions made on their behalf by the Company depending
on their years of service with the Company, and in general begin vesting after
three years of service and are fully vested after seven years of service. In
addition, Participants become fully vested in the Profit Sharing Contributions
made on their behalf upon death, disability, or attainment of age 57 while
employed by the Company. Participants may borrow funds from the BCRE, and
provided certain conditions are satisfied, may receive a distribution of their
contributions prior to termination of employment. Participants may elect that
benefits payable following termination of employment be paid in the form of a
lump sum distribution or in installments over a period of years.
Employment and Severance Agreements. In March 1993, the Company entered
into a three-year employment agreement with Mr. Fernandez. As amended, the
employment agreement currently provides for a base salary of $350,000 and for
an incentive bonus to be paid pursuant to the terms of the Company's Bonus
Plan. See "Bonus Plan." In addition, the employment agreement with Mr.
Fernandez provides for a bonus of $75,000 payable in three annual installments
of $25,000 each beginning in March 1993. The employment agreement provides for
Mr. Fernandez to be employed by the Company as Chairman of the Board, President
and Chief Executive Officer until the earlier of March 1, 2001 or the date that
such employment shall have been terminated as provided therein. In addition,
the employment agreement provides that, so long as Mr. Fernandez remains an
employee of the Company, the Company will include Mr. Fernandez in the
Company's slate of nominees for directors at each such election of directors.
Pursuant to the terms of the employment agreement, in the event Mr. Fernandez
is terminated without cause or resigns for good reason (as such terms are
defined in the employment agreement), or in the event that Mr. Fernandez should
die or become permanently disabled, the Company is required to pay Mr.
Fernandez's base salary for a period of twenty-four consecutive months from the
date of such event. Mr. Fernandez' employment agreement provides that, in the
event that Mr. Fernandez is terminated by the Company for cause or Mr.
Fernandez otherwise terminates his employment under certain circumstances,
then, subject to certain exceptions, Mr. Fernandez will not compete with the
Company for a period of 12 months after such termination.
In March 1993, the Company also entered into a separate agreement with Mr.
Fernandez pursuant to which he will be entitled to receive severance payments
of up to six months' salary upon an involuntary termination of his employment,
other than for cause (as defined therein), upon a resignation for good reason
(as defined therein), or in the event that Mr. Fernandez should die or become
permanently disabled, in each case at any time after the expiration of his term
of employment as specified in his employment agreement (or any subsequent
employment agreement with the Company).
The Company has entered into agreements with Messrs. Peterson, Rizzo and
Sullivan pursuant to which these individuals will be entitled to receive
severance payments of up to six months' salary either upon an involuntary
termination of employment, other than for cause (as defined therein), or upon a
resignation for good reason (as defined therein).
STOCK OPTIONS
1990 Option Plan. The Company has adopted its 1990 Nonqualified
Performance Stock Option Plan (as amended, the "1990 Option Plan"), which
provides for the granting of non-qualified stock options to officers, key
employees and consultants of the Company, including Directors who are also
employees. As of February 1, 1997, an aggregate of 451,500 shares of Common
Stock have been reserved for issuance under the 1990 Option Plan.
The 1990 Option Plan is administered by the Compensation Committee.
Options terminate at the earlier of (i) 90 days after the participant's
termination of employment by the Company (unless such termination results from
the participant's death or disability, or the participant dies within 90 days
after such termination of employment, in which case the option terminates 180
days after the date of the participant's termination of employment), (ii) ten
years from the date of grant, or (iii) on the effective date of certain
dissolutions, liquidations or sales of all of the business, properties and
assets of the Company or upon certain reorganizations, mergers or
consolidations.
10
<PAGE> 10
All options under the 1990 Option Plan currently will vest and become
exercisable in full upon a determination by the Compensation Committee that the
Company, on a consolidated basis, has achieved 100% of the amount of a
specified operating cash flow and total net cash flow from operations for any
one of the four fiscal years of the Company beginning with the fiscal year
ended January 1997 and ending with the fiscal year ended January 2000. Upon a
determination by the Compensation Committee that the Company has not achieved
the required levels of operating cash flow and total net cash flow from
operations by January 29, 2000, the options which remain unvested shall
nevertheless vest and become exercisable as of October 5, 2000. The
Compensation Committee periodically reviews the 1990 Option Plan and may, in
good faith, adjust the specified cash flow levels to reflect unanticipated
major events such as catastrophic occurrences and mergers and acquisitions. The
Compensation Committee may, in its sole discretion, elect to accelerate the
vesting of all or any portion of any option.
The holders of options granted under the 1990 Option Plan (other than Mr.
Fernandez) have been granted limited special rights (the "Limited Rights") with
respect to all of the shares of Common Stock covered by such options (the
"Related Options"). The Limited rights become exercisable in circumstances
where the Company has accelerated the Related Options in connection with a
business combination or sale of all or substantially all of the assets or
capital stock of the Company, in each case in which the holders of the
Company's Common Stock receive all cash consideration (an "Extraordinary
Corporate Event"). Upon the exercise of a Limited Right, the Related Option
ceases to be exercisable to the extent of the shares with respect to which the
Limited Right is exercised, and an optionee would receive, for each share of
underlying Common Stock, a cash payment equal to the excess of (i) the cash per
share of Common stock received by the holders of Common Stock in connection
with the Extraordinary Corporate Event, over (ii) the option price per share of
Common Stock underlying the Related Option.
