<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period (16 weeks) ended June 19, 1999.
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............ to ................
Commission file number 1-5418
SUPERVALU INC.
(Exact name of registrant as specified in its Charter)
DELAWARE 41-0617000
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
11840 VALLEY VIEW ROAD, EDEN PRAIRIE, MINNESOTA 55344
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (612) 828-4000
Former name, former address and former fiscal year, if changed since last
report:
N/A
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
The number of shares outstanding of each of the issuer's classes of Common Stock
as of July 7, 1999 is as follows:
Title of Each Class Shares Outstanding
------------------- ------------------
Common Shares 119,867,051
<PAGE>
PART I - FINANCIAL INFORMATION
- --------------------------------------------------------------------------------
Item 1: Financial Statements
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF EARNINGS
- --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
First Quarter (16 weeks) ended
----------------------------------------------------------------
June 19, 1999 % of sales June 20, 1998 % of sales
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net sales $ 5,289,720 100.00% $ 5,202,576 100.00%
Costs and expenses:
Cost of sales 4,746,897 89.74 4,683,755 90.03
Selling and administrative expenses 413,598 7.81 394,051 7.57
Amortization of goodwill 6,826 0.13 6,322 0.12
Gain on sale 163,662 3.09 - -
Restructuring and other charges 103,596 1.96 - -
Interest
Interest expense 35,570 0.67 38,322 0.74
Interest income 5,325 0.10 6,177 0.12
---------------------------------------------------------
Interest expense, net 30,245 0.57 32,145 0.62
---------------------------------------------------------
Total costs and expenses 5,137,500 97.12 5,116,273 98.34
---------------------------------------------------------
Earnings before income taxes 152,220 2.88 86,303 1.66
Provision for income taxes
Current 134,372 33,288
Deferred (48,873) 1,217
---------------------------------------------------------
Income tax expense 85,499 1.62 34,505 0.66
---------------------------------------------------------
Net earnings $ 66,721 1.26% $ 51,798 1.00%
=========================================================
Net earnings per common share - diluted $ .55 $ .42
Net earnings per common share - basic $ .56 $ .43
Weighted average number of common
shares outstanding
Diluted 120,769 122,145
Basic 119,631 120,565
Dividends declared per common share $ .1325 $ .1300
</TABLE>
All data subject to year-end audit.
See notes to consolidated financial statements.
2
<PAGE>
CONSOLIDATED STATEMENTS OF NET SALES AND EARNINGS
- --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- --------------------------------------------------------------------------------
(In thousands)
First Quarter (16 weeks) ended
-------------------------------------------
Net sales June 19, 1999 June 20, 1998
- -------------------------------------------------------------------------------
Retail food $ 1,586,673 $ 1,408,603
30.0 % 27.1 %
Food distribution 4,599,215 4,609,097
86.9 % 88.6 %
Sales eliminations (896,168) (815,124)
(16.9)% (15.7)%
-------------------------------------------
Total net sales $ 5,289,720 $ 5,202,576
100.0 % 100.0 %
- -------------------------------------------------------------------------------
Earnings
- -------------------------------------------------------------------------------
Retail food $ 42,115 $ 37,226
Food distribution 90,044 89,990
Gain on sale 163,662 -
Restructuring and other charges (1) (103,596) -
-------------------------------------------
Total operating earnings 192,225 127,216
Interest income 5,325 6,177
Interest expense (35,570) (38,322)
General corporate expenses (9,760) (8,768)
-------------------------------------------
Earnings before income taxes 152,220 86,303
Provision for income taxes (85,499) (34,505)
-------------------------------------------
Net earnings $ 66,721 $ 51,798
================================================================================
All data subject to year-end audit.
See notes to consolidated financial statements.
(1) The company incurred restructuring and other charges for retail food and
food distribution of $19.4 and $84.2 million, respectively.
3
<PAGE>
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries First Quarter as of Fiscal Year End
- -------------------------------------------------------------------------------------
(In thousands) June 19, February 27,
Assets 1999 1999
- -------------------------------------------------------------------------------------
<S> <C> <C>
Current Assets
Cash and cash equivalents $ 7,748 $ 7,608
Marketable securities 206,150 -
Receivables, less allowance for losses of $21,901 at
June 19, 1999 and $18,983 at February 27, 1999 386,717 410,799
Inventories 1,066,622 1,067,837
Other current assets 111,623 96,283
------------------------------
Total current assets 1,778,860 1,582,527
Long-term notes receivable 156,822 161,273
Property, plant and equipment, net 1,657,750 1,699,024
Goodwill 503,936 567,890
Other assets 238,584 255,235
------------------------------
Total assets $4,335,952 $4,265,949
==============================
Liabilities and Stockholders' Equity
- -------------------------------------------------------------------------------------
Current Liabilities
Notes payable $ 37,537 $ 89,157
Accounts payable 1,036,103 981,961
Current debt and obligations under capital leases 185,137 232,928
Other current liabilities 289,510 217,861
------------------------------
Total current liabilities 1,548,287 1,521,907
Long-term debt and obligations under capital leases 1,248,264 1,246,269
Other liabilities and deferred income taxes 197,766 192,134
Total stockholders' equity 1,341,635 1,305,639
------------------------------
Total liabilities and stockholders' equity $4,335,952 $4,265,949
==============================
</TABLE>
All data subject to year-end audit.
See notes to consolidated financial statements.
4
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
- --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- --------------------------------------------------------------------------------
(In thousands, except per share data)
<TABLE>
<CAPTION>
Capital in
Preferred Common Excess of Treasury Retained
Stock Stock Par Value Stock Earnings Total
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balances at February 28, 1998 $ 5,908 $150,670 $ 2,927 $(507,296) $1,549,696 $1,201,905
Net earnings - - - - 191,338 191,338
Sales of common stock
under option plans - - (5,902) 35,497 (3,667) 25,928
Cash dividends declared
on common stock -
$.5275 per share - - - - (63,985) (63,985)
Compensation under employee
incentive plans - - 1,057 10,914 - 11,971
Treasury shares exchanged for
acquisition - - 1,918 2,167 - 4,085
Purchase of shares for treasury - - - (65,603) - (65,603)
- ----------------------------------------------------------------------------------------------------------------------
Balances at February 27, 1999 5,908 150,670 - (524,321) 1,673,382 1,305,639
Net earnings - - - - 66,721 66,721
Sales of common stock
under option plans - - - 4,491 (2,330) 2,161
Cash dividends declared
on common stock -
$.1325 per share - - - - (15,800) (15,800)
Compensation under employee
incentive plans - - - 5,297 (592) 4,705
Redemption of preferred stock (5,908) - - - - (5,908)
Purchase of shares for treasury - - - (15,883) - (15,883)
- ----------------------------------------------------------------------------------------------------------------------
Balances at June 19, 1999 $ - $150,670 $ - $(530,416) $1,721,381 $1,341,635
======================================================================================================================
</TABLE>
All data subject to year-end audit.
See notes to consolidated financial statements.
5
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
- --------------------------------------------------------------------------------
SUPERVALU INC. and Subsidiaries
- --------------------------------------------------------------------------------
(In thousands)
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------
Year-to-date
(16 weeks ended)
- --------------------------------------------------------------------------------------------
June 19, June 20,
1999 1998
- --------------------------------------------------------------------------------------------
<S> <C> <C>
- --------------------------------------------------------------------------------------------
Net cash provided by operating activities $138,939 $131,011
- --------------------------------------------------------------------------------------------
Cash flows from investing activities
Additions to long-term notes receivable (15,365) (11,252)
Proceeds received on long-term notes receivable 6,419 13,281
Proceeds from sale of assets 356,961 11,807
Purchase of property, plant and equipment (98,020) (83,505)
Business acquisition, net of cash acquired (28,211) -
Other cash used in investing activities 16,450 2,235
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities 238,234 (67,434)
- --------------------------------------------------------------------------------------------
Cash flows from financing activities
Net increase (decrease) in checks outstanding, net of deposits (3,105) 34,893
Net issuance (reduction) of short-term notes payable (51,620) 38,214
Proceeds from issuance of long-term debt - 83,500
Repayment of long-term debt (57,208) (184,537)
Dividends paid (31,820) (32,052)
Payments for purchase of treasury stock (15,883) (4,349)
Other cash provided by (used in) financing activities (11,247) 370
- --------------------------------------------------------------------------------------------
Net cash used in financing activities (170,883) (63,961)
- --------------------------------------------------------------------------------------------
Net increase in cash and cash equivalents 206,290 (384)
Cash and cash equivalents at beginning of year 7,608 6,100
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at end of first quarter $ 213,898 $ 5,716
============================================================================================
Supplemental Information:
Pretax LIFO income (expense) $ (499) $ 1,067
Pretax depreciation and amortization $ 72,619 $ 69,194
</TABLE>
All data subject to year-end audit.
See notes to consolidated financial statements.
6
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Accounting Policies
- -------------------
The summary of significant accounting policies is included in the notes to
consolidated financial statements in the 1999 annual report of SUPERVALU INC.
("SUPERVALU" or the "company").
Special Charges
- ---------------
The company recorded one-time, pre-tax restructuring and other charges of $103.6
million as a result of an extensive review to reduce costs and enhance
efficiency. See Management Discussion and Analysis for further detail.
Subsequent Event
- ----------------
On June 9, 1999, the company signed an agreement with Richfood Holdings, Inc.
whereby SUPERVALU would acquire in a merger all of the outstanding common stock
of Richfood. Under the terms of the agreement Richfood's shareholders will have
the option to receive $18.50 per share in cash or SUPERVALU common stock subject
to an allocation and proration. The allocation and proration is subject to an
adjustment whereby the aggregate merger consideration will be 50 percent cash
and 50 percent SUPERVALU common stock. The transaction has a total value of $1.5
billion including the assumption of Richfood's $642 million of debt. The merger
is subject to approval by Richfood's shareholders and regulatory clearance. The
merger will be accounted for as a purchase and the transaction is expected to
close in the third quarter of the current fiscal year.
Statement of Registrant
- -----------------------
The data presented herein is unaudited but, in the opinion of management,
includes all adjustments necessary for a fair presentation of the condensed
consolidated financial position of the company and its subsidiaries at June 19,
1999 and June 20, 1998 and the results of the company's operations and condensed
cash flows for the periods then ended. These interim results are not necessarily
indicative of the results of the fiscal years as a whole.
7
<PAGE>
Item 2: Management's Discussion and Analysis of Financial Condition and Results
-----------------------------------------------------------------------
of Operations
-------------
Results of Operations
- ---------------------
For the first quarter of fiscal 2000, the company recorded record sales of $5.3
billion, net earnings of $66.7 million and diluted earnings per share of $.55.
Excluding the net impact of the gain on the sale of Hazelwood Farms Bakeries and
restructuring and other charges, net earnings were $55.8 million and diluted
earnings per share were $.46. Last year sales were $5.2 billion, net earnings
were $51.8 million and diluted earnings per share were $.42.
Net sales
Net sales increased 1.7 percent compared to last year, positively impacted by a
12.6 percent increase in retail food sales offset in part by a slight decrease
in food distribution sales.
Retail food sales increased over last year primarily due to acquisitions and new
store openings over the past twelve months. Same-store sales were flat to last
year, impacted by low inflation, competitive activities and cannibalization in
certain markets. Food distribution sales decreased slightly from last year and
included the loss of sales from the sale of Hazelwood Farms Bakeries on May 22,
1999.
Gross profit
Gross profit as a percentage of net sales was 10.3 percent compared to 10.0
percent last year. The growing proportion within the company's total sales mix
of the higher margin retail food business favorably impacted the gross profit
percentage. Retail food and food distribution gross profit margins were
comparable to last year.
Selling and administrative expenses
Selling and administrative expenses were 7.9 percent of net sales compared to
7.7 percent last year. The higher percentage was primarily due to the increased
proportion of the company's retail food business, which operates at a higher
selling and administrative expense percentage than the food distribution
business. Retail food and food distribution selling and administrative expenses
were comparable to last year.
Sale of Business
On May 22, 1999 the company sold Hazelwood Farms Bakeries, which resulted in a
pre-tax gain of $163.7 million. The company had identified Hazelwood Farms
Bakeries as a non-strategic asset to be liquidated to allow the redeployment of
capital. The transaction resulted in $248.2 million of after-tax cash proceeds.
Special Charges
The company recorded one-time, pre-tax restructuring and other charges of $103.6
million as a result of an extensive review to reduce costs and enhance
efficiency over the next 18 months. Included in this total is $14.9 million for
asset impairment costs. The charge by segment was $19.4 million for retail and
$84.2 million for food distribution. The restructuring charges include costs for
facility consolidation, non-core store disposals and rationalization of
redundant and certain decentralized administrative functions.
8
<PAGE>
Facility consolidation costs of $47.2 million primarily include losses for the
sale or writedown of assets and leases. Holding costs are also included in this
total. Non-core store disposals include the sale or closure of retail locations
currently operated in the distribution business and other retail stores that are
located in non-strategic markets. These costs total $41.8 million and include
losses to be incurred upon the sale or closure of the stores and related assets,
costs for future lease obligations and lease buy-outs. Rationalization of
redundant and certain decentralized administrative functions consists primarily
of severance for staff reductions as a result of both standardizing and
consolidating business support functions across the company's home office,
retail and distribution operating regions. These costs amount to $14.6 million.
Due to the above restructuring items, the company expects approximately 2,500
employees to be terminated.
Operating earnings
The company's pre-tax operating earnings (earnings before interest and taxes)
increased to $182.5 million compared with $118.4 million last year. Operating
earnings before depreciation and amortization increased to $255.1 million
compared with $187.6 million last year, a 35.9 percent increase. Operating
earnings excluding the gain on the sale of Hazelwood Farms Bakeries and
restructuring and other charges were $122.4 million, a 3.3 percent increase over
last year. Retail food operating earnings decreased 38.9 percent to $22.7
million from last year's $37.2 million. Food distribution operating earnings
increased 88.3 percent to $169.5 million from $90.0 million. Excluding the gain
on the sale of Hazelwood Farms Bakeries and restructuring and other charges,
retail food and food distribution operating earnings increased 13.1 percent and
.1 percent over last year, respectively. The increase in retail food's operating
earnings was due to increased sales.
Interest expense and income
Interest expense decreased to $35.6 million compared with $38.3 million last
year, primarily reflecting lower average borrowings. Interest income decreased
to $5.3 million compared with $6.2 million last year, primarily due to the
reduction of notes receivable as a result of the sale of notes in the fourth
quarter of fiscal 1999 in the ordinary course of business.
Income taxes
The effective tax rate was 56.2 percent in the quarter, compared with 40.0
percent in the first quarter of last year. The higher effective tax rate is
primarily the result of the gain on the sale of Hazelwood Farms Bakeries.
Excluding the impact of the gain on the sale of Hazelwood Farms Bakeries, the
effective tax rate was approximately 39.5 percent, consistent with the annual
effective tax rate last year.
Net earnings
Net earnings were $66.7 million or $.55 per share - diluted compared with last
year's net earnings of $51.8 million or $.42 per share - diluted. Excluding the
gain on the sale of Hazelwood Farms Bakeries and restructuring and other
charges, net earnings were $55.8 million or $.46 per share - diluted. Weighted
average shares - diluted declined to 120.8 million compared with last year's
122.1 million.
9
<PAGE>
Liquidity and Capital Resources
- -------------------------------
Internally generated funds from operations continued to be the major source of
liquidity and capital growth. Cash provided from operations for the first
quarter was $138.9 million compared with $131.0 million last year. Net cash
provided from investing activities was $238.2 million compared with net cash
used of $67.4 million last year. The change from the prior year reflects
proceeds received on the sale of assets of $357.0 million, which includes the
proceeds received from the sale of Hazelwood Farms, of which $206.2 million was
invested in marketable securities at the end of the first quarter.
SUPERVALU will continue to use short-term and long-term debt as a supplement to
internally generated funds to finance its activities. Maturities of debt issued
will depend on management's views with respect to the relative attractiveness of
interest rates at the time of issuance. The company has a $400 million "shelf
registration" in effect, pursuant to which the company could issue $159 million
of additional debt securities.
A $400 million revolving credit agreement, with rates tied to LIBOR plus .180 to
.275 percent, also is in place and expires in October 2002. The revolving credit
agreement is available for general corporate purposes and to support the
company's commercial paper program. There were no drawings on the revolving
credit agreement during the first quarter and no commercial paper outstanding as
of the end of the first quarter. During the first quarter, $10.5 million of
letters of credit were issued under the revolving credit agreement and a total
of $40.5 million were outstanding as of the end of the quarter.
On June 9, 1999, the company signed an agreement with Richfood Holdings, Inc.
whereby SUPERVALU would acquire in a merger all of the outstanding common stock
of Richfood. Under the terms of the agreement Richfood's shareholders will have
the option to receive $18.50 per share in cash or SUPERVALU common stock subject
to an allocation and proration. The allocation and proration is subject to an
adjustment whereby the aggregate merger consideration will be 50 percent cash
and 50 percent SUPERVALU common stock. The merger is subject to approval by
Richfood's shareholders and regulatory clearance.
The company intends to finance the acquisition with a combination of existing
cash, commercial paper issuances (supported by bank credit facilities) and the
proceeds of one or more debt offerings. Approximately $886 million will be paid
to Richfood shareholders, consisting of $443 million of cash and the issuance of
$443 million of SUPERVALU common stock. The merger is expected to be completed
in the third quarter of fiscal 2000.
YEAR 2000
General
SUPERVALU's company wide Year 2000 Project ("Project") is proceeding on
schedule. The Project is addressing the issue of application systems,
information technology (IT) systems and technologies which include embedded
systems being able to distinguish between the year 1900 and the year 2000. In
1996, the company began establishing processes for evaluating and managing the
risks associated with the Project. The Project is divided into six components.
These components include program management,
10
<PAGE>
communications, application conversions and technology upgrades, contingency
planning, quality assurance and external entities. The company is using both
internal and external resources to implement the Project. Year 2000 remediation
and testing will be substantially completed by September 1999. The company has
developed contingency plans for key business functions that could be impacted by
year 2000 issues and the focus of the remaining year 2000 work will shift to
readying contingency plans and preparing for the year-end transition.
The company has relationships with a significant number of key business
partners. The company has had formal communications with its key business
partners and has developed formal contingency plans to mitigate the risk to the
company if the business partners are not prepared for the year 2000. The company
will continue to communicate with its key business partners on relevant issues
throughout 1999 and beyond. There can be no guarantee that the business partners
will successfully and timely reprogram or replace and test all of their own
computer hardware, software and process control systems. While the failure of a
single business partner to achieve year 2000 compliance should not have a
material adverse effect on the company's results of operations, the failure of
several key business partners could have such an effect.
Costs
The total costs associated with required modifications to become Year 2000
compliant is not expected to be material to the company's financial position.
