EXECUTION COPY
__________________________________________________________
AGREEMENT AND PLAN OF MERGER
among
QUALITY FOOD CENTERS, INC.,
QHI ACQUISITION CORPORATION
and
XXXXXX MARKETS, INC.
Dated as of November 20, 1996
__________________________________________________________
TABLE OF CONTENTS
Page
ARTICLE I
THE MERGER...........................1
SECTION 1.1 The Merger.................................................1
SECTION 1.2 Effective Time.............................................1
SECTION 1.3 Effects of the Merger......................................1
SECTION 1.4 Articles of Incorporation; By-Laws.........................2
SECTION 1.5 Directors and Officers.....................................2
SECTION 1.6 Conversion of Securities...................................2
SECTION 1.7 Escrow Fund................................................4
SECTION 1.8 Dissenting Shares..........................................5
SECTION 1.9 Surrender of Shares of Company Common Stock;
Stock Transfer Books....................................5
SECTION 1.10 Closing and Closing Date...................................7
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY.....................8
SECTION 2.1 Organization and Qualification.............................8
SECTION 2.2 Articles of Incorporation and By-Laws......................8
SECTION 2.3 Capitalization; Subsidiaries...............................8
SECTION 2.4 Authority Relative to This Agreement..................... 10
SECTION 2.5 No Conflict; Required Filings and Consents............... 11
SECTION 2.6 Compliance............................................... 11
SECTION 2.7 Financial Statements..................................... 12
SECTION 2.8 Absence of Certain Changes or Events..................... 13
SECTION 2.9 Absence of Litigation.................................... 14
SECTION 2.10 Employee Benefit Plans................................... 14
SECTION 2.11 Tax Matters.............................................. 17
SECTION 2.12 Environmental Matters.................................... 19
SECTION 2.13 Labor Matters............................................ 21
SECTION 2.14 Real Property............................................ 22
SECTION 2.15 Brokers.................................................. 24
SECTION 2.16 Material Contracts; Defaults............................. 24
SECTION 2.17 Intellectual Property.................................... 24
SECTION 2.18 Disclosure............................................... 25
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER............................... 25
SECTION 3.1 Corporate Organization................................... 25
SECTION 3.2 Authority Relative to This Agreement..................... 25
SECTION 3.3 No Conflict; Required Filings and Consents............... 26
SECTION 3.4 WARN..................................................... 27
-i-
Page
----
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER..................... 27
SECTION 4.1 Conduct of Business of the Company Pending the Merger.... 27
ARTICLE V
ADDITIONAL AGREEMENTS.................... 31
SECTION 5.1 Stockholders Meeting..................................... 31
SECTION 5.2 Escrow Agreement......................................... 31
SECTION 5.3 Access to Information; Confidentiality................... 31
SECTION 5.4 No Solicitation of Transactions.......................... 32
SECTION 5.5 Employee Benefits Matters................................ 33
SECTION 5.6 Notification of Certain Matters.......................... 34
SECTION 5.7 Further Action; Reasonable Best Efforts.................. 34
SECTION 5.8 Public Announcements..................................... 35
SECTION 5.9 Registration Statement................................... 35
SECTION 5.10 Redemption of Preferred Stock............................ 35
SECTION 5.11 Waiver of Option to Repurchase Shares.................... 35
SECTION 5.12 WARN..................................................... 36
SECTION 5.13 Directorship............................................. 36
SECTION 5.14 Santee Agreements........................................ 36
SECTION 5.15 Payment of Certain Loans................................. 36
SECTION 5.16 Payment of Transaction Expenses.......................... 36
ARTICLE VI
CONDITIONS OF MERGER........................ 37
SECTION 6.1 Conditions to Obligation of Each Party to Effect the
Merger................................................ 37
SECTION 6.2 Condition to Obligations of the Company to Effect the
Merger................................................ 37
SECTION 6.3 Conditions to Obligations of Parent and Purchaser to
Effect the Merger..................................... 37
SECTION 6.4 No Financing Condition................................... 39
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER......................... 40
SECTION 7.1 Termination.............................................. 40
SECTION 7.2 Effect of Termination.................................... 41
SECTION 7.3 Fees and Expenses........................................ 41
SECTION 7.4 Amendment................................................ 42
SECTION 7.5 Waiver................................................... 42
ARTICLE VIII
INDEMNITY....................... 42
SECTION 8.1 Indemnification.......................................... 42
SECTION 8.2 Procedure for Claims from the Escrow Fund................ 43
SECTION 8.3 Procedure for Third Party Claims......................... 44
SECTION 8.4 Limitations on Indemnification........................... 48
SECTION 8.5 Miscellaneous............................................ 48
-ii-
Page
----
ARTICLE IX
GENERAL PROVISIONS..................... 49
SECTION 9.1 Notices.................................................. 49
SECTION 9.2 Certain Definitions...................................... 50
SECTION 9.3 Severability............................................. 52
SECTION 9.4 Entire Agreement; Assignment............................. 52
SECTION 9.5 Stockholders' Representative............................. 52
SECTION 9.6 Actions of Santee........................................ 53
SECTION 9.7 Parties in Interest...................................... 53
SECTION 9.8 Purchaser's Obligations.................................. 53
SECTION 9.9 Governing Law............................................ 53
SECTION 9.10 Headings................................................. 53
SECTION 9.11 Counterparts............................................. 53
-iii-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of November 20, 1996 (as
amended, supplemented or otherwise modified from time to time, the "AGREEMENT"),
among QUALITY FOOD CENTERS, INC., a Washington corporation ("PARENT"), QHI
ACQUISITION CORPORATION, a California corporation and a wholly owned subsidiary
of Parent ("PURCHASER"), and XXXXXX MARKETS, INC., a California corporation (the
"COMPANY").
WHEREAS, the Boards of Directors of Parent, Purchaser and the Company
have each approved the merger (the "MERGER") of the Company with Purchaser in
accordance with the Corporations Code of California (the "CCC") upon the terms
and subject to the conditions set forth herein;
WHEREAS, Parent and certain of the stockholders of the Company (the
"PRINCIPAL STOCKHOLDERS") have entered into the stockholders agreement (as
amended, supplemented or otherwise modified from time to time, the "PRINCIPAL
STOCKHOLDERS AGREEMENT") dated as of the date hereof attached as Exhibit A
hereto; and
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 THE MERGER. Upon the terms and subject to the conditions
of this Agreement and in accordance with the CCC, at the Effective Time (as
defined in Section 1.2), Purchaser shall be merged with and into the Company.
As a result of the Merger, the separate corporate existence of Purchaser shall
cease and the Company shall continue as the surviving corporation of the Merger
(the "SURVIVING CORPORATION").
SECTION 1.2 EFFECTIVE TIME. At the Closing (as defined in Section
1.10), the parties hereto shall cause the Merger to be consummated by filing
this Agreement, together with officer's certificates of each of the Company and
Purchaser and such other documents as may be required under the CCC (the "MERGER
FILING") with the Secretary of State of the State of California, in such form as
required by and executed in accordance with the relevant provisions of the CCC
(the date and time of the Merger Filing with the Secretary of State of the State
of California being the "EFFECTIVE TIME").
SECTION 1.3 EFFECTS OF THE MERGER. The Merger shall have the effects
set forth in the applicable provisions of the
2
CCC. Without limiting the generality of the foregoing and subject thereto, at
the Effective Time all the property, rights, privileges, immunities, powers and
franchises of the Company and Purchaser shall vest in the Surviving Corporation,
and all debts, liabilities and duties of the Company and Purchaser shall become
the debts, liabilities and duties of the Surviving Corporation.
SECTION 1.4 ARTICLES OF INCORPORATION; BY-LAWS. (a) At the Effective
Time and without any further action on the part of the Company and Purchaser,
the Articles of Incorporation of the Company as in effect immediately prior to
the Effective Time shall be the certificate of incorporation of the Surviving
Corporation until thereafter and further amended as provided therein and under
the CCC.
(b) At the Effective Time and without any further action on the part
of the Company and Purchaser, the By-Laws of the Company shall be the By-Laws of
the Surviving Corporation and thereafter may be amended or repealed in
accordance with their terms or the Articles of Incorporation of the Surviving
Corporation and as provided by law.
SECTION 1.5 DIRECTORS AND OFFICERS. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Articles of
Incorporation and By-Laws of the Surviving Corporation, and the officers of the
Company immediately prior to the Effective Time shall be the initial officers of
the Surviving Corporation, in each case until their respective successors are
duly elected or appointed (as the case may be) and qualified.
SECTION 1.6 CONVERSION OF SECURITIES. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each share of common stock, par value $.01 per share, of the
Company ("COMPANY COMMON STOCK") issued and outstanding immediately prior
to the Effective Time (each, a "SHARE") (other than any Shares to be
cancelled pursuant to Section 1.6(b) and any Dissenting Shares (as defined
in Section 1.8)) shall be cancelled, extinguished and converted into the
right to receive, upon surrender of the certificate formerly representing
such Share in the manner provided in Section 1.9,(i) an amount in cash
equal to the Aggregate Cash Purchase Price divided by the aggregate number
of Shares (other than any Shares to be cancelled pursuant to Section
1.6(b)) (the "CASH CONSIDERATION"), without interest thereon, and (ii) a
fractional interest in the Escrow Fund (as defined in Section 1.7) equal to
100% divided by the aggregate number of Shares (other than any Shares to be
cancelled pursuant to Section 1.6(b)), as such interest may be adjusted
pursuant to the terms of the Escrow Agreement
3
(as defined in Section 5.2) (such interest, together with the Cash
Consideration, the "MERGER CONSIDERATION").
(b) Each share of Company Common Stock and preferred stock, par value
$.075 per share, of the Company ("COMPANY PREFERRED STOCK") held in the
treasury of the Company immediately prior to the Effective Time shall be
cancelled and retired without any conversion thereof and no payment or
distribution shall be made with respect thereto.
(c) Each share of common, preferred or other capital stock of
Purchaser issued and outstanding immediately prior to the Effective Time
shall be converted into and become one validly issued, fully paid and
nonassessable share of identical common, preferred or other capital stock
of the Surviving Corporation.
(d) Each note or other debt instrument of the Company which is
outstanding at the Effective Time shall continue to be outstanding
subsequent to the Effective Time as a debt instrument of the Surviving
Corporation subject to its terms and provisions.
The "AGGREGATE CASH PURCHASE PRICE" shall be the sum of (i) $330 million less
(ii) the aggregate repurchase or redemption price for the repurchase or
redemption of the Company Preferred Stock required by Section 5.10 less (iii)
the aggregate Transaction Expenses set forth in the Transaction Expenses
Statement (each as defined below) plus (iv) if the Effective Time does not occur
by the Prescribed Day (or, if the conditions set forth in Sections 6.1 and 6.3
have not been satisfied or waived by the Prescribed Day, such later date on
which all such conditions shall have been satisfied or waived; for purposes of
this parenthetical only, a condition shall be considered satisfied if the
Company and the Principal Stockholders stand ready to satisfy such condition
within one business day without action by any third party and Parent has been so
notified in writing), an additional $500,000 for each consecutive completed
seven-day period to occur following the Prescribed Day (or such later date)
until the Effective Time. The "PRESCRIBED DAY" shall mean that date which is
the 60th day after filing of the Registration Statement referred to in Section
5.9, except that for purposes of calculating the Prescribed Day, the
Registration Statement shall be deemed to have been filed on the earlier of (A)
its actual date of filing with the Securities and Exchange Commission or (B) the
30th day after the date hereof; provided that such 30th day shall be extended by
one day for each day by which the Company fails to deliver to Parent on or prior
to the 25th day after the date hereof both (x) all material financial and other
information required to be included in such Registration Statement with respect
to the Company pursuant to the Securities Act of 1933, as amended (the
"SECURITIES ACT"), and the rules and regulations promulgated thereunder and (y)
the Santee Agreements and descriptions of all other Santee Arrangements (each as
defined in
4
Section 5.14). "TRANSACTION EXPENSES" shall mean (i) the fees and expenses of
Xxxxxxx, Xxxxx & Co. ("XXXXXXX SACHS") paid or payable by the Company pursuant
to the letter agreement between the Company and Xxxxxxx Xxxxx relating to the
sale of the Company or otherwise paid or payable in connection with the
transactions contemplated hereby, (ii) the fees and expenses incurred and
reasonably expected to be incurred by the Company to O'Melveny & Xxxxx, LLP in
connection with the transactions contemplated hereby and (iii) such other fees
and expenses of counsel, accountants and financial advisors as have been
incurred by the Company prior to the Closing in connection with the consummation
of the transactions contemplated hereby; provided, however, that Transaction
Expenses shall not include the fees and expenses incurred by the Company to its
auditors, except to the extent, if any, related primarily to financial planning
or other advice given to the Company's stockholders. A true and correct
statement (the "TRANSACTION EXPENSES STATEMENT") of the amounts of all
Transaction Expenses paid, incurred or to be incurred by the Company (or, to the
extent such amounts are not subject to precise quantification at such time, a
conservative good faith estimate thereof) shall be delivered by the Company to
Parent on or before the fifth business day preceding the day of the Closing,
together with the xxxxxxxx and other reasonable detail to support such
statement; such statement shall be subject to such objections as shall be raised
by Parent in good faith within three business days of receipt thereof and to
such adjustments as shall be agreed in good faith by the Company and Parent in
respect of such objections.
SECTION 1.7 ESCROW FUND. Immediately prior to the Effective Time,
Parent shall deposit or cause to be deposited with the Escrow Agent (as defined
in Section 5.2), in trust, $30 million in immediately available funds (such
amount, as it may be decreased from time to time pursuant to the Escrow
Agreement and together with interest accrued thereon as provided in the Escrow
Agreement, being herein referred to as the "ESCROW FUND"). At the Effective
Time, the Company and the Stockholders' Representative (as defined in Section
9.5) shall deliver to Parent and the Escrow Agent for inclusion as Schedule 1 to
the Escrow Agreement a schedule of all holders of Shares immediately prior to
the Effective Time, the fractional interest in the Escrow Fund to which each
such holder would be entitled pursuant to clause (ii) of Section 1.6(a)
(assuming such holder does not pursue its dissenter's rights as set forth in
Section 1.8 and surrenders all certificates representing its Shares) (as to such
holder, the "ESCROW PERCENTAGE") and the portion of such Escrow Percentage, if
any, which is to remain contingent upon such holder surrendering certificates
representing Shares or complying with the procedures set forth in Section
1.9(e). All matters relating to the Escrow Fund, to the extent not referred to
in this Agreement, shall be governed by the Escrow Agreement, PROVIDED, HOWEVER,
that, in the event of any conflict between the terms of this Agreement and the
Escrow Agreement, the terms of this Agreement shall be controlling. The Escrow
Agent shall
5
hold, invest, reinvest and disburse the Escrow Fund in accordance with the
Escrow Agreement. The Escrow Fund shall not be used for any other purpose. The
right of any person who was a holder of Shares immediately prior to the
Effective Time to receive any payment from the Escrow Fund shall not be
transferable or assignable in any manner whatsoever except by order of a court
of competent jurisdiction, by will or by the laws of intestate succession.