1995 Option Plan. The Company has adopted its 1995 Stock Option Plan (the
"1995 Option Plan") which provides for the granting of either non-qualified or
incentive stock options to officers and key employees of the Company, including
directors who are also employees. Notwithstanding the foregoing, only officers
and key employees who do not own capital stock possessing more than 10% of the
total combined voting power or value of all classes of capital stock of the
Company or the Subsidiary shall be eligible to receive grants of options. As to
February 1, 1997, an aggregate of 500,000 shares of Common Stock have been
reserved for issuance under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee. Options
terminate as determined by the Compensation Committee and specified in each
Option Agreement; provided, that such termination date shall be not later than
ten years from the date such option is granted, subject to earlier termination
upon an optionee's termination of employment, in connection with certain
extraordinary corporate transactions, or as otherwise set forth in each
particular Option Agreement.
The purchase price per share of the shares of Common Stock underlying each
option and the vesting schedule for each option will be determined by the
Compensation Committee; provided, that the option price of any incentive stock
option shall not be less than the fair market value of the underlying shares at
the time the incentive stock option is granted, as determined by the
Compensation Committee in accordance with the formula specified in the 1995
Option Plan.
1996 Directors Plan. The Company has adopted its 1996 Non-Employee
Directors Option Plan (the "1996 Directors Plan") which provides for the
granting of non-qualified stock options to Outside Directors of the Company.
The 1996 Directors Plan permits each Outside Director to elect, on the date of
each annual meeting at which he or she is elected or reelected, to receive an
option to purchase shares of the Company's Common stock in lieu of being paid
that part of the director's fee that is not dependent upon attendance at
meetings or services as a chairperson for the ensuing year (the "Retainer
Fee"). If the Outside Director make such an election, on the six-month
anniversary of the date of the election (the "Date of Grant"), such Outside
Director will be granted an option exercisable for a number of shares of the
Company's Common Stock equal to the amount of the Outside Director's Retainer
Fee divided by 20% of the fair market value of a share of Common Stock at the
close of business on the Date of Grant. The exercise price for any such option
will be 80% of the fair market value of the Company's Common Stock on the Date
of Grant. These options vest and are exercisable on the date of the annual
meeting of stockholders following the Date of Grant. All options granted under
the 1996 Directors Plan expire on the earlier of the tenth anniversary of the
Date of Grant or six months after the recipient of the option ceases to be a
director. As of
<PAGE> 11
February 1, 1997, an aggregate of 75,000 shares of Common Stock have been
reserved for issuance under the 1996 Directors Plan. Based on the slate of
nominees for directors for the Company's 1997 fiscal year, Messrs. Figel,
Gannon, Malone, Sodini and Young will be eligible to receive options in lieu of
Retainer Fees, if such an election is made.
The following table sets forth information concerning options granted to
the Named Executive Officers during 1996.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
- ------------------------------------------------------------------------------------------------------------------
Individual Grants
----------------------------------------------------
Potential Realizable
Number of Value at Assumed
Securities % of Total Annual Rates of Stock
Underlying Options Price Appreciation
Options Granted to Exercise or Expira- for Option Term
Granted Employees in Base Price tion ----------------------
Name (#) Fiscal Year ($/Sh) Date 5% ($) 10% ($)
----- ---------- ------------ ----------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Joseph H. Fernandez............... 30,000(1) 55.2% 7.125 2/28/06 134,662 339,862
100,000(2) 7.375(3) 8/29/06 464,625 1,172,625
Louis J. Rizzo................... 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
Wayne S. Peterson................ 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
John E. Sullivan................. 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
Craig A. Wright.................. 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
</TABLE>
- ----------
(1) These options vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(2) 20% of these options were vested and exercisable on their date of grant.
The remaining 80% vest and become exercisable in four annual installments
beginning on the first anniversary of their date of grant.
(3) $7.375 is initial exercise price. Beginning in 1997, the option exercise
price will increase 5% on March 1 and September 1 of each year over then
existing exercise price.
The following table sets forth information concerning the aggregate number
of options exercised during 1996 by each of the Named Executive Officers, and
outstanding options held by each such officer at February 1, 1997.
<TABLE>
<CAPTION>
OPTION EXERCISES AND YEAR-END VALUE TABLE
Value of Unexercised
Securities Underlying In-the-Money
Unexercised Options at Options at
February 1, 1997 (#) February 1, 1997 ($)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($) Unexercisable Unexercisable(1)
- ---- --------------- -------------- --------------------- ---------------------
<S> <C> <C> <C> <C>
Joseph H. Fernandez - - 72,456 / 181,140 73,138 / 174,408
Louis J. Rizzo - - 6,000 / 18,000 3,000 / 16,500
Wayne S. Peterson - - 6,000 / 26,334 3,000 / 29,668
John E. Sullivan - - 4,000 / 31,666 2,000 / 42,072
Craig A. Wright - - 4,000 / 8,000 2,000 / 11,000
</TABLE>
- --------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market as of January 31, 1997 was $8.25 per share.