The company has incurred costs to date of $25.2 million. Estimated costs for the
remainder of work is $4.1 million for a total projected Project cost of $29.3
million.
Risks
While the effort to assess and correct the company's Year 2000 issues are
expected to be complete prior to related forecasted failure horizons, the
company is taking specific measures to assess risks and develop specific
contingency plans. Key business functions have been assessed and action plans
have been created which describe the communications, operations and IT
activities that will be conducted if the contingency plan must be executed.
The costs of the Project and the completion dates are based on management's best
estimates, which were derived from assumptions of future events including the
availability of resources, key business partner modification plans and other
factors. There can be no guarantee that these estimates will be achieved and
actual results could vary due to uncertainties.
The company's Year 2000 efforts are ongoing and its overall Project will
continue to evolve as new information becomes available. The failure to correct
a material Year 2000 problem could result in an interruption in certain normal
business activities and operations. Due to the general uncertainty inherent in
the Year 2000 problem, resulting in part from the uncertainty of the Year 2000
readiness of third parties on whom the company relies, the company is unable to
determine at this time whether the consequences of Year 2000 failures will have
a material adverse impact on the company's results of operation but the company
believes that, with the implementation of new business systems and completion of
the Project as scheduled, the possibility of significant interruptions of normal
operations should be reduced.
11
<PAGE>
Cautionary statements for purposes of the Safe Harbor Provisions of the Private
Securities Litigation Reform Act of 1995
The information in this 10Q includes forward-looking statements. Important risks
and uncertainties that could cause actual results to differ materially from
those discussed in such forward looking statements are detailed in Exhibit 99.1
to the company's Annual Report on Form 10-K for the fiscal year ended February
27, 1999 and under the caption "Year 2000" in this Form 10-Q; other risks or
uncertainties may be detailed from time to time in the company's future
Securities and Exchange Commission filings.
12
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders.
----------------------------------------------------
The Registrant held its Annual Meeting of Stockholders on June 30, 1999 at
which the stockholders took the following actions:
(a) elected Edwin C. Gage, Garnett L. Keith, Jr., Richard L. Knowlton and
Carole F. St. Mark to the Board of Directors for terms expiring in
2002. The votes cast for and withheld with respect to each such
Director was as follows:
Votes For Votes Withheld
--------- --------------
Edwin C. Gage 99,368,271 2,202,080
Garnett L. Keith, Jr. 97,920,538 3,649,813
Richard L. Knowlton 99,992,012 1,578,339
Carole F. St. Mark 100,092,886 1,477,465
The Directors whose terms continued after the meeting are as follows:
Herman Cain, Lawrence A. Del Santo, William A. Hodder, Charles M.
Lillis, Harriet Perlmutter, Steven S. Rogers and Michael W. Wright.
(b) ratified by a vote of 100,998,141 for, 126,073 against, and
446,137 abstaining, the appointment of KPMG Peat Marwick LLP as
the independent auditors of Registrant for the fiscal year ending
February 26, 2000.
(c) approved by a vote of 93,035,106 for, 7,368,898 against, and
1,094,347 abstaining, the adoption of certain amendments to the
SUPERVALU INC. 1993 Stock Plan.
13
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
---------------------------------
(a) Exhibits filed with this Form 10-Q:
(2) Agreement and Plan of Merger, dated as of June 9, 1999,
among SUPERVALU INC., Winter Acquisition, Inc. and Richfood
Holdings, Inc.
The Registrant agrees to furnish supplementally to the
Securities and Exchange Commission, upon request, a copy of
any omitted schedule.
(11) Computation of Earnings Per Common Share.
(27) Financial Data Schedule.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
SUPERVALU INC. (Registrant)
Dated: July 12, 1999 By: /s/ Pamela K. Knous
--------------------------------
Pamela K. Knous
Executive Vice President, Chief
Financial Officer (Authorized
officer of Registrant)
14
<PAGE>
Exhibit 2
AGREEMENT AND PLAN OF MERGER
dated as of
June 9, 1999
among
SUPERVALU INC.,
WINTER ACQUISITION, INC.
and
RICHFOOD HOLDINGS, INC.
<PAGE>
TABLE OF CONTENTS
Page
----
ARTICLE 1
THE MERGER...............................................................2
1.1 The Merger......................................................2
1.2 Effective Time; Filing of Certificate and Articles of Merger....2
1.3 Certificate of Incorporation....................................2
1.4 Bylaws..........................................................2
1.5 Directors and Officers..........................................2
1.6 Additional Actions..............................................3
1.7 Time and Place of Closing.......................................3
1.8 Effect of Merger on Capital Stock...............................3
1.9 Allocation of Merger Consideration; Election Procedures.........4
1.10 Company Stock Options and Warrants.............................12
ARTICLE 2
OTHER AGREEMENTS........................................................14
2.1 Access.........................................................14
2.2 Disclosure Schedule............................................14
2.3 Acquisition Proposals..........................................15
2.4 Public Announcements...........................................17
2.5 Confidentiality Agreement......................................17
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY...........................17
3.1 Due Incorporation..............................................17
3.2 Capitalization.................................................18
3.3 Authorization; Enforceability..................................19
3.4 No Violation or Conflict.......................................20
3.5 SEC Documents and Other Reports................................21
3.6 No Undisclosed Liabilities.....................................22
3.7 No Violation of Law............................................22
3.8 Title to Assets................................................22
3.9 Litigation.....................................................22
i
<PAGE>
Page
----
3.10 Absence of Certain Changes or Events...........................23
3.11 Performance of Contracts.......................................23
3.12 ERISA..........................................................24
3.13 Taxes..........................................................26
3.14 Labor Matters..................................................27
3.15 Existing Permits...............................................28
3.16 Intangible Assets..............................................28
3.17 Environmental Matters..........................................28
3.18 Vote Required..................................................29
3.19 Disclosure Documents...........................................29
3.20 Opinion of Financial Advisor...................................30
3.21 Certain Agreements.............................................30
3.22 Finders or Brokers.............................................30
3.23 Takeover Statutes..............................................30
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION...............................................31
4.1 Due Incorporation...............................................31
4.2 Capitalization..................................................32
4.3 Authorization; Enforceability...................................32
4.4 No Violation or Conflict........................................33
4.5 SEC Documents and Other Reports.................................34
4.6 No Undisclosed Liabilities......................................35
4.7 No Violation of Law.............................................35
4.8 Litigation......................................................35
4.9 Absence of Certain Changes or Events............................35
4.10 Authorization of Parent Common Stock...........................36
4.11 Brokers or Finders.............................................36
4.12 Disclosure Documents...........................................36
ARTICLE 5
COVENANTS...............................................................37
5.1 Conduct of Business by the Company.............................37
5.2 Information Supplied...........................................39
ii
<PAGE>
Page
----
5.3 Shareholder Meeting.............................................40
5.4 Filings; Approvals and Consents; Cooperation....................40
5.5 Listing of Parent Common Stock..................................42
5.6 Affiliates......................................................42
5.7 Takeover Statute................................................43
5.8 Tax-Free Reorganization.........................................43
ARTICLE 6
CONDITIONS..............................................................44
6.1 Conditions to Each Party's Obligation to Effect the Merger.....44
6.2 Conditions to Parent's and Acquisition's Obligation to
Effect the Merger...........................................44
6.3 Conditions to the Company's Obligation to Effect the Merger....45
ARTICLE 7
NO SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION.............................................46
7.1 No Survival of Representations and Warranties..................46
7.2 Directors' and Officers' Indemnification; Insurance............46
ARTICLE 8
TERMINATION.............................................................48
8.1 Termination....................................................48
8.2 Rights on Termination..........................................51
8.3 Termination Fee Payable to Parent..............................51
8.4 Other Remedies.................................................51
ARTICLE 9
MISCELLANEOUS...........................................................52
9.1 Expenses.......................................................52
9.2 Entire Agreement; Amendment....................................52
9.3 Governing Law..................................................52
9.4 Assignment.....................................................52
iii
<PAGE>
Page
----
9.5 Notices........................................................52
9.6 Counterparts; Headings.........................................54
9.7 Interpretation.................................................54
9.8 Specific Performance...........................................54
9.9 No Reliance....................................................54
9.10 Exhibits and Schedules.........................................54
9.11 No Third Party Beneficiary.....................................54
ARTICLE 10
DEFINITIONS.............................................................55
10.1 Affiliate......................................................55
10.2 Agreement......................................................55
10.3 Buildings......................................................55
10.4 Contracts......................................................55
10.5 Control........................................................55
10.6 DGCL...........................................................55
10.7 Disclosure Schedule............................................55
10.8 Employees......................................................55
10.9 Environmental Claim............................................55
10.10 Environmental Laws.............................................56
10.11 Equipment......................................................56
10.12 ERISA..........................................................56
10.13 Existing Insurance Policies....................................56
10.14 Existing Liens.................................................56
10.15 Existing Options...............................................56
10.16 Existing Permits...............................................57
10.17 Governmental Entity............................................57
10.18 Hazardous Materials............................................57
10.19 Indebtedness...................................................57
10.20 Intangible Assets..............................................57
10.21 Investment.....................................................58
10.22 Knowledge......................................................58
10.23 Law............................................................58
10.24 Lien...........................................................58
10.25 Material Adverse Effect........................................58
10.26 Merger.........................................................58
iv
<PAGE>
Page
----
10.27 Parent Disclosure Schedule.....................................59
10.28 Permitted Liens................................................59
10.29 Person.........................................................59
10.30 Real Estate....................................................59
10.31 SEC............................................................59
10.32 Shareholders...................................................59
10.33 Subsidiary.....................................................59
10.34 VSCA...........................................................59
v
<PAGE>
Exhibits
--------
Exhibit 1 Certificate of Merger
Exhibit 2 Articles of Merger
Exhibit 3 Affiliates Letter
vi
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of June 9, 1999, among SUPERVALU
INC., a Delaware corporation (the "Parent"), Winter Acquisition, Inc., a
Delaware corporation and a wholly owned subsidiary of Parent ("Acquisition"),
and Richfood Holdings, Inc., a Virginia corporation (the "Company"). The Company
and Acquisition are hereinafter sometimes collectively referred to as the
"Constituent Corporations." Capitalized terms not otherwise defined herein are
used as defined in Section 10 hereof.
WHEREAS, the Boards of Directors of Parent, Acquisition and the Company
have approved and deem it advisable and in the best interests of their
respective shareholders to consummate the acquisition of the Company by the
Parent upon the terms and subject to the conditions set forth herein;
WHEREAS, in furtherance thereof it is proposed that the acquisition be
accomplished by a merger of the Company with and into Acquisition (the "Merger")
pursuant to which each outstanding share of common stock, without par value, of
the Company (the "Company Common Stock") will be converted into the right to
receive the Merger Consideration (as hereinafter defined), upon the terms and
conditions set forth in this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the Merger
shall qualify as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code"); and
WHEREAS, simultaneously with the execution and delivery of this Agreement,
Parent has entered into an agreement (the "Company Shareholders Agreement") with
certain shareholders of the Company pursuant to which such shareholders agreed
to vote the shares of Company Common Stock owned by them in favor of the Merger
(the Company Shareholders Agreement and this Agreement are collectively referred
to herein as the "Transaction Agreements").
NOW, THEREFORE, in consideration of the mutual covenants, representations,
warranties and agreements contained herein, and intending to be legally bound
hereby, Parent, Acquisition and the Company agree as follows:
<PAGE>
ARTICLE 1
THE MERGER
1.1 The Merger. Upon the terms and subject to the conditions of this
Agreement and in accordance with the DGCL and VSCA, at the Effective Time (as
hereinafter defined), the Company shall be merged with and into Acquisition, and
Acquisition shall be the surviving corporation in the Merger (in such capacity,
the "Surviving Corporation").
1.2 Effective Time; Filing of Certificate and Articles of Merger. The
Merger shall be effected by the filing at the time of the Closing (as
hereinafter defined) of a properly executed certificate of merger (the
"Certificate of Merger") or other appropriate documents (in the form attached as
Exhibit 1 hereto) with the Secretary of State of the State of Delaware and the
filing of properly executed articles of merger (the "Articles of Merger") with
the State Corporation Commission of Virginia (the "SCC") (in the form attached
as Exhibit 2 hereto) in accordance with the provisions of the DGCL and VSCA,
respectively. The Merger shall become effective at the time a certificate of
merger is issued by the SCC or at such later date or time as Acquisition and the
Company shall agree and as specified in the Articles of Merger (the "Effective
Time").
1.3 Certificate of Incorporation. At the Effective Time, the Certificate of
Incorporation of Acquisition as in effect immediately prior to the Effective
Time shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter amended in accordance with its terms and the DGCL.
1.4 Bylaws. At the Effective Time, the Bylaws of Acquisition, as in effect
immediately prior to the Effective Time, shall be the Bylaws of the Surviving
Corporation until thereafter amended in accordance with its terms and the DGCL.
1.5 Directors and Officers. The directors of Acquisition immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation. The officers of the Company immediately prior to the Effective Time
shall be the initial officers of the Surviving Corporation. Each director and
officer of the Surviving Corporation shall hold office in accordance with the
Certificate of Incorporation and
2
<PAGE>
Bylaws of the Surviving Corporation until his or her successor is duly appointed
and qualified.
1.6 Additional Actions. If, at any time after the Effective Time, the
Surviving Corporation shall consider or be advised that consistent with the
terms of this Agreement any further assignments or any other acts are necessary
or desirable (i) to vest, perfect or confirm, of record or otherwise, in the
Surviving Corporation, title to and possession of any property or right of
either Constituent Corporation acquired or to be acquired by reason of, or as a
result of, the Merger, or (ii) otherwise to carry out the purposes of this
Agreement, then, subject to the terms and conditions of this Agreement, the
officers and directors of the Surviving Corporation shall be directed and
authorized to execute and deliver, in the name and on behalf of the Constituent
Corporations, all such documents and to do all acts necessary or proper to vest,
perfect or confirm title to and possession of such property or rights in the
Surviving Corporation and otherwise to carry out the purposes of this Agreement;
and the officers and directors of the Surviving Corporation are fully authorized
in the name of either Constituent Corporation to take any and all such action.
1.7 Time and Place of Closing. The closing of the Merger (the "Closing")
shall take place (a) at the offices of Hunton & Williams, Riverfront Plaza, East
Tower, 951 East Byrd Street, Richmond, Virginia 23219 as soon as practicable and
no later than the second business day following satisfaction or waiver of all of
the conditions set forth in Article 6, or (b) at such other place, at such other
time or on such other date as Parent and the Company may mutually agree (the
date of the Closing is hereinafter sometimes referred to as the "Closing Date").
1.8 Effect of Merger on Capital Stock. At the Effective Time, as a result
of the Merger and without any action on the part of the holder of any capital
stock of the Company:
(a) Merger Consideration. Subject to Section 1.9, each share of
Company Common Stock issued and outstanding at the Effective Time (other
than Company Common Stock owned by Parent or any direct or indirect
Subsidiary of Parent or Company Common Stock owned by the Company or any
direct or indirect Subsidiary of the Company) shall be converted into, and
become exchangeable for, at the election of the holder of Company Common
Stock in accordance with Section 1.9(b): (i) $18.50 in cash (the "Cash
Consideration"), or (ii) the number of shares of common stock, par value
$1.00 per share, of Parent ("Parent Common Stock") equal to the ratio (the
"Conversion Ratio") determined by dividing $18.50 by the average of the per
share last
3
<PAGE>
sales prices, regular way (rounded to four decimal points, the "Average
Parent Price") of Parent Common Stock as reported on the New York Stock
Exchange, Inc. (the "NYSE") composite transactions reporting system (as
reported in the New York City edition of The Wall Street Journal or, if not
reported thereby, another authoritative source) for the twenty (20)
consecutive trading days (the "Averaging Period") ending on (and including)
the seventh trading day (the "Determination Date") prior to the Closing
Date (the "Stock Consideration") (the Cash Consideration or the Stock
Consideration, as applicable, being hereinafter referred to as the "Merger
Consideration"). "Aggregate Merger Consideration" shall mean the amount of
cash and shares of Parent Common Stock (valued at the Average Parent Price)
which, when combined, equals $18.50 times the Aggregate Company Shares (as
defined in Section 1.9).
(b) Cancellation of Shares. At the Effective Time, all Company Common
Stock (other than Company Common Stock owned by Parent or any direct or
indirect Subsidiary of Parent, except for shares owned on behalf of third
parties ("Parent Shares"), and other than Company Common Stock owned by the
Company or any direct or indirect Subsidiary of the Company, except for
shares owned on behalf of third parties (collectively, "Excluded Shares"))
shall no longer be outstanding and shall be canceled and retired and shall
cease to exist, and each certificate (a "Certificate") representing any of
such Company Common Stock (other than Excluded Shares) shall thereafter
represent only the right to receive the Merger Consideration and the right,
if any, to receive cash in lieu of fractional shares pursuant to Section
1.9(e) and any dividends or other distributions pursuant to Section 1.9(c).
Each share of Company Common Stock issued and outstanding immediately prior
to the Effective Time and owned by the Company or any direct or indirect
Subsidiary of the Company (other than Company Common Stock that is owned on
behalf of third parties), shall, by virtue of the Merger and without any
action on the part of the holder thereof, cease to be outstanding, shall be
canceled and retired without payment of any consideration therefor and
shall cease to exist.
1.9 Allocation of Merger Consideration; Election Procedures.
(a) Allocation. Notwithstanding anything in this Agreement to the
contrary, the number of shares of Company Common Stock (the "Cash Election
Number") to be converted into the right to receive Cash Consideration in
the Merger, and the number of shares of Company Common Stock (the "Stock
Election Number") to be converted into the right to receive Stock
Consideration in the Merger shall in each case be equal to fifty percent
(50%) of (i) the number of shares of Company Common
4
<PAGE>
Stock issued and outstanding immediately prior to the Effective Time less
(ii) the number of Excluded Shares ((i) less (ii) shall mean "Aggregate
Company Shares"), unless such percentages are adjusted pursuant to the
provisions of Section 8.1(c)(iii) and then as so adjusted (the "Adjusted
Percentage").
(b) Election Procedures; Proration.
(i) As of the Effective Time, Parent shall deposit, or shall
cause to be deposited, with an exchange agent selected by Parent, with
the Company's prior approval, which shall not be unreasonably withheld
(the "Exchange Agent"), for the benefit of the holders of Company
Common Stock, certificates representing the shares of Parent Common
Stock and any cash to be issued or paid pursuant to Section 1.8 and
any cash, dividends or other distributions with respect to the Parent
Common Stock to be issued or paid pursuant to Section 1.9(c) (such
cash and certificates for shares of Parent Common Stock, together with
the amount of any dividends or other distributions payable with
respect thereto, being hereinafter referred to as the "Exchange
Fund").