SECTION 1.8 DISSENTING SHARES. (a) Notwithstanding anything in this
Agreement to the contrary, shares of Company Common Stock that are outstanding
on the date for the determination of stockholders entitled to vote for approval
of the Merger and (A) which were not voted in favor of the Merger or were voted
against the Merger and (B) which are held by stockholders who (i) have delivered
a written demand to the Company for the purchase of such shares at their fair
market value in accordance with Section 1301 of the CCC, (ii) have submitted
such shares for endorsement in accordance with Section 1302 of the CCC, and
(iii) have not effectively withdrawn their demand for purchase or lost their
status as dissenting stockholders under Section 1309 of the CCC (the "DISSENTING
SHARES") shall not be converted into the right to receive the Merger
Consideration, but shall be entitled to receive in cash the price for such
shares as shall be determined pursuant to Chapter 13 of the CCC; PROVIDED
HOWEVER, that if such holder shall have effectively withdrawn his, her, or its
demand for purchase or lost his, her, or its status as a dissenting stockholder
under the CCC, such holder's shares of the Company Common Stock shall thereupon
be treated as if they had been converted as of the Effective Time into a right
to receive the Merger Consideration.
(b) The Company shall give Parent (i) prompt notice of any demands for
purchase pursuant to Section 1301 of the CCC received by the Company, any
withdrawals of such demands, and any other instruments served pursuant to the
CCC and received by the Company, and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for purchase under the CCC.
The Company shall not, except with the prior written consent of Parent, make any
payment with respect to any such demands for purchase or offer to settle or
settle, or offer or agree to a share price with respect to, any such demands.
SECTION 1.9 SURRENDER OF SHARES OF COMPANY COMMON STOCK; STOCK
TRANSFER BOOKS. (a) Parent or, at Parent's option, a bank or trust company
designated by Parent shall act as agent for the holders of shares of Company
Common Stock in connection with the Merger (the "EXCHANGE AGENT") to receive the
Cash Consideration to which holders of shares of Company Common Stock shall
become entitled pursuant to Section 1.6(a). When and as needed, Parent or
Purchaser will promptly make available to the Exchange Agent sufficient funds to
make all payments when due pursuant to Section 1.9(b). Such funds shall be
invested by the
6
Exchange Agent as directed by Parent, PROVIDED that such investments shall be in
obligations of or guaranteed by the United States of America, in commercial
paper obligations rated A-1 or P-1 or better by Xxxxx'x Investors Service, Inc.
or Standard & Poor's Corporation, respectively, or in certificates of deposit,
bank repurchase agreements or banker's acceptances of commercial banks with
capital exceeding $500 million. Any net profit resulting from, or interest or
income produced by, such investments will be payable to the Surviving
Corporation or Parent, as Parent directs.
(b) Upon surrender to the Exchange Agent of a certificate which
immediately prior to the Effective Time represented shares of Company Common
Stock (a "CERTIFICATE"), together with such other documents as may be reasonably
required by Parent (including pursuant to any arrangements with the Exchange
Agent, if not Parent), and upon delivery of a power of attorney in respect of
the Stockholders' Representative, the holder of such Certificate shall be
entitled to receive in exchange therefor the Merger Consideration in respect of
each share of Company Common Stock formerly represented by such Certificate
(including payment of the Cash Consideration in respect of such shares to such
holder, subject to the provisions of Section 5.15, and receipt from the Escrow
Fund of the Escrow Percentage in respect of such shares in accordance with the
terms of the Escrow Agreement), and such Certificate shall then be cancelled.
The Exchange Agent shall promptly notify the Escrow Agent of the identity of
each holder which surrenders Certificates in accordance herewith and of the
Escrow Percentage of the Escrow Fund which such holder shall become entitled to
receive as a result thereof. No interest shall be paid or accrued for the
benefit of holders of the Certificates on the Merger Consideration payable upon
the surrender of the Certificates. To the extent required by applicable law,
the Exchange Agent may (on behalf of the Surviving Corporation and to fulfill
its obligations under applicable law) withhold from the Cash Consideration to be
received by a holder of Certificates any required withholding tax thereon,
including if such holder has not provided Parent and the Exchange Agent a
certification under Treasury Regulation Section 1.1445-2(b) that the holder is
not a foreign person and the Company has not provided Parent and the Exchange
Agent a statement in accordance with Treasury Regulation Sections
1.1445-2(c)(3)(i) and 1.897-2(h) that the interests of the Company are not U.S.
real property interests within the meaning of section 897 of the Internal
Revenue Code of 1986, as amended (the "CODE"). If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate is registered, it shall be a condition of payment that
the Certificate so surrendered shall be properly endorsed or shall be otherwise
in proper form for transfer and that the person requesting such payment shall
have paid any transfer and other taxes required by reason of the payment of the
Merger Consideration to a person other than the registered holder of the
Certificate surrendered or shall have established to the
7
satisfaction of the Surviving Corporation that such tax either has been paid or
is not applicable.
(c) At any time following six months after the Effective Time, the
Surviving Corporation shall be entitled to require the Exchange Agent to deliver
to it any funds (including any interest received with respect thereto) which had
been paid to the Exchange Agent pursuant to Section 1.9(a) and which have not
been disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the
Exchange Agent shall be liable to any holder of a Certificate for Merger
Consideration delivered to a public official pursuant to any applicable
abandoned property, escheat or similar law.
(d) At the Effective Time, the stock transfer books of the Company
shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of shares of Company Common Stock outstanding immediately prior to the Effective
Time shall cease to have any rights with respect to such shares of Company
Common Stock except as otherwise provided for herein or by applicable law.
(e) In the event that any holder of record of any Shares of Company
Common Stock claims that the Certificates in respect thereof are lost, stolen or
destroyed, such holder shall be entitled to receive the Merger Consideration
with respect to such lost, stolen or destroyed Shares upon execution of a
properly completed affidavit of loss reasonably acceptable to Parent. The
Exchange Agent shall promptly notify the Escrow Agent of the identity of each
holder which complies with the provisions of this Section 1.9(e) and of the
Escrow Percentage of the Escrow Fund which such holder shall become entitled to
receive as a result thereof.
SECTION 1.10 CLOSING AND CLOSING DATE. Unless this Agreement shall
have been terminated and the transactions herein contemplated shall have been
abandoned pursuant to the provisions of Section 7.1, the closing (the "CLOSING")
of this Agreement shall take place (a) at 10:00 a.m. (local time) on the second
business day following the later of (i) the Prescribed Day (or, if earlier, the
closing of the financing pursuant to the Registration Statement) and (ii) the
date on which the waiting periods under the HSR Act (as hereinafter defined)
shall have expired or otherwise been terminated and all other conditions to the
respective obligations of the parties set forth in Article VI hereof shall have
been satisfied or waived or (b) at such other time and date as Parent and the
Company shall agree (such date
8
and time on and at which the Closing occurs being referred to herein as the
"CLOSING DATE"). The Closing shall take place at such location as Parent and
the Company shall agree.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Purchaser that:
SECTION 2.1 ORGANIZATION AND QUALIFICATION. Each of the Company and
each of its subsidiaries is a corporation duly organized, validly existing and
in good standing under the laws of the jurisdiction of its incorporation and has
the requisite corporate power and authority and any necessary governmental
approvals to own, lease and operate its properties and to carry on its business
as it is now being conducted, except where the failure to have such power,
authority and governmental approvals would not, individually or in the
aggregate, have a Material Adverse Effect (as defined below). Each of the
Company and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed or in good standing which would
not, individually or in the aggregate, have a Material Adverse Effect. When
used in this Article II or otherwise in connection with the Company or any of
its subsidiaries, the term "MATERIAL ADVERSE EFFECT" means any change or effect
that would be materially adverse to the business, operations, assets, prospects,
financial condition or results of operations of the Company and its subsidiaries
taken as a whole or that would materially impair the ability of the Company to
perform its obligations hereunder.
SECTION 2.2 ARTICLES OF INCORPORATION AND BY-LAWS. The Company has
heretofore furnished to Parent a complete and correct copy of the Articles of
Incorporation of the Company (the "ARTICLES OF INCORPORATION") and the By-Laws
of the Company as currently in effect. Such Articles of Incorporation and
By-Laws are in full force and effect and no other organizational documents are
applicable to or binding upon the Company. The Company is not in violation of
any of the provisions of its Articles of Incorporation or By-Laws.
SECTION 2.3 CAPITALIZATION; SUBSIDIARIES. (a) The authorized capital
stock of the Company consists of 10,000,000 shares of Company Common Stock and
640,000,000 shares of Company Preferred Stock. As of the date hereof, (i)
5,588,360 shares of Company Common Stock and 20,967,000 shares of Company
Preferred Stock were issued and outstanding, all of which shares were
9
validly issued, fully paid and nonassessable, were issued free of preemptive (or
similar) rights and were owned beneficially and of record in the amounts and by
the persons set forth in Section 2.3(a)(i) of the Disclosure Schedule delivered
by the Company to Parent and Purchaser prior to the execution of this Agreement
(the "COMPANY DISCLOSURE SCHEDULE") and (ii) no shares of Company Common Stock
and no shares of Company Preferred Stock were held in the treasury of the
Company. Since March 3, 1996, no options to purchase shares of Company Common
Stock or Company Preferred Stock have been granted and, except as set forth in
Section 2.3(a)(ii) of the Company Disclosure Schedule, no shares of Company
Common Stock or Company Preferred Stock have been issued. Except as set forth
above, there are outstanding (I) no shares of capital stock or other voting
securities of the Company, (II) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(III) no options or other rights to acquire from the Company, and no obligation
of the Company to issue, any capital stock, voting securities or securities
convertible into or exchangeable for capital stock or voting securities of the
Company and (IV) no equity equivalents, interests in the ownership or earnings
of the Company or other similar rights (collectively, "COMPANY SECURITIES").
Except for the provisions of Section 5.10 and for repurchases pursuant to
Article X of the Company's By-Laws at the Effective Time, there are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. There are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries to which the Company or any of its subsidiaries is a party.
Except for the provisions of Section 5.10, there are no outstanding contractual
obligations of the Company or any of its subsidiaries to repurchase, redeem or
otherwise acquire any Company Securities or the capital stock of any subsidiary
or to provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity.
(b) Each of the outstanding shares of capital stock of each of the
Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable and, except for 380 shares of common stock and 7,215 shares of
preferred stock of Santee Dairy, Inc. ("SANTEE"), each of which constitute 49%
of all outstanding shares of Santee common stock or preferred stock,
respectively, and are owned by Stater Bros. Markets Inc. ("STATER BROS."), all
such shares are owned by the Company or another wholly owned subsidiary of the
Company and are owned free and clear of all security interests, liens, claims,
pledges, agreements, limitations in voting rights, charges or other encumbrances
of any nature whatsoever, except where the failure to own such shares free and
clear could not, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect. Section 2.3(b) of the Company Disclosure
Schedule sets
10
forth a complete and correct list of all of the subsidiaries of the Company and
all other entities in which the Company (other than through fiduciary
investments on behalf of employee retirement accounts) owns, directly or
indirectly, any equity interest, the amount of capital stock or other equity
interests owned by the Company, directly or indirectly, in such subsidiaries or
other entities and the percentage of the outstanding capital stock or other
equity interests represented by such ownership. The Company has heretofore
furnished to Parent a complete and correct copy of the Articles of Incorporation
and the By-Laws, or equivalent organizational documents, of each subsidiary, and
copies of all joint venture agreements, stockholder agreements and other
agreements with respect to the Company's subsidiaries, in each case as currently
in effect. Such Articles of Incorporation and By-Laws, or equivalent
organizational documents, and joint venture, stockholder and other agreements
are in full force and effect and no other organizational documents or governing
agreements are applicable to or binding upon each such subsidiary or the
Company's direct or indirect interest therein. No subsidiary of the Company is
in violation of any of the provisions of its Articles of Incorporation or
By-Laws or equivalent organizational documents.
SECTION 2.4 AUTHORITY RELATIVE TO THIS AGREEMENT. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly authorized by the Board of
Directors of the Company (the "COMPANY BOARD") and, other than, with respect to
the Merger, the approval of this Agreement by the holders of a majority of the
outstanding shares of Company Common Stock and by the holders of a majority of
the outstanding shares of Company Preferred Stock by either vote or written
consent and the filing and recordation of appropriate merger documents as
required by the CCC, no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or the transactions contemplated
hereby. This Agreement has been duly and validly executed and delivered by the
Company and, assuming the due authorization, execution and delivery hereof by
Parent and Purchaser, constitutes a legal, valid and binding obligation of the
Company enforceable against the Company in accordance with its terms. The
Company Board (at a meeting duly called and held) has unanimously (i) determined
that the Merger is fair to and in the best interests of the Company and its
stockholders, (ii) approved this Agreement and the transactions contemplated
hereby, (iii) resolved to recommend approval and adoption of this Agreement and
Merger by the Company's stockholders and (iv) directed that this Agreement be
submitted to the Company's stockholders. As a result of the foregoing actions,
the only corporate action required to authorize the Merger is the affirmative
vote or written consent of a majority of the
11
outstanding shares of Company Common Stock and of a majority of the outstanding
shares of Company Preferred Stock.
SECTION 2.5 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution, delivery and performance of this Agreement by the Company do not and
will not: (i) conflict with or violate the Articles of Incorporation or By-Laws
of the Company or the equivalent organizational documents of any of its
subsidiaries; (ii) assuming that all consents, approvals, authorizations and
filings contemplated by clauses (i), (ii) and (iii) of subsection (b) below and
in Section 2.5(a)(ii) of the Company Disclosure Schedule have been obtained or
made, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to the Company or any of its subsidiaries or by which its or
any of their respective properties are bound or affected; or (iii) assuming that
all consents, approvals, authorizations and notifications set forth in Section
2.5(a)(iii) of the Company Disclosure Schedule have been obtained or made,
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss of a material benefit under, or give rise to any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or any of their respective properties are
bound or affected, other than any of those which involve or relate to property,
assets, services or obligations with a value of less than $150,000 (the
"IMMATERIAL CONSENTS").
(b) The execution, delivery and performance of this Agreement by the
Company and the consummation of the Merger by the Company do not and will not
require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, domestic or
foreign, except for (i) the Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of
1976, as amended (the "HSR ACT"), (ii) the filing and recordation of appropriate
merger or other documents as required by the CCC and (iii) those set forth in
Section 2.5(b) of the Company Disclosure Schedule.
SECTION 2.6 COMPLIANCE. The Company and each of its subsidiaries are
in compliance with, and are not in default or violation of, (i) the Articles of
Incorporation and By-Laws of the Company and the equivalent organizational
documents of such subsidiary, (ii) all laws, rules, regulations, orders,
judgments and decrees applicable to them or by which any of their respective
properties are bound or affected and (iii) except as set forth in Section
2.6(iii) of the Company Disclosure Schedule, all notes, bonds, mortgages,
indentures, contracts, agreements, leases, licenses, permits, franchises and
other instruments or
12
obligations to which any of them are a party or by which any of them or any of
their respective properties are bound or affected, except, in the case of
clauses (ii) and (iii), for any such failures of compliance, defaults and
violations which would not, individually or in the aggregate, have a Material
Adverse Effect. Since January 1, 1993 neither the Company nor any of its
subsidiaries has received notice of any revocation or modification of any
federal, state, local or foreign governmental license, certification, tariff,
permit, authorization or approval material to the Company and its subsidiaries
taken as a whole.