<PAGE> 12
As of February 1, 1997, options for the purchase of 134,438 shares of
Common Stock, at a purchase price of $6.67 per share, and options for the
purchase of 56,140 shares of Common Stock, at a purchase price of $7.125 per
share, were outstanding under the 1990 Option Plan, and options for the
purchase of 260,922 shares remained available for issuance. Also as of February
1, 1997, options for the purchase of 2,000 shares of Common Stock, at a
purchase price of $7.50 per share, options for the purchase of 111,000 shares
of Common Stock, at a purchase price of $7.75 per share, options for the
purchase of 135,400 shares of Common Stock, at a purchase price of $7.125 per
share, options for the purchase of 100,000 shares of Common Stock, at a
purchase price of $7.375 per share, and options for the purchase of 2,000
shares of Common Stock, at a purchase price of $8.125 per share, were
outstanding under the 1995 Option Plan, and options for the purchase of 160,300
shares remained available for issuance. In addition, as of February 1, 1997,
options for the purchase of 6,250 shares of Common Stock, at a purchase price
of $6.40 per share, were outstanding under the 1996 Directors Plan. As of
February 1, 1997, options for the purchase of 22,456 shares of Common Stock, at
a purchase price of $7.125 per share, and options for the purchase of 15,000
shares of Common Stock, at a purchase price of $6.725 per share, were
outstanding outside of the Company's option plans. On March 21, 1997, the Board
of Directors of the Company granted options to purchase an aggregate of 17,100
shares of Common Stock, at a purchase price of $9.375 per share, to a total of
57 employees of the Company (excluding executive officers and directors)
pursuant to the 1995 Option Plan. As of March 21, 1997, none of the options
described in this paragraph had been exercised.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1993, Mr. Fernandez purchased 112,280 shares of Common Stock
at a price of $7.125 pursuant to a Stock Subscription Agreement. Of the
purchase price for these shares, $400,000 was paid using a full recourse
promissory note, bearing interest at 7% per annum, payable quarterly, and
secured by a pledge to the Company of the 112,280 shares of Common Stock. In
February 1994, Mr. Fernandez executed a full recourse unsecured promissory note
in the amount of $40,000 in favor of the Company, bearing interest at 7% per
annum, and payable quarterly. As amended, these two promissory notes are due
and payable in full on March 1, 1998.
In April 1997, Mr. Fernandez executed two additional full recourse
promissory notes in favor of the Company, one in the amount of $125,000 which
is secured by a pledge to the Company of the 112,280 shares of Common Stock
purchased by Mr. Fernandez in March 1993, and one in the amount of $75,000
which is unsecured. Each of these promissory notes bears interest at 9.25% per
annum, payable quarterly, and becomes due and payable in full on March 1, 2001.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of Messrs.
Gannon, Simmons, Sodini and Spogli, each an independent non-employee director
of the Company. During 1996, none of the members of the Company's Compensation
Committee had any interlocking relationships as defined by the Commission. For
the fiscal year ending February 1, 1998, the Compensation Committee is
comprised of Messrs. Gannon, Simmons, Sodini and Spogli.
In July 1991, the Company entered into a one-year renewable consulting
agreement with Mr. Sodini which in 1996 provided for a fee of $75,000 and
certain medical benefits through December 1996. This arrangement terminated on
December 31, 1996.
13.
<PAGE> 13
REPORT OF THE COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
The Compensation Committee recommends to the Board of Directors general
compensation policies for the Company, oversees the Company's compensation
plans and specific compensation levels for executive officers, and administers
the Bonus Plan, the 1990 Option Plan and the 1995 Option Plan.
The following is the Compensation Committee's report submitted to the
Board of Directors addressing the compensation of the Company's executive
officers for 1996.
COMPENSATION POLICY
The Company's executive compensation policy is designed to establish an
appropriate relationship between executive pay and the Company's annual
performance, its long-term growth objectives and its ability to attract and
retain qualified executive officers. The Compensation Committee attempts to
achieve these goals by integrating competitive annual base salaries with (a)
bonuses based on corporate performance and on the achievement of specified
performance objectives through the Bonus Plan, and (b) executive stock options.
The Compensation Committee believes that cash compensation in the form of
salary and bonus provides Company executives with short term rewards for
success in operations, and that long term compensation through the award of
stock options encourages growth in management stock ownership which leads to
expansion of management's stake in the long term performance and success of the
Company.
Base Salary. For 1996, the Compensation Committee approved the base
salaries of the Company's executive officers. In determining the base salary of
each of the executive officers, the Company relied primarily on a survey
prepared by Strategic Compensation Associates ("SCA") of salaries paid to
executive officers of publicly traded retail grocery companies with sales and
operating regions generally comparable to that of the Company. The SCA survey
included all of the same companies which comprise the Company's Peer Group
Index (for purposes of the performance graph), as well as two additional retail
grocery companies with sales and operating regions generally comparable to that
of the Company. For 1996, the Compensation Committee set the base salaries of
the Company's executive officers generally near the median level of those
salaries reflected in the SCA survey. In 1996, executive officers received
raises in their annual base salaries.