(ii) Subject to allocation, conversion and proration in
accordance with the provisions of this Section 1.9, each record holder
of Company Common Stock (other than Excluded Shares) issued and
outstanding immediately prior to the Election Deadline (as defined
below) shall be entitled (A) to elect to receive in respect of each
such share of Company Common Stock (x) Cash Consideration (a "Cash
Election") or (y) Stock Consideration (a "Stock Election") or (B) to
indicate that such record holder has no preference as to the receipt
of Cash Consideration or Stock Consideration for such Company Common
Stock (a "Non-Election"). Shares of Company Common Stock in respect of
which a Non-Election is made (including shares in respect of which
such an election is deemed to have been made pursuant to this
Agreement (collectively, "Non-Election Shares")) shall, as nearly as
possible, be deemed (A) shares of Company Common Stock in respect of
which Stock Elections have been made in an amount equal to fifty
percent (50%) of the total number of such shares of Company Common
Stock (Company Common Stock in respect of which a Stock Election has
been made, together with Company Common Stock in respect of which a
Stock Election is deemed to be made pursuant to Section 1.9,
5
<PAGE>
being hereinafter referred to as "Stock Election Shares"), and (B)
shares of Company Common Stock in respect of which Cash Elections have
been made in an amount equal to fifty percent (50%) of the total
number of such shares of Company Common Stock (Company Common Stock in
respect of which a Cash Election has been made, together with Company
Common Stock in respect of which a Cash Election is deemed to be made
pursuant to Section 1.9, being hereinafter referred to as "Cash
Election Shares"), unless the Adjusted Percentage applies and then
according to the Adjusted Percentage.
(iii) Elections pursuant to Section 1.9(b) (ii) shall be made on
a form and with such other provisions to be reasonably agreed upon by
the Company and Parent (a "Form of Election") to be provided by the
Exchange Agent for that purpose to holders of record of Company Common
Stock (other than holders of Excluded Shares), together with
appropriate transmittal materials, at the time of mailing to holders
of record of Company Common Stock of the Proxy Statement/Prospectus
(as hereinafter defined) in connection with the Shareholder Meeting
referred to in Section 5.3. Elections shall be made by mailing to the
Exchange Agent a duly completed Form of Election. To be effective, a
Form of Election must be (x) properly completed, signed and submitted
to the Exchange Agent at its designated office, by 5:00 p.m., on the
business day that is two trading days prior to the Closing Date (which
date shall be publicly announced, along with the Conversion Ratio, by
Parent as soon as practicable but in no event less than five trading
days prior to the Closing Date) (the "Election Deadline") and (y) in
the case of Shares that are not held in book entry form, accompanied
by the Certificate(s) representing the Company Common Stock (a
"Certificate" or "Certificates") as to which the election is being
made or an affidavit of loss and indemnification in lieu thereof (or
by an appropriate guarantee of delivery of such Certificate(s) by a
commercial bank or trust company in the United States or a member of a
registered national security exchange or of the National Association
of Securities Dealers, Inc., provided that such Certificates are in
fact delivered to the Exchange Agent within three trading days after
the date of execution of such guarantee of delivery). For shares of
Company Common Stock that are held in book entry form, Parent shall
establish procedures for the delivery of such Company Common Stock,
which procedures shall be reasonably acceptable to the Company. The
6
<PAGE>
Company shall use its best efforts to make a Form of Election
available as promptly as practicable to all Persons who become holders
of record of Company Common Stock (other than Excluded Shares) between
the date of mailing described in the first sentence of this Section
1.9(b)(iii) and the Election Deadline. Neither Parent nor the Exchange
Agent will be under any obligation to notify any Person of any defect
in a Form of Election submitted to the Exchange Agent. A holder of
Company Common Stock that does not submit an effective Form of
Election prior to the Election Deadline shall be deemed to have made a
Non-Election.
(iv) An election may be revoked or amended, but only by written
notice received by the Exchange Agent prior to the Election Deadline.
Any Certificate(s) that have been submitted to the Exchange Agent in
connection with an election shall be returned without charge to the
holder thereof in the event such election is revoked as aforesaid and
such holder requests in writing the return of such Certificate(s).
Upon any such revocation, unless a duly completed Form of Election is
thereafter submitted in accordance with paragraph (b)(iii), such
shares of Company Common Stock shall be Non-Election Shares. In the
event that this Agreement is terminated pursuant to the provisions
hereof and any shares of Company Common Stock have been transmitted to
the Exchange Agent pursuant to the provisions hereof, such shares
shall promptly be returned without charge to the Person submitting the
same.
(v) In the event that the aggregate number of Cash Election
Shares exceeds the Cash Election Number, all Cash Election Shares
shall be converted into the right to receive Stock Consideration or
Cash Consideration in the following manner:
(A) Cash Election Shares shall be deemed converted to Stock
Election Shares, on a pro-rata basis for each record holder of
Company Common Stock with respect to those shares, if any, of
such record holder that are Cash Election Shares, to the minimum
extent necessary so that the aggregate number of Cash Election
Shares following such conversion shall equal as closely as
practicable the Cash Election Number; all such Cash
7
<PAGE>
Election Shares so converted shall be converted into the right to
receive Stock Consideration; and
(B) any remaining Cash Election Shares shall be converted
into the right to receive Cash Consideration.
(vi) In the event that the aggregate number of Stock Election
Shares exceeds the Stock Election Number, all Stock Election Shares
shall be converted into the right to receive Stock Consideration or
Cash Consideration in the following manner:
(A) Non-Election Shares which would otherwise be deemed to
be Stock Election Shares pursuant to Section 1.9(b)(ii) shall be
deemed converted to Cash Election Shares, on a pro-rata basis for
each record holder of Company Common Stock with respect to those
shares, if any, of such record holder that are Non-Election
Shares, to the minimum extent necessary so that the aggregate
number of Stock Election Shares following such conversion shall
equal as closely as practicable the Stock Election Number; all
such Non-Election Shares so converted shall be converted into the
right to receive Cash Consideration;
(B) in the event that the aggregate number of Stock Election
Shares still exceeds the Stock Election Number, all Stock
Election Shares shall be converted into the right to receive
Stock Consideration or Cash Consideration in the following
manner: Stock Election Shares shall be deemed converted to Cash
Election Shares, on a pro-rata basis for each record holder of
Company Common Stock with respect to those shares, if any, of
such record holder that are Stock Election Shares, to the minimum
extent necessary so that the aggregate number of Stock Election
Shares following such conversion (after taking into account the
actions described in (vi) (A) above) shall equal as closely as
practicable the Stock Election Number; all such Stock
8
<PAGE>
Election Shares so converted shall be converted into the right to
receive Cash Consideration; and
(C) any remaining Stock Election Shares shall be converted
into the right to receive Stock Consideration.
(vii) In the event that clause (v) of this Section 1.9(b) is not
applicable, all Cash Election Shares shall be converted into the right
to receive Cash Consideration, and in the event that clause (vi) of
this Section 1.9(b) is not applicable, all Stock Election Shares shall
be converted into the right to receive Stock Consideration.
(viii) The Exchange Agent, in consultation with Parent and the
Company, shall make all computations to give effect to this Section
1.9.
(ix) In the event of a transfer of ownership of Company Common
Stock that is not registered in the transfer records of the Company,
the Merger Consideration together with any other cash, dividends or
distributions in respect thereof, may be issued and/or paid to such a
transferee if the Certificate formerly representing such Company
Common Stock is presented to the Exchange Agent, accompanied by all
documents required to evidence and effect such transfer and to
evidence that any applicable stock transfer taxes have been paid. If
any certificate for shares of Parent Common Stock is to be issued in a
name other than that in which the Certificate surrendered in exchange
therefore is registered, it shall be a condition of such exchange that
the Person (as defined herein) requesting such exchange shall pay any
transfer or other taxes required by reason of the issuance of
certificates for shares of Parent Common Stock in a name other than
that of the registered holder of the Certificate surrendered, or shall
establish to the satisfaction of Parent or the Exchange Agent that
such tax has been paid or is not applicable.
9
<PAGE>
(c) Distributions with Respect to Unexchanged Shares; Voting.
(i) All shares of Parent Common Stock to be issued pursuant to
the Merger shall be deemed issued and outstanding as of the Effective
Time and whenever a dividend or other distribution is declared by
Parent in respect of the Parent Common Stock, the record date for
which is at or after the Effective Time, that declaration shall
include dividends or other distributions in respect of all shares
issuable pursuant to this Agreement, provided that no dividends or
other distributions declared or made in respect of the Parent Common
Stock after the Effective Time shall be paid to the holder of any
unsurrendered Certificate with respect to the shares of Parent Common
Stock represented thereby until the holder of such Certificate shall
surrender such Certificate in accordance with this Section 1.9.
Thereafter, subject to the effect of applicable laws, following
surrender of any such Certificate, there shall be issued and/or paid
to the holder of the certificates representing whole shares of Parent
Common Stock issued in exchange therefor, without interest, (A) at the
time of such surrender, the dividends or other distributions with a
record date at or after the Effective Time theretofore payable with
respect to such whole shares of Parent Common Stock and not paid and
(B) at the appropriate payment date, the dividends or other
distributions payable with respect to such whole shares of Parent
Common Stock with a record date at or after the Effective Time but
with a payment date subsequent to surrender.
(ii) Holders of unsurrendered Certificates representing Stock
Election Shares shall be entitled to vote after the Effective Time at
any meeting of Parent shareholders the number of whole shares of
Parent Common Stock represented by such Certificates, regardless of
whether such holders have exchanged their Certificates.
(d) Transfers. After the Effective Time, there shall be no transfers
on the stock transfer books of the Company of the shares of Company Common
Stock that were outstanding immediately prior to the Effective Time. If,
after the Effective Time, Certificates formerly representing shares of
Company Common Stock are presented to the Surviving Corporation or the
Exchange Agent, they shall be canceled and (subject to applicable abandoned
property, escheat and similar laws) exchanged for Merger Consideration (and
cash in lieu of fractional interests in
10
<PAGE>
accordance with Section 1.9(e)), without any interest thereon, as provided
in this Section 1.9.
(e) Fractional Shares. Notwithstanding any other provision of this
Agreement, no fractional shares of Parent Common Stock will be issued and
any holder of Company Common Stock entitled to receive a fractional share
of Parent Common Stock but for this Section 1.9(e) shall be entitled to
receive a cash payment in lieu thereof, which payment shall equal the
product of (i) such holder's proportionate interest in a share of Parent
Common Stock, and (ii) the Average Parent Price.
(f) Termination of Exchange Fund. Any portion of the Exchange Fund
(including the proceeds of any investments thereof and any Parent Common
Stock) that remains unclaimed by the shareholders of the Company for one
year after the Effective Time shall be paid to Parent. Any shareholders of
the Company who have not theretofore complied with this Section 1.9 shall
thereafter look only to the Surviving Corporation for payment of the Merger
Consideration and any cash, dividends and other distributions in respect
thereof payable and/or issuable pursuant to Section 1.8 and Section 1.9
upon due surrender of their Certificates (or affidavits of loss and
indemnification in lieu thereof), in each case, without any interest
thereon. Notwithstanding the foregoing, none of Parent, the Surviving
Corporation, the Exchange Agent or any other Person shall be liable to any
former holder of Company Common Stock for any amount properly delivered to
a public official pursuant to applicable abandoned property, escheat or
similar laws.
(g) Lost, Stolen or Destroyed Certificates. In the event any
Certificate shall have been lost, stolen or destroyed, upon the making of
an affidavit of that fact by the Person claiming such Certificate to be
lost, stolen or destroyed and, if required by Parent, the posting by such
Person of a bond in customary amount as indemnity against any claim that
may be made against it with respect to such Certificate, the Exchange Agent
will issue in exchange for such lost, stolen, or destroyed Certificate the
Merger Consideration and any cash payable and any unpaid dividends or other
distributions deliverable in respect thereof pursuant to Section 1.9.
(h) Affiliates. Notwithstanding anything herein to the contrary,
Certificates surrendered for exchange into Stock Consideration by any
"affiliate" (as determined pursuant to Section 5.6) of the Company shall
not be exchanged until Parent has received a written agreement from such
Person as provided in Section 5.6 hereof.
11
<PAGE>
(i) Withholding. The Exchange Agent or Parent shall be entitled to
deduct and withhold from the consideration otherwise payable pursuant to
this Agreement to any holder of Company Common Stock such amounts as the
Exchange Agent, Parent or the Surviving Corporation, as the case may be, is
required to deduct and withhold with respect to such payment under the Code
or any provisions of state, local or foreign tax law. Any amounts so
withheld shall be treated for all purposes of this Agreement as having been
paid to the holder of the Company Common Stock in respect of which such
deduction and withholding was made.
1.10 Company Stock Options and Warrants.
(a) At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company or the holder thereof each
unexpired and unexercised option to purchase shares of Company Common Stock
(a "Company Stock Option") granted under the Company Stock Plans (as
hereinafter defined) or otherwise granted by the Company outside of any
Company Stock Plan, will be assumed by Parent as hereinafter provided. At
the Effective Time, 50%of the Company Stock Options which have a per share
option exercise price equal to or less than the Cash Consideration
("Positive Value Options") shall be automatically converted into the right
to receive cash equal to the difference between the Cash Consideration and
the per share exercise price of such Positive Value Options and the
remaining 50% of the Positive Value Options will be automatically converted
into the right to receive options (the "Parent Stock Options") to purchase
a number of shares of Parent Common Stock equal to the number of shares of
Company Common Stock that could have been purchased under such Positive
Value Options multiplied by the Conversion Ratio, at a price per share of
Parent Common Stock equal to the per share option exercise prices specified
in the Positive Value Option, divided by the Conversion Ratio. Positive
Value Options will be equally allocated between cash and Parent Stock
Options. Such Parent Stock Options shall otherwise be subject to the same
terms and conditions as such Positive Value Options. All Company Stock
Options which have a per share option exercise price greater than the Cash
Consideration shall be automatically converted into an option to purchase a
number of shares of Parent Common Stock equal to the number of shares of
Company Common Stock that could have been purchased under such Company
Stock Option multiplied by the Conversion Ratio, at a price per share of
Parent Common Stock equal to the per share option exercise price specified
in the Company Stock Option, divided by the Conversion Ratio. At the
Effective Time, (i) all references in the Company Stock Plans, the
applicable stock option or other awards agreements issued thereunder and in
any other Company Stock Options to the Company shall be deemed
12
<PAGE>
to refer to Parent; and (ii) Parent shall assume the Company Stock Plans
and all of the Company's obligations with respect to the Company Stock
Options.
(b) In respect of each Company Stock Option as converted into a Parent
Stock Option pursuant to Section 1.10(a) and assumed by Parent, and the
shares of Parent Common Stock underlying such option, Parent shall file as
soon as practicable after the Effective Time with the SEC, and keep current
the effectiveness of, a registration statement on Form S-8 (which may be
accomplished by amendment of the registration statement on Form S-4) or
other appropriate form for as long as such options remain outstanding (and
maintain the current status of the prospectus with respect thereto). Parent
agrees to reserve a number of shares of Parent Common Stock equal to the
number of shares of Parent Common Stock issuable upon the exercise of such
Company Stock Options. Notwithstanding the provisions of this Section 1.10,
with respect to any Person subject to Section 16(b) of the Exchange Act,
any cash paid in connection with the cancellation of a Company Stock Option
shall be paid as soon as practicable after the first date payment can be
made without liability of such Person under Section 16(b) of the Exchange
Act. The surrender of a Company Stock Option for cash hereunder shall be
deemed a release of any and all rights the holder had or may have had in
respect of such Company Stock Option.
(c) The Company agrees that, from the date hereof through the
Effective Time, it will not grant any stock options, restricted stock,
stock appreciation rights or limited stock appreciation rights.
(d) At the Effective Time, by virtue of the Merger and without any
further action on the part of the Company or the holder thereof, each
outstanding and unexercised warrant to purchase shares of Company Common
Stock (the "Warrants") issued pursuant to that certain Warrant Agreement,
dated as of March 4, 1998, between the Company and First Union National
Bank, as Warrant Agent (the "Warrant Agreement") will, pursuant to the
terms of the Warrant Agreement, be automatically converted into the right
to receive, upon exercise of such Warrant, the amount of cash or number of
shares of Parent Common Stock receivable per share by the holders of a
plurality of Non-Election Shares as would be received by a holder of the
number of shares of Company Common Stock issuable under exercise of such
Warrant immediately prior to the Merger.
13
<PAGE>
ARTICLE 2
OTHER AGREEMENTS
2.1 Access. Subject to the provisions of the Confidentiality Agreement
referred to in Section 2.5 below, and so long as this Agreement has not been
terminated as herein provided, upon reasonable request, the Company shall grant
to Parent, Acquisition and their agents, accountants, attorneys and other
advisers reasonable access at all reasonable times to all of the properties,
facilities, books, records, financial statements and other documents and
materials relating to its financial condition, assets, liabilities and business,
including, without limitation, permitting Parent (at its expense and subject to
the prior approval of the Company, which approval shall not be unreasonably
withheld) to: (a) conduct appraisals of the Equipment, Buildings, Real Estate
and other properties of the Company; and (b) conduct an environmental and
occupational safety inspection of the properties of the Company. Parent shall
coordinate all requests for such access through the Company's Chief Executive
Officer or Chief Financial Officer. In addition, the Company shall confer and
consult with representatives of Parent, as Parent may reasonably request, to
report on operational matters, financial matters and the general status of
ongoing business operations of the Company.
2.2 Disclosure Schedule.
(a) Disclosure Schedule. The Company has delivered to Parent the
Disclosure Schedule and Parent has delivered to the Company the Parent
Disclosure Schedule, each of which was signed by the President and the
Secretary of the Company or Parent, as the case may be, stating that such
disclosure schedule was delivered pursuant to this Agreement and is the
Disclosure Schedule or Parent Disclosure Schedule, as the case may be,
referred to in this Agreement. The Disclosure Schedule and the Parent
Disclosure Schedule are collectively referred to herein as the "Disclosure
Schedules." The Disclosure Schedules are deemed to constitute an integral
part of this Agreement and to modify, as specified, the representations,
warranties, covenants or agreements of the Company or Parent, as the case
may be, contained in this Agreement.
(b) Updates. The Company and Parent shall update the disclosure
schedule delivered by such party (by either (i) revision of specific
schedules included in the original disclosure schedule referred to in
Section 2.2(a) or (ii) addition of new schedules that were neither included
in said original disclosure schedule nor referred to in or contemplated by
this Agreement as of the date of this Agreement) as
14
<PAGE>
soon as practicable by written notice to the other party to reflect any
matters which occur from and after the date of this Agreement and which, if
existing on the date of delivery of the Disclosure Schedules, would have
been required to be described in the Disclosure Schedules. If the
Disclosure Schedules are updated by the addition of new schedules not
referred to in or contemplated by this Agreement as of the date of this
Agreement: (i) each new schedule shall be numbered to correspond to the
applicable section or subsection which such new schedule is intended to
modify and (ii) the applicable section or subsection corresponding to such
new schedule shall be read to include the words "except as set forth in
Schedule [insert applicable section or subsection number]" or words of
similar meaning to appropriately connote the modifications created by such
new schedule. If requested by either Parent or the Company, as the case may
be, prior to Closing, the other party shall meet and discuss with the
requesting party prior to Closing any update to the Disclosure Schedules
disclosed by such other party which is, in the reasonable judgment of the
requesting party, adverse in any manner to either the Company or Parent.