SECTION 2.7 FINANCIAL STATEMENTS. (a) Included as Section 2.7(a) of
the Company Disclosure Schedule are the following financial statements: (i) the
audited consolidated statements of financial position of (x) the Company and its
subsidiaries (including Santee) as of March 3, 1996 (the "FY96 BALANCE SHEET"),
February 26, 1995 and February 27, 1994 and the related audited consolidated
statements of operations and cash flows for each of the three fiscal years of
the Company in the period ended March 3, 1996, and (y) Santee as of December 30,
1995, December 31, 1994 and January 1, 1994 and the related audited consolidated
statements of operations and cash flows for each of the three fiscal years of
Santee in the period ended December 30, 1995, in each case reported on by Xxxxxx
Xxxxxxxx LLP (or its predecessor, Xxxxxx Xxxxxxxx & Co.); and (ii) the unaudited
consolidated statement of financial position of (x) the Company as of November
3, 1996 (the "INTERIM BALANCE SHEET") and the related unaudited consolidated
statements of operations and cash flows for the period of eight fiscal months
ended on such date (the "INTERIM STATEMENT OF OPERATIONS"; together with the
Interim Balance Sheet, the "INTERIM FINANCIAL STATEMENTS") and (y) Santee as of
September 30, 1996 (the "SANTEE INTERIM BALANCE SHEET") and the related
unaudited consolidated statements of operations and cash flows for the period of
nine fiscal months of Santee ended on such date. The aforementioned financial
statements, including any notes thereto, are hereinafter collectively called the
"FINANCIAL STATEMENTS".
(b) The Financial Statements have been prepared based upon the books
and records of the Company and its subsidiaries and, except as disclosed in the
notes thereto, have been prepared in accordance with generally accepted
accounting principles applied on a consistent basis throughout the periods
covered thereby and fairly present the consolidated financial position of the
Company and its subsidiaries, or the position of Santee, as the case may be, as
of their respective dates and the consolidated results of operations and cash
flows of the Company and its subsidiaries, or the results of operations and cash
flows of Santee, as the case may be, for the periods set forth therein, subject,
in the case of the Interim Financial Statements and the Financial Statements for
Santee as of September 30, 1996, to the absence of footnotes and normal year-end
adjustments.
13
(c) Except as and to the extent set forth on the Interim Balance Sheet
or the Santee Interim Balance Sheet or specifically set forth on Section 2.8,
2.9, 2.12 or 2.13 of the Company Disclosure Schedule, neither the Company nor
any of its subsidiaries has any liabilities or obligations of any nature
(whether accrued, absolute, contingent or otherwise) which would be required to
be reflected on a balance sheet or in notes thereto prepared in accordance with
generally accepted accounting principles, other than liabilities or obligations
incurred in the ordinary course of business since the date of the Interim
Balance Sheet (or the Santee Interim Balance Sheet, as the case may be) which
would not, individually or in the aggregate, have a Material Adverse Effect.
(d) No employee of the Company or any of its subsidiaries has any
claim with respect to the cash surrender value of any life insurance policy held
by the Company or any of its subsidiaries with respect to such employee,
including the cash surrender values reflected on the Financial Statements.
SECTION 2.8 ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
specifically set forth in Section 2.8 of the Company Disclosure Schedule and
except for any actions by the Company and its subsidiaries after the date hereof
which are specifically excepted from the covenants set forth in Section 4.1 (in
the case of clauses (vi), (viii) and (ix) below) or to which Parent has given
its prior written consent under Section 4.1, since March 3, 1996, the Company
and its subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice, and since such date there has not
been (i) any change in the financial condition, results of operations, assets,
business, operations or prospects of the Company or any of its subsidiaries
having or reasonably likely to have a Material Adverse Effect, (ii) any
condition, event or occurrence which, individually or in the aggregate, would
have a Material Adverse Effect, (iii) any damage, destruction or loss (whether
or not covered by insurance) with respect to any assets of the Company or any of
its subsidiaries which would, individually or in the aggregate, have a Material
Adverse Effect, (iv) any change by the Company in its accounting methods,
principles or practices, (v) any revaluation by the Company of any of its
material assets, including but not limited to writing down the value of
inventory or writing off notes or accounts receivable other than in the ordinary
course of business, (vi) any entry outside the ordinary course of business by
the Company or any of its subsidiaries into any commitments or transactions
material, individually or in the aggregate, to the Company and its subsidiaries
taken as a whole, (vii) except for dividends in the aggregate amount of $489,065
paid by the Company in June and July of 1996, any declaration, setting aside or
payment of any dividends or distributions in respect of the shares of Company
Common Stock or, except for the repurchase or redemption of Company Preferred
Stock pursuant to Section 5.10 and for shares purchased by the Company prior to
the date hereof in the ordinary
14
course of business pursuant to the Company's By-Laws, any redemption, purchase
or other acquisition of any of its securities, (viii) any issuance of any shares
of capital stock of the Company or any of its subsidiaries or any grant or
issuance of any options, calls, warrants, or other rights, agreements,
arrangements or commitments of any kind or character relating to the issuance of
capital stock of the Company or any of its subsidiaries; or (ix) any increase
in, establishment of or amendment of any bonus, insurance, severance, deferred
compensation, pension, retirement, profit sharing, stock option (including
without limitation the granting of stock options, stock appreciation rights,
performance awards, or restricted stock awards), stock purchase or other
employee benefit plan or agreement or arrangement, or any other increase in the
compensation payable or to become payable to any present or former directors,
officers or key employees of the Company or any of its subsidiaries, except for
increases in compensation in the ordinary course of business consistent with
past practice, or, except for the $200,000 loan specified in Section 2.8 of the
Company Disclosure Schedule, any entry into, or amendment of, any employment,
consulting or severance agreement or arrangement with any such present or former
directors, officers or key employees.
SECTION 2.9 ABSENCE OF LITIGATION. Except as specifically set forth
in Section 2.9 of the Company Disclosure Schedule, there are no suits, claims,
actions, proceedings or investigations pending or, to the knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
properties or rights of the Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body, domestic or foreign, that (i) if determined adversely to the Company or
any of its subsidiaries would, individually or in the aggregate, be reasonably
expected to have a Material Adverse Effect or (ii) seek to delay or prevent the
consummation of the transactions contemplated hereby. Except as specifically
set forth in Section 2.9 of the Company Disclosure Schedule, neither the Company
nor any of its subsidiaries nor any of their respective properties is or are
subject to any order, writ, judgment, injunction, decree, determination or award
having, or which, insofar as can be reasonably foreseen, in the future would
have, individually or in the aggregate, a Material Adverse Effect or could
prevent or delay the consummation of the transactions contemplated hereby.
SECTION 2.10 EMPLOYEE BENEFIT PLANS. (a) Section 2.10(a) of the
Company Disclosure Schedule contains a true and complete list of each "employee
benefit plan" (within the meaning of section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"), (including without limitation
multiemployer plans within the meaning of section 3(37) of ERISA), stock
purchase, stock option, severance, employment, change-in-control, fringe
benefit, collective bargaining, bonus, incentive, deferred compensation and all
other employee benefit plans, agreements, programs, policies or other
arrangements,
15
whether or not subject to ERISA, whether formal or informal, oral or written,
under which any employee or former employee of the Company or any of its
subsidiaries has any present or future right to benefits or under which the
Company or any of its subsidiaries has any liability for present or future
payments or benefits. All such plans, agreements, programs, policies and
arrangements shall be collectively referred to as the "PLANS". The
representations and warranties set forth in the following provisions of this
Section 2.10 with respect to multiemployer plans shall be deemed made only to
the knowledge of the Company to the extent liability material to the Company or
any of its subsidiaries could arise in respect of such multiemployer plans
(other than those representations and warranties set forth in Sections 2.10(b)
and (f), which shall be qualified only as expressly set forth therein).
(b) With respect to each Plan, the Company has delivered, or will
deliver within ten days of the date hereof, to Parent a current, accurate and
complete copy (or, to the extent no such copy exists, an accurate description)
thereof and, to the extent applicable, (i) any related trust agreement, annuity
contract or other funding instrument; (ii) the most recent determination letter;
(iii) any summary plan description and other written summaries (or a description
of any Plan not in writing) by the Company or any of its subsidiaries to its
employees concerning the extent of the benefits provided under a Plan; and
(iv) for the three most recent years: (I) the Form 5500 and attached schedules;
(II) audited financial statements; and (III) actuarial valuation reports;
PROVIDED, however, with respect to any multiemployer plan, the Company shall
only be obligated to deliver any of the foregoing documents to the extent such
documents are in the possession of the Company or its subsidiaries.
(c) Except as specifically set forth in Section 2.10(c) of the Company
Disclosure Schedule: (i) each Plan has been established and administered in
accordance with its terms, and in compliance with the applicable provisions of
ERISA, the Code and other applicable laws, rules and regulations and if intended
to be qualified within the meaning of section 401(a) of the Code has received a
favorable IRS determination letter that it is so qualified and since the date of
such letter the Company has no knowledge of any event that would adversely
affect such qualification; (ii) with respect to any Plan, no actions, audits,
investigations, suits or claims (other than routine claims for benefits in the
ordinary course) are pending or, to the Company's knowledge, threatened which
could, if adversely determined, result in liability; (iii) neither the Company
nor any other party has engaged in a prohibited transaction, as such term is
defined under section 4975 of the Code or section 406 of ERISA, which would
subject the Company, the Surviving Corporation, any of their subsidiaries,
Purchaser or Parent to any taxes, penalties or other liabilities under section
4975 of the Code or sections 409 or 502(i) of ERISA; (iv) no Plan document
(other
16
than collective bargaining agreements and multiemployer plans) provides for an
increase in benefits on or after the Closing Date; and (v) each Plan (other than
collective bargaining agreements and multiemployer plans) may be amended or
terminated without an increase in the obligations or liabilities (other than
those obligations and liabilities for which specific assets have been set aside
in a trust or other funding vehicle or reserved for on the FY96 Balance Sheet);
except, with respect to items (i)-(v), to the extent that any liability arising
therefrom, individually or in the aggregate, would not have a Material Adverse
Effect.
(d) (i) No Plan has incurred any "accumulated funding deficiency" as
such term is defined in section 302 of ERISA and section 412 of the Code
(whether or not waived); (ii) no reportable event within the meaning of section
4043 or ERISA has occurred which could reasonably be expected to result in a
material liability to the Company or any member of its Controlled Group (defined
as any organization which is a member of a controlled group of organizations
within the meaning of sections 414(b), (c), (m) or (o) of the Code) and no
condition exists which could reasonably be expected to subject the Company or
any member of its Controlled Group to a material fine under section 4071 of
ERISA; and (iii) neither the Company nor any member of its Controlled Group has
engaged in a transaction which could reasonably be expected to subject it to
material liability under section 4069 of ERISA.
(e) With respect to each of the Plans which is not a multiemployer
plan within the meaning of section 4001(a)(3) of ERISA but is subject to
Title IV of ERISA, the assets of each such Plan are at least equal in value to
the present value of the accrued benefits (vested and unvested) of the
participants in such Plan on a termination basis, based on the actuarial methods
and assumptions indicated in the most recent actuarial valuation reports.
(f) With respect to any multiemployer plan (within the meaning of
section 4001(a)(3) of ERISA) to which the Company or any member of its
Controlled Group has any liability or contributes: (i) the Company and each
member of its Controlled Group has or will have, as of the Closing Date, made
substantially all contributions to each such multiemployer plan required by the
terms of such multiemployer plan or any collective bargaining agreement;
(ii) neither the Company nor any member of its Controlled Group has incurred any
material withdrawal liability under Title IV of ERISA or, to the Company's
knowledge, would be subject to such liability if, as of the Closing Date, the
Company or any member of its Controlled Group were to engage in a complete
withdrawal (as defined in section 4203 of ERISA) or partial withdrawal (as
defined in section 4205 of ERISA) from any such multiemployer plan; (iii) to the
Company's knowledge, no such multiemployer plan is in reorganization or
insolvent (as those terms are defined in
17
sections 4241 and 4245, respectively, of ERISA); and (iv) to the Company's
knowledge, neither the Company nor any member of its Controlled Group has
engaged in a transaction which could subject it to material liability under
section 4212(c) of ERISA.
(g) Except as specifically set forth on Section 2.10(g) of the Company
Disclosure Schedule, no Plan exists which could result in the payment to any
employee of the Company or any of its subsidiaries of a material amount of money
or other property or rights or accelerate or provide any other material rights
or benefits to any such employee as a result of the transactions contemplated by
this Agreement.
(h) Except as reserved for on the FY96 Balance Sheet, as set forth on
Section 2.10(h) of the Company Disclosure Schedule or as required by section
4980B of the Code, neither the Company nor any member of its Controlled Group
has promised any former employee or other individual not employed by the Company
or any member of its Controlled Group medical or other benefit coverage and
neither the Company nor any member of its Controlled Group maintains or
contributes to any plan or arrangement providing medical or life insurance
benefits to former employees, their spouses or dependents or any other
individual not employed by the Company or any member of its Controlled Group.
SECTION 2.11 TAX MATTERS. For purposes of this Agreement, "TAXES"
shall mean all United States federal, state, local and foreign income, profits,
franchise, gross receipts, payroll, sales, employment, use, property, real
estate, excise, value added, estimated, stamp, alternative or add-on minimum,
environmental, withholding and any other taxes, duties or assessments, together
with all interest, penalties and additions imposed with respect to such amounts,
and "TAX RETURN" shall mean any return, declaration, report, claim for refund or
information return or statement relating to Taxes, including any schedule or
attachment thereto, and including any amendment thereof. Except as disclosed in
Section 2.11 of the Company Disclosure Schedule:
(i) All Tax Returns required to be filed by or with respect to the
Company and any of its subsidiaries have been timely filed, and all such Tax
Returns are complete and correct in all material respects. The Company and each
of its subsidiaries has timely paid all Taxes that are due, have been claimed or
asserted by any taxing authority to be due or could be due from or with respect
to them for the periods prior to the date hereof. The Company and its
subsidiaries do not file any Tax Returns in any jurisdiction other than those
set forth in Section 2.11(i) of the Company Disclosure Schedule. The Company
and its subsidiaries file Tax Returns in all jurisdictions where required to
file Tax Returns.
(ii) There are no liens or other encumbrances with respect to Taxes
upon any of the assets or properties of the
18
Company or its subsidiaries, other than with respect to Taxes not yet due and
payable.
(iii) The Tax Returns of the Company and its subsidiaries have not
been audited or examined by any taxing authority, and the statute of limitations
has expired for all periods other than those specified in Section 2.11(iii) of
the Company Disclosure Schedule. To the knowledge of the Company, since
December 31, 1992, no issue relating to the Company has been raised in writing
by any taxing authority in any audit or examination which, by application of the
same or similar principles, would reasonably be expected to result in a material
deficiency for any subsequent period (including periods subsequent to the
Closing Date). There are no outstanding agreements, waivers or arrangements
extending the statutory period of limitation applicable to any claim for, or the
period for the collection or assessment of, Taxes due from or with respect to
the Company or any of its subsidiaries for any taxable period, and no power of
attorney granted by or with respect to the Company or any of its subsidiaries
relating to Taxes is currently in force. No closing agreement pursuant to
section 7121 of the Code (or any predecessor provision) or any similar provision
of any state, local, or foreign law has been entered into by or with respect to
the Company or any of its subsidiaries and no ruling has been received by the
Company or any of its subsidiaries from any taxing authority.
(iv) Neither the Company nor any of its subsidiaries have been a
member of a group for federal, state or local income tax purposes other than the
group of which the Company is the common parent and neither the Company nor any
of its subsidiaries is subject to liability for Taxes to any person, including,
without limitation, liability arising from the application of Treasury
Regulation Section 1.1502-6 or any analogous provision of state, local or
foreign law.