Bonuses. Annual incentives under the Bonus Plan for the President and Chief
Executive Officer and the other Named Executive Officers are intended to reflect
the Company's belief that management's contribution to stockholder returns (via
increasing stock price) comes from maximizing earnings and the quality of those
earnings. Awards under the Bonus Plan are based on the attainment of specified
Company performance objectives, and the target bonus amount is determined as a
percentage of the recipient's base salary. For 1996, participants in the Bonus
Plan other than the President and Chief Executive Officer maintained their prior
year's baseline target bonus amounts equal to 47.5% of the base salaries paid to
such persons. The target bonus amount for the President and Chief Executive
Officer remained at 70.0% of his base salary until August 1996, at which time he
was elected Chairman of the Board of the Company, and his target bonus amount
was raised to 80% of his base salary. The different percentage for the President
and Chief Executive Officer reflects the Committee's belief that, as an
executive officer's duties and responsibilities in the Company increase, he will
be increasingly responsible for the performance of the Company. Accordingly, a
larger proportion of his compensation should be incentive compensation. Actual
bonuses payable under the Bonus Plan then range from zero to three times the
baseline amount, and depend on the level of achievement of the specified
performance objectives. For 1996, the performance objective necessary to achieve
the baseline amount was the attainment of a specified cash flow amount. During
1996, none of the specified performance objectives were achieved, and no bonuses
were paid to either Mr. Fernandez or any of the other Named Executive Officers.
Stock Options. The Compensation Committee believes that stock option
grants afford a desirable long-term compensation method because they closely
ally the interests of management with stockholder value, and that grants of
stock options are the best way to link directly the financial interests of
management with those of stockholders.
14.
<PAGE> 14
In February 1996, the executive officers of the Company, including the
President and Chief Executive Officer, as well as 38 store managers and 18 other
key employees of the Company, were each granted options under the Company's 1995
Option Plan. In addition, in August 1996, the President and Chief Executive
Officer was granted an additional option under the 1995 Option Plan, and in
March 1997, 43 store managers and 14 other key employees of the Company were
each granted options under the 1995 Option Plan. In each case, the number of
options that each executive officer or employee was granted was based primarily
on the executive's or employee's ability to influence the Company's long term
growth and profitability and, with respect to the February 1996 grants, to a
lesser extent as a result of the determination by the Compensation Committee
that vesting before October 2000 of the options previously granted under the
1990 Option Plan is unlikely. The vesting provisions of the options granted
under the 1995 Option Plan are designed to encourage longevity of employment
with the Company.
COMPENSATION OF CHIEF EXECUTIVE OFFICER
The Compensation Committee believes that Mr. Fernandez, the Company's
President and Chief Executive Officer, provides valuable services to the
Company, and that his compensation should therefore be competitive with that
paid to executives at comparable companies. In addition, the Compensation
Committee believes that the compensation of the President and Chief Executive
Officer should be heavily influenced by Company performance. Therefore,
although there is necessarily some subjectivity in setting Mr. Fernandez's
salary, major elements of his compensation package are directly tied to Company
performance.
In August 1996, Mr. Fernandez was elected Chairman of the Board of the
Company and, in connection therewith, his base salary was raised from $247,500
to $350,000, an amount that the Compensation Committee believes is generally
comparable to salaries for other executive officers in Mr. Fernandez' new
position, as set forth in the SCA survey. In addition, in August 1996, in
connection with his election as Chairman of the Board of the Company, the
baseline target bonus payable to Mr. Fernandez under the Bonus Plan was raised
as a percentage of his salary from 70.0% to 80%. As indicated previously, in
1996, none of the performance objectives specified under the Bonus Plan were
achieved, and no bonus was paid to Mr. Fernandez under the Bonus Plan for 1996.
INTERNAL REVENUE CODE SECTION 162(m)
Under Section 162 of the Code, the amount of compensation paid to certain
executives that is deductible with respect to the Company's corporate taxes is
limited to $1,000,000 annually. It is the current policy of the Compensation
Committee to maximize, to the extent reasonably possible, the Company's ability
to obtain a corporate tax deduction for compensation paid to executive
officers of the Company to the extent consistent with the best interests of the
Company and its stockholders.
The foregoing report has been furnished by Messrs. Gannon, Simmons, Sodini
and Spogli.
15.
<PAGE> 15
COMPANY PERFORMANCE
The following graph shows a comparison of cumulative total returns for the
Company, the S&P 500 Stock Index and a Company-constructed Peer Group Index (as
defined below) for the period during which the Company's Common Stock has been
registered under Section 12 of the Exchange Act. The Company-constructed Peer
Group Index includes the following retail grocery companies: Delchamps, Inc.,
Eagle Food Centers, Inc., Foodarama Supermarkets, Inc., Hannaford Brothers, Co.,
Marsh Supermarkets, Inc., Quality Food Centers, Inc., Riser Foods, Inc., Ruddick
Corp., Schultz Sav-O Stores, Inc., Seaway Food Town, Inc. and Weis Markets, Inc.
COMPARISON OF CUMULATIVEI TOTAL RETURN*
<TABLE>
<CAPTION>
Buttrey Peer S&P 500
Measurement Food & Drug Group Stock
Period Stores Index Index
- ----------- ---------- ----- -------
<S> <C> <C> <C>
13 February 1992 $100.00 $100.00 $100.00
09 April 1997 46.88 174.55 282.65
</TABLE>
ASSUMES $100 INVESTED ON FEBRUARY 13, 1992.