The delivery of an update to the Disclosure Schedules pursuant to this
Section 2.2 shall not cure any breach of any representation or warranty
made in this Agreement, have any effect for the purpose of determining the
satisfaction of the conditions set forth in Article 6 of this Agreement or
otherwise limit or affect the remedies available hereunder to any party.
2.3 Acquisition Proposals.
(a) Prior to the Effective Time, the Company agrees that neither it,
nor any of its Subsidiaries or Affiliates, nor any of their respective
directors, officers, employees, agents or representatives, will, directly
or indirectly, (i) solicit, initiate, facilitate or encourage (including by
way of furnishing or disclosing non-public information) any inquiries or
the making of any proposal with respect to any merger, consolidation or
other business combination involving the Company or any Subsidiary of the
Company, the acquisition of all or any significant part of the assets or
capital stock of the Company or any Subsidiary of the Company (an
"Acquisition Transaction") or (ii) negotiate, explore or otherwise engage
in discussions with any Person (other than Parent and its representatives)
with respect to any Acquisition Transaction, or which may reasonably be
expected to lead to a proposal for an Acquisition Transaction, or enter
into any agreement, arrangement or understanding with respect to any such
Acquisition Transaction; provided, however, that the Company may, in
response to an unsolicited written proposal from a third party regarding a
Superior Proposal (as hereinafter defined), furnish information to and
engage in discussions and negotiations with such third party, but only if
the Board of Directors of the Company determines in good faith, after
consultation with its financial advisors and outside independent
15
<PAGE>
counsel, that taking such action is in the best interests of the Company
and its shareholders and such action is consistent with its fiduciary
duties under applicable Law. If specifically requested by a Person without
prior contact from the Company or its representatives, the Company may
waive the provisions of any "standstill" agreements between the Company and
any Person to the extent necessary to permit such Person to submit a
proposal for an Acquisition Transaction that the Board of Directors
believes, in its good faith judgment, is reasonably likely to result in a
Superior Proposal; provided, that such waiver (i) does not violate or
conflict with the foregoing provisions of this Section 2.3(a) and (ii)
would not, in any event, permit such Person to acquire any direct or
indirect beneficial ownership of shares of Company Common Stock or
participate in any tender offer or proxy solicitation relating to shares of
the Company Common Stock that would otherwise be prohibited by such
"standstill" agreement. It is understood and agreed, without limitation of
the Company's obligations, that any violation of this Section 2.3 by any
director, officer, Affiliate, investment banker, financial advisor,
attorney or other advisor or representative of the Company, whether or not
such Person is purporting to act on behalf of the Company, or otherwise,
shall be deemed to be a breach of this Section 2.3 by the Company.
(b) The Company agrees that, as of the date hereof, it, its
Subsidiaries and Affiliates, and the respective directors, officers,
employees, agents and representatives of the foregoing, shall immediately
cease and cause to be terminated any existing activities, discussions or
negotiations with any Person (other than Parent and its representatives)
conducted heretofore with respect to any Acquisition Transaction. The
Company agrees to promptly advise Parent in writing of the existence of (x)
any inquiries or proposals (or desire to make a proposal) received by (or
indicated to), any such information requested from, or any negotiations or
discussions sought to be initiated or continued with, the Company, its
Subsidiaries or Affiliates, or any of the respective directors, officers,
employees, agents or representatives of the foregoing, in each case from a
Person (other than Parent and its representatives) with respect to an
Acquisition Transaction, and (y) the terms thereof, including the identity
of such third party and the terms of any financing arrangement or
commitment in connection with such Acquisition Transaction, and to update
on an ongoing basis or upon Parent's reasonable request, the status
thereof. As used herein, "Superior Proposal" means a bona fide, written and
unsolicited proposal or offer made by any Person (or group) (other than
Parent or any of its Subsidiaries) with respect to an Acquisition
Transaction on terms which, as determined by the Board of Directors of the
Company in good faith (based on the written advice of independent financial
advisors) and in a manner consistent with its fiduciary duties under
applicable Law, are more favorable, from a
16
<PAGE>
financial point of view, to the Company and its Shareholders than the
transactions contemplated hereby.
2.4 Public Announcements. Any public announcement made by or on behalf of
either Parent or the Company prior to the termination of this Agreement pursuant
to Article 8 hereof concerning this Agreement, the transactions described herein
or any other aspect of the dealings heretofore had or hereafter to be had
between the Company and Parent and their respective Affiliates must first be
approved by the other party (any such approval not to be unreasonably withheld),
subject to either party's obligations under applicable Law (but such party shall
use its best efforts to consult with the other party as to all such public
announcements).
2.5 Confidentiality Agreement. The Company and Parent agree that the
Confidentiality Agreement entered into between the Company and Parent, dated
March 30, 1999, remains in effect, but shall at the Effective Time be deemed to
have terminated without further action by the parties.
ARTICLE 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Acquisition that:
3.1 Due Incorporation. The Company is a corporation duly incorporated,
validly existing and in good standing under the laws of the Commonwealth of
Virginia, has the corporate power and authority to own its properties and assets
and to carry on its business as it is now being conducted and is duly qualified
to do business and is in good standing in each of the jurisdictions in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company has delivered to Parent copies of the articles of incorporation and
bylaws or other organizational documents of the Company and each of its
Subsidiaries. Such articles of incorporation and bylaws or other organizational
documents are complete and correct and in full force and effect, and neither the
Company nor any of its Subsidiaries is in violation of any of the provisions of
their respective articles of incorporation, bylaws or similar organizational
documents. Each of the Company's Subsidiaries is duly organized,
17
<PAGE>
validly existing and in good standing under the Laws of its jurisdiction of
incorporation or organization, has the corporate, limited liability company or
partnership power and authority, as the case may be, to own its properties and
assets and to carry on its business as it is now being conducted and is duly
qualified to do business and is in good standing in each jurisdiction in which
the ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Except as set forth in Section 3.1 of the Disclosure Schedule, all the
outstanding shares of capital stock of, or other ownership interests in, the
Company's Subsidiaries are duly authorized, validly issued, fully paid and
non-assessable and are owned by the Company, directly or indirectly, free and
clear of all Liens, claims, mortgages, encumbrances, pledges, security
interests, equities or charges of any kind. Other than the Subsidiaries and
except as set forth in Section 3.1 of the Disclosure Schedule, there are no
other Persons in which the Company owns, of record or beneficially, any direct
or indirect equity or similar interest or any right (contingent or otherwise) to
acquire the same.
3.2 Capitalization. The authorized capital stock of the Company consists of
90,000,000 shares of Company Common Stock and 5,000,000 shares of preferred
stock, without par value ("Company Preferred Stock"). As of June 7, 1999: (i)
47,727,490 shares of Company Common Stock were issued and outstanding and no
shares of Company Preferred Stock were issued and outstanding; (ii) 990,350
shares of Company Common Stock were subject to outstanding options issued
pursuant to the Company's Amended and Restated Omnibus Stock Incentive Plan,
dated July 1997 (the "Omnibus Plan") and 1,247,525 shares of Company Common
Stock were reserved for issuance under the Omnibus Plan; (iii) 67,100 shares of
Company Common Stock were subject to outstanding options issued pursuant to the
Company's Non-Employee Directors' Stock Option Plan (the "Directors' Stock
Plan") and 42,750 shares of Company Common Stock were reserved for issuance
under the Directors' Stock Plan; (iv) options to purchase 554,150 shares of the
Company Common Stock were outstanding that were granted under other employee
stock incentive plans (and together with the Omnibus Plan and the Directors'
Stock Plan, the "Company Stock Plans"); and (v) warrants to purchase 1,500,000
shares of Company Common Stock at $25 per share were outstanding in connection
with the acquisition of substantially all of the assets of Farm Fresh, Inc.
Except as set forth in Section 3.2 of the Company Disclosure Schedule, the
Company has previously provided a complete and correct list of all holders of
Existing Options, including such person's name, the number of options (vested,
unvested and total) held by such person and the exercise price for each such
option. All the outstanding shares of capital stock of the Company are duly
authorized,
18
<PAGE>
validly issued, fully paid and non-assessable and free of preemptive rights.
Except as set forth above or in Section 3.2 of the Disclosure Schedule, or as
otherwise contemplat ed by this Agreement, (1) there are no shares of capital
stock of the Company authorized, issued or outstanding, (2) there are no
authorized or outstanding options, warrants, calls, preemptive rights,
subscriptions or other rights, agreements, arrange ments or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its Subsidiaries, obligating the Company or any of its Subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or other equity interests in the Company or any of its
Subsidiaries or securities convertible into or exchangeable for such shares or
equity interests, or obligating the Company or any of its Subsidiaries to grant,
extend or enter into any such option, warrant, call, subscription or other
right, agreement, arrangement or commitment, and (3) there are no outstanding
contractual obligations of the Company or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares or other capital stock of the Company or
any Subsidiary of the Company or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary of the
Company or any other Person.
3.3 Authorization; Enforceability. The Board of Directors of the Company
has on or prior to the date of this Agreement (a) declared the Merger advisable
and in the best interests of the Company and the Shareholders and approved this
Agreement in accordance with applicable Law, (b) resolved to recommend the
approval of this Agreement by the Shareholders and (c) directed that this
Agreement be submitted to the Shareholders for approval. The Company has all
requisite corporate power and authority to enter into the Transaction Agreements
to which it is a party and, subject to approval by the Shareholders of the
Merger, to consummate the transactions contemplated hereby and thereby. The
execution and delivery of the Transaction Agreements to which it is a party by
the Company and the consummation by the Company of the transactions contemplated
hereby and thereby have been duly authorized by all necessary corporate action
on the part of the Company, subject to (x) approval by the Shareholders and (y)
the filing of the Articles of Merger pursuant to the VSCA and the filing of the
Certificate of Merger pursuant to the DGCL. The Transaction Agreements to which
it is a party have been duly executed and delivered by the Company and (assuming
the valid authorizations, execution and delivery thereof by the other parties
thereto) each such Transaction Agreement constitutes the valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and similar laws relating to or affecting creditors
generally
19
<PAGE>
or by general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
3.4 No Violation or Conflict. Assuming all consents, approvals,
authorizations and other actions described in this Section 3.4 have been
obtained and all filings and obligations described in this Section 3.4 have been
made and except as set forth in Section 3.4 of the Disclosure Schedule, the
execution and delivery of the Transaction Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, result in any
violation of, or breach or default (with or without notice or lapse of time, or
both) under, or give to others a right of termination, cancellation or
acceleration of any material obligation or the loss of a material benefit under,
or result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or any of its Subsidiaries
under, any provision of (i) the articles of incorporation or bylaws of the
Company, (ii) any provision of the comparable charter or organizational
documents of any of the Company's Subsidiaries, (iii) any loan or credit
agreement, note, bond, mortgage, lease, indenture or other contract, agreement,
instrument, permit, concession, franchise or license applicable to the Company
or any of its Subsidiaries, or (iv) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Company or any of its
Subsidiaries or any of their respective properties or assets, other than, in the
case of clauses (ii), (iii) or (iv), any such conflicts, violations, breaches,
defaults, rights, liens, security interests, charges or encumbrances that,
individually or in the aggregate, would not have a Material Adverse Effect, or
adversely affect the consummation of any of the transactions contemplated hereby
or thereby. No filing, notification or registration with, or authorization,
consent or approval of, any governmental entity is required by or with respect
to the Company or any of its Subsidiaries in connection with the execution and
delivery of the Transaction Agreements by the Company or is necessary for the
consummation by the Company of the Merger and the other transactions
contemplated by the Transaction Agreements, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act of 1933, as
amended, and the rules and regulations thereunder (collectively, the "Securities
Act") and the Securities Exchange Act of 1934, as amended, and the rules and
regulations thereunder (collectively, the "Exchange Act"), (ii) the filing of
the Articles of Merger with the SCC and the Certificate of Merger with the
Secretary of State of the State of Delaware and the filing of appropriate
documents with the relevant authorities of other states in which the Company or
any of its Subsidiaries is qualified to do business, (iii) such filings and
consents as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger
20
<PAGE>
or by the transactions contemplated by this Agreement, (iv) applicable
requirements, if any, of blue sky laws and the NYSE, and (v) such other
consents, orders, authorizations, registrations, declarations and filings the
failure of which to be obtained or made would not, individually or in the
aggregate, have a Material Adverse Effect or adversely affect the consummation
of any of the transactions contemplated hereby or by any other Transaction
Agreement. The execution and delivery of the Transaction Agreements do not, and
the consummation of the transactions contemplated hereby and thereby and
compliance with the provisions hereof and thereof will not, conflict with,
result in any violation of, or breach or default (with or without notice or
lapse of time, or both) under, or give to others a right of termination,
cancellation or acceleration of any material obligation or the loss of a
material benefit under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties or assets of the
Company or any of its Subsidiaries under any leases, subleases, reciprocal
operating agreements or reciprocal easement agreements relating to the Company's
retail stores, other than conflicts, violations, breaches, defaults, rights,
liens, security interests, charges or encumbrances that would not have,
individually or in the aggregate, a Material Adverse Effect, or adversely affect
the consummation of any of the transactions contemplated hereby or thereby.
3.5 SEC Documents and Other Reports. The Company has filed all required
documents with the SEC since April 27, 1996 (the "Company SEC Reports"). As of
their respective dates, the Company SEC Reports complied in all material
respects with the requirements of the Securities Act or the Exchange Act, as the
case may be, and, at the respective times they were filed, none of the Company
SEC Reports contained any untrue statement of a material fact or omitted to
state a 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 consolidated financial statements (including, in each case,
any notes thereto) of the Company included in the Company SEC Reports complied
as to form in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto, were
prepared in accordance with generally accepted accounting principles ("GAAP")
(except, in the case of the unaudited statements, as permitted by Form 10-Q of
the SEC) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly present in
accordance with GAAP the consolidated financial position of the Company and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein). The
unaudited consolidated balance sheet of the Company as of May 1, 1999,
21
<PAGE>
and the unaudited consolidated statements of operations and cash flows of the
Company for the fiscal year ended May 1, 1999, which have been provided by the
Company to Parent were prepared in accordance with GAAP applied on a consistent
basis during the periods involved (except that footnotes are absent) and fairly
present in accordance with GAAP the consolidated financial position of the
Company and its consolidated Subsidiaries as at the date thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject to normal year-end audit adjustments which are
not material). Except as disclosed in the Company SEC Reports or as required by
GAAP, the Company has not, since May 2, 1998, made any change in the accounting
practices or policies applied in the preparation of financial statements. The
books and records of the Company and its Subsidiaries have been, and are being,
maintained in accordance with GAAP and other applicable legal and accounting
requirements.
3.6 No Undisclosed Liabilities. Neither the Company nor any of its
Subsidiaries has any liabilities or obligations of any nature, whether or not
accrued, contingent or otherwise, except (a) liabilities or obligations
reflected in the Company SEC Reports filed prior to the date hereof and (b)
liabilities or obligations incurred in the ordinary course of business which
would not, individually or in the aggregate, have a Material Adverse Effect.
3.7 No Violation of Law. The businesses of the Company and its Subsidiaries
are not being conducted in violation of any Law (provided that no representation
or warranty is made in this Section 3.7 with respect to Environmental Laws (as
hereinafter defined)) except (a) as set forth in Section 3.7 of the Disclosure
Schedule and (b) for violations which would not, individually or in the
aggregate, have a Material Adverse Effect.
3.8 Title to Assets. Except as reflected in the Company SEC Reports, the
Company and its Subsidiaries own fee simple or valid leasehold (as the case may
be) title to the Real Estate and have valid title to their other tangible assets
and properties which they purport to own, free and clear of any and all Liens,
except for Permitted Liens. All Buildings and Equipment have been well
maintained and are in good and serviceable condition, normal wear and tear
excepted, except where the failure to be so maintained would not, individually
or in the aggregate, have a Material Adverse Effect.
3.9 Litigation. Except as set forth in the Company SEC Reports filed prior
to the date hereof or in Section 3.9 of the Disclosure Schedule, (a) there are
no actions, suits, claims (including worker's compensation claims), litigation
or other
22
<PAGE>
governmental or judicial proceedings or investigations or arbitrations pending
against the Company, its Subsidiaries or any of its properties, assets or
business, or, to the knowledge of the Company, any of the Company's or any
Subsidiary's current or former directors or officers or any other Person whom
the Company or any Subsidiary of the Company has agreed to indemnify that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (b) as of the date hereof, there are no actions, suits or
proceedings pending or, to the knowledge of the Company, threatened, against the
Company relating to the transactions contemplated by the Transaction Agreements;
and (c) there are no outstanding orders, judgments, injunctions, awards or
decrees of any governmental entity against the Company, its Subsidiaries, any of
its properties, assets or businesses, or, to the knowledge of the Company, any
of the Company's or its Subsidiaries' current or former directors or officers or
any other Person whom the Company or any Subsidiary of the Company has agreed to
indemnify that could reasonably be expected to have, individually or in the
aggregate, a Material Adverse Effect.
3.10 Absence of Certain Changes or Events. Except as disclosed in the
Company SEC Reports filed with the SEC prior to the date of this Agreement or
set forth in Section 3.10 of the Disclosure Schedule, since May 2, 1998, (A)
none of the Company or any of its Subsidiaries has incurred any material
liability or obligation (indirect, direct or contingent), or entered into any
material oral or written agreement or other transaction, that is not in the
ordinary course of business or that would, individually or in the aggregate,
result in a Material Adverse Effect, except for any such changes or effects
resulting from this Agreement, the transactions contemplated hereby or the
announcement thereof; (B) the Company or any of its Subsidiaries has not
sustained any loss or interference with their business or properties from fire,
flood, windstorm, accident or other calamity (whether or not covered by
insurance) that would, individually or in the aggregate, have a Material Adverse
Effect; and (C) there has been no event, circumstance or development that would,
individually or in the aggregate, have a Material Adverse Effect, except for any
such changes or effects resulting from the Transaction Agreements, the
transactions contemplated hereby and thereby or the announcement thereof. Except
as disclosed in the Company SEC Reports filed with the SEC prior to the date of
this Agreement or set forth in Section 3.10 of the Disclosure Schedule, since
May 1, 1999, there has been no action taken by the Company or any of its
Subsidiaries, that, if taken during the period from the date of this Agreement
through the Effective Time, would constitute a breach of Section 5.1.