(v) No audit or other proceeding by any court, governmental or
regulatory authority, or similar person is pending or threatened with respect to
any Taxes due from or with respect to the Company or any of its subsidiaries or
any Tax Return filed by or with respect to the Company or any of its
subsidiaries. No assessment of Tax not yet paid or accrued in the Interim
Balance Sheet or the Santee Interim Balance Sheet has been proposed in writing
against the Company or any of its subsidiaries or any of their assets or
properties.
(vi) No consent to the application of section 341(f)(2) of the Code
(or any predecessor provision) has been made or filed by or with respect to the
Company or any of its subsidiaries or any of their assets or properties. None
of the assets or properties of the Company or any of its subsidiaries is (A) an
asset or property that is or will be required to be treated as described in
section 168(f)(8) of the Internal Revenue Code of 1954, as amended and in effect
immediately before the
19
enactment of the Tax Reform Act of 1986, or (B) tax-exempt use property within
the meaning of section 168(h)(1) of the Code.
(vii) Neither the Company nor any of its subsidiaries has been or is
currently in material violation (or, with or without notice or lapse of time or
both, would be in material violation) of any applicable law or regulation
relating to the payment or withholding of Taxes. The Company and each of its
subsidiaries has in all material respects duly and timely withheld from employee
salaries, wages and other compensation and paid over to the appropriate taxing
authorities all amounts required to be so withheld and paid over for all periods
under all applicable laws and regulations.
(viii) As of the Closing, the Company and its subsidiaries will not be
a party to, be bound by or have any obligation under any Tax sharing agreement
or similar contract or arrangement or any agreement that obligates any of them
to make any payment computed by reference to the Taxes, taxable income or
taxable losses of any other person.
(ix) There is no contract or agreement, plan or arrangement by the
Company or any of its subsidiaries covering any person that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible by the Company by reason of section 280G of the Code.
(x) Neither the Company nor any of its subsidiaries is a shareholder
of a "controlled foreign corporation" as defined in section 957 of the Code, is
a member of a partnership or other pass-through entity or is a "personal holding
company" as defined in section 542 of the Code.
SECTION 2.12 ENVIRONMENTAL MATTERS. (a) Except as set forth in
Section 2.12 of the Company Disclosure Schedule and other than such exceptions
to any of the following as would not, individually or in the aggregate, result
in a Material Adverse Effect, to the knowledge of the Company:
(i) (A) the Company and its subsidiaries are, and within the
period of all applicable statutes of limitation have been, in compliance
with all applicable Environmental Laws (as defined below); and (B) the
Company and its subsidiaries reasonably believe that they will, and will
not incur expense to, timely attain and maintain compliance with all
Environmental Laws (including, without limitation, obtaining, renewing and
complying with Environmental Permits) applicable to any of their current
operations or properties or to any of their planned operations;
(ii) (A) the Company and its subsidiaries hold all Environmental
Permits (as defined below) (each of which is in full force and effect)
required for any of their current operations and for any property owned,
leased, or
20
otherwise operated by any of them, and are, and within the period of all
applicable statutes of limitation have been, in compliance with all such
Environmental Permits; and (B) the Company and its subsidiaries reasonably
believe that each transfer or renewal of, or reapplication for, any
Environmental Permit required as a result of the Merger will be, and will
not entail expense to be, timely effected;
(iii) no review by, or approval of, any governmental authority
or other person is required under any Environmental Law in connection with
the execution or delivery of this Agreement;
(iv) neither the Company nor any of its subsidiaries has
received any Environmental Claim (as defined below) against any of them,
and no such Environmental Claim is being threatened; and
(v) Hazardous Materials (as defined below) are not present on or
in any property owned, leased, or operated by the Company or any of its
subsidiaries, that would be reasonably likely to form the basis of any
Environmental Claim against any of them; and no Hazardous Materials are
present on any other property that would be reasonably likely to form the
basis of any Environmental Claim against the Company or any of its
subsidiaries (including, without limitation, any Environmental Claim
against any person whose liability the Company or any of its subsidiaries
has or may have retained or assumed, whether contractually, by operation of
law or otherwise, or against any real or personal property formerly owned,
leased or operated, in whole or in part, by the Company or any of its
subsidiaries).
(b) For purposes of this Agreement, the terms below shall have the
following meanings:
"ENVIRONMENTAL CLAIM" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter,
or notice (written or oral) of noncompliance, violation, or liability,
by any person asserting liability or potential liability (including
without limitation liability or potential liability for enforcement,
investigatory costs, cleanup costs, governmental response costs,
natural resource damages, property damage, personal injury, fines or
penalties) arising out of, relating to, based on or resulting from (i)
the presence, discharge, emission, release or threatened release of
any Hazardous Materials at any location, (ii) circumstances forming
the basis of any violation or alleged violation of any Environmental
Law or Environmental Permit, or (iii) otherwise relating to
obligations or liabilities under any Environmental Law.
21
"ENVIRONMENTAL LAWS" means all foreign, federal, state and local
statutes, rules, regulations, ordinances, orders, decrees and common
law regulating in any manner pollution or protection of the
environment (including without limitation indoor air, ambient air,
surface water, groundwater, land surface, subsurface strata, or plant
or animal species) or of human health as it may be affected by
exposure to any pollutant, contaminant or similar substance or by any
condition in the environment.
"ENVIRONMENTAL PERMITS" means all permits, licenses,
registrations, exemptions and other filings with or authorizations by
any governmental authority under any Environmental Law.
"HAZARDOUS MATERIALS" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof), petroleum products, asbestos, asbestos-containing
materials, pollutants, contaminants, radioactivity, and all other
materials and forces, whether or not defined as such, that are
regulated pursuant to any Environmental Law or that could result in
liability under any Environmental Law.
(c) With respect to the matters covered by this Section 2.12 (and
despite the possibility that other representations and warranties herein may
also purport to cover such matters), the representations and warranties
contained in this Section 2.12 shall be deemed the sole and exclusive
representations and warranties made by the Company concerning such matters.
SECTION 2.13 LABOR MATTERS. Section 2.13 of the Company Disclosure
Schedule sets forth a list of each collective bargaining agreement or other
contract or agreement with any labor organization or other representative of
employees to which the Company or any of its subsidiaries is party or which is
being negotiated. Such list sets forth the factory, plant or other location and
the labor organization or other employee representative involved and the
approximate number of employees covered by such contact or agreement. Except as
specifically set forth in Section 2.13 of the Company Disclosure Schedule:(i)
there is no unfair labor practice charge or complaint pending or, to the
knowledge of the Company, threatened with regard to employees of the Company or
any of its subsidiaries;(ii) there is no labor strike, slowdown, work stoppage,
lockout, dispute or other similar labor controversy in effect, or otherwise
affecting, or, to the knowledge of the Company, threatened against the Company
or any of its subsidiaries, and neither the Company nor any subsidiary of the
Company has experienced any such labor controversy within the past three
years;(iii) no representation question exists or has been raised respecting
22
employees of the Company or any of its subsidiaries within the past three years,
nor to the knowledge of the Company are there any campaigns being conducted to
solicit cards from the employees of the Company or any subsidiary of the Company
to authorize representation by any labor organization;(iv) neither the Company
nor any subsidiary of the Company is party to, or is otherwise bound by, any
consent decree with, or citation by, any governmental authority relating to
employees or employment practices of the Company or any subsidiary of the
Company;(v) the Company and each subsidiary of the Company are in compliance in
all respects material to the Company's business with all applicable laws,
agreements (including consent decrees), contracts and policies relating to
employment, employment practices, wages, hours and terms and conditions of
employment of the employees, including all laws, agreements (including consent
decrees), contracts and policies precluding discrimination in employment or the
wrongful or improper discharge of employees; (vi)neither the Company nor any of
its subsidiaries has closed any plant or facility, effectuated any layoffs of
employees or implemented any early retirement, separation or window program
within the past three years, nor has the Company or any of its subsidiaries
planned or announced any such action or program for the future, other than the
intended closing of the current Santee dairy facilities in connection with the
relocation of Santee's operations to a new facility;(vii) the Company and its
subsidiaries have not incurred any liability under, and have complied in all
material respects with, the Worker Adjustment Retraining Notification Act of
1988 ("WARN");(viii) the Company and each subsidiary are in compliance in all
material respects with their obligations pursuant to WARN, and in all respects
material to the Company's business with all other notification and bargaining
obligations arising under any collective bargaining agreement, statute or
otherwise with regard to employees of the Company, and its subsidiaries; and
(ix) no action, suit, complaint, charge, arbitration, inquiry, proceeding or
investigation by or before any court, governmental agency, administrative agency
or commission brought by or on behalf of any employee, prospective employee,
former employee, retiree, labor organization or other representative of the
employees of the Company or any of its subsidiaries is pending or, to the
knowledge of the Company, threatened against either the Company or any of its
subsidiaries which, if determined adversely to the Company or any of its
subsidiaries, would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect.
SECTION 2.14 REAL PROPERTY. (a) Section 2.14(a) of the Company
Disclosure Schedule contains a complete and correct list of all real property
owned by the Company and its subsidiaries, including any buildings, structures
and improvements thereon or appurtenances thereto, setting forth the address and
owner of each parcel of real property and describing all improvements thereon.
There are no outstanding options or
23
rights of first refusal to purchase any of such real property, or any portion
thereof or interest therein.
(b) Section 2.14(b) of the Company Disclosure Schedule contains a
complete and correct list of all real property leased by the Company and its
subsidiaries (together with the real property described in Section 2.14(a), the
"REAL PROPERTY") setting forth the address, landlord and tenant for each lease
and within five business days after the date hereof, the Company will deliver to
Parent correct and complete copies of all such leases. Each such lease is the
legal, valid, binding, enforceable obligation of the Company or its subsidiary
party thereto and, to the knowledge of the Company, of each other party thereto
and, to the knowledge of the Company, is in full force and effect. None of the
Company, its subsidiaries or, to the knowledge of the Company, any other party
is in material default, violation or breach in any respect under any such lease,
and to the knowledge of the Company no event has occurred and is continuing that
constitutes or, with notice or the passage of time or both, would constitute a
material default, violation or breach in any respect under any such lease. The
Company and its subsidiaries enjoy peaceful and undisturbed possession under
such leases for such leased real property sufficient for current use and
operations.
(c) There are no eminent domain or other similar proceedings pending
or, to the knowledge of the Company or with respect to which the Company or any
of its subsidiaries have been contacted in writing, threatened affecting any
portion of the Real Property. There is no writ, injunction, decree, order or
judgment outstanding, nor any action, claim, suit or proceeding pending or, to
the knowledge of the Company, threatened relating to the ownership, lease, use
or occupance by the Company or any of its subsidiaries of any of the Real
Property.
(d) To the knowledge of the Company, the current use of the Real
Property in the conduct of the business of the Company and its subsidiaries does
not violate in any material respect any instrument of record or agreement
affecting the Real Property. To the knowledge of the Company, there is no
material violation of any covenant, condition, restriction, easement or order of
any governmental authority having jurisdiction over such property or of any
other person entitled to enforce the same affecting the Real Property or the use
or occupancy thereof.
(e) To the knowledge of the Company, the Real Property is in
compliance in all material respects with all applicable building, zoning,
subdivision and other land use and similar applicable laws, rules and
regulations affecting the Real Property, and neither the Company nor any
subsidiary has received any notice of any material violation or claimed
violation of any such laws, rules and regulations within the past three years
which have not been resolved.
24
(f) The Company and its subsidiaries have good (and, in the case of
owned Real Property, marketable) title to, or a valid and binding leasehold
interest in, the Real Property free and clear of all liens and encumbrances
except (i) as set forth in Section 2.14(f) of the Company Disclosure Schedule,
(ii) liens for Taxes, assessments and other governmental charges not yet due and
payable; (iii) mechanics', workmen's, repairmen's, warehousemen's, carriers', or
other like liens arising or incurred in the ordinary course of business, (iv)
easements, quasi-easements, licenses, covenants, rights-of-way and other similar
restrictions which would be shown by a current title report; (v) zoning,
building and other similar restrictions; (vi) subleases and licenses by the
Company and its subsidiaries to third parties listed on Section 2.14(f) of the
Company Disclosure Schedule, correct and complete copies of which the Company
will deliver to Parent within five business days after the date hereof; and
(vii) other liens and encumbrances which, individually or in the aggregate with
respect to each parcel of Real Property, do not materially adversely affect the
Company's or its subsidiary's possession and current use thereof.
SECTION 2.15 BROKERS. No broker, finder or investment banker (other
than Xxxxxxx Xxxxx) is entitled to any brokerage, finder's or other fee or
commission in connection with the transactions contemplated by this Agreement
based upon arrangements made by or on behalf of the Company.
SECTION 2.16 MATERIAL CONTRACTS; DEFAULTS. Set forth in Section 2.16
of the Company Disclosure Schedule is a true and correct list of all material
contracts, leases, licenses or other agreements to which the Company or any of
its subsidiaries is a party or by which it or any such subsidiary or any of
their respective assets is bound (the "MATERIAL CONTRACTS"), including any such
agreements involving the expenditure (or the transfer of assets or services) by
any party thereto in an aggregate amount or with an aggregate value in excess of
$200,000 in any year, but excluding from such list (but not from the definition
of Material Contracts) those agreements set forth in Section 2.10, 2.11, 2.13 or
2.14 of the Company Disclosure Agreement. The Company has delivered to Parent
correct and complete copies of all such Material Contracts. Neither the Company
nor any of its subsidiaries is, or has received any notice or has any knowledge
that any other party is, in default in any respect under any such Material
Contract, except for those defaults which would not, either individually or in
the aggregate, have a Material Adverse Effect, and there has not occurred any
event that with the lapse of time or the giving of notice or both would
constitute such a default by the Company or any of its subsidiaries or, to the
knowledge of the Company, by any other party.
SECTION 2.17 INTELLECTUAL PROPERTY. The Company and each of its
subsidiaries owns, or is licensed to use (in each case, free and clear of any
material liens or other encumbrances) all patents, trademarks, trade names,
copyrights, technology,
25
know-how and processes used in or necessary for the conduct of its business as
currently conducted which are material to the business, operations, assets,
prospects, financial condition or results of operations of the Company and its
subsidiaries taken as a whole. The use of such patents, trademarks, trade
names, copyrights, technology, know-how and processes by the Company and its
subsidiaries does not infringe on the rights of any person, subject to such
claims and infringements as would not, if determined adversely to the Company or
any of its subsidiaries, individually or in the aggregate give rise to any
liability on the part of the Company and its subsidiaries which would have a
Material Adverse Effect. To the knowledge of the Company, no person is
infringing on any right of the Company or any of its subsidiaries with respect
to any such patents, trademarks, trade names, copyrights, technology, know-how
or processes.
SECTION 2.18 DISCLOSURE. None of the information included or
disclosed by the Company in its representations and warranties herein or in the
Company Disclosure Schedule is false or misleading in any respect, or contains
any misstatement of fact or, to the Company's knowledge, as to the Company
Disclosure Schedule omits to state any facts required to be stated to make such
information not misleading, in all cases except to the extent that any such
false or misleading representations, misstatements and omissions are not
material to the business, operations, assets, prospects, financial condition or
results of operations of the Company and its subsidiaries taken as a whole or to
the ability of the Company to perform its obligations hereunder.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby jointly and severally represent and
warrant to the Company that:
SECTION 3.1 CORPORATE ORGANIZATION. Each of Parent and Purchaser is
a corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction in which it is incorporated and has the corporate power
and authority and any necessary governmental authority to own, operate or lease
its properties and to carry on its business as it is now being conducted, except
where the failure to have such power, authority and governmental approvals would
not, individually or in the aggregate, materially impair the ability of Parent
or Purchaser to perform its obligations hereunder.