*TOTAL RETURN ASSUMES REINVESTMENT OF DIVIDENDS.
The information contained above under the captions "Report of the
Compensation Committee of the Board of Directors" and "Company Performance"
shall not be deemed to be "soliciting material" or to be "filed" with the
Securities and Exchange Commission, nor shall such information be incorporated
by reference into any future filing under the Securities Act of 1933, as
amended, or the Securities Exchange Act of 1934, as amended (the "Exchange
Act") except to the extent that the Company specifically incorporates it by
reference into such filing.
16.
<PAGE> 1
EXHIBIT 99.4
FOR IMMEDIATE RELEASE JANUARY 20, 1998
BUTTREY FOOD AND DRUG STORES COMPANY
TO BE ACQUIRED BY ALBERTSON'S, INC.
Great Falls, Montana, January 20, 1998 . . . Buttrey Food and Drug Stores
Company (NASDAQ:BTRY) today announced that it has entered into a definitive
agreement with Albertson's, Inc. (NYSE:ABS) providing for the acquisition of
Buttrey by Albertson's for $15.50 per share.
Under the terms of the agreement, Albertson's will begin a cash tender offer on
or before January 26, 1998 for all of Buttrey's approximately 8,645,000
outstanding common shares. Buttrey's Board of Directors unanimously approved the
agreement and recommended that Buttrey stockholders tender their shares pursuant
to the offer. After successful completion of the tender offer, remaining shares
of Buttrey will be acquired at the tender offer price through a merger.
Buttrey's Board of Directors has received the opinion of Morgan Stanley & Co.,
Incorporated that the consideration payable in the tender offer and merger is
fair, from a financial point of view, to Buttrey stockholders.
In connection with the acquisition agreement, an affiliate of Freeman Spogli &
Co. Incorporated, Buttrey's largest stockholder, has agreed to tender its
4,389,879 shares of common stock, which represent 50.8% of Buttrey's current
outstanding stock, and has also granted Albertson's an option on such shares at
$15.50 per share of common stock, which can be exercised under certain
circumstances. The definitive agreement provides for payment to Albertson's
under certain
<PAGE> 2
circumstances of a termination fee and reimbursement of expenses if Buttrey's
Board of Directors, in the exercise of its fiduciary responsibilities,
terminates the definitive agreement or withdraws or modifies its recommendation
that Buttrey stockholders tender their shares pursuant to the offer.
The consummation of the offer is subject to certain customary conditions,
including expiration of the waiting period under the Hart-Scott-Rodino Antitrust
Improvements Act and antitrust approval. Financing is not a condition to
completion of the transaction.
"I am very proud of the efforts of our associates throughout Buttrey," said
Joseph H. Fernandez, chairman, president and chief executive officer of Buttrey.
"Through their dedication and commitment to our customers, our associates have
made Buttrey an attractive acquisition opportunity for Albertson's, one of the
most successful food retailers in the world. Buttrey's outstanding associates
share a commitment to quality products, superior service and great prices that
fits well with the strengths of Albertson's. Additionally, Buttrey's network of
quality stores in excellent locations compliments Albertson's impressive network
in our trade areas, and offers Albertson's an opportunity to bring their
programs to many new customers."
Representatives of Buttrey and Albertson's have scheduled meetings with Buttrey
employees beginning on Tuesday, January 20, 1998 throughout Montana and Wyoming
to discuss the effects of the transaction and to begin the process of transition
to new ownership.
Buttrey Food and Drug Stores Company is a leading supermarket and pharmacy
retailer, with 43
<PAGE> 3
stores operating in Montana, North Dakota and Wyoming, and two stores under
construction. Thirty-five of the 45 stores have pharmacies and the Company also
runs the only mail-order pharmacy business in the region. Buttrey operates
distribution centers in Great Falls, Montana, and in Salt Lake City, Utah, which
provide its stores with groceries and fresh products. The Company employs over
3,000 associates in its various locations.
Contact: Wayne S. Peterson
Senior Vice President and Chief Financial Officer
Buttrey Food and Drug Stores Company
601 6th Street S.W.
Great Falls, Montana 59404
(406) 454-7280
<PAGE> 1
[MORGAN STANLEY & CO. LETTERHEAD]
January 19, 1998
Board of Directors
Buttrey Food and Drug Stores Company
601 6th Street, S.W.