3.11 Performance of Contracts. Each material Contract is in full force and
effect and constitutes the legal and binding obligation of the Company and, to
the
23
<PAGE>
knowledge of the Company, constitutes the legal and binding obligation of the
other parties thereto. Except as disclosed in Section 3.11 of the Disclosure
Schedule, there are no existing breaches or defaults by the Company or, to the
knowledge of the Company, any other party to a Contract under any Contract the
effect of which would, individually or in the aggregate, constitute a Material
Adverse Effect and, to the knowledge of the Company, no event has occurred
which, with the passage of time or the giving of notice or both, could
reasonably be expected to constitute such a breach or default.
3.12 ERISA
(a) With respect to each material Company Plan (as hereinafter
defined), the Company has made (or as soon as practicable will make)
available to Parent a true and correct copy of (i) the three most recent
annual reports (Form 5500) filed with the Internal Revenue Service ("IRS"),
(ii) such Company Plan document, (iii) each trust agreement, insurance
contract or administration agreement relating to such Company Plan, (iv)
the most recent summary plan description of each Company Plan for which a
summary plan description is required, (v) the most recent actuarial report
or valuation relating to each Company Plan subject to Title IV of ERISA,
and (vi) the most recent determination letter, if any, issued by the IRS
with respect to each Company Plan intended to be qualified under Section
401(a) of the Code. Except as disclosed in Section 3.12 of the Disclosure
Schedule, and except for events or actions that would not, individually or
in the aggregate, have a Material Adverse Effect, (i) each Company Plan
complies with all applicable statutes and governmental rules and
regulations, including but not limited to ERISA, the Code and COBRA, (ii)
no "reportable event" (within the meaning of Section 4043 of ERISA) has
occurred with respect to any Company Plan, (iii) neither the Company nor
any of its ERISA Affiliates has withdrawn from any Multiemployer Plan (as
hereinafter defined), or instituted, or is currently considering taking,
any action to do so, (iv) no action has been taken, or is currently being
considered, to terminate any Company Plan subject to Title IV of ERISA, and
(v) the Company and its ERISA Affiliates have complied with the continued
medical coverage requirements of COBRA. Except as would not, individually
or in the aggregate, have a Material Adverse Effect, no Company Plan, nor
any trust created thereunder, has incurred any "accumulated funding
deficiency" (as defined in Section 302 of ERISA), whether or not waived.
Except as disclosed in Section 3.12 of the Disclosure Schedule, with
respect to any Company Plan which is subject to Title IV of ERISA, the
present value of accrued benefit obligations, as determined in accordance
with FAS 87 in accordance with the actuarial assumptions used to prepare
the most recent reports of such Company Plan, did not exceed the fair
market value of the Plan assets as of the
24
<PAGE>
most recent valuation date for which an actuarial report has been prepared,
and the Company has no knowledge of any material adverse change to such
status.
(b) With respect to the Company Plans, except as disclosed in Section
3.12 of the Disclosure Schedule, no event has occurred in connection with
which the Company or any ERISA Affiliate would be subject to any liability,
other than for the payment of benefits made in the ordinary course of
business, under the terms of such Company Plans, ERISA, the Code or any
other applicable law which would have a Material Adverse Effect. Except as
disclosed in the Company SEC Reports filed prior to the date hereof or in
Section 3.12 of the Disclosure Schedule, with respect to any current or
former employee or contractor of the Company or its Subsidiaries,
consummation of the transactions contemplated by this Agreement shall not
result in the payment or provision of additional compensation or benefits
or accelerate the vesting, payment or funding of any compensation or
benefits. Except as disclosed in the Company SEC Reports filed prior to the
date hereof or in Section 3.12 of the Disclosure Schedule, no amounts
payable or provided by the Company or its Subsidiaries related to the
transactions contemplated by this Agreement will constitute "excess
parachute payments" within the meaning of Section 280G of the Code. Except
as disclosed in Section 3.12 of the Disclosure Schedule, Company Plans that
are intended to be qualified under Section 401(a) of the Code have been
determined by the IRS to be so qualified, or a timely application for such
determination is now pending, and to the knowledge of the Company, there is
no reason why any Company Plan is not so qualified in operation. Neither
the Company nor any of its ERISA Affiliates has been notified by any
Multiemployer Plan that such Multiemployer Plan is currently in
reorganization or insolvency under and within the meaning of Section 4241
or 4245 of ERISA or that such Multiemployer Plan intends to terminate or
has been terminated under Section 4041A of ERISA. Except as disclosed in
the Company SEC Reports filed prior to the date hereof or in Section 3.12
of the Disclosure Schedule, neither the Company nor any of its ERISA
Affiliates has any liability or obligation under any welfare plan to
provide benefits after termination of employment to any employee or
dependent other than as required by ERISA. There are no pending, or to the
knowledge of the Company, threatened claims, suits, audits or
investigations related to any Company Plan other than claims for benefits
in the ordinary course and other than claims, suits, audits or
investigations that would not, individually or in the aggregate, have a
Material Adverse Effect. As used herein, (i) "Company Plan" means a
"pension plan" (as defined in Section 3(2) of ERISA (other than a
Multiemployer Plan)) or a "welfare plan" (as defined in Section 3(1) of
ERISA) established or maintained by the Company or any of its ERISA
Affiliates or as to which the Company or any of its ERISA Affiliates has
contributed in the last six years or otherwise may have any liability and
all other retirement, deferred compensation, severance, termination, change
in control, stock option, restricted stock or phantom stock plans, policies
or programs of the Company or its Subsidiaries, (ii) "Multiemployer Plan"
means a "multiemployer plan" (as defined in Section 4001(a)(3) of ERISA) to
which the Company or any of its ERISA Affiliates is or has been obligated
to contribute in the last six years or otherwise may have any
25
<PAGE>
liability and (iii) with respect to any Person, "ERISA Affiliate" means any
trade or business (whether or not incorporated) which is under common
control or would be considered a single employer with such Person pursuant
to Section 414(b), (c), (m) or (o) of the Code and the regulations
promulgated under those sections or pursuant to Section 4001(b) of ERISA
and the regulations promulgated thereunder, including, without limitation,
each of the Company's Subsidiaries.
3.13 Taxes.
(a) Tax Returns. For all years for which the applicable statutory
period of limitation has not expired, the Company has timely and properly
filed, and will through the Closing Date timely and properly file, all
material federal, state, local and foreign tax returns (including but not
limited to income, franchise, sales, payroll, employee withholding and
social security and unemployment) which were or (in the case of returns not
yet due but due on or before the Closing Date, taking into account any
valid extension of the time for filing) will be required to be filed. The
Company has paid all taxes (including interest and penalties) and
withholding amounts owed by it, except where the failure to pay such taxes
or withholding amounts would not, individually or in the aggregate, have a
Material Adverse Effect. No material, unpaid tax deficiencies have been
proposed or assessed against the Company and no material tax deficiencies,
whether paid or unpaid, have been proposed or assessed against the Company
since December 31, 1996. To the knowledge of the Company, no issue has been
raised in any prior tax audit of the Company which, by application of the
same or substantially the same principles, could reasonably be expected
upon a future tax audit of the Company to result in a proposed material
deficiency for any period. Except as set forth in Section 3.13 of the
Disclosure Schedule, the Company is not liable for any taxes attributable
to any other Person, whether by reason of being a member of another
affiliated group, being a party to a tax sharing agreement, as a transferee
or successor, or otherwise.
(b) Audits. Except as set forth in Section 3.13 of the Disclosure
Schedule, the Company has not consented to any extension of the statute of
limitation with respect to any open federal, state or local tax returns.
26
<PAGE>
(c) Liens. Except as set forth in Section 3.13 of the Disclosure
Schedule, there are no tax Liens upon any property or assets of the Company
except for Liens for current taxes not yet due and payable.
(d) Deliveries. The Company has delivered to Parent correct and
complete copies of all material tax returns and reports of the Company
filed for all periods not barred by the applicable statute of limitations
through the Effective Time. Except as set forth in Section 3.13 of the
Disclosure Schedule, no examination or audit of any material tax return or
report for any period not barred by the applicable statute of limitations
has occurred, no such examination is in progress and, to the knowledge of
the Company, no such examination or audit is planned.
(e) Withholding Taxes. The Company has properly withheld and timely
paid substantially all withholding and employment taxes which it was
required to withhold and pay relating to salaries, compensation and other
amounts heretofore paid to its employees or other Persons. All Forms W-2
and 1099 required to be filed with respect thereto have been timely and
properly filed except where the failure to file would not, individually or
in the aggregate, have a Material Adverse Effect.
(f) Other Representations. The Company has not and will not make any
elections under Section 341(f) of the Code and, except as shown in Section
3.13 of the Disclosure Schedule, has and will not be subject to Section
280G of the Code.
3.14 Labor Matters. Except as set forth in Section 3.14 of the Disclosure
Schedule or in the Company SEC Reports filed prior to the date hereof, neither
the Company nor any of its Subsidiaries is a party to any collective bargaining
agreement or labor contract. Except as set forth in Section 3.14 of the
Disclosure Schedule, neither the Company nor any of its Subsidiaries has engaged
in any unfair labor practice with respect to any person employed by or otherwise
performing services primarily for the Company or any of its Subsidiaries (the
"Company Business Personnel"), and there is no unfair labor practice complaint
or grievance against the Company or any of its Subsidiaries by the National
Labor Relations Board or any comparable state agency pending or, to the
Company's knowledge, threatened with respect to the Company Business Personnel,
except where such unfair labor practice, complaint or grievance would not,
individually or in the aggregate, have a Material Adverse Effect. As of the date
hereof, there is no labor strike, dispute, slowdown or stoppage pending or, to
the knowledge of the Company, threatened against or affecting the Company or any
of its Subsidiaries which may interfere with the respective business activities
of the Company
27
<PAGE>
or any of its Subsidiaries, except where such dispute, strike or work stoppage
would not, individually or in the aggregate, have a Material Adverse Effect. The
Company and its Subsidiaries are in material compliance with all labor,
employment and wage payment-related laws, regulations and rules.
3.15 Existing Permits. No action or proceeding is pending or, to the
knowledge of the Company, threatened that is reasonably likely to result in a
revocation, non-renewal, termination, suspension or other material impairment of
any material Existing Permits.
3.16 Intangible Assets. Except as set forth in Section 3.16 of the
Disclosure Schedule, there are no material claims, demands or proceedings
instituted, pending or, to the knowledge of the Company, threatened by any
Person contesting or challenging the right of the Company or any of its
Subsidiaries to use any of its Intangible Assets. Each trademark registration,
service mark registration, copyright registration, patent and patent application
which is owned by the Company and any of its Subsidiaries has been maintained in
good standing except where the failure to so maintain would not, individually or
in the aggregate, have a Material Adverse Effect. The Company and each of its
Subsidiaries owns or possesses adequate licenses or other rights to use all
Intangible Assets necessary to conduct its business as now conducted, except
where the failure to own or possess such licenses could not reasonably be
expected to have, individually or in the aggregate, a Material Adverse Effect.
The consummation of the Merger and the transactions contemplated by this
Agreement will not impair the validity, enforceability, ownership or right of
the Company and each of its Subsidiaries to use its Intangible Assets except, in
each case, where the impairment would not, individually or in the aggregate,
have a Material Adverse Effect.
3.17 Environmental Matters.
(a) Except as set forth in Section 3.17 of the Disclosure Schedule,
the Company is, and at all times has been, in full compliance with
Environmental Laws, except where the failure to be in compliance would not,
individually or in the aggregate, have a Material Adverse Effect. Except as
set forth in Section 3.17 of the Disclosure Schedule, and except as would
not otherwise, individually or in the aggregate, have a Material Adverse
Effect, the Company has not received any actual or proposed order, notice
or other communication (written or oral) from (i) any governmental body or
third party or (ii) the current or prior owner or operator of any property,
of any actual or potential violation or failure to comply with any
Environmental Law, or of any actual or threatened obligation to undertake
or bear the cost of any Environmental Claim with
28
<PAGE>
respect to any property or assets (whether real, personal or mixed) in which the
Company has had an interest.
(b) Except as disclosed in Section 3.17 of the Disclosure Schedule or
as would not, individually or in the aggregate, have a Material Adverse
Effect, there are no pending or, to the knowledge of the Company,
threatened Environmental Claims, encumbrances, or other restrictions of any
nature, resulting from any liabilities or arising under or pursuant to any
Environmental Law, with respect to or affecting any property and assets
(whether real, personal or mixed) in which the Company has or had an
interest.
(c) The Company has obtained all environmental, health and safety
permits and governmental authorizations (collectively, the "Environmental
Permits") required for its operations, and all such permits are in good
standing and the Company is in substantial compliance with all terms and
conditions of the Environmental Permits, except where the failure to obtain
or be in compliance with such Environmental Permits would not, individually
or in the aggregate, have a Material Adverse Effect.
3.18 Vote Required. The affirmative vote of the holders of more than
two-thirds of the shares of Company Common Stock entitled to vote with respect
to the Merger is the only vote of the holders of any class or series of the
Company's capital stock necessary to approve the Merger, this Agreement and the
transactions contemplated hereby. The dissenter's rights provided in Article 15
of the VSCA are not applicable to the Merger and not available to holders of
Company Common Stock in the Merger.
3.19 Disclosure Documents. None of the information supplied or to be
supplied by the Company in writing specifically for inclusion in (i) the Proxy
Statement/Prospectus, and (ii) the Registration Statement will, in the case of
the Proxy Statement/Prospectus, either at the time of mailing of the Proxy
Statement/Prospectus to Shareholders or at the time of the Shareholder Meeting,
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
therein, in light of the circumstances under which they are made, not misleading
or will, in the case of the Registration Statement, either at the time the
Registration Statement is filed with the SEC or at the time the Registration
Statement becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein
29
<PAGE>
or necessary to make the statements therein not misleading except that no
representation or warranty is made by the Company with respect to the
information supplied by Parent.
3.20 Opinion of Financial Advisor. The Company has received the opinion of
Donaldson, Lufkin & Jenrette Securities Corporation, its financial advisor, to
the effect that, as of June 9, 1999, the Merger Consideration to be received in
the Merger, based upon and subject to the assumptions and limitations set forth
in such opinion, by the Shareholders is fair to such Shareholders from a
financial point of view, a copy of which opinion has been delivered to Parent.
3.21 Certain Agreements. Except as set forth in Section 3.21 of the
Disclosure Schedule, the Company is not a party to any oral or written agreement
or plan, including any stock option plan, stock appreciation rights plan,
restricted stock plan or stock purchase plan, any of the benefits of which will
be increased, or the vesting of the benefits of which will be accelerated, by
the occurrence of any of the transactions contemplated by this Agreement or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Agreement. Except as described in Section
3.21 of the Disclosure Schedule, the transactions contemplated by this Agreement
will not constitute a "change of control" under, require the consent from or the
giving of notice to any third party pursuant to, or accelerate the vesting or
repurchase rights under, the terms, conditions or provisions of any material
Contract.
3.22 Finders or Brokers. Except for Donaldson, Lufkin & Jenrette Securities
Corporation with respect to the Company, a copy of whose engagement agreement
has been or will be provided to Parent, neither the Company nor its Subsidiaries
has employed any investment banker, broker, finder or intermediary in connection
with the transactions contemplated hereby who might be entitled to any fee or
any commission in connection with or upon consummation of the transactions
contemplated hereby.
3.23 Takeover Statutes. No restrictive provision of any "fair price,"
"moratorium," "control share acquisition" or other similar anti-takeover statute
or regulation (each a "Takeover Statute") or restrictive provision of any
applicable anti-takeover provision in the Company's articles of incorporation
and bylaws is applicable to the Company, the Company Common Stock, the Merger or
the other transactions contemplated by this Agreement (including, without
limitation, Article 14 of the VSCA).
30
<PAGE>
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
OF PARENT AND ACQUISITION
Parent and Acquisition hereby represent and warrant to the Company as
follows:
4.1 Due Incorporation. Each of Parent and Acquisition is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware, has the corporate power and authority to own its properties and assets
and to carry on its business as it is now being conducted and is duly qualified
to do business and is in good standing in each of the jurisdictions in which the
ownership of its properties or the conduct of its business requires such
qualification, except for jurisdictions in which the failure to be so qualified
would not, individually or in the aggregate, have a Material Adverse Effect.
Parent has delivered to the Company copies of the certificates of incorporation
and bylaws or other organizational documents of Parent, Acquisition and each of
Parent's material Subsidiaries. Such certificates of incorporation and bylaws or
other organizational documents are complete and correct and in full force and
effect, and none of Parent, Acquisition nor any such Subsidiary is in violation
of any of the provisions of their respective certificates of incorporation,
bylaws or similar organizational documents. Each of Parent's Subsidiaries is a
corporation duly organized, validly existing and in good standing under the Laws
of its jurisdiction of incorporation or organization, has the corporate power
and authority to own its properties and assets and to carry on its business as
it is now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the ownership of its properties or the
conduct of its business requires such qualification, except for jurisdictions in
which the failure to be so qualified would not, individually or in the
aggregate, have a Material Adverse Effect. Acquisition has no Subsidiaries.
Acquisition was formed solely for the purpose of engaging in the transactions
contemplated hereby and has not engaged in any business activities or conducted
any operations other than in connection with the transactions contemplated
hereby. Except as set forth on Schedule 4.1 of the Parent Disclosure Schedule,
all the outstanding shares of capital stock of, or other ownership interests in,
Parent's Subsidiaries are duly authorized, validly issued, fully paid and
non-assessable and are owned by Parent, directly or indirectly, free and clear
of all Liens, claims, mortgages, encumbrances, pledges, security interests,
equities or charges of any kind. Other than the Subsidiaries, there are no other
Persons in which Parent owns, of record or beneficially, any direct or
31
<PAGE>
indirect equity or similar interest or any right (contingent or otherwise) to
acquire the same.