SECTION 3.2 AUTHORITY RELATIVE TO THIS AGREEMENT. Each of Parent and
Purchaser has the corporate power and authority to execute and deliver this
Agreement, to carry out its obligations hereunder and to consummate the
transactions
26
contemplated hereby. The execution, delivery and performance of this Agreement
by each of Parent and Purchaser and the consummation by each of Parent and
Purchaser of the transactions contemplated hereby have been duly authorized by
the respective boards of directors of Parent and Purchaser and by the sole
stockholder of Purchaser and, other than filing and recordation of appropriate
merger documents as required by the CCC, no other corporate proceedings on the
part of either Parent or Purchaser are necessary to authorize this Agreement or
the transactions contemplated hereby. This Agreement has been duly executed and
delivered by Parent and Purchaser and, assuming due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation of
each such corporation enforceable against such corporation in accordance with
its terms.
SECTION 3.3 NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The
execution, delivery and performance of this Agreement by Parent and Purchaser do
not and will not: (i) conflict with or violate the respective certificates of
incorporation or by-laws of Parent or Purchaser; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses (i), (ii) and
(iii) of subsection (b) below have been obtained and all filings described in
such clauses have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Parent or Purchaser or by which either
of them or any of their respective properties are bound or affected; or (iii)
result in any breach or violation of or constitute a default (or an event which
with notice or lapse of time or both could become a default) or result in the
loss of a material benefit under, or give rise to any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of Parent or Purchaser pursuant
to, any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which Parent or Purchaser
is a party or by which Parent or Purchaser or any of their respective properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not, individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger or to materially impair the ability of Parent or
Purchaser to perform its obligations hereunder.
(b) The execution, delivery and performance of this Agreement by
Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for the
HSR Act, (ii) the filing and recordation of appropriate merger or other
documents as required by the CCC, and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain would not,
27
individually or in the aggregate, reasonably be expected to prevent the
consummation of the Merger or to materially impair the ability of Parent or
Purchaser to perform its obligations hereunder.
SECTION 3.4 WARN. Parent is not planning or contemplating, and has
not made or taken, any decisions or actions concerning the Company or its
subsidiaries with respect to the 90-day period following the Closing that would
require the service of notice under WARN.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 4.1 CONDUCT OF BUSINESS OF THE COMPANY PENDING THE MERGER.
The Company covenants and agrees that, during the period from the date hereof to
the earlier of the termination of this Agreement pursuant to Section 7.1 and the
Effective Time, unless Parent shall otherwise agree in writing in advance, the
businesses of the Company and its subsidiaries shall be conducted only in, and
the Company and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice and in
compliance with applicable laws; and the Company and its subsidiaries shall each
use commercially reasonable efforts to preserve substantially intact the
business organization of the Company and its subsidiaries, to keep available the
services of the present officers, employees and consultants of the Company and
its subsidiaries and to preserve the present relationships of the Company and
its subsidiaries with customers, suppliers and other persons with which the
Company or any of its subsidiaries has significant business relations. By way
of amplification and not limitation, neither the Company nor any of its
subsidiaries shall, between the date of this Agreement and the Effective Time,
directly or indirectly do, or propose or commit to do, any of the following
without the prior written consent of Parent:
(a) Amend its Articles of Incorporation or By-Laws or equivalent
organizational documents, except for the suspension of Article X of the
Company's By-laws until the Effective Time and, subject to Section 6.3(e),
for any amendments to the Articles of Incorporation and By-laws of Santee
required by the issuance of preferred stock to the Company and Stater Bros.
as described in Section 4.1(b);
(b) Issue, deliver, sell, pledge, dispose of or encumber, or authorize
or commit to the issuance, sale, pledge, disposition or encumbrance of, (A)
any shares of capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
capital stock, or any other ownership interest (including but not limited
to stock appreciation
28
rights or phantom stock), of the Company or any of its subsidiaries
(except, subject to Section 6.3(e), for the issuance of shares of preferred
stock of Santee to the Company and to Stater Bros. as compensation for the
$4.795 million capital contribution made by the Company and Stater Bros.
and for the transfer of no more than 1% (on a fully-diluted post-transfer
basis) of the shares of common stock and no more than 1% (on a
fully-diluted post-transfer basis) of the shares of preferred stock of
Santee by the Company to Stater Bros. for approximately $205,000 pursuant
to the Santee Agreements) or (B) any assets of the Company or any of its
subsidiaries with an individual value in excess of $50,000 or an aggregate
value as to all such assets of $500,000, except for (i) sales of inventory
and Company vehicles in the ordinary course of business and in a manner
consistent with past practice, (ii) the sale of the Company's store
described in Section 4.1(b) of the Company Disclosure Schedule and (iii)
the contemplated sale by Santee of its assets located at its current plant
to Xxxxxxxx Beverage Group, substantially in accordance with the terms set
forth in the letter of intent dated as of October 14, 1996 between Santee
and Xxxxxxxx Beverage Group, after Santee has relocated to a facility
currently under construction;
(c) Except for the repurchase or redemption of Company Preferred Stock
pursuant to Section 5.10 and except for dividends by the Company's
wholly-owned subsidiaries, declare, set aside, make or pay any dividend or
other distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) Except as set forth on Section 4.1(d) of the Company Disclosure
Schedule and for the repurchase or redemption of Company Preferred Stock
pursuant to Section 5.10, reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital
stock;
(e) Except as set forth in Section 4.1(e) of the Company Disclosure
Schedule:(i) acquire (by merger, consolidation or acquisition of stock or
assets) any corporation, partnership or other business organization or
division thereof or (except for the purchase of inventory in the ordinary
course of business) any assets;(ii) sell, transfer, lease, mortgage,
pledge, encumber or otherwise dispose of or subject to any lien any of its
assets (including capital stock of subsidiaries), except for the sale of
inventory in the ordinary course of business or pursuant to any capital
equipment lease contemplated by the Company's budget for fiscal year 1997
included as Appendix I to the Company Disclosure Schedule (the "COMPANY
1997 BUDGET") and except for the sale of Santee common stock and Santee
preferred stock by the Company to Stater Bros.
29
described in Section 4.1(b);(iii) incur any indebtedness for borrowed money
or issue any debt securities or assume, guarantee or endorse, or otherwise
as an accommodation become responsible for, the obligations of any person,
or make any loans, advances or capital contributions to, or investments in,
any other person, other than borrowings in an aggregate amount not to
exceed $10,000,000 in the ordinary course of business under the Company's
existing lines of credit and any refinancings thereof (so long as no more
than $2,000,000 of the proceeds thereof are used to make investments in or
advances to Santee) and borrowings of up to the maximum permitted amount
under Santee's existing lines of credit and any refinancings thereof;(iv)
except for the Santee Agreements, enter into any contract or agreement
other than in the ordinary course of business consistent with past practice
or enter into, or amend or terminate any of its existing, joint venture
arrangements; (v)enter into any commitments or transactions material,
individually or in the aggregate, to the Company and its subsidiaries taken
as a whole;(vi) authorize any capital expenditure which is not specifically
authorized in the Company 1997 Budget; or (vii) enter into or amend any
contract, agreement, commitment or arrangement obligating it to take any of
the actions set forth in this Section 4.1(e);
(f) Except to the extent required under existing employee and director
benefit plans, agreements or arrangements as in effect on the date of this
Agreement and described in Section 2.10(a) of the Company Disclosure
Schedule and except for an increase in insurance coverage described in
Section 4.1(f)(i) of the Company Disclosure Schedule of not more than the
amount specified in such Section 4.1(f)(i), (i) increase the compensation
or fringe benefits of any of its directors, officers or employees, except
for increases in salary or wages of employees of the Company or its
subsidiaries who are not officers of the Company in all cases to the extent
in the ordinary course of business in accordance with past practice, (ii)
grant any severance or termination pay in excess of the Company's or its
applicable subsidiary's current policies described in Section 2.10(a) of
the Company Disclosure Schedule, (iii) except as specifically set forth in
Section 4.1(f)(ii) of the Company Disclosure Schedule, enter into, or
amend, any employment, consulting or severance agreement or arrangement
with any present or former director, officer or other employee of the
Company or any of its subsidiaries, other than hiring and firing of
employees who are not key employees, replacement hiring and payments of
severance pursuant to the Company's or its applicable subsidiary's current
policies described in Section 2.10(a) of the Company Disclosure Schedule,
in all cases to the extent in the ordinary course of business in accordance
with past practice, and other than suspending the Company's policy to
repurchase Company Common Stock in connection with the
30
suspension of Article X of the By-Laws of the Company, or (iv) except as
required by applicable law or to preserve the tax status of any Plan,
establish, adopt, enter into or amend or terminate any 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 directors, officers or employees;
(g) Except as may be required as a result of a change in law or in
generally accepted accounting principles, change any of the accounting
practices or principles used by it;
(h) Except as set forth in Section 4.1(h) of the Company Disclosure
Schedule, make any Tax elections or settle or compromise any material
federal, state, local or foreign Tax liabilities involving an aggregate
amount in excess of $200,000;
(i) Except as set forth in Section 4.1(i) of the Company Disclosure
Schedule, settle or compromise any pending or threatened suits, actions or
claims in a manner obligating the Company or any subsidiary thereof to pay,
or waiving amounts claimed by the Company or any of its subsidiaries, in an
aggregate amount (with respect to all such obligations and waivers) in
excess of $500,000;
(j) Adopt a plan of complete or partial liquidation, dissolution,
merger, consolidation, restructuring, recapitalization or other
reorganization (other than the Merger);
(k) Except as set forth on Section 4.1(k) of the Company Disclosure
Schedule, pay, discharge or satisfy any claims, liabilities or obligations
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business and consistent with past practice of liabilities reflected or
reserved against in the financial statements of the Company or incurred in
the ordinary course of business and consistent with past practice;
(l) Effectuate a "plant closing" or "mass layoff", as those terms are
defined in WARN, affecting in whole or in part any site of employment,
facility, operating unit or employee of the Company or any of its
subsidiaries; or
(m) Take, or offer or propose to take, or agree to take in writing or
otherwise, any of the actions described in Sections 4.1(a) through 4.1(l).
31
ARTICLE V
ADDITIONAL AGREEMENTS
SECTION 5.1 STOCKHOLDERS MEETING. The Company, acting through its
Board of Directors, shall, in accordance with applicable law and the Company's
Articles of Incorporation and By-Laws, (i) at Parent's sole option, either (A)
as soon as practicable (but in any event no later than seven days from the date
hereof) duly request the written consent of the requisite majorities of its
stockholders for the approval of this Agreement and the transactions
contemplated hereby, if such written consent has not already been duly given, or
(B) duly call, give notice of, convene and hold a meeting of its stockholders as
soon as practicable (but in no event later than January 15, 1996) for the
purpose of considering and taking action on this Agreement and the transactions
contemplated hereby (the "STOCKHOLDERS MEETING") and (ii) subject to its
fiduciary duties under applicable law as determined in good faith by a majority
of the Board of Directors of the Company based on the written advice of
independent outside legal counsel to the Company, (A) make a unanimous
recommendation by the Board of Directors of the Company that the stockholders of
the Company vote or give their written consent in favor of the approval of this
Agreement and the transactions contemplated hereby and (B) use its best efforts
to obtain the necessary approval of this Agreement and the transactions
contemplated hereby by its stockholders.
SECTION 5.2 ESCROW AGREEMENT. At or prior to the Effective Time,
Parent and the Stockholders' Representative shall select an escrow agent (the
"ESCROW AGENT") and shall enter into an escrow agreement in the form of Exhibit
B (as amended, supplemented or otherwise modified, the "ESCROW AGREEMENT") with
such Escrow Agent.
SECTION 5.3 ACCESS TO INFORMATION; CONFIDENTIALITY. (a) From the
date hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent and
financing sources who shall agree to be bound by the provisions of this Section
5.3(a) as though a party hereto, complete access at all reasonable times to its
officers, employees, agents, properties, offices, plants and other facilities
and to all books and records, and shall furnish such persons with all financial,
operating and other data and information as may from time to time be requested.
All information received by Parent and such other persons hereunder shall be
governed by the provisions of the letter agreement dated July 25, 1996 between
the Company and Parent (the "CONFIDENTIALITY AGREEMENT"), which shall continue
in full force and effect following the execution of this Agreement.
(b) The Company agrees that it will not, and will cause its
subsidiaries not to, prior to the Effective Time,
32
without the prior written consent of Parent, disclose to any other person (other
than its attorneys, accountants, agents and other representatives and agents who
have a need to know such information and are advised of and agree to abide by
the confidentiality restrictions herein set forth) the existence or terms of
this Agreement, the terms or status of any transactions contemplated hereby or
(except as expressly permitted pursuant to Section 5.4) any material information
concerning the Company (or the Surviving Corporation) and its subsidiaries;
PROVIDED HOWEVER, that (i) the information subject to the foregoing provisions
of this sentence shall be deemed not to include any information generally
available to the public (other than as a result of disclosure in violation
hereof by the Company or any of its affiliates, representatives or agents),(ii)
the Company and its representatives and agents shall not be restricted from
making such disclosures as are required by applicable law, provided Parent is
provided prompt written notice of any such requirement in order to seek
appropriate remedies with respect thereto and (iii) promptly following the date
hereof, Parent and the Company will agree upon a plan under which the Company
will be authorized to release and disseminate such information concerning the
transactions contemplated hereby as may be relevant to its stockholders,
employees, customers, suppliers and landlords.
SECTION 5.4 NO SOLICITATION OF TRANSACTIONS. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any acquisition or
exchange of all or any material portion of the assets of, or any equity interest
in, the Company or any of its subsidiaries or any business combination with the
Company or any of its subsidiaries (other than the Santee Asset Sales). The
Company (i) may, directly or indirectly, furnish information and access to any
corporation, partnership, person or other entity or group, in each case (other
than in the case of Parent and Purchaser, any affiliate or associate of Parent
and Purchaser or any designees of Parent or Purchaser) only in response to a
request for such information or access made after the date hereof which was not
encouraged, solicited or initiated, directly or indirectly, by the Company, any
of its affiliates or any of their respective officers, directors, employees,
representatives or agents after the date hereof, pursuant to appropriate
confidentiality agreements, and (ii) may participate in discussions and
negotiate with such entity or group concerning any merger, sale of assets, sale
of shares of capital stock or similar transaction (including an exchange of
stock or assets) involving the Company or any subsidiary or division of the
Company, but only if such entity or group has submitted a written proposal to
the Company Board relating to any such transaction and the Company Board by a
majority vote determines in its good faith judgment, based on the written advice
of independent outside legal counsel to the Company, that failing to take such
action would constitute a
33
breach of the Company Board's fiduciary duty under applicable law. The Company
Board shall notify Parent immediately if any such request or proposal (in each
case whether written or oral) is made, shall deliver to Parent a copy of any
written request or proposal and a description of any oral request or proposal so
received by the Company Board and shall keep Parent promptly advised of all
developments which could reasonably be expected to culminate in the Company
Board withdrawing, modifying or amending its recommendation of the Merger and
the other transactions contemplated by this Agreement. Except as set forth in
this Section 5.4, none of the Company, its affiliates or their respective
officers, directors, employees, representatives or agents, shall, directly or
indirectly, encourage, solicit, participate in or initiate discussions or
negotiations with, or provide any information to, any corporation, partnership,
person or other entity or group (other than Parent and Purchaser, any affiliate
or associate of Parent and Purchaser or any designees of Parent or Purchaser)
concerning any merger, sale of assets, sale of shares of capital stock or
similar transactions (including an exchange of stock or assets) involving the
Company or any subsidiary or division of the Company. The Company agrees not to
release any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which the Company is a party.