Great Falls, MT 59404
Gentlemen:
We understand that Buttrey Food and Drug Stores Company ("Buttrey" or the
"Company"), Albertson's Inc. ("Albertson's") and a wholly owned subsidiary of
Albertson's ("Acquisition Sub") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Tender Offer") for all
outstanding shares of common stock par value of $.01 per share (the "Common
Stock") of Buttrey for $15.50 per share in cash, and (ii) the subsequent merger
(the "Merger") of Acquisition Sub with and into Buttrey. Pursuant to the Merger,
Buttrey will become a wholly owned subsidiary of Albertson's and each
outstanding share of Common Stock, other than shares held in treasury or held by
Albertson's or any affiliate of Albertson's or as to which dissenters' rights
have been perfected, will be converted into the right to receive $15.50 per
share in cash. The terms and conditions of the Tender Offer and the Merger are
more fully set forth in the Merger Agreement. We further understand that
approximately 51% of the outstanding shares of Common Stock are owned by FS
Equity Partners II, L.P. ("Freeman Spogli") and that, concurrently with the
execution of the Merger Agreement, Freeman Spogli will enter into a Tender and
Option Agreement (the "Tender Agreement") pursuant to which Freeman Spogli will
agree, among other things, to tender the shares of Common Stock held by it in
the Tender Offer and to grant to Albertson's proxy with respect to the voting of
such shares. The terms and conditions of the Tender Agreement are more fully set
forth therein.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement, the Tender Agreement and certain
related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation
<PAGE> 2
or appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. In addition, we have assumed the Tender
Offer and the Merger will be consummated in accordance with the terms set forth
in the Merger Agreement. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit; and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Freeman Spogli and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Tender Offer and the Merger. In addition, we express no opinion or
recommendation as to whether the holders of Common Stock should tender their
shares in connection with the Tender Offer.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ NEIL B. MORGANBESSER
------------------------------------
Neil B. Morganbesser
Principal
<PAGE> 1
EXHIBIT 99.6
[LOGO]
January 26, 1998
To the Stockholders of Buttrey Food and Drug Stores Company:
I am pleased to inform you that on January 19, 1998, Buttrey Food and Drug
Stores Company (the "Company" or "Buttrey"), entered into an Agreement and Plan
of Merger (the "Merger Agreement"), providing for the acquisition of the Company
by Locomotive Acquisition Corp., a Delaware corporation ("Purchaser"), a wholly
owned subsidiary of Albertson's, Inc., a Delaware corporation ("Parent"). In
accordance with the Merger Agreement, Purchaser today has commenced a cash
tender offer (the "Offer") for all of the outstanding shares of common stock,
par value $.01 per share (collectively, the "Shares"), of the Company at $15.50
per Share, net to the seller in cash. The Merger Agreement contemplates that the
Offer will be followed by the merger of Purchaser with the Company (the
"Merger"), upon which each Share of the Company's common stock not acquired by
Purchaser in the Offer will be converted into the right to receive $15.50 per
Share in cash, without interest.
YOUR BOARD OF DIRECTORS (THE "BOARD") HAS UNANIMOUSLY DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO AND IN THE BEST INTERESTS OF THE COMPANY'S
STOCKHOLDERS, HAS UNANIMOUSLY APPROVED AND ADOPTED THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, AND UNANIMOUSLY RECOMMENDS THAT BUTTREY
STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
In arriving at its decision, the Board gave careful consideration to a
number of factors, including, among other matters, the opinion of Morgan Stanley
& Co. Incorporated, Buttrey's financial advisor, dated as of January 19, 1998,
that the cash consideration to be received by holders of Shares pursuant to the
Merger Agreement is fair to such holders from a financial point of view.
Accompanying this letter is a copy of the Solicitation/Recommendation
Statement on Schedule 14D-9 which was filed today by the Company with the
Securities and Exchange Commission. It contains detailed information regarding
the factors considered by the Board in its deliberations and certain other
information regarding the Offer and the Merger. Also enclosed is Purchaser's
Schedule 14D-1 and related materials, including a Letter of Transmittal to be
used by you for tendering your Shares. I urge you to read the enclosed documents
carefully prior to making a decision with respect to tendering your Shares in
the Offer.
Sincerely,
/s/ JOSEPH H. FERNANDEZ
--------------------------------
Joseph H. Fernandez
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 1
EXHIBIT 99.7
December 22, 1997
Albertsons, Inc.
P.O. Box 20
Boise, Idaho 83726
Atten: Mr. Gary G. Michael
Chairman and Chief Executive Officer
Gentlemen:
In connection with your consideration of a possible negotiated
business combination or acquisition transaction (a "Transaction") with Buttrey
Food and Drug Stores Company (together with its subsidiaries, the "Company")
certain financial, operational and other information concerning the Company is
being furnished to you. As a condition to your receipt of such information,
you agree, as set forth below, to treat any information concerning the Company
(irrespective of its source or form of communication) that may be furnished to
you by or on behalf of the Company (collectively referred to as "Evaluation
Material"), whether furnished before, on or after the date of this
Confidentiality Agreement ("Confidentiality Agreement"), in accordance with the
provisions hereof and you further agree to abide by the other provisions
contained in this Confidentiality Agreement.
The term Evaluation Material shall include any notes, analyses,
compilations, studies or other documents or records prepared by you or others,
which contain or reflect or are generated from information supplied by the
Company or its representatives. The term Evaluation Material shall not include
information which you can prove by documentary evidence (i) is now or becomes
generally available to the public other than as a result of a disclosure by you
or your representatives in violation of this Confidentiality Agreement, (ii)
was available to you on a non-confidential basis from a source other than the
Company or its representatives prior to receipt
<PAGE> 2
Albertsons, Inc.
December 22, 1997
Page 2
in accordance with this Confidentiality Agreement provided such information is
not known by you to be subject to another confidentiality agreement with or
other obligation of secrecy to the Company or another party, or (iii) becomes
available to you on a non-confidential basis from sources other than the
Company or its representatives, provided that such source is not known by you
or your representatives to be prohibited from transmitting the information to
you by a contractual, legal or fiduciary obligation.