4.2 Capitalization.
(a) The authorized capital stock of the Parent consists of 200,000,000
shares of Parent Common Stock and 1,000,000 shares of preferred stock, no
par value ("Parent Preferred Stock"). As of June 7, 1999: (i) 119,759,837
shares of Parent Common Stock were issued and outstanding; (ii) 9,423,607
shares of Parent Common Stock were subject to outstanding options issued
pursuant to Parent's stock option plans ("Plans"), and 12,000,000 shares of
Parent Common Stock were reserved for issuance under the Plans; and (iii)
1,341 shares of Parent Preferred Stock were issued and outstanding. All the
outstanding shares of capital stock of Parent are duly authorized, validly
issued, fully paid and non-assessable. Except as disclosed in Parent's 1999
Proxy Statement and except as set forth above, other than the transactions
contemplated by this Agreement, (1) there are no shares of capital stock of
Parent authorized, issued or outstanding, (2) there are no authorized or
outstanding options, warrants, calls, preemptive rights, subscriptions or
other rights, agreements, arrangements or commitments of any character
relating to the issued or unissued capital stock of Parent or any of its
Subsidiaries, obligating Parent or any of its Subsidiaries to issue,
transfer or sell or cause to be issued, transferred or sold any shares of
capital stock or other equity interest in Parent or any of its Subsidiaries
or securities convertible into or exchangeable for such shares or equity
interests, or obligating Parent or any of its Subsidiaries to grant, extend
or enter into any such option, warrant, call, subscription or other right,
agreement, arrangement or commitment and (3) there are no outstanding
contractual obligations of Parent or any of its Subsidiaries to repurchase,
redeem or otherwise acquire any shares or other capital stock of Parent or
any of its Subsidiaries or to provide funds to make any investment (in the
form of a loan, capital contribution or otherwise) in any Subsidiary of
Parent or any other Person.
(b) The authorized capital stock of Acquisition consists of 1000
shares of common stock, par value $0.01 per share, all of which are duly
authorized, validly issued, fully paid and nonassessable and free of any
pre-emptive rights in respect thereof and all of which are owned by Parent.
4.3 Authorization; Enforceability. Each of Parent and Acquisition has all
requisite corporate power and authority to enter into the Transaction Agreements
to which it is a party and to consummate the transactions contemplated hereby
and thereby. The execution and delivery of the Transaction Agreements to which
it is a party by
32
<PAGE>
Parent and Acquisition and the consummation by Parent and Acquisition of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Parent and Acquisition, subject to the
filing of the Articles of Merger pursuant to the VSCA and the filing of the
Certificate of Merger pursuant to the DGCL. The Transaction Agreements to which
it is a party have been duly executed and delivered by each of Parent and
Acquisition and (assuming the valid authorizations, execution and delivery
thereof by the other parties thereto) each such Transaction Agreement
constitutes the valid and binding obligation of Parent and Acquisition
enforceable against Parent and Acquisition in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium and similar laws relating to or affecting creditors generally or by
general equitable principles (regardless of whether such enforceability is
considered in a proceeding in equity or at law).
4.4 No Violation or Conflict. Assuming all consents, approvals,
authorizations and other actions described in this Section 4.4 have been
obtained and all filings and obligations described in this Section 4.4 have been
made and except as set forth in Schedule 4.4 of the Parent Disclosure Schedule,
the execution and delivery of the Transaction Agreements do not, and the
consummation of the transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict with, result in any
violation of, or breach or default (with or without notice or lapse of time, or
both) under, or give to others a right of termination, cancellation or
acceleration of any material obligation or the loss of a material benefit under,
or result in the creation of any lien, security interest, charge or encumbrance
upon any of the properties or assets of Parent or any of its Subsidiaries under,
any provision of (i) the articles of incorporation or bylaws of Parent, (ii) any
provision of the comparable charter or organizational documents of any of
Parent's Subsidiaries, (iii) any loan or credit agreement, note, bond, mortgage,
lease, indenture or other contract, agreement, instrument, permit, concession,
franchise or license applicable to Parent or any of its Subsidiaries, or (iv)
any judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to Parent or any of its Subsidiaries or any of their respective
properties or assets, other than, in the case of clauses (ii), (iii) or (iv),
any such conflicts, violations, breaches, defaults, rights, liens, security
interests, charges or encumbrances that, individually or in the aggregate, would
not have a Material Adverse Effect, or adversely affect the consummation of any
of the transactions contemplated hereby or thereby. No filing, notification or
registration with, or authorization, consent or approval of, any governmental
entity is required by or with respect to Parent and Acquisition or any of
Parent's Subsidiaries in connection with the execution and delivery of the
Transaction Agreements by Parent and Acquisition or is necessary for the
33
<PAGE>
consummation by Parent and Acquisition of the Merger and the other transactions
contemplated by the Transaction Agreements, except for (i) in connection, or in
compliance, with the provisions of the HSR Act, the Securities Act and the
Exchange Act, (ii) the filing of the Articles of Merger with the SCC and the
Certificate of Merger with the Secretary of State of the State of Delaware, and
the filing of appropriate documents with the relevant authorities of other
states in which Parent or any of its Subsidiaries is qualified to do business,
(iii) such filings and consents as may be required under any environmental,
health or safety law or regulation pertaining to any notification, disclosure or
required approval triggered by the Merger or by the transactions contemplated by
this Agreement, (iv) applicable requirements, if any, of blue sky laws and the
NYSE, and (v) such other consents, orders, authorizations, registrations,
declarations and filings the failure of which to be obtained or made would not,
individually or in the aggregate, have a Material Adverse Effect or adversely
affect the consummation of any of the transactions contemplated hereby or by any
other Transaction Agreement.
4.5 SEC Documents and Other Reports. Parent has filed all required
documents with the SEC since February 22, 1997 (the "Parent SEC Reports"). As of
their respective dates, the Parent SEC Reports complied in all material respects
with the requirements of the Securities Act or the Exchange Act, as the case may
be, and, at the respective times they were filed, none of Parent SEC Reports
contained any untrue statement of a material fact or omitted to state a 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
consolidated financial statements (including, in each case, any notes thereto)
of Parent included in the Parent SEC Reports complied as to form in all material
respects with applicable accounting requirements and the published rules and
regulations of the SEC with respect thereto, were prepared in accordance with
GAAP (except, in the case of the unaudited statements, as permitted by Form 10-Q
of the SEC) applied on a consistent basis during the periods involved (except as
may be indicated therein or in the notes thereto) and fairly present in
accordance with GAAP the consolidated financial position of Parent and its
consolidated Subsidiaries as at the respective dates thereof and the
consolidated results of their operations and their consolidated cash flows for
the periods then ended (subject, in the case of unaudited statements, to normal
year-end audit adjustments and to any other adjustments described therein).
Except as disclosed in the Parent SEC Reports or as required by GAAP, Parent has
not, since February 27, 1999, made any change in the accounting practices or
policies applied in the preparation of financial statements. The books and
records of Parent and its Subsidiaries have been, and are
34
<PAGE>
being, maintained in accordance with GAAP and other applicable legal and
accounting requirements.
4.6 No Undisclosed Liabilities. Neither Parent nor any of its Subsidiaries
has any liabilities or obligations of any nature, whether or not accrued,
contingent or otherwise, except (a) liabilities or obligations reflected in
Parent SEC Reports filed prior to the date hereof and (b) liabilities or
obligations incurred in the ordinary course of business which would not,
individually or in the aggregate, have a Material Adverse Effect.
4.7 No Violation of Law. The businesses of Parent and its Subsidiaries are
not being conducted in violation of any Law except (a) as set forth in Schedule
4.7 of the Parent Disclosure Schedule and (b) for violations which would not,
individually or in the aggregate, have a Material Adverse Effect.
4.8 Litigation. Except as set forth in Parent SEC Reports filed prior to
the date hereof or in Schedule 4.8 of the Parent Disclosure Schedule, (a) there
are no actions, suits, claims (including worker's compensation claims),
litigation or other governmental or judicial proceedings or investigations or
arbitrations pending against Parent, its Subsidiaries or any of their
properties, assets or business, or, to the knowledge of Parent, any of Parent's
or any Subsidiary's current or former directors or officers or any other Person
whom Parent or any Subsidiary of Parent has agreed to indemnify that could
reasonably be expected to have, individually or in the aggregate, a Material
Adverse Effect; (b) as of the date hereof, there are no actions, suits or
proceedings pending or, to the knowledge of Parent, threatened, against Parent
relating to the transactions contemplated by the Transaction Agreements; and (c)
there are no outstanding orders, judgments, injunctions, awards or decrees of
any governmental entity against Parent, its Subsidiaries, any of their
properties, assets or businesses, or, to the knowledge of Parent, any of
Parent's or its Subsidiaries' current or former directors or officers or any
other Person whom Parent or any Subsidiary of Parent has agreed to indemnify
that could reasonably be expected to have, individually or in the aggregate, a
Material Adverse Effect.
4.9 Absence of Certain Changes or Events. Except as disclosed in the Parent
SEC Reports filed with the SEC prior to the date of this Agreement or set forth
in Schedule 4.9 of the Parent Disclosure Schedule, since February 27, 1999, (A)
none of Parent or any of its Subsidiaries has incurred any material liability or
obligation (indirect, direct or contingent), or entered into any material oral
or written agreement or other transaction, that is not in the ordinary course of
business or that would, individually or in the aggregate, result in a Material
Adverse Effect, except for any such changes or effects resulting from this
Agreement, the transactions contemplated hereby or the announcement thereof; (B)
Parent or any of its Subsidiaries has not sustained any loss or interference
with their business or properties from fire, flood, windstorm, accident or other
calamity (whether or not covered by insurance) that would, individually or in
the aggregate, have a Material Adverse Effect; and (C) there has been no event,
circumstance or development that would,
35
<PAGE>
individually or in the aggregate, have a Material Adverse Effect, except for any
such changes or effects resulting from the Transaction Agreements, the
transactions contemplated hereby or thereby or the announcement thereof.
4.10 Authorization of Parent Common Stock. Parent has taken all necessary
action to permit it to issue the number of shares of Parent Common Stock
required to be issued pursuant to Article 1. Parent Common Stock issued pursuant
to Article 1 hereof will, when issued, be duly authorized, validly issued, fully
paid and nonassessable and no Person will have any preemptive right of
subscription or purchase in respect thereof.
4.11 Brokers or Finders. Except for Merrill Lynch & Co. with respect to
Parent, a copy of whose engagement agreement has or will be provided to the
Company, neither Parent nor any of its Subsidiaries has employed any investment
banker, broker, finder or intermediary in connection with the transactions
contemplated hereby who might be entitled to any fee or any commission in
connection with or upon consummation of the transactions contemplated hereby.
4.12 Disclosure Documents. None of the information supplied or to be
supplied by Parent for inclusion in (i) the Proxy Statement/Prospectus, and (ii)
the Registration Statement will, in the case of the Proxy Statement/Prospectus,
either at the time of mailing of the Proxy Statement/Prospectus to Shareholders
or at the time of the Shareholder Meeting, contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not misleading or will, in the case of
the Registration Statement, either at the time the Registration Statement is
filed with the SEC or at the time the Registration Statement becomes effective
under the Securities Act, 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 not misleading except that no representation or
warranty is made by Parent with respect to the information supplied by the
Company.
36
<PAGE>
ARTICLE 5
COVENANTS
5.1 Conduct of Business by the Company. From and after the date of this
Agreement and until the earlier of the termination of this Agreement or the
Effective Time (unless the other party shall otherwise agree in writing and
except as otherwise contemplated by this Agreement), the Company will, and will
cause each of its Subsidiaries to, conduct its operations according to its
ordinary and usual course of business consistent with past practice and, to the
extent consistent therewith, use best efforts to preserve intact its current
business organizations, keep available the services of its current officers and
employees and preserve its relationships with customers, suppliers, and others
having business dealings with it. Without limiting the generality of the
foregoing, and except as otherwise permitted in this Agreement or set forth on
Section 5.1 of the Disclosure Schedule, prior to the Effective Time, neither the
Company nor its Subsidiaries will:
(a) except for shares to be issued or delivered pursuant to the
Existing Options, issue, deliver, sell, dispose of, pledge or otherwise
encumber, or authorize or propose the issuance, sale, disposition or pledge
or other encumbrance of (A) any additional shares of capital stock of any
class, or any securities or rights convertible into, exchangeable for, or
evidencing the right to subscribe for any shares of capital stock, or any
rights, warrants, options, calls, commitments or any other agreements of
any character to purchase or acquire any shares of capital stock or any
securities or rights convertible into, exchangeable for, or evidencing the
right to subscribe for, any shares of capital stock, or (B) any other
securities in respect of, in lieu of, or in substitution for, Company
Common Stock outstanding on the date hereof;
(b) amend its articles of incorporation or bylaws or alter through
merger, liquidation, reorganization, restructuring or in any other fashion
the corporate structure or ownership of any Subsidiary of the Company
(other than pursuant to the Merger) or split, combine, subdivide or
reclassify any Company Common Stock or declare, set aside for payment or
pay any dividend (except for regular quarterly dividends not in excess of
$.05 per share of Company Common Stock), or make any other actual,
constructive or deemed distribution in respect of any Company Common Stock
or otherwise make any payments to Shareholders in their capacity as such;
37
<PAGE>
(c) make payments or distributions (other than normal salaries) to any
Affiliate of the Company, except for transactions in the ordinary course of
business upon commercially reasonable, arm's length terms;
(d) (i) enter into, accelerate, terminate, modify in any material
respect, or cancel any supply agreement having a term in excess of six
months or any lease or purchase contract relating to the creation,
expansion or acquisition of a new retail store, (ii) enter into,
accelerate, terminate, modify in any material respect, or cancel any other
Contract (other than purchase orders entered into in the ordinary course of
business with terms less than six months) involving amounts greater than
$750,000 and outside the ordinary course of business or (iii) knowingly do
any act or knowingly omit to do any act or, to the extent within the
Company's reasonable control, knowingly permit any act or omission to act,
which will cause a breach of any of the Contracts that would have a
Material Adverse Effect;
(e) (A) enter into or adopt any, or amend any existing, severance
plan, agreement or arrangement or enter into or amend any Company Plan or
employment or consulting agreement, other than (A) as required by Law, or
(B) except as expressly contemplated by this Agreement; increase the
compensation payable or to become payable to its officers, employees, or
directors except for increases in salaries or wages or payments of bonuses
or other compensation in the ordinary course of business consistent with
past practice to employees of the Company or any of its Subsidiaries who
are not executive officers of the Company or any of its Subsidiaries or
grant any additional rights to severance or termination pay to, or enter
into any employment or severance agreement with, any director or officer of
the Company or any of its Subsidiaries, or establish, adopt, enter into or,
except as may be required to comply with applicable Law, amend or take
action in any such case in a manner so as to enhance or accelerate any
rights or benefits under, any labor, collective bargaining, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance or
other plan, agreement, trust, fund, policy or arrangement for the benefit
of any director, officer or employee;
(f) make any material acquisition, by means of merger, consolidation
or otherwise, or material disposition (other than disposition of assets in
the ordinary course of business, consistent with past practice), of assets
or securities or authorize or make any individual capital expenditure
(other than the capital expenditures provided in the Company's capital
expenditure budget for fiscal year 2000 which has been previously provided
to Parent) in excess of $250,000; provided, however, that
38
<PAGE>
representatives of the Company will consult on a regular basis with
representatives of Parent with respect to capital expenditures permitted by
this clause (f) and its plans with respect thereto;
(g) settle or compromise any material claims or litigation, except in
the ordinary and usual course of business;
(h) make any material change, other than in the ordinary course of
business and consistent with past practice or as required by applicable
Law, regulation or change in GAAP, in accounting policies or procedures
applied by the Company (including tax accounting policies and procedures);
(i) create, incur or assume any Indebtedness or make any Investment,
other than in the ordinary course of business;
(j) fail to maintain all of the Existing Insurance Policies (or
policies substantially equivalent thereto) in full force and effect, unless
all reasonable efforts to maintain the Existing Insurance Policies have
been undertaken;
(k) fail to preserve in all material respects its business
organization intact, to retain the services of the employees and to conduct
business with suppliers, customers, creditors and others having business
relationships with the Company in the best interests of the Company, unless
all commercially reasonable efforts consistent with the Company's past
practice to preserve, retain and conduct such organization, employees and
business have been undertaken;
(l) knowingly do any act or omit to do any act that would result in a
breach of any representation by the Company set forth in this Agreement; or
(m) authorize, or enter into any contract, agreement, commitment or
arrangement to do any of the foregoing.
5.2 Information Supplied. The Company and Parent each agrees, as to itself
and its Subsidiaries, that none of the information supplied or to be supplied by
it or its Subsidiaries in writing specifically for inclusion or incorporation by
reference in (i) the Registration Statement on Form S-4 (the "Registration
Statement") to be filed with the SEC by Parent in connection with the issuance
of shares of Parent Common Stock in the Merger (including the proxy statement
and prospectus (the "Proxy Statement/Prospectus") constituting a part thereof)
will, at the time the Registration
39
<PAGE>
Statement becomes effective under the Securities Act, 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 and (ii) the Proxy
Statement/Prospectus and any amendment or supplement thereto will, at the date
of mailing to shareholders and at the time of the meeting of shareholders of the
Company to be held in connection with the Merger, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
5.3 Shareholder Meeting. The Company will take, in accordance with
applicable law and its articles of incorporation and bylaws, all action
necessary to convene a meeting of holders of Company Common Stock (the
"Shareholder Meeting") as promptly as practicable after the Registration
Statement is declared effective to consider and vote upon the approval of this
Agreement. Except as provided in Section 8.1(c)(i) with respect to a Superior
Proposal, the Company's board of directors shall recommend such approval and
shall take all lawful action to solicit such approval.
5.4 Filings; Approvals and Consents; Cooperation. (a) Upon the terms and
subject to the conditions set forth in this Agreement, each of the parties
agrees to use all reasonable efforts to take, or cause to be taken, all actions,
and to do, or cause to be done, and to assist and cooperate with the other
parties in doing, all things necessary, proper or advisable to consummate and
make effective, in the most expeditious manner practicable, the Merger and the
other transactions contemplated by this Agreement, including (i) the obtaining
of all necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and the making of all necessary registrations and filings
(including filings with Governmental Entities) and the taking of all reasonable
steps as may be necessary to obtain an approval or waiver from, or to avoid an
action or proceeding by, any Governmental Entity, (ii) the obtaining of all
necessary consents, approvals or waivers from third parties, (iii) the defending
of any lawsuits or other legal proceedings, whether judicial or administrative,
investigating or challenging this Agreement or the consummation of any of the
transactions contemplated by this Agreement, including seeking to have any stay
or temporary restraining order entered by any court or other Governmental Entity
vacated or reversed and (iv) the execution and delivery of any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement.
(b) Parent and the Company shall file as soon as practicable after the
date of this Agreement notifications under the HSR Act and shall respond as
40
<PAGE>
promptly as practicable to all inquiries or requests received from the
Federal Trade Commission or the Antitrust Division of the Department of
Justice for additional information or documentation and shall respond as
promptly as practicable to all inquires and requests received from any
State Attorney General or other Governmental Entity in connection with
antitrust matters. The parties shall cooperate with each other in
connection with the making of all such filings or responses, including
providing copies of all such documents to the other party and its advisors
prior to filing or responding. Parent and Acquisition agree to use their
respective best efforts to avoid the entry of (or, if entered, to lift,
vacate or reverse) any order, decree, judgment or ruling of any court or
Governmental Entity restraining or preventing the consummation of the
Merger on the basis of any federal, state or local antitrust laws or
regulations, including by committing to or effecting (by consent decree,
hold separate order or otherwise) the sale or disposition of such assets of
Parent or the Company as may be required to avoid (or, if entered, to lift,
vacate or reverse) any such order, decree, judgment or ruling; provided,
however, that in no event shall Parent, Acquisition or the Company be
obligated under this Section 5.4 to take any action which is reasonably
likely to have a Material Adverse Effect on Parent, Acquisition or the
Company.