SECTION 5.5 EMPLOYEE BENEFITS MATTERS. (a) The Company shall or
Parent shall cause the Company and the Surviving Corporation to promptly pay or
provide when due all compensation and benefits earned through or prior to the
Effective Time as provided pursuant to the terms of any compensation
arrangements, employment agreements and employee or director benefit plans,
programs and policies in existence as of the date hereof for all employees (and
former employees) and directors (and former directors) of the Company which are
specifically set forth in Section 2.10(a) of the Company Disclosure Schedule.
Nothing herein shall require the continued employment of any person or prevent
the Company and/or the Surviving Corporation from taking any action or
refraining from taking any action which the Company could take or refrain from
taking prior to the Effective Time.
(b) At least until December 31, 1998, Parent shall cause the Surviving
Corporation and its subsidiaries (i) to provide to each of their employees
(other than employees covered by a collective bargaining agreement) those
employee benefits which, at Parent's option, are either substantially similar,
in the aggregate, to those provided to similarly situated employees of Parent
and its other subsidiaries or are substantially similar, in the aggregate, to
those currently provided by the Company and its subsidiaries and (ii) to provide
to employees covered by collective bargaining agreements such benefits as shall
be required under the terms of any applicable collective bargaining agreement;
PROVIDED, HOWEVER, that nothing herein shall require the continuation of any
plan, program or arrangement of the Company or any of its subsidiaries or shall
34
interfere with the Surviving Corporation's or any of its subsidiaries' right or
obligation to make such changes as are necessary to conform with applicable law
or as are permitted under the terms of any such plan, program or arrangement.
(c) After the Effective Time, Parent shall cause each employee benefit
plan of the Surviving Corporation and its subsidiaries to give full credit for
each employee's period of service with the Company and its subsidiaries prior to
the Effective Time for all purposes for which such service was recognized under
the Plans prior to the Effective Time, including, but not limited to,
recognition of service for vesting, amount of benefits, eligibility to
participate, and eligibility for disability and early retirement benefits and
full credit for deductibles satisfied under the Plans toward any deductibles for
the same period following the Effective Time, and shall cause to be waived any
pre-existing condition limitation for any employee covered under a Plan
immediately prior to the Effective Time; PROVIDED that past service credits
shall not be given for benefit accrual purposes under any benefit plan which is
a defined benefit plan, nor shall employees of the Company or its subsidiaries
be entitled to participate in any retiree medical benefits not offered to new
employees of the Surviving Corporation or its subsidiaries; and PROVIDED FURTHER
that in no event shall credit be required to be given under any benefit plan
which would result in duplicate benefits under any other benefit plan in respect
of the same period of service.
SECTION 5.6 NOTIFICATION OF CERTAIN MATTERS. The Company shall give
prompt notice to Parent, and Parent shall give prompt notice to the Company, of
(i) the occurrence or non-occurrence of any event known to such party the
occurrence or non-occurrence of which would be likely to cause any
representation or warranty contained in this Agreement to be untrue or
inaccurate and (ii) any failure, and the occurrence of any event that is
reasonably likely to cause a failure, of the Company, Parent or Purchaser, as
the case may be, to comply with or satisfy any covenant, condition or agreement
to be complied with or satisfied by it hereunder; PROVIDED, HOWEVER, that the
delivery of any notice pursuant to this Section 5.6 shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
SECTION 5.7 FURTHER ACTION; REASONABLE BEST EFFORTS. Upon the terms
and subject to the conditions hereof, each of the parties hereto shall use its
reasonable best efforts to take, or cause to be taken, all appropriate action,
and to do or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, including but not limited to (i)
cooperation in the preparation and filing of any required filings under the HSR
Act and (ii) using its reasonable best efforts to make all required regulatory
filings and applications and to obtain all licenses, permits, consents,
35
approvals, authorizations, qualifications and orders of governmental authorities
and parties to contracts with the Company and its subsidiaries as are necessary
for the consummation of the transactions contemplated by this Agreement and to
fulfill the conditions to the Merger. In case at any time after the Effective
Time any further action is necessary or desirable to carry out the purposes of
this Agreement, the proper officers and directors of each party to this
Agreement shall use their reasonable best efforts to take all such necessary
action.
SECTION 5.8 PUBLIC ANNOUNCEMENTS. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to this Agreement or the Merger and shall not
issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with its
securities exchange.
SECTION 5.9 REGISTRATION STATEMENT. Parent shall use reasonable
efforts to prepare and file with the Securities and Exchange Commission promptly
after the date hereof a registration statement on Form S-3 in connection with
the issuance of securities of Parent as part of its long-term financing for the
Merger (the "REGISTRATION STATEMENT"); PROVIDED that Parent shall have no
obligation to file such Registration Statement until it has received all
information and financial statements referred to in the following sentence and
in Section 3.6 of the Principal Stockholders' Agreement. The Company agrees to
cooperate with Parent in the preparation of the Registration Statement and will
furnish to Parent for inclusion in the Registration Statement all information
and financial statements reasonably requested by Parent relating to the Company
and its subsidiaries required to be set forth in the Registration Statement
under the Securities Act and the rules and regulations promulgated thereunder or
which Parent otherwise deems advisable to include in the Registration Statement.
The Company covenants and agrees that the information and financial statements
provided for use in the Registration Statement shall be true and correct in all
material respects and shall not omit to state any material fact required to be
stated therein or necessary in order to make such information not misleading.
The Company agrees to correct promptly any information or financial statements
provided by it for use in the Registration Statement which shall have become
false or misleading prior to the time the Registration Statement is declared
effective.
SECTION 5.10 REDEMPTION OF PREFERRED STOCK. Prior to the Effective
Time, the Company shall have completed the repurchase or redemption of all
outstanding shares of Company Preferred Stock for a repurchase or redemption
price of $.01 per share.
SECTION 5.11 WAIVER OF OPTION TO REPURCHASE SHARES. The Company
hereby waives any and all obligations of the holders
36
of Shares under Article X of the Company's By-Laws to notify the Company of
their intent to surrender Shares pursuant to Article I hereof or to offer such
Shares to the Company prior to such surrender, and shall notify each holder of
such waiver in anticipation of the Merger.
SECTION 5.12 WARN. Parent agrees that it will not take any action
which causes the notice provisions of WARN to be applicable to the transactions
contemplated by this Agreement.
SECTION 5.13 DIRECTORSHIP. At his request, Parent shall cause Xxxxx
X. Xxxxxx to be appointed as a director of Parent promptly following the Closing
and to be nominated by Parent for re-election as a director in the slate of
directors recommended by management of Parent, if he should so desire, at
Parent's next-ensuing meeting of stockholders at which directors, or the class
of directors to which he is appointed, stand for election.
SECTION 5.14 SANTEE AGREEMENTS. The Company shall deliver to Parent,
as soon as each of them is available, copies of (i) all material agreements
relating to the construction by Santee of a new plant and the contemplated
change in the Company's equity interest in Santee, including those agreements
relating to the financing of such new facility, to any new investments in or
advances to Santee by the Company and to the corporate governance of Santee
following the contemplated change in the Company's equity interest, which (x)
have been executed or agreed to by the relevant parties or (y) if not so
executed or agreed, are in draft form but generally reflect the essential
agreement in principle of the relevant parties with respect thereto, and (ii)
all material revisions, amendments or other modifications to any such agreements
and drafts (the executed or most recent drafts of all such agreements, as so
revised, amended or otherwise modified, collectively, the "SANTEE AGREEMENTS",
and together with any other related arrangements or agreements in principle
among any of the Company, Stater Bros., Santee and/or the financing sources for
the new Santee facility not embodied in the Santee Agreements, the "SANTEE
ARRANGEMENTS").
SECTION 5.15 PAYMENT OF CERTAIN LOANS. The Company shall cause each
of its stockholders who owes any amount to the Company, whether in connection
with such holder's purchase of Shares, the loan described in Section 2.8(ix) or
otherwise, to pay such amount, together with any then-accrued interest thereon,
out of the proceeds of the Cash Consideration received in respect of such
holder's Shares on the Closing Date or such later date as such holder receives
such Cash Consideration (which proceeds the Company hereby represents and
warrants will be sufficient to make such payments in the case of each such
stockholder).
SECTION 5.16 PAYMENT OF TRANSACTION EXPENSES. The Company shall pay
when due the Transaction Expenses set forth in the Transaction Expenses
Statement.
37
ARTICLE VI
CONDITIONS OF MERGER
SECTION 6.1 CONDITIONS TO OBLIGATION OF EACH PARTY TO EFFECT THE
MERGER. The respective obligations of each party to effect the Merger shall be
subject to the satisfaction at or prior to the Closing Date of the following
conditions:
(a) This Agreement shall have been approved by the affirmative vote or
written consent of the stockholders of the Company in accordance with the
Company's Articles of Incorporation and By-Laws and the CCC.
(b) No statute, rule, regulation, executive order, decree, ruling,
injunction or other order (whether temporary, preliminary or permanent)
shall have been enacted, entered, promulgated or enforced by any United
States or state court or governmental authority which prohibits, restrains,
enjoins or restricts the consummation of the Merger.
(c) Any waiting period applicable to the Merger under the HSR Act
shall have terminated or expired.
SECTION 6.2 CONDITION TO OBLIGATIONS OF THE COMPANY TO EFFECT THE
MERGER. The obligation of the Company to effect the Merger shall be subject to
the fulfillment at or prior to the Closing Date of the following additional
condition:
Parent and Purchaser shall have performed or complied with in all material
respects their agreements and covenants contained in this Agreement required to
be performed or complied with at or prior to the Closing Date; the
representations and warranties of Parent and Purchaser contained in this
Agreement qualified as to materiality shall be true in all respects, and those
not so qualified shall be true in all material respects, in each case when made
and on and as of the Closing Date with the same force and effect as if made on
and as of such date, except that those representations and warranties made as of
a specific date shall be true in all respects (or all material respects, as the
case may be) on and as of such date; and the Company shall have received a
certificate signed by an authorized officer of Parent to the foregoing effect.
SECTION 6.3 CONDITIONS TO OBLIGATIONS OF PARENT AND PURCHASER TO
EFFECT THE MERGER. The obligations of Parent and Purchaser to effect the Merger
shall be subject to the fulfillment at or prior to the Closing Date of the
following additional conditions:
38
(a) Each of the Company and the Principal Stockholders shall have
performed or complied with in all material respects its agreements and covenants
contained in this Agreement and the Principal Stockholders Agreement,
respectively, required to be performed or complied with at or prior to the
Closing Date; the representations and warranties of the Company and each of the
Principal Stockholders contained in this Agreement and the Principal
Stockholders Agreement, respectively, qualified as to materiality shall be true
in all respects, and those not so qualified shall be true in all respects
material to the Company's business, in each case when made and, except for the
Agreed Exceptions, on and as of the Closing Date with the same force and effect
as if made on and as of such date, except that those representations and
warranties made as of a specific date shall be true in all respects (or all
respects material to the Company's business, as the case may be) on and as of
such date; and Parent shall have received certificates signed by an authorized
officer of the Company and by the Stockholders' Representative on behalf of each
of the Principal Stockholders to the foregoing effect. "AGREED EXCEPTIONS"
shall mean those exceptions to the representations and warranties of the Company
contained in this Agreement which are specifically identified in the
aforementioned Company officer certificate and which relate solely to
circumstances arising after the date hereof affecting economic or physical
conditions in Southern California in general (such as, but not limited to,
earthquakes, widespread floods and fires, storms, riots, acts of war, reductions
in population, workforce or general income levels and other events or
developments affecting the Southern California economy as a whole) but excluding
third-party conduct or actions aimed at or relating to the grocery market in
Southern California in general (such as, but not limited to, labor actions,
class litigation, boycotts and actions of competitors).
(b) No action or proceeding shall be pending against the Company or Parent
before any United States federal or state court of competent jurisdiction which
action or proceeding has been brought by a United States federal or state
governmental, regulatory or administrative agency or authority and which is
reasonably likely to have a Material Adverse Effect or to prohibit, restrain,
enjoin or restrict the consummation of the Merger.
(c) All consents, approvals, authorizations and permits of, actions by,
filings with or notifications to, governmental or regulatory authorities and
third parties required in connection with the Merger, including those set forth
in Sections 2.5(a)(ii), 2.5(a)(iii) and 2.5(b) of the Company Disclosure
Schedule but excluding the Immaterial Consents, shall have been obtained, taken
or made; PROVIDED that this condition shall be deemed satisfied with respect
39
to (i) landlords' consents, liquor authority approvals and other material
consents and approvals required for the ownership and operation of the Company's
and its subsidiaries' grocery stores if all such consents and approvals are
obtained with respect to at least 50 such stores which accounted for at least
95% of the consolidated sales of the Company and its subsidiaries for the period
from and including February 27, 1995 to and including the date of the Interim
Balance Sheet and (ii) any consents and approvals of a third party which are
proffered by such third party to the Company for acceptance conditioned only on
the Company agreeing to an increased obligation (such as an increase in rent or
interest rates) and it can be established that such request for an increased
obligation arose specifically because of a perceived difference in credit
quality between Parent and the Company.
(d) The Company shall have redeemed all outstanding shares of Company
Preferred Stock for $.01 per share.
(e) The financing arrangements with respect to the new Santee facility
shall be set forth in definitive Santee Agreements, such Santee agreements and
all other Santee Agreements shall have been executed and delivered and the terms
of all Santee Agreements and any other Santee Arrangements shall be reasonably
satisfactory to Parent, it being understood that this condition will be deemed
satisfied if the terms of such agreements and arrangements are not materially
adverse to the Company's or Santee's respective businesses, operations, assets,
prospects, financial condition or results of operations and would not materially
impair the Company's ability to influence the operations of Santee.
(f) The total capital cost of constructing Santee's new plant, based on
the most recent budget and other projections available to the Company as of the
Closing Date, does not exceed $105 million.
(g) There shall not have occurred and be continuing for at least ten
consecutive trading days (i) a decline of 20% or more in the Dow Xxxxx Average
of Industrial Stocks from the November 20, 1996 closing level, (ii) an increase
of the yield on ten-year U.S. Treasury notes to 8.50% per annum or higher or
(iii) a similar material disruption in the financial, banking or capital markets
which makes it impracticable for Parent and Purchaser to obtain the necessary
financing for the Merger.