You agree that the Evaluation Material will be used solely for the
purpose of evaluating a possible Transaction involving the Company and will not
be used by you in any way detrimental to the Company and that the Evaluation
Material will be kept confidential by you; provided, however, that any of such
information may be disclosed (i) initially, only to Mr. Michael, and key
personnel in your finance and real estate departments and executive office as
well as to your legal and other outside professional advisors involved in your
acquisition review process, and (ii) after the Company's express written
consent has been given, to your directors, other officers and employees,
potential financing sources, professional service providers and advisors
(collectively referred to as "representatives") who, in your reasonable
judgment, need to know such information for the purpose described above, it
being understood that prior to any disclosure of Evaluation Material under
either clause (i) or (ii) of this sentence, each of your representatives shall
be informed by you of the terms of this Confidentiality Agreement and of the
confidential nature of the Evaluation Material. Each of your representatives
shall agree to keep the Evaluation Material confidential and to use it only in
connection with the purpose described above and in accordance with the other
terms of this Confidentiality Agreement. You shall be responsible for any
breach of this Confidentiality Agreement by you or any of your representatives
and you agree, at your sole expense, to take all reasonable measures (including
but not limited to court proceedings) to restrain your representatives from
prohibited or unauthorized disclosure or use of the Evaluation Material.
Without the prior written consent of the Company, you will not
disclose and will direct your representatives not to disclose, to any person
other than your representatives, the fact that the Evaluation Material has been
made available to you, the fact that you or we are considering a Transaction,
or any information with respect
<PAGE> 3
Albertsons, Inc.
December 22, 1997
Page 3
to the discussions or negotiations, including the status thereof; provided that
you may, after consultation with us, make such disclosure to the extent (i) you
have been advised by legal counsel that such disclosure is required by law or
the requirements of any securities exchange on which your securities are traded
and (ii) as provided in the next paragraph. The term "person" as used in this
Confidentiality Agreement shall be broadly interpreted to include, without
limitation, any corporation, company, partnership or individual.
If you or any of your representatives are requested or required
(orally or in writing, by interrogatory, subpoena, civil investigatory demand
or any similar process relating to any legal proceeding, investigation, hearing
or otherwise) to disclose any Evaluation Material, you will provide the Company
with prompt notice in advance of such disclosure so that the Company may seek a
protective order or other appropriate remedy and/or waive compliance with this
Confidentiality Agreement and you agree to cooperate with the Company in
pursuing any such course of action. In the event that such protective order or
other remedy is not obtained, or if the Company waives compliance with the
provisions of this Confidentiality Agreement, you will furnish only such
information as you are advised is legally required and will cooperate with us
in any efforts we may undertake to obtain assurance that confidential treatment
will be accorded to any information which is compelled to be disclosed.
If you decide that you do not wish to proceed with a Transaction, you
will promptly inform the Company of your decision. In that event or if a
Transaction with the Company is not completed, you and your representatives
will upon the request of the Company at your election either (i) promptly
deliver to the Company all Evaluation Material in or under your or your
representatives' possession or control, without retaining any copy, extract or
reproduction thereof, or (ii) promptly destroy all Evaluation Material in or
under your or your representatives' possession or control, and such destruction
shall be certified in writing to the Company by one of your officers
supervising such destruction. Notwithstanding the return or destruction of the
Evaluation Material, you and your representatives will continue to be bound by
the confidentiality and other obligations created hereby.
<PAGE> 4
Albertsons, Inc.
December 22, 1997
Page 4
You acknowledge that you are aware, and agree that you will advise
your representatives who are informed as to the matters which are the subject
of this Confidentiality Agreement, that the United States securities laws
prohibit any person who has received from an issuer material, nonpublic
information concerning the matters which are the subject of this
Confidentiality Agreement from purchasing or selling securities of such issuer
or from communicating such information to any other person under circumstances
in which it is reasonably foreseeable that such person is likely to purchase or
sell such securities while in possession of material nonpublic information.
You hereby further acknowledge that the Evaluation Material is being
furnished to you in further consideration of your agreement that neither you,
nor any person affiliated with you, will for a period of two years from the
date hereof, directly or indirectly, alone or with others, (a) negotiate with
or provide any information to any party with respect to, or make any statement
or proposal to the Board of Directors of the Company, to any of its agents or
to any stockholder of the Company with respect to, or make any public
announcement or proposal or offer whatsoever (including, but not limited to any
"solicitation" of "proxies" as such terms are defined or used in Regulation 14A
of the Securities Exchange Act of 1934) with respect to, or otherwise solicit,
seek or offer to effect (i) any form of business combination or transaction
involving the Company or any affiliate thereof, including, without limitation,
a merger, tender or exchange offer or liquidation of the Company's assets, (ii)
any form of restructuring, recapitalization or similar transaction with respect
to the Company or any affiliate thereof, (iii) any purchase of any securities
or assets, or rights to acquire any securities or assets, of the Company, (iv)
any proposal to seek representation on the Board of Directors of the Company or
otherwise to seek to control or influence the management, Board of Directors or
policies of the Company, (v) any request or proposal to waive, terminate or
amend the provisions of this letter, or (vi) any proposal or other statement
inconsistent with the terms of this letter, (b) instigate, encourage or assist
any third party to do any of the foregoing, or (c) become a beneficial owner
of any securities of the Company (other than through purchases by persons
affiliated with you for investment in open market transactions not to exceed
1.0% of the Company's common stock), unless and until you have received the
prior written invitation or approval of a majority of the Board of Directors of
the Company to do any of the foregoing.