(c) As soon as practicable following the execution of this Agreement,
Parent and the Company shall promptly prepare, and the Company shall file
with the SEC the Proxy Statement/Prospectus as preliminary proxy materials
under the Exchange Act, and shall seek confidential treatment with respect
thereto. Parent and the Company shall cooperate to respond promptly to any
comments made by the SEC with respect thereto. Upon resolution of any SEC
comments with respect to the draft Proxy Statement/Prospectus, or at such
other time as may be mutually determined by the parties hereto, Parent
shall prepare and file the Registration Statement (including the
then-current draft of the Proxy Statement/Prospectus) with the SEC, and:
(i) Parent and the Company shall respond promptly to any comments
made by the SEC with respect thereto;
(ii) Parent and the Company shall use their respective best
efforts to cause the Registration Statement to become effective under
the Securities Act as soon as practicable, and the Company shall cause
the Proxy Statement/Prospectus to be mailed to the Shareholders at the
earliest practicable time after effectiveness of the Registration
Statement;
41
<PAGE>
(iii) Parent shall promptly advise the Company (A) when the
Registration Statement becomes effective, (B) when, prior to the
Effective Time, any amendment to the Registration Statement shall be
filed or become effective, (C) of the issuance by the SEC of any stop
order suspending the effectiveness of the Registration Statement or
the institution or threatening of any proceeding for that purpose and
(D) of the receipt by Parent of any notification with respect to the
suspension of the registration or qualification of Parent Common Stock
for sale in any jurisdiction or the institution or threatening of any
proceeding for that purpose; and
(iv) Parent and the Company shall use their respective best
efforts to prevent the issuance of any such stop order and, if issued,
to obtain as soon as possible the withdrawal thereof.
(d) The Company and Parent each shall, upon request by the other,
furnish the other with all information concerning itself, its Subsidiaries,
directors, officers and shareholders and such other matters as may be
reasonably necessary or advisable in connection with the Proxy
Statement/Prospectus, the Registration Statement or any other statement,
filing, notice or applicable made by or on behalf of Parent, the Company or
any of their respective Subsidiaries to any third party and/or any
Governmental Entity in connection with the Merger and the transaction
contemplated by this Agreement.
(e) The Company and Parent each shall keep the other apprised of the
status of matters relating to completion of the transactions hereby,
including promptly furnishing the other with copies of any notice or other
communications received by Parent or the Company, as the case may be, or
any of their respective Subsidiaries, from any third party and/or any
Governmental Entity with respect to the Merger and the other transactions
contemplated by this Agreement.
5.5 Listing of Parent Common Stock. Parent shall use its best efforts to
cause the shares of Parent Common Stock to be issued in the Merger to be
approved for listing on the NYSE, subject to official notice of issuance, prior
to the Closing Date.
5.6 Affiliates. Prior to the Effective Time, the Company shall deliver to
Parent a list of names and addresses of those Persons who are, in the opinion of
the Company, as of the time of the Shareholder Meeting, "affiliates" of the
Company within the meaning of Rule 145 under the Securities Act. The Company
shall provide to Parent
42
<PAGE>
such information and documents as Parent shall reasonably request for purposes
of reviewing such list. There shall be added to such list the names and
addresses of any other Person subsequently identified by either Parent or the
Company as a Person who may be deemed to be such an affiliate of the Company;
provided, however, that no such Person identified by Parent shall be added to
the list of affiliates of the Company if Parent shall receive from the Company,
on or before the date of the Shareholder Meeting, an opinion of counsel
reasonably satisfactory to Parent to the effect that such Person is not such an
affiliate. The Company shall seek to deliver or cause to be delivered to Parent,
prior to the date of the Shareholder Meeting, from each affiliate of the Company
identified in the foregoing list (as the same may be supplemented as aforesaid),
a letter dated as of the Closing Date substantially in the form attached as
Exhibit 3 (the "Affiliates Letter"). Parent shall not be required to maintain
the effectiveness of the Registration Statement or any other registration
statement under the Securities Act for the purposes of resale of Parent Common
Stock by such affiliates received in the Merger and the certificates
representing Parent Common Stock received by such affiliates shall bear a
customary legend regarding applicable Securities Act restrictions and the
provisions of this Section.
5.7 Takeover Statute. If any Takeover Statute is or may become applicable
to the Merger or the other transactions contemplated by this Agreement, each of
Parent and the Company and its board of directors shall grant such approvals and
take such actions as are necessary so that such transactions may be consummated
as promptly as practicable on the terms contemplated by this Agreement or by the
Merger and otherwise act to eliminate or minimize the effects of such statute or
regulation on such transactions.
5.8 Tax-Free Reorganization. Each of Parent, Acquisition and Company shall
use all reasonable efforts to cause the Merger to constitute a "reorganization"
within the meaning of Section 368(a) of the Code. Unless otherwise required (and
then only to the extent otherwise required) by a "determination" (as defined in
Section 1313(a)(1)) of the Code or by a similar applicable provision of state or
local income tax law, each party shall (i) report the Merger on all tax returns
and other filings as a reorganization within the meaning of Section 368(a) of
the Code and, (ii) not take any position that is inconsistent with the
characterization of the Merger as such a reorganization in any audit,
administrative proceeding, litigation or otherwise.
43
<PAGE>
ARTICLE 6
CONDITIONS
6.1 Conditions to Each Party's Obligation to Effect the Merger. The
respective obligation of each party to consummate the Merger shall be subject to
the satisfaction prior to or at the Closing as hereinafter provided of the
following express conditions precedent, each of which may be waived in whole or
in part by the Company, Parent or Acquisition, as the case may be, to the extent
permitted by Law:
(a) Regulatory Approvals. Clearance from the appropriate agencies
pursuant to the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended (the "HSR Act"), shall have been obtained by the Company and Parent
or the waiting period thereby required shall have expired or been earlier
terminated.
(b) Approval of Shareholders. This Agreement, the Merger and the
transactions contemplated by this Agreement shall have received the
requisite approval and authorization of the Shareholders.
(c) Registration Statement. The Registration Statement shall have been
declared effective by the SEC under the Securities Act and no stop order
suspending the effectiveness of the Registration Statement shall have been
issued by the SEC and no proceeding for that purpose shall have been
initiated by the SEC and not concluded or withdrawn.
(d) Listing of Parent Common Stock. The Parent Common Stock to be
issued in the Merger shall have been approved for listing on the NYSE,
subject to official notice of issuance.
(e) Statutes, Court Orders. No statute, rule or regulation shall have
been enacted or promulgated by any governmental authority which prohibits,
restricts or makes illegal the consummation of the Merger; and there shall
be no order or injunction of a court of competent jurisdiction in effect
precluding or restricting consummation of the Merger.
6.2 Conditions to Parent's and Acquisition's Obligation to Effect the
Merger. The obligations of Parent and Acquisition to consummate the Merger are
further subject to
44
<PAGE>
(a) Representations and Warranties of the Company. The representations
and warranties made by the Company in this Agreement shall be true and
correct (i) in all respects at and as of the Effective Time (as to
representations and warranties specifically qualified or limited by the
term "Material Adverse Effect," the word "material" and phrases of like
import), and (ii) in all material respects at and as of the Effective Time
(as to representations and warranties not qualified or limited by the term
"Material Adverse Effect," the word "material" and phrases of like import),
in each case with the same force and effect as though made at and as of the
Effective Time (except to the extent they relate to a specific date), the
Company shall have performed in all material respects all of its
obligations under this Agreement theretofore to be performed, and Parent
shall have received at the Effective Time a certificate of the Chief
Executive Officer and Chief Financial Officer of the Company to that
effect.
(b) No Material Adverse Change. During the period from the date of
this Agreement to the Closing Date, there shall not have occurred any
Material Adverse Effect with respect to the Company that continues to exist
on the Closing Date and as of the Effective Time.
(c) Tax Opinion. Parent shall have received the opinion of Skadden,
Arps, Slate, Meagher & Flom (Illinois), special counsel to Parent, dated
the Closing Date and in form and substance reasonably satisfactory to
Parent, to the effect that, on the basis of facts, representations and
assumptions set forth in such opinion which are consistent with the state
of facts existing on the Closing Date, the Merger will be treated for
federal income tax purposes as a reorganization within the meaning of
Section 368(a) of the Code. In rendering such opinion, Skadden, Arps,
Slate, Meagher & Flom (Illinois) may require and rely upon (and may
incorporate by reference) representations and covenants, including those
contained in certificates of officers of Parent, Acquisition, the Company
and others.
6.3 Conditions to the Company's Obligation to Effect the Merger. The
obligation of the Company to consummate the Merger shall be subject to the
satisfaction prior to or at the Closing as hereinafter provided of the following
express conditions precedent:
(a) Representations and Warranties of Parent and Acquisition. The
representations and warranties made by Parent and Acquisition in this
Agreement shall be true and correct (i) in all respects at and as of the
Effective Time (as to representations and warranties specifically qualified
or limited by the term "Material Adverse Effect," the word "material" and
phrases of like import), and (ii) in all material
45
<PAGE>
respects at and as of the Effective Time (as to representations and
warranties not qualified or limited by the term "Material Adverse Effect,"
the word "material" and phrases of like import), in each case with the same
force and effect as though made at and as of the Effective Time (except to
the extent they relate to a specific date), Parent and Acquisition shall
have performed in all material respects all of their respective obligations
under this Agreement theretofore to be performed, and the Company shall
have received at the Effective Time a certificate of the Chief Executive
Officer and Chief Financial Officer of Parent to that effect.
(b) Tax Opinion. The Company shall have received the opinion of Hunton
& Williams, counsel to the Company, dated the Closing Date and in form and
substance reasonably satisfactory to the Company, to the effect that, on
the basis of facts, representations and assumptions set forth in such
opinion which are consistent with the state of facts existing on the
Closing Date, the Merger will be treated for federal income tax purposes as
a reorganization within the meaning of Section 368(a) of the Code. In
rendering such opinion, Hunton & Williams may require and rely upon (and
may incorporate by reference) representations and covenants, including
those contained in certificates of officers of Parent, Acquisition, the
Company and others.
ARTICLE 7
NO SURVIVAL OF REPRESENTATIONS AND
WARRANTIES; INDEMNIFICATION
7.1 No Survival of Representations and Warranties. The representations and
warranties made in this Agreement shall not survive beyond the Effective Time.
7.2 Directors' and Officers' Indemnification; Insurance.
(a) From and after the Effective Time, Parent shall cause the
Surviving Corporation to indemnify and hold harmless each person who is
now, or has been at any time prior to the date hereof, an officer,
director, employee or agent of the Company or any of its Subsidiaries (the
"Indemnified Parties") against any losses, claims, damages, judgments,
settlements, liabilities, costs or expenses (including, without limitation,
reasonable attorneys' fees and out-of-pocket expenses) incurred in
connection with any claim, action, suit, proceeding or investigation
arising out of or pertaining to acts or omissions, or alleged acts or
omissions, by them in their capacities as such occurring at or prior to the
Effective Time, whether asserted or claimed prior to,
46
<PAGE>
at or after the Effective Time (including, without limitation, in
connection with the Merger and the other transactions contemplated by this
Agreement), to the fullest extent that the Company or such Subsidiaries
would have been permitted, under applicable law and the Articles of
Incorporation or Bylaws of the Company or the organizational documents of
such Subsidiaries, each as in effect on the date of this Agreement. In
connection with the foregoing, Parent shall cause the Surviving Corporation
to advance expenses as incurred to the fullest extent permitted under
applicable Law upon receipt from the Indemnified Party to whom expenses are
advanced of any written undertaking to repay such advances required under
applicable Law. Parent shall cause the Surviving Corporation to pay all
reasonable expenses, including reasonable attorneys' fees, that may be
incurred by any Indemnified Party in enforcing this Section 7.2. If the
Surviving Corporation or any of its successors or assigns (i) consolidates
with or merges into any other Person and shall not be the continuing or
surviving person or entity of such consolidation or merger or (ii)
transfers or conveys all or substantially all of its properties and assets
to any Person, then, and in each such case, to the extent necessary, proper
provision shall be made so that the successors and assigns of the Surviving
Corporation assume the obligations set forth in this Section 7.2. The
parties acknowledge and agree that to the extent that the Surviving
Corporation fails to comply with its indemnification obligations pursuant
to this Section 7.2, Parent shall indemnify and hold harmless each of the
Indemnified Parties to the same extent as the Surviving Corporation was
required to indemnify such Indemnified Parties hereunder.
(b) Unless otherwise required by Law, (i) at the Effective Time, the
Certificate of Incorporation and Bylaws of the Surviving Corporation shall
contain provisions providing for exculpation of director and officer
liability and indemnification by the Surviving Corporation of the
Indemnified Parties not less favorable to the Indemnified Parties than
those provisions providing for exculpation of director and officer
liability and indemnification by the Company of the Indemnified Parties
contained in the Articles of Incorporation and Bylaws of the Company as in
effect on the date of this Agreement, and (ii) for a period of five years
from the Effective Time, the Surviving Corporation and the Company's
Subsidiaries shall not amend, repeal or modify any such provisions
contained in their respective certificates of incorporation and bylaws, or
other organizational documents of such Subsidiaries, to reduce or adversely
affect the rights of the Indemnified Parties thereunder in respect of
actions or omissions by them occurring at or prior to the Effective Time.
(c) Parent shall cause the Surviving Corporation to purchase a
three-year extended reporting period endorsement ("reporting tail
coverage") under the Company's existing directors' and officers' liability
insurance coverage, provided that
47
<PAGE>
such reporting tail coverage shall extend the director and officer
liability coverage in force as of the date hereof from the Effective Time
on terms, that in all material respects, are no less advantageous to the
intended beneficiaries thereof than the existing directors' and officers'
liability insurance.
(d) This covenant is intended to be for the benefit of, and shall be
enforceable by, each of the Indemnified Parties and their respective heirs
and legal representatives.
ARTICLE 8
TERMINATION
8.1 Termination. This Agreement may be terminated and the transactions
contemplated by this Agreement may be abandoned at any time prior to the Closing
(whether before or after the approval of this Agreement by the Shareholders), as
follows:
(a) by mutual written agreement of Parent and the Company;
(b) by either of the Company or Parent:
(i) if the Effective Time shall not have occurred on or before
January 15, 2000; provided, however, that the right to terminate this
Agreement pursuant to this clause (i) shall not be available to any
party whose failure to fulfill any obligation under this Agreement has
been the cause of, or resulted in, the failure of the Effective Time
to occur on or before such date;
(ii) if any Governmental Entity shall have issued an order,
decree or ruling or taken any other action (which order, decree,
ruling or other action the parties hereto shall use all reasonable
efforts to lift), in each case permanently restraining, enjoining or
otherwise prohibiting the transactions contemplated by this Agreement
and such order, decree or ruling or other action shall have become
final and non-appealable; or
(iii) if, at the Shareholder Meeting (including any adjournment
or postponement thereof) called pursuant to Section 5.3
48
<PAGE>
hereof, the requisite vote of the Shareholders of the Company shall
not have been obtained.
(c) by the Company:
(i) if (a) the Company, based on the advice of outside legal
counsel to the Company that such action is consistent with the Board
of Director's fiduciary duties under applicable Law and the
determination by the Board of Directors of the Company in good faith
that such action is in the best interests of the Company and its
shareholders, subject to complying with the terms of this Agreement,
is fully prepared to enter into a binding written agreement concerning
a transaction that constitutes a Superior Proposal and the Company
notifies Parent in writing that it intends to enter into such an
agreement, attaching the most current version of such agreement to
such notice, (b) Parent does not make, within two business days of
receipt of the Company's written notification of its intention to
enter into a binding agreement for a Superior Proposal, an offer to
enter into an amendment to this Agreement such that the Board of
Directors of the Company determines, in good faith after consultation
with its financial advisors, that this Agreement as so amended is at
least as favorable, from a financial point of view, to the
shareholders of the Company as the Superior Proposal, (c) the Company
prior to such termination pays to Parent in immediately available
funds any fees required to be paid pursuant to Section 8.3 and (d)
substantially simultaneously with such termination, the Company enters
into the binding written agreement referred to in clause (a) above.
The Company agrees (A) that it will not enter into a binding agreement
referred to in clause (a) above until at least the third business day
after it has provided the notice to Parent required thereby and (B) to
notify Parent promptly if its intention to enter into a written
agreement referred to in its notification shall change at any time
after giving such notification;
(ii) if Parent or Acquisition shall have breached in any material
respect any of their respective representations, warranties, covenants
or other agreements contained in this Agreement, which breach cannot
be or has not been cured, in all material respects, within 30 days
after the giving of written notice to Parent or Acquisition, as
applicable; or
49
<PAGE>
(iii) if the Average Parent Price is less than $18.50 and the
Company provides written notice of termination to Parent prior to the
close of business on the second trading day following the
Determination Date unless (x) the Average Parent Price is equal to or
greater than $15.00 and (y) on or before the close of business on the
third trading day following its receipt of such written notice of
termination from the Company, Parent shall have delivered written
notice to the Company of its agreement to increase the percentage of
Aggregate Merger Consideration that shall be paid in cash such that
the Aggregate Merger Consideration shall consist of an aggregate
number of shares of Parent Common Stock used as Merger Consideration
equal to 50% of Aggregate Company Shares and the remainder in cash;
provided, however, if the amount of aggregate cash consideration set
forth immediately above plus the cash used in respect to the Company
Stock Options under Section 1.10 would exceed the maximum amount
permitted without preventing the Merger from qualifying as a
reorganization with the meaning of Section 368(a) of the Code as
determined by the tax advisors of the Company and Parent (the "Maximum
Cash Amount"), then Parent may agree to provide all Merger
Consideration beyond the Maximum Cash Amount in Parent Common Stock
measured by the Average Parent Price.
(d) by Parent
(i) if prior to the consummation of the Merger, the Company shall
have breached any representation, warranty, covenant or other
agreement contained in this Agreement, which breach cannot be or has
not been cured, in all material respects, within 30 days after the
giving of written notice to the Company;
(ii) if, at any time prior to the Effective Time, the Board of
Directors of the Company shall have withdrawn or adversely modified
its approval or recommendation of this Agreement or failed to
reconfirm its recommendation of this Agreement within five business
days after a written request by Parent to do so; or
(iii) if the Average Parent Price is less than $18.50 and Parent
provides written notice of termination to the Company
50
<PAGE>
prior to the close of business on the second trading day following the
Determination Date.