SECTION 6.4 NO FINANCING CONDITION. Except to the extent set forth
in Section 6.3(g), Purchaser's obligations to consummate the Merger pursuant to
this Agreement are not conditioned upon its ability to raise sufficient funds to
do so. If the Company terminates this Agreement pursuant to Section
40
7.1(b) at a time when (i) all the conditions set forth in Sections 6.1 and 6.3
have been satisfied or waived (for purposes of this clause (i) only, a condition
shall be considered satisfied if the Company and the Principal Stockholders
stand ready to satisfy such condition within one business day without action by
any third party and Parent has been so notified in writing) and (ii) Parent does
not have available all funds necessary to pay the full amount of the Cash
Consideration and the initial Escrow Fund hereunder, then, upon such
termination, Purchaser shall be deemed to have breached its obligations to
consummate the Merger hereunder.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
SECTION 7.1 TERMINATION. This Agreement may be terminated and the
Merger contemplated hereby may be abandoned at any time prior to the Closing
Date, notwithstanding approval thereof by the stockholders of the Company:
(a) By mutual written consent of Parent, Purchaser and the Company;
(b) By either Parent or the Company, if the Merger shall not have
been consummated on or before the date which is five months following the
date hereof, which date may be extended by the mutual written consent of
Parent and the Company;
(c) By the Company, if any of the conditions specified in Section 6.1
or 6.2 have not been met or waived by the Company, but only at and after
such time as such condition can no longer be satisfied;
(d) By Parent, if any of the conditions specified in Section 6.1 or
6.3 have not been met or waived by Parent, but only at and after such time
as such condition can no longer be satisfied;
(e) By either Parent or the Company, if the stockholders of the
Company shall have failed to adopt this Agreement and approve the Merger by
written consent or at the Stockholders Meeting;
(f) By Parent or the Company if any court of competent jurisdiction
or other governmental body having jurisdiction within shall have issued an
order, decree or ruling or taken any other action restraining, enjoining or
otherwise prohibiting the Merger and such order, decree, ruling or other
action is or shall have become final and nonappealable;
41
(g) By Parent if prior to the Closing Date (i) the Company Board
shall have withdrawn or modified in a manner adverse to Purchaser its
approval or recommendation of this Agreement or the Merger or shall have
recommended a Third Party Acquisition (as defined below), or shall have
resolved to effect any of the foregoing,(ii) any person other than Parent
or any of its affiliates and other than the Principal Stockholders shall
have become the beneficial owner of more than 25% of the shares of Company
Common Stock or (iii) there shall have been a material breach on the part
of any Principal Stockholder of any representation, warranty, covenant or
agreement on the part of any Principal Stockholder contained in Section 2,
3 or 6 of the Principal Stockholders Agreement which shall not have been
cured prior to 10 days following notice of such breach; or
(h) (i) By Parent at any time that the condition specified in Section
6.3(g) shall not be satisfied or waived or (ii) by the Company if Parent
shall not have waived the condition specified in Section 6.3(g) within five
business days after the Company shall have delivered to Parent written
notice that the condition specified in 6.3(g) is not satisfied and
requesting Parent's waiver of such condition.
"THIRD PARTY ACQUISITION" means the occurrence of any of the following
events: (i) the acquisition of control of the Company by merger, tender offer
or otherwise by any person other than Parent or any of its subsidiaries (a
"THIRD PARTY"); (ii) the acquisition by a Third Party of 25% or more of the
assets of the Company and its subsidiaries, taken as a whole; (iii) the
acquisition by a Third Party of 25% or more of the outstanding Company Common
Stock resulting in parties to the Principal Stockholders Agreement no longer
having the right to elect more than 75% of the directors of the Company; (iv)
the adoption by the Company of a plan of liquidation; or (v) the repurchase by
the Company or any of its subsidiaries of a majority of the outstanding Company
Common Stock; PROVIDED, however, that transfers of shares of Company Common
Stock among parties to the Principal Stockholders Agreement shall not be deemed
to constitute the acquisition of control or the acquisition of shares for
purposes of this paragraph.
SECTION 7.2 EFFECT OF TERMINATION. In the event of the termination
of this Agreement pursuant to Section 7.1, this Agreement shall forthwith become
void and there shall be no liability on the part of any party hereto except as
set forth in Section 7.3; PROVIDED, HOWEVER, that nothing herein shall relieve
any party from liability for any breach hereof.
SECTION 7.3 FEES AND EXPENSES.
(a) If this Agreement is terminated pursuant to Section 7.1(a), (e) or
(g), or pursuant to Section 7.1(c) or (d) by reason of a failure to satisfy the
condition specified in
42
Section 6.1(a), and within twelve months after such termination a Third Party
Acquisition occurs, then the Company shall pay to Parent and Purchaser on or
prior to the date of such occurrence a fee, in cash, of $7,200,000, PROVIDED,
HOWEVER, that the Company shall in no event be obligated to pay more than one
such fee with respect to all such transactions and occurrences and such
termination.
(b) If this Agreement is terminated pursuant to Section 7.1(h), then
Parent shall pay to the Company on the date of such termination a fee, in cash,
of $10,000,000.
(c) Except as otherwise specifically provided herein, each party shall
bear its own expenses in connection with this Agreement and the transactions
contemplated hereby.
SECTION 7.4 AMENDMENT. This Agreement may be amended by the parties
hereto by action taken by or on behalf of their respective Boards of Directors
at any time prior to the Closing Date. This Agreement may not be amended except
by an instrument in writing signed by the parties hereto.
SECTION 7.5 WAIVER. (a) At any time prior to the Closing Date, any
party hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto,(ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto and (iii) waive compliance with any of the
agreements or conditions contained herein. Any such extension or waiver shall
be valid if set forth in an instrument in writing signed by the party or parties
to be bound thereby.
(b) If Purchaser or Parent, on the one hand, or the Company, on the
other, elects to proceed with the Closing after receiving written notice from
the other party stating specifically, and the extent to which, any condition in
its favor has not been satisfied or any representation, warranty or covenant by
the other party has been breached (a "KNOWN BREACH"), then such Known Breach
shall be deemed to be waived by such party, and such party shall be deemed to
fully waive any and all claims, demands or charges in respect of such Known
Breach.
ARTICLE VIII
INDEMNITY
SECTION 8.1 INDEMNIFICATION. Subject to the limitations set forth in
Section 8.4, from and after the Effective Time, Parent, the Surviving
Corporation and their respective affiliates, officers, directors, employees and
representatives (the "INDEMNIFIED PARTIES") shall be indemnified and held
harmless solely out of and to the extent of the Escrow
43
Fund in accordance with the procedures set forth in the Escrow Agreement from
and against any and all losses, debts, liabilities, damages, obligations,
claims, demands, payments, judgments or settlements of any nature or kind, known
or unknown, absolute or contingent, accrued or unaccrued, liquidated or
unliquidated, including all reasonable costs and expenses (legal, accounting or
otherwise) relating thereto and including any such losses and the like relating
to the payment of Taxes (collectively, "LOSSES"), including any Losses relating
to Third Party Claims (as defined in Section 8.3(a) hereof), arising out of or
resulting from (i) any breach of any representation or warranty by the Company
or any Principal Stockholder contained herein or in the Principal Stockholders
Agreement, respectively, (ii)any breach of any covenant or agreement of the
Company or any Principal Stockholder contained herein or in the Principal
Stockholders Agreement, respectively, or (iii) any (A) violation of or liability
under any Environmental Law by the Company (or the Surviving Corporation) or any
of its subsidiaries or for which any of them is otherwise responsible, or (B)
the existence of any Hazardous Materials at (or their migration to) any location
that at any time gives rise to any obligation of the Company (or the Surviving
Corporation) or any of its subsidiaries under the Environmental Laws as in
effect on the Closing Date to investigate or remediate, or to pay for
investigation or remediation, but only if and to the extent such violation
occurred or began or such liability arose, or such Hazardous Materials were at
or migrating to such location or were disposed of by or on behalf of the Company
or such subsidiary, prior to the Closing Date (and, to the extent any such
condition continued or worsened following the Closing Date, until Parent or any
of its subsidiaries discovered such condition and had a reasonable opportunity
to halt or eliminate such condition), and such violation, liability or
obligation was not specifically identified in Section 2.12 of the Company
Disclosure Schedule (all Losses described by this clause (iii), "ENVIRONMENTAL
LOSSES").
SECTION 8.2 PROCEDURE FOR CLAIMS FROM THE ESCROW FUND. (a) Parent
shall give reasonably prompt written notice to the Stockholders' Representative
and the Escrow Agent (PROVIDED that the notice to the Escrow Agent shall include
evidence of the notice given to the Stockholders' Representative) of any claim
or event other than Third Party Claims with respect to which Parent believes an
Indemnified Party is or may be entitled to indemnification pursuant to Section
8.1 hereof (a "NOTICE OF CLAIM"), PROVIDED, HOWEVER, that the failure of Parent
to give notice as provided in this Section 8.2(a) shall not affect the
indemnification obligations hereunder except to the extent that such
indemnification obligations (or any defense thereof) are actually prejudiced or
materially increased by such failure to give notice. The Notice of Claim shall
state the nature and basis of said claim or event, the amount thereof to the
extent known and the basis of Parent's belief that such Indemnified
44
Party is or may be entitled to indemnification with respect thereto.
(b) If within 30 days from the date of actual receipt of a Notice of
Claim by the Stockholders' Representative and the Escrow Agent, the
Stockholders' Representative shall not have given notice to Parent and the
Escrow Agent that there is or may be a dispute relating in any way to such
Notice of Claim or the matters set forth therein, or both, then the Escrow Agent
shall pay or disburse the amount set forth in the Notice of Claim out of (but
only to the extent of) the then remaining balance of the Escrow Fund to Parent
for the benefit of such Indemnified Party promptly after the expiration of such
30-day period and shall give notice of such payment or disbursement to the
Stockholders' Representative.
(c) If within 30 days from the date of actual receipt of a Notice of
Claim by the Stockholders' Representative and the Escrow Agent, the
Stockholders' Representative shall have given notice to Parent and the Escrow
Agent that there is or may be a dispute relating in any way to such Notice of
Claim or the matters set forth therein, or both (a "NOTICE OF DISPUTED CLAIM"),
then payment shall be made by the Escrow Agent only to the extent of the
undisputed amount out of (and only to the extent of) the then remaining balance
of the Escrow Fund pending the resolution of such dispute in accordance with the
provisions of this Section 8.2. The amount in dispute as set forth in the
Notice of Disputed Claim shall, after such Notice of Disputed Claim has been
given, remain in and part of the Escrow Fund until the termination of the Escrow
Agreement or, if earlier, until such time as the Escrow Agent receives either
(x) a joint statement from the Stockholders' Representative and Parent setting
forth the resolution of such dispute and, if applicable, authorizing the payment
or disbursement by the Escrow Agent of such amount or any portion thereof that
the parties shall have mutually agreed upon, or (y) a copy of a final and
non-appealable order or determination from an arbitrator or a court of competent
jurisdiction setting forth the resolution of such dispute and, if applicable,
directing the payment or disbursement by the Escrow Agent of such amount or any
portion thereof. Upon receipt of such joint statement or order or
determination, the Escrow Agent shall promptly pay, out of (but only to the
extent of) the then remaining balance of the Escrow Fund, the amount authorized
or directed to be paid or disbursed as set forth therein and shall give prompt
notice of such payment or disbursement to the Stockholders' Representative.
SECTION 8.3 PROCEDURE FOR THIRD PARTY CLAIMS. (a) Parent, on behalf
of itself or another Indemnified Party, shall give reasonably prompt written
notice to the Stockholders' Representative and the Escrow Agent of any and all
Losses or potential Losses arising out of or resulting from any claim, action,
suit or proceeding brought by any third party in connection with any litigation,
administrative proceedings or
45
similar actions (collectively, "THIRD PARTY CLAIMS") with respect to which such
Indemnified Party believes it is entitled to indemnification under Section 8.1,
together with an estimate of the amount in dispute thereunder and a copy of any
claim, process, legal pleadings or correspondence with respect thereto received
by the Indemnified Party, PROVIDED, HOWEVER, that the failure of the Indemnified
Party to give notice as provided in this Section 8.3(a) shall not affect the
indemnification obligations hereunder except to the extent that such
indemnification obligations are actually prejudiced or materially increased by
such failure to give notice. Within 30 days of actual receipt of such notice,
the Stockholders' Representative may, by written notice to the Indemnified
Party, assume the defense of such Third Party Claim through counsel of its own
choosing and with all expenses thereof to be paid by and to the extent of the
Escrow Fund pursuant to Section 8.3(d), in which event the Indemnified Party may
participate in the defense thereof with all expenses thereof to be paid by such
Indemnified Party (and, in any case, not from the Escrow Fund), PROVIDED that
such Indemnified Party shall have the right to employ separate counsel to
represent such Indemnified Party if a conflict of interest between the
Stockholders' Representative and such Indemnified Party exists with respect to
such Third Party Claim which, without waiver by such Indemnified Party, would
prevent counsel selected by the Stockholders' Representative from acting on
behalf of such Indemnified Party, in which case all reasonable expenses of such
separate counsel shall be paid by and to the extent of the Escrow Fund pursuant
to Section 8.3(d). If the Stockholders' Representative fails to assume the
defense of such Third Party Claim by delivering a written notice of the
Stockholders' Representative's intention to assume such defense within 30 days
of receipt of the initial notice thereof, or thereafter abandons or fails to
diligently pursue such defense, the Indemnified Party may assume such defense
and the reasonable fees and expenses of its counsel shall be paid by and to the
extent of the Escrow Fund pursuant to Section 8.3(d). In the event the
Stockholders' Representative exercises its right to undertake the defense
against any such Third Party Claim as provided above, the Indemnified Party
shall cooperate with the Stockholders' Representative in such defense and make
available to the Stockholders' Representative all pertinent records, materials
and information in its possession or under its control relating thereto as is
reasonably required by the Stockholders' Representative, with all reasonable
expenses of the Indemnified Party incurred in connection therewith to be paid by
and to the extent of the Escrow Fund pursuant to Section 8.3(d). In the event
the Indemnified Party is, directly or indirectly, conducting the defense against
any such Third Party Claim, the Stockholders' Representative shall cooperate
with the Indemnified Party in such defense and make available to the Indemnified
Party all such records, materials and information in the Stockholders'
Representative's possession or under the Stockholders' Representative's control
relating thereto as is reasonably required by the Indemnified Party, with all
expenses incurred in
46
connection therewith to be paid by the Stockholders' Representative.
Notwithstanding anything in this Section 8.3(a) to the contrary, (x) in the
event of a claim with respect to which the Stockholders' Representative has
agreed to assume the defense thereof without providing Parent prior written
notification that it is reserving the right to contest liability therefor, none
of the Stockholders' Representative or the beneficiaries of the Escrow Fund
shall thereafter be entitled to dispute, and the Stockholders' Representative
hereby agrees not to dispute, the Indemnified Party's right to indemnification
therefor pursuant to Section 8.1 hereof or any subsequent claims of the
Indemnified Party with respect to such Third-Party Claim, and (y) in the event
of a claim with respect to which the Stockholders' Representative has agreed to
assume the defense thereof while notifying Parent that it is reserving the right
to contest liability therefor, Parent may (within 30 days after receipt of
notice of such reservation of rights) elect to retain or assume the defense of
such Third Party Claim and the Stockholder's Representative shall be entitled to
inform Escrow Agent and Parent that all costs of defense and investigation in
respect of such Third Party Claim shall constitute disputed expenses and each
Notice of Expenses in respect thereof shall be deemed to have prompted a Notice
of Disputed Expenses under Section 8.3(d).
(b) The Stockholders' Representative shall not, with out the written
consent of the Indemnified Party, which consent shall not be unreasonably
withheld, settle or compromise any Third Party Claim or consent to the entry of
any judgment which does not include as an unconditional term thereof the
delivery by the claimant or plaintiff to the Indemnified Party of a written
release from all liability in respect of such Third Party Claim or which would
result in the imposition of a consent order, injunction or decree which would
restrict the future activity or conduct of the Indemnified Party or any
affiliate thereof. No Third Party Claim for which indemnity is sought under
Section 8.1 shall be settled by the Indemnified Party without the written
consent of the Stockholders' Representative. Upon the settlement or compromise
of any Third Party Claim in accordance with the terms hereof or the final,
non-appealable order of a court of competent jurisdiction or arbitrator with
respect thereto, as the case may be, any resulting settlement, award, damages or
judgment for which indemnification is sought shall be paid from and to the
extent of the Escrow Fund pursuant to a written notice to such effect to the
Escrow Agent from Parent acknowledged by the Stockholders' Representative (such
acknowledgement not to be unreasonably withheld or delayed) (a "NOTICE OF
PAYMENT").