<PAGE> 5
Albertsons, Inc.
December 22, 1997
Page 5
You agree that without the prior consent of the Company, neither you
nor any of your representatives will contact any employee, supplier, customer
or representative of the Company concerning the Evaluation Material, the
Transaction or, except in the ordinary course of business, any aspect of the
Company's business, prospects or finances, or any other matter related to any
of the same. It is understood and agreed that J. Frederick Simmons of Freeman
Spogli & Co. Incorporated shall arrange for appropriate contacts at the
Company. It is also understood that all (a) communications regarding a
possible Transaction, (b) requests for additional information, (c) requests for
facility tours or management meetings and (d) discussions or questions
regarding procedures will be submitted or directed to Mr. Simmons.
You agree further that without the Company's prior written consent,
for a period of two years from the date hereof, you will not directly or
indirectly solicit any management employee of the Company for employment and
you will not initiate, participate in, include or contribute to any
interference with the Company's employment relationship with any such person;
provided, however, that nothing herein shall restrict or preclude your right to
make generalized searches for employees by use of advertisements in the media
(including without limitation trade media) or by engaging search firms which
are not targeted or focused on employees of the Company and this paragraph
shall not be deemed to prohibit your hiring of any employee of the Company who
initially contacts you without prior contact by you or anyone acting on your
behalf.
You agree to limit to three the number of your representatives who may
visit any of the Company's retail stores at any one time in the ordinary course
of business. You further agree that no group of more than three of your
representatives shall visit any of the Company's retail stores at any one time
without the prior specific approval of Mr. Simmons. You acknowledge that the
company could be irreparably harmed in the event that any of its retail store
employees learned about the possibility of the Transaction, and you agree to
use your best efforts to ensure that they do not become aware of it during any
of the visits which your representatives may make during the ordinary course of
the Company's business.
<PAGE> 6
Albertsons, Inc.
December 22, 1997
Page 6
You understand that the Company does not make any representation or
warranty as to the accuracy or completeness of the Evaluation Material. Only
those representations and warranties contained in the final definitive
agreement covering the Transaction, when, as and if executed, and subject to
such limitations as may be specified therein, will have any legal effect. You
agree that unless and until a definitive agreement (expressly excluding any
executed letter of intent or other preliminary written agreement and any
written or oral acceptance of an offer or a bid) with respect to any
Transaction has been executed and delivered, neither the Company nor you will
be under any legal obligation of any kind whatsoever with respect to such a
transaction by virtue of this letter agreement or any written or oral
expression with respect to such a Transaction by either party or any of its
respective agents except, in the case of this Confidentiality Agreement, for
the matters specifically agreed to herein.
You acknowledge and agree that (a) the Company reserves the right, in
its sole discretion, to change the procedures relating to its consideration of
a possible transaction at any time without prior notice to you or any other
person, to reject any and all proposals made by you or any of your
representatives, and to terminate discussions and negotiations with you at any
time and for any reason, and (b) unless and until a written definitive
agreement concerning the Transaction has been executed, neither the Company nor
any of its representatives will have any liability to you with respect to the
Transaction or the evaluation and the bidding process and procedures, whether
by virtue of this Confidentiality Agreement, any other written or oral
expression with respect to the Transaction or otherwise.
You acknowledge and agree that the Company would not have an adequate
remedy at law and would be irreparably harmed in the event that any of the
provisions of this Confidentiality Agreement were not performed in accordance
with their specific terms or were otherwise breached. It is accordingly agreed
that the Company shall be entitled to injunctive relief to prevent breaches of
this Confidentiality Agreement and to specifically enforce the terms and
provisions hereof, in addition to any other remedy to which the Company may be
entitled at law or in equity. It is further understood and agreed that no
failure to or delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof, and no single or
<PAGE> 7
Albertsons, Inc.
December 22, 1997
Page 7
partial exercise of any right, power or privilege hereunder shall preclude any
other or further exercise of any right, power or privilege.
In the event of litigation relating to this Confidentiality Agreement,
if a court of competent jurisdiction determines in a final, nonappealable order
that a party has breached this agreement, then such party shall be liable and
pay to the non-breaching party the reasonable legal fees such non-breaching
party has incurred in connection with such litigation, including any appeal
therefrom.
This Confidentiality Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed within such State.
This Confidentiality Agreement shall remain in effect for a period of
three years from the date hereof and may be modified or waived only by a
separate writing by the Company and you that expressly so modifies or waives
this Confidentiality Agreement.
<PAGE> 8
Albertsons, Inc.
December 22, 1997
Page 8
Please confirm your agreement with the foregoing by signing and
returning one copy of this letter agreement to the undersigned, whereupon this
Confidentiality Agreement shall become a binding agreement.
Very truly yours,
FREEMAN SPOGLI & CO. INCORPORATED
For Buttrey Food and Drug Stores Company
By: /s/ J. Frederick Simmons
J. Frederick Simmons
Agreed to and Accepted:
ALBERTSONS, INC.
By: /s/ Gary G. Michael
Gary G. Michael
Chairman and CEO
Date: December 22, 1997