8.2 Rights on Termination. In the event of termination and abandonment of
the Merger by any party pursuant to Section 8.1, written notice thereof shall
forthwith be given to the other parties and this Agreement shall terminate and
the Merger and the other transactions contemplated hereby shall be abandoned,
without further action by any of the parties hereto. If this Agreement is
terminated and the transactions contemplated hereby are not consummated pursuant
to Section 8.1 of this Agreement, this Agreement shall become void and of no
further force and effect, except for (a) the provisions of Section 2.1 relating
to the obligation of Parent and Acquisition to keep confidential and not to use
certain information obtained from the Company and (b) the provisions of Section
8.3 relating to the Company=s obligations to make certain payments to Parent.
8.3 Termination Fee Payable to Parent. Notwithstanding any provision to the
contrary contained herein, the Company shall immediately pay to Parent (x) the
amount of $27 million and (y) all reasonably documented out-of-pocket expenses,
not to exceed $3 million in the aggregate, reasonably incurred by Parent and
Acquisition in connection with this Agreement and the Merger if this Agreement
is terminated pursuant to Section 8.1(b)(iii), Section 8.1(c)(i), Section
8.1(d)(i) (if the breach thereof is due to the Company's intentional or bad
faith acts), or Section 8.1(d)(ii). The amount in (x) above shall be paid
concurrently with any such termination and the amount in (y) above shall be paid
within five (5) business days after receipt by the Company of reasonably
detailed evidence of the same. Upon receipt of such payments, Parent shall not
be entitled to and shall waive the right to seek damages or other amounts or
remedies from the Company for breach of, or otherwise in connection with, this
Agreement.
8.4 Other Remedies. Notwithstanding any provision to the contrary contained
herein, if this Agreement is terminated pursuant to Article 8 or otherwise by
the Company, on the one hand, or Parent or Acquisition, on the other hand, and
the non-terminating party is not entitled to receive the payments described in
Section 8.3 (as the case may be), then the non-terminating party shall be
entitled to pursue any available legal rights to recover actual damages,
including, without limitation, its reasonable costs and expenses incurred in
pursuing such recovery (including, without limitation, reasonable attorneys'
fees).
51
<PAGE>
ARTICLE 9
MISCELLANEOUS
9.1 Expenses. Except as set forth in Section 8.3 hereof, if this Agreement
is not consummated, Parent and Acquisition, on the one hand, and the Company, on
the other hand, shall bear their respective legal fees and expenses.
9.2 Entire Agreement; Amendment. This Agreement and the documents referred
to in this Agreement and required to be delivered pursuant to this Agreement
constitute the entire agreement among the parties pertaining to the subject
matter of this Agreement, and (except as contemplated in Section 2.5 hereof)
supersede all prior and contemporaneous agreements, understandings, negotiations
and discussions of the parties, whether oral or written, and there are no
warranties, representations or other agreements between the parties in
connection with the subject matter of this Agreement, except as specifically set
forth in this Agreement. No amendment, supplement, modification, waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provision of this
Agreement, whether or not similar, nor shall such waiver constitute a continuing
waiver unless otherwise expressly provided.
9.3 Governing Law. This Agreement shall be governed and construed (i) with
respect to the Merger, in accordance with the Laws of the Commonwealth of
Virginia and State of Delaware, as applicable, and (ii) with respect to all
other transactions contemplated hereunder, in accordance with the Laws of the
Commonwealth of Virginia applicable to agreements made and to be performed
entirely within such State.
9.4 Assignment. Prior to the Closing, this Agreement may not be assigned by
any party hereto, except with the prior written consent of the other parties
hereto.
9.5 Notices. All communications or notices required or permitted by this
Agreement shall be in writing and shall be deemed to have been given at the
earlier of the date personally delivered or sent by telephonic facsimile
transmission (with a copy via regular mail) or one day after sending via
nationally recognized overnight courier or five days after deposit in the United
States mail, certified or registered mail, postage
52
<PAGE>
prepaid, return receipt requested, and addressed as follows, unless and until
any of such parties notifies the others in accordance with this Section of a
change of address:
If to Parent: SUPERVALU INC.
11840 Valleyview Road
Eden Prairie, MN 55344
Telephone: (612) 828 - 4000
Telecopy: (612) 828 - 4838
Attention: General Counsel
With a copy to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker
Suite 2100
Chicago, Illinois 60606
Telephone: (312) 407-0700
Telecopy: (312) 407-0411
Attention: William R. Kunkel
If to the Company: Richfood Holdings, Inc.
4860 Cox Road, Suite 300
Glen Allen, VA 23060
Telephone: (804) 915 - 6000
Telecopy: (804) 915 - 6010
Attention: John E. Stokely
with a copy to:
Hunton & Williams
Riverfront Plaza, East Tower
951 East Byrd Street
Richmond, Virginia 23219
Telephone: (804) 788-8200
Telecopy: (804) 788-8218
53
<PAGE>
Attention: Gary E. Thompson
9.6 Counterparts; Headings. This Agreement may be executed in several
counterparts, each of which shall be deemed an original, but such counterparts
shall together constitute but one and the same Agreement. The Article and
Section headings in this Agreement are inserted for convenience of reference
only and shall not constitute a part hereof.
9.7 Interpretation. Unless the context requires otherwise, all words used
in this Agreement in the singular number shall extend to and include the plural,
all words in the plural number shall extend to and include the singular, and all
words in any gender shall extend to and include all genders.
9.8 Specific Performance. The parties agree that the assets and business of
the Company as a going concern constitute unique property and, accordingly, each
party shall be entitled, at its option and in addition to any other remedies
available as herein provided, to the remedy of specific performance to effect
the Merger as provided in this Agreement.
9.9 No Reliance. Except for Section 7.2, which is intended to be for the
benefit of the Indemnified Parties, and except for the parties to this
Agreement: (a) no Person is entitled to rely on any of the representations,
warranties and agreements of the parties contained in this Agreement; and (b)
the parties assume no liability to any Person because of any reliance on the
representations, warranties and agreements of the parties contained in this
Agreement.
9.10 Exhibits and Schedules. The Exhibits and Schedules are a part of this
Agreement as if fully set forth herein. All references herein to Sections,
subsections, clauses, Exhibits and Schedules shall be deemed references to such
parts of this Agreement, unless the context shall otherwise require.
9.11 No Third Party Beneficiary. Except as provided pursuant to Section 7.2
hereof, the terms and provisions of this Agreement are intended solely for the
benefit of the parties hereto and their respective successors and assigns and it
is not the intention of the parties to confer third-party beneficiary rights
upon any other Person.
54
<PAGE>
ARTICLE 10
DEFINITIONS
When used in this Agreement, and in addition to the other terms defined
herein, the following terms shall have the meanings specified:
10.1 Affiliate. "Affiliate" shall mean, in relation to any party hereto,
any entity directly or indirectly controlling, controlled by or under common
control with such party.
10.2 Agreement. "Agreement" shall mean this Agreement and Plan of Merger,
together with the Exhibits attached hereto and the Disclosure Schedule, as the
same may be amended from time to time in accordance with the terms hereof.
10.3 Buildings. "Buildings" shall mean all buildings, fixtures, structures
and improvements leased or owned by the Company or its Subsidiaries.
10.4 Contracts. "Contracts" shall mean all of the contracts, agreements and
obligations, written or oral, to which the Company is a party or by which the
Company or any of its assets are bound, including, without limitation, any loan,
bond, mortgage, indenture, lease, instrument, franchise or license.
10.5 Control. "Control" (including the terms "controlling," "controlled
by," and "under common control with"), as used with respect to any Person, shall
mean the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such Person, through the ownership
of voting securities or by contract.
10.6 DGCL. "DGCL" shall mean the General Corporation Law of the State of
Delaware.
10.7 Disclosure Schedule. "Disclosure Schedule" shall mean the Disclosure
Schedule delivered by the Company to the Parent pursuant to Section 2.2(a) of
this Agreement.
10.8 Employees. "Employees" shall mean all of the employees of the Company.
10.9 Environmental Claim. "Environmental Claim" shall mean any and all
administrative, regulatory or judicial actions, suits, demands, demand letters,
directives,
55
<PAGE>
claims, Liens, investigations, proceedings or notices of noncompliance or
violation (written or oral) by any Person alleging liability (including, without
limitation, liability for enforcement, investigatory costs, cleanup costs,
governmental response costs, removal costs, remedial costs, natural resources
damages, property damages, personal injuries, or penalties) arising out of,
based on or resulting from: (A) the presence or environmental release of any
Hazardous Materials at any parcel of real property; or (B) circumstances forming
the basis of any violation or alleged violation, of any Environmental Law; or
(C) any and all claims by any Person seeking damages, contribution,
indemnification, cost, recovery, compensation or injunctive relief resulting
from the presence or environmental release of any Hazardous Materials.
10.10 Environmental Laws. "Environmental Laws" shall mean any federal,
state, local or foreign statute, Law, rule, ordinance, code, policy, rule of
common law and regulations relating to pollution or protection of human health
(excluding OSHA) or the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata), including,
without limitation, Laws and regulations relating to environmental releases or
threatened environmental releases of Hazardous Materials, or otherwise relating
to the manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Materials.
10.11 Equipment. "Equipment" shall mean all machinery, equipment, boilers,
furniture, fixtures, motor vehicles, furnishings, parts, tools, office
equipment, computers and other items of tangible personal property owned or used
by the Company or its Subsidiaries.
10.12 ERISA. "ERISA" shall mean the Employee Retirement Income Security Act
of 1974, as the same may be in effect from time to time.
10.13 Existing Insurance Policies. "Existing Insurance Policies" shall mean
all of the insurance policies currently in effect and owned by the Company.
10.14 Existing Liens. "Existing Liens" shall mean those Liens affecting any
of the assets or properties of the Company.
10.15 Existing Options. "Existing Options" shall mean any of the following
relating to any capital stock or other equity interest of the Company: (a)
options or warrants (whether vested or not) to purchase or other rights
(including registration rights), agreements, arrangements or commitments of any
character to which the Company is a party relating to the issued or unissued
capital stock or other equity or phantom equity interests
56
<PAGE>
of the Company to grant, issue or sell any shares of the capital stock or other
equity or phantom equity interests of the Company by sale, lease, license or
otherwise; (b) rights to subscribe for or purchase any shares of the capital
stock or other equity or phantom equity interests of the Company; or (c)
Contracts with respect to any right to purchase, put or call any shares of the
capital stock or other equity or phantom equity interests of the Company.
10.16 Existing Permits. "Existing Permits" shall mean those permits,
licenses, approvals, qualifications, authorizations, and registrations required
by Law which the Company has or holds.
10.17 Governmental Entity. "Governmental Entity" shall mean any federal,
state, local or foreign court, arbitral tribunal, administrative agency or
commission or other governmental or regulatory authority or administrative
agency.
10.18 Hazardous Materials. "Hazardous Materials" shall mean: (A) any
petroleum or petroleum products, radioactive materials, asbestos in any form
that is friable, urea formaldehyde foam insulation, and transformers or other
equipment that contain dielectric fluid containing polychlorinated biphenyls
("PCBs") above regulated levels and radon gas; and (B) any chemicals, materials
or substances which are now defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials," "extremely
hazardous wastes," "restricted hazardous wastes," "toxic substances," "toxic
pollutants," or words of similar import, under any Environmental Law; and (C)
any other chemical, material, substance or waste, exposure to which is now
prohibited, limited or regulated by any governmental authority.
10.19 Indebtedness. "Indebtedness" shall mean all liabilities or
obligations of the Company, whether primary or secondary or absolute or
contingent, in excess of $500,000 as to any single item: (a) for borrowed money;
or (b) evidenced by notes, bonds, debentures or similar instruments; or (c)
secured by Liens on any assets of the Company.
10.20 Intangible Assets. "Intangible Assets" shall mean (a) any invention,
United States and foreign patents, pending patent applications, trade names,
trade dress, logos, corporate names, trademarks, service marks, trademark
registrations, service mark registrations, pending trademark applications,
pending service mark applications, registered copyrights, and pending copyright
applications, together with all translations, adaptations, derivations, and
combinations thereof and including all goodwill associated therewith, and all
applications, registrations, and renewals in connection therewith; (b)
proprietary software; and (c) all trade secrets and confidential business
information (including ideas, research and development, know-how, formulas,
compositions, manufacturing and production processes and
57
<PAGE>
techniques, technical data, designs, drawings, specifications, customer and
supplier lists, pricing and cost information, and business and marketing plans
and proposals).
10.21 Investment. "Investment" by the Company shall mean (a) any transfer
or delivery of cash, stock or other property or value by the Company in exchange
for equity, debt, preferred stock, partnership interests, participations or any
other security of another Person; (b) any loan or capital contribution to or in
any other Person; (c) any guaranty of any obligation to pay money to, or perform
an obligation of, any other Person; and (d) any investments in any property or
assets other than properties and assets acquired and used in the ordinary course
of the business of the Company.
10.22 Knowledge. "Knowledge," as to the Company, shall mean the actual
knowledge of those officers of the Company identified in Section 10.22A of the
Disclosure Schedule, and "knowledge," as to the Parent and Acquisition, shall
mean the actual knowledge of those officers of Parent and Acquisition identified
in Section 10.22B of the Parent Disclosure Schedule.
10.23 Law. "Law" shall mean any foreign, federal, state or local
governmental law, rule, regulation or requirement, including any rules,
regulations and orders promulgated thereunder and any orders, decrees, consents
or judgments of any governmental regulatory agencies and courts having the force
of law, other than any Environmental Laws.
10.24 Lien. "Lien" shall mean, with respect to any asset (real, personal or
mixed): (a) any mortgage, pledge, lien, easement, lease, title defect or
imperfection or any other form of security interest, whether imposed by Law or
by Contract; and (b) the interest of a vendor or lessor under any conditional
sale agreement, financing lease or other title retention agreement relating to
such asset.
10.25 Material Adverse Effect. "Material Adverse Effect" shall mean a
material adverse effect on the business, financial condition , results of
operations, assets or liabilities of the Company and its Subsidiaries or Parent
and its Subsidiaries (including Acquisition), as applicable, each taken as a
whole, excluding any changes and effects resulting from general changes in
economic, market, regulatory or political conditions or changes in conditions
generally applicable to the industries in which the Company and its Subsidiaries
or Parent and its Subsidiaries, as applicable, are involved.
10.26 Merger. "Merger" shall mean the merger of Acquisition with and into
the Company pursuant to this Agreement.
58
<PAGE>
10.27 Parent Disclosure Schedule. "Parent Disclosure Schedule" shall mean
the Disclosure Schedule delivered by the Parent to the Company pursuant to
Section 2.2(a) of this Agreement.
10.28 Permitted Liens. "Permitted Liens" shall mean those of the Existing
Liens that do not materially detract from the value of the property or assets of
the Company taken as a whole subject thereto and do not materially impair the
business or operations of the Company taken as a whole and other Liens incurred
in the ordinary course of business of the Company that do not materially detract
from the value or impair the use of the specific property to which such Lien
relates.
10.29 Person. "Person" shall mean a natural person, corporation, limited
liability company, association, joint stock company, trust, partnership,
governmental entity, agency or branch or department thereof, or any other legal
entity.
10.30 Real Estate. "Real Estate" shall mean the parcels of real property
owned or leased by the Company or its Subsidiaries.
10.31 SEC. "SEC" shall mean the Securities and Exchange Commission.
10.32 Shareholders. "Shareholders" shall mean all Persons owning any shares
of Company Common Stock.
10.33 Subsidiary. "Subsidiary" shall mean any corporation, at least a
majority of the outstanding capital stock of which (or any class or classes,
however designated, having ordinary voting power for the election of at least a
majority of the board of directors of such corporation) shall at the time be
owned by the relevant Person directly or through one or more corporations which
are themselves Subsidiaries.
10.34 VSCA. "VSCA" shall mean the Virginia Stock Corporation Act.
59
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement and Plan of
Merger to be duly executed as of the day and year first above written.
SUPERVALU INC.
By: /s/ Michael W. Wright
--------------------------------
Name: Michael W. Wright
Title: Chairman, CEO & President
WINTER ACQUISITION, INC.
By: /s/ Michael W. Wright
--------------------------------
Name: Michael W. Wright
Title: Chairman, CEO & President
RICHFOOD HOLDINGS, INC.
By: /s/ John E. Stokely
--------------------------------
Name: John E. Stokely
Title: Chairman, President &
Chief Executive Officer
<PAGE>
Exhibit 11
SUPERVALU INC.
Computation of Earnings per Common Share
(unaudited)
- --------------------------------------------------------------------------------
First Quarter Ended
(In thousands, except per share amounts) June 19, 1999 June 20, 1998
- --------------------------------------------------------------------------------
Earnings per share - basic
Income available to common shareholders $ 66,721 $ 51,798
Weighted average shares outstanding 119,631 120,565
Earnings per share - basic $.56 $.43
Earnings per share - diluted
Income available to common shareholders $ 66,721 $ 51,798
Weighted average shares outstanding 119,631 120,565
Dilutive impact of options outstanding 1,138 1,580
-------- --------
Weighted average shares and potential
dilutive shares outstanding 120,769 122,145
Earnings per share - dilutive $.55 $.42
- --------------------------------------------------------------------------------
Basic earnings per share is calculated using income available to common
shareholders divided by the weighted average of common shares outstanding during
the period. Diluted earnings per share is similar to basic earnings per share
except that the weighted average of common shares outstanding is increased to
include the number of additional common shares that would have been outstanding
if the dilutive potential common shares, such as options, had been issued.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEETS AS OF JUNE 19, 1999 AND THE CONSOLIDATED STATEMENT
OF EARNINGS FOR THE 16 WEEKS ENDED JUNE 19, 1999 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<MULTIPLIER> 1,000
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> FEB-26-2000
<PERIOD-START> FEB-28-1999
<PERIOD-END> JUN-29-1999
<CASH> 7,748
<SECURITIES> 206,150
<RECEIVABLES> 408,618
<ALLOWANCES> (21,901)
<INVENTORY> 1,066,622
<CURRENT-ASSETS> 1,778,860
<PP&E> 2,858,809
<DEPRECIATION> (1,201,059)
<TOTAL-ASSETS> 4,335,952
<CURRENT-LIABILITIES> 1,548,287
<BONDS> 1,248,264
0
0
<COMMON> 150,670
<OTHER-SE> 1,190,965
<TOTAL-LIABILITY-AND-EQUITY> 4,335,952
<SALES> 5,289,720
<TOTAL-REVENUES> 5,289,720
<CGS> 4,746,897
<TOTAL-COSTS> 4,746,897
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 3,232
<INTEREST-EXPENSE> 35,570
<INCOME-PRETAX> 152,220
<INCOME-TAX> 85,499
<INCOME-CONTINUING> 66,721
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 66,721
<EPS-BASIC> .56
<EPS-DILUTED> .55
</TABLE>