(c) Notwithstanding anything in this Section 8.3 to the contrary, if
it is reasonably likely that, as a result of the limitations set forth in
Section 8.4(a), an Indemnified Party would be indemnified for less than 50% of
the reasonably anticipated Losses with respect to any Third Party Claim, then
Parent shall unilaterally determine the manner of defense and
47
resolution of such Third Party Claim, and, upon the resolution thereof, Parent
shall submit a Notice of Claim to the Escrow Agent therefor in accordance with
the procedures set forth in Section 8.2(a) hereof with respect to any Losses
which are not recoverable within the limitations set forth in Section 8.4(a).
(d) Subject to the last sentence of Section 8.3(a), all costs of
investigating and defending Third Party Claims to be paid by the Escrow Fund
pursuant to Section 8.3(a) shall be submitted for payment as set forth in this
paragraph. Either the Stockholders' Representative or Parent, as the case may
be, may seek reimbursement for such expenses in connection with any Third Party
Claim by submitting a written claim therefor (a "NOTICE OF EXPENSES") to both
the Escrow Agent and Parent or the Stockholders' Representative, as the case may
be, including reasonable documentation substantiating such expenses. Unless
within 30 days of receipt of such Notice of Expenses, Parent or the
Stockholders' Representative, as the case may be, objects in writing to the
Escrow Agent to the payment of such expenses (a "NOTICE OF EXPENSES DISPUTE"),
the Escrow Agent shall pay such expenses from the Escrow Fund in accordance with
the terms of the Escrow Agreement. In the event of any dispute with respect to
such expenses, payment shall be made by the Escrow Agent only to the extent of
the undisputed amount out of (and only to the extent of) the then remaining
balance of the Escrow Fund pending the resolution of such dispute in accordance
with the provisions of this Section 8.3(d). The amount in dispute as set forth
in the Notice of Expenses Dispute shall, after such Notice of Expenses Dispute
has been given, remain in and part of the Escrow Fund until the termination of
the Escrow Agreement or, if earlier, until such time as the Escrow Agent
receives either (x) a joint statement from the Stockholders' Representative and
Parent setting forth the resolution of such dispute and, if applicable,
authorizing the payment or disbursement by the Escrow Agent of such amount or
any portion thereof that the parties shall have mutually agreed upon, or (y) a
copy of a final, non-appealable order or determination from an arbitrator or a
court of competent jurisdiction setting forth the resolution of such dispute
and, if applicable, directing the payment or disbursement by the Escrow Agent of
such amount or any portion thereof. Upon receipt of such joint statement or
order or determination, the Escrow Agent shall promptly pay, out of (but only to
the extent of) the then remaining balance of the Escrow Fund, the amount
authorized or directed to be paid or disbursed as set forth therein and shall
give prompt notice of such payment or disbursement to Parent and the
Stockholders' Representative. To the extent that any dispute by Parent of a
Notice of Expenses submitted by the Stockholder's Representative materially
hinders the investigation or defense of any Third Party Claim, the obligation to
indemnify Losses in respect of such Third Party Claim shall be reduced by the
amount of Losses incurred as a result of such material hindrance.
48
SECTION 8.4 LIMITATIONS ON INDEMNIFICATION. (a) Notwithstanding
anything in this Article VIII to the contrary:
(i) the Indemnified Parties shall not be entitled to indemnification under
Section 8.1(i) or 8.1(iii) until the aggregate amount of all Losses of
the Indemnified Parties exceeds $3,000,000, and then only to the
extent of such excess;
(ii) with respect to all Environmental Losses for which indemnification
would otherwise be provided pursuant to this Article VIII, the
Indemnified Parties shall only be entitled to indemnification for 50%
of the amount of Environmental Losses; PROVIDED that nothing in this
clause (ii) shall reduce the indemnification otherwise available
pursuant to Section 8.1(i) to the extent such Environmental Losses
also gave rise to a breach of Section 2.12; and
(iii) Indemnified Parties shall look solely to the Escrow Fund for payments
made or to be made pursuant to this Article VIII, and the liability of
any of the Company's stockholders pursuant to this Article VIII shall
in no event exceed the Escrow Fund.
(b) No Indemnified Party shall be entitled to indemnification under
Section 8.1 unless it (or Parent on its behalf) shall have submitted a Notice of
Claim pursuant to Section 8.2(a) hereof or a notice of Third Party Claim
pursuant to Section 8.3(a) with respect to the matter for which indemnification
is sought on or prior to the date which is (i) four years after the Closing
Date, in the case of claims for breach of Section 2.11, 2.12 or 4.1(h) or claims
under Section 8.1(iii) or (ii) eighteen months after the Closing Date, in the
case of all other claims.
SECTION 8.5 MISCELLANEOUS. (a) Each Indemnified Party shall take all
commercially reasonable steps to mitigate all Losses, including, but not limited
to, availing itself of any reasonable and prudent defenses, limitations, rights
of contribution, and claims against third parties and other rights at law. Each
Indemnified Party shall provide such evidence and documentation of the nature
and extent of any Loss as may be reasonably requested by the Stockholders'
Representative. Any Losses shall be calculated net of (i) any Tax benefits, net
of any Tax detriments, realized or realizable by the Indemnified Party based on
the present value thereof in respect of such Losses, and (ii) the dollar amount
of aggregate insurance proceeds actually received by the Indemnified Party with
respect to such Losses.
(b) The remedies provided for in this Article VIII shall constitute
the sole and exclusive remedy for any Indemnified Party for any post-Closing
claims made for breach of
49
this Agreement in connection with the transactions contemplated hereby, except
for any remedies for Actual Fraud (as defined below). Except for the remedies
specifically provided for in this Article VIII (and except as to remedies for
Actual Fraud), no Indemnified Person shall have any recourse against any of the
Company's or any of its subsidiaries' directors, employees or affiliates (the
"COMPANY PARTIES") in connection with, and Parent on behalf of the Indemnified
Parties hereby waives and forever releases and discharges the Company Parties
from and against, any and all claims for Losses, directly or indirectly, as a
result of, or based upon or arising from the conduct of the Company and its
subsidiaries and any act or omission with respect to the Company and its
subsidiaries prior to the Closing. Each party hereby waives any provision of
law to the extent that it would limit or restrict the agreement contained in
this Section 8.5(b), except with respect to a party's claim against any person
for actual knowing fraud ("ACTUAL FRAUD"). Notwithstanding anything to the
contrary elsewhere in this Agreement, no party or its affiliates shall seek or
be liable for any punitive or consequential damages, including, but not limited
to, loss of business reputation or opportunity relating to any breach or alleged
breach of a representation or warranty set forth in this Agreement.
(c) Parent shall notify the Stockholders' Representative of an audit
of, or other proceeding with respect to, (i) any Tax Return of the Company filed
prior to the Closing Date relating to periods ending prior to the Closing Date
and (ii) any Tax Return relating to a period that commences prior to, and
includes, the Closing Date. Parent shall permit the Stockholders'
Representative to participate in any such audit or proceeding, and approve the
disposition thereof if such disposition could give rise to a claim for
indemnification hereunder (such approval not to be unreasonably withheld).
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 NOTICES. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and shall
be deemed to have been duly given upon receipt) by delivery in person, by cable,
telecopy, telegram or telex or by registered or certified mail (postage prepaid,
return receipt requested) to the respective parties at the following addresses
(or at such other address for a party as shall be specified by like notice):
50
if to Parent or Purchaser:
Quality Food Centers, Inc.
00000 X.X. 00xx Xxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxx X. Xxxxx
Fax: (000) 000-0000
with an additional copy to:
Xxxxxxx Xxxxxxx & Xxxxxxxx
000 Xxxxxxxxx Xxxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxx X. Xxxxxxxx, Esq.
Fax: (000) 000-0000
if to the Company:
Xxxxxx Markets, Inc.
00000 Xxxx Xxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxx
Fax: (000) 000-0000
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: C. Xxxxx Xxxxx, Esq.
Fax: (000) 000-0000
if to the Stockholders' Representative:(i) prior to the Effective
Time, to him c/o the Company as set forth above and (ii) following the
Effective Time:
00000 Xxxxxxx Xxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Fax: (000) 000-0000
with a copy to:
O'Melveny & Xxxxx LLP
000 Xxxxx Xxxx Xxxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Attention: C. Xxxxx Xxxxx, Esq.
Fax: (000) 000-0000
SECTION 9.2 CERTAIN DEFINITIONS. For purposes of this Agreement, the
term:
(a) "AFFILIATE" of a person means a person that directly or
indirectly, through one or more intermediaries,
51
controls, is controlled by, or is under common control with, the first
mentioned person;
(b) "BENEFICIAL OWNER" with respect to any shares of Company Common
Stock means a person who shall be deemed to be the beneficial owner of such
shares of Company Common Stock (i) which such person or any of its
affiliates or associates beneficially owns, directly or indirectly, (ii)
which such person or any of its affiliates or associates (as such term is
defined in Rule 12b-2 of the Securities Exchange Act of 1934, as amended
(the "EXCHANGE ACT")) has, directly or indirectly, (A) the right to acquire
(whether such right is exercisable immediately or subject only to the
passage of time), pursuant to any agreement, arrangement or understanding or
upon the exercise of conversion rights, exchange rights, warrants or
options, or otherwise, or (B) the right to vote pursuant to any agreement,
arrangement or understanding, or (iii) which are beneficially owned,
directly or indirectly, by any other persons with whom such person or any of
its affiliates or person with whom such person or any of its affiliates or
associates has any agreement, arrangement or understanding for the purpose
of acquiring, holding, voting or disposing of any shares; "BENEFICIALLY
OWN", "BENEFICIAL OWNERSHIP" and similar terms shall have correlative
meanings;
(c) "CONTROL" (including the terms "CONTROLLED BY" and "UNDER COMMON
CONTROL WITH") means the possession, directly or indirectly or as trustee or
executor, of the power to direct or cause the direction of the management
policies of a person, whether through the ownership of stock, as trustee or
executor, by contract or credit arrangement or otherwise;
(d) "GENERALLY ACCEPTED ACCOUNTING PRINCIPLES" means the generally
accepted accounting principles set forth in the opinions and pronouncements
of the Accounting Principles Board of the American Institute of Certified
Public Accountants and statements and pronouncements of the Financial
Accounting Standards Board or in such other statements by such other entity
as may be approved by a significant segment of the accounting profession in
the United States, in each case applied on a basis consistent with the
manner in which the audited financial statements for the fiscal year of the
Company ended March 3, 1996 were prepared;
(e) "KNOWLEDGE" of or with respect to the Company means the actual
knowledge of Xxxxx X. Xxxxxx, Xxxx X. XxXxxxx, Xxxxx X. Xxxxxxx, Xxxxxxx
Wallrack, Xxxxxx Xxxxxxxxx, Xxxxx Xxxxxxxx, Xxxxxxx X. Xxxxxxxxxxx and
Xxxxxxx X. Xxxxxxxxx after due inquiry of those managers at the Company
and/or its subsidiaries who they reasonably believe would be responsible for
the relevant information;
52
"KNOW", "KNOWN" and like terms with respect to the Company shall have
correlative meanings;
(f) "PERSON" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group (as
defined in Section 13(d)(3) of the Exchange Act); and
(g) "SUBSIDIARY" or "SUBSIDIARIES" of the Company, the Surviving
Corporation, Parent or any other person means any corporation, partnership,
joint venture or other legal entity of which the Company, the Surviving
Corporation, Parent or such other person, as the case may be (either alone
or through or together with any other subsidiary), owns, directly or
indirectly, 50% or more of the stock or other equity interests the holder of
which is generally entitled to vote for the election of the board of
directors or other governing body of such corporation or other legal entity.
Without limiting the generality of the foregoing, the terms "subsidiary" and
"subsidiaries" of the Company shall include Santee.
SECTION 9.3 SEVERABILITY. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby is not affected in any manner
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that the transactions contemplated hereby are fulfilled to the fullest extent
possible.
SECTION 9.4 ENTIRE AGREEMENT; ASSIGNMENT. This Agreement, together
with the Confidentiality Agreement, constitutes the entire agreement among the
parties with respect to the subject matter hereof and supersedes all prior
agreements and undertakings, both written and oral, among the parties, or any of
them, with respect to the subject matter hereof. This Agreement shall not be
assigned by operation of law or otherwise, except that Parent and Purchaser may
assign all or any of their respective rights and obligations hereunder to any
direct or indirect wholly owned subsidiary or subsidiaries of Parent, PROVIDED
that no such assignment shall relieve the assigning party of its obligations
hereunder if such assignee does not perform such obligations. Any attempted
assignment which does not comply with the provisions of this Section 9.4 shall
be null and void AB INITIO.
SECTION 9.5 STOCKHOLDERS' REPRESENTATIVE. By their approval and
adoption of this Agreement, the stockholders of the
53
Company shall be deemed to have consented to, the appointment of Xxxxx X. Xxxxxx
as the "STOCKHOLDERS' REPRESENTATIVE" to receive all notices, requests and
demands which may be made upon such stockholders or any of them under and
pursuant to this Agreement and to act as agent and representative of such
stockholders in connection with any action to be taken by or on behalf of such
stockholders hereunder or any other matter arising in connection with this
Agreement. In the event that, subsequent to the execution of this Agreement,
Xxxxx X. Xxxxxx is unable or unwilling to serve as the Stockholders'
Representative, Xxxx X. Xxxxxx shall so serve unless he is unable or unwilling
to do so, in which event the stockholders of the Company immediately prior to
the Effective Time shall designate another successor Stockholders'
Representative by vote of the holders of a majority of the Shares held by such
stockholders at the Effective Time, PROVIDED, HOWEVER, that either Xxxxx X.
Xxxxxx or Xxxx X. Xxxxxx shall serve as Stockholders' Representative until such
successor is so designated.
SECTION 9.6 ACTIONS OF SANTEE. Any covenant or agreement of the
Company herein to cause Santee to act in a specified manner shall be deemed
satisfied if the Company takes all action in its power and otherwise exercises
its reasonable best efforts to cause Santee to act in such manner and does not
consent to or otherwise take any action which permits Santee to act in a
contrary manner.
SECTION 9.7 PARTIES IN INTEREST. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in this
Agreement, express or implied, is intended to or shall confer upon any other
person any rights, benefits or remedies of any nature whatsoever under or by
reason of this Agreement.
SECTION 9.8 PURCHASER'S OBLIGATIONS. Parent hereby agrees to cause
Purchaser to fulfill all of its obligations under this Agreement.
SECTION 9.9 GOVERNING LAW. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
SECTION 9.10 HEADINGS. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not affect in
any way the meaning or interpretation of this Agreement.
SECTION 9.11 COUNTERPARTS. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate counterparts,
each of which when executed shall be deemed to be an original but all of which
taken together shall constitute one and the same agreement.
54
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused this
Agreement to be executed as of the date first written above by their respective
officers thereunto duly authorized.
QUALITY FOOD CENTERS, INC.
Attest:
By:
------------------------- ---------------------------
Title: Title:
QHI ACQUISITION CORPORATION
Attest:
By:
------------------------- ---------------------------
Title: Title:
XXXXXX MARKETS, INC.
Attest:
By:
------------------------- ---------------------------
Title: Title:
