AGREEMENT AND PLAN OF MERGER
dated as of
December 18, 1996
among
QUALITY FOOD CENTERS, INC.
KU ACQUISITION CORPORATION
XXXXX XXXXXXXXX, INC.
and
THE SHAREHOLDERS NAMED HEREIN
TABLE OF CONTENTS
ARTICLE 1
DEFINITIONS
1.1 TERMS DEFINED ELSEWHERE. . . . . . . . . . . . . . . . . . . . . 21.2
GENERAL DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2
THE MERGER
2.1 THE SPIN-OFF . . . . . . . . . . . . . . . . . . . . . . . . . . 7
(a) TRANSACTION
(b) EXCLUDED LIABILITIES
(c) EXCLUDED PROPERTY
(d) CALCULATION OF 90/70% TEST
(e) VALUES OF SWING PROPERTIES
(f) VALUES OF SWING RECEIVABLES
(g) VALUES OF EXCLUDED PROPERTIES
(h) APPRAISAL PROCEDURE
(i) EMPLOYEES
(j) LEASES; RIGHT OF FIRST REFUSAL
2.2 THE MERGER . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.3 DETERMINATION OF AMOUNT OF CONSIDERATION . . . . . . . . . . . . 12
(a) "ESTIMATED TOTAL AMOUNT" and "FINAL TOTAL AMOUNT"
(b) "PREFERRED AMOUNT"
(c) "ESTIMATED COMMON AMOUNT" and "FINAL COMMON AMOUNT"
(d) "PREFERRED AMOUNT/QFC SHARES"
(e) "PREFERRED AMOUNT/CASH"
(f) "COMMON AMOUNT/QFC SHARES"
(g) "COMMON AMOUNT/CASH"
2.4 CONVERSION OF SHARES . . . . . . . . . . . . . . . . . . . . . . 13
2.5 FRACTIONAL SHARES. . . . . . . . . . . . . . . . . . . . . . . . 14
2.6 PAYMENTS; POST-CLOSING STOCK ADJUSTMENT. . . . . . . . . . . . . 14
2.7 TAXABLE TRANSACTION ELECTION . . . . . . . . . . . . . . . . . . 16
(a) CONVERSION OF SHARES
(b) CLOSING DATE PAYMENT
(c) ADDITIONAL CASH PAYMENT
(d) FINAL CASH PAYMENT
2.8 ESTIMATED AND FINAL BALANCE SHEETS . . . . . . . . . . . . . . . 18
2.9 SALES OF STORES TO AG AND OTHERS . . . . . . . . . . . . . . . . 20
2.10 THE SURVIVING COMPANY . . . . . . . . . . . . . . . . . . . 21
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ARTICLE 3
CLOSING; CONDITIONS PRECEDENT
3.1 CLOSING 21
(a) LEASES
(b) RIGHT OF FIRST REFUSAL
(c) AG STOCK AGREEMENT
(d) INVESTORS RIGHTS AGREEMENT
(e) PLEDGE OF QFC SHARES
(f) SURRENDER OF SHARES
(g) MERGER CONSIDERATION
(h) ARTICLES OF MERGER
(i) FURTHER ASSURANCES
3.2 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. . . . . . . . . . . 23
3.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDERS . . . . . . . . . . . . . . . . . . . . . . 24
3.4 CONDITIONS TO OBLIGATIONS OF QFC AND NEWCO . . . . . . . . . . . 24
ARTICLE 4
REPRESENTATIONS OF THE COMPANY
AND THE SHAREHOLDERS
4.1 CORPORATE EXISTENCE AND POWER. . . . . . . . . . . . . . . . . . 26
4.2 CORPORATE AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . 27
4.3 GOVERNMENTAL AUTHORIZATION; CONSENTS . . . . . . . . . . . . . . 27
4.4 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . . . . . . 27
4.5 TITLE . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.6 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 28
4.7 TAX-RELATED REPRESENTATIONS. . . . . . . . . . . . . . . . . . . 29
4.8 FINANCIAL STATEMENTS . . . . . . . . . . . . . . . . . . . . . . 29
4.9 ABSENCE OF CERTAIN CHANGES . . . . . . . . . . . . . . . . . . . 30
4.10 NO UNDISCLOSED MATERIAL LIABILITIES . . . . . . . . . . . . 32
4.11 LITIGATION. . . . . . . . . . . . . . . . . . . . . . . . . 33
4.12 INSURANCE COVERAGE. . . . . . . . . . . . . . . . . . . . . 33
4.13 COMPLIANCE WITH LAWS. . . . . . . . . . . . . . . . . . . . 33
4.14 ENVIRONMENTAL MATTERS . . . . . . . . . . . . . . . . . . . 34
4.15 BUILDING LAWS . . . . . . . . . . . . . . . . . . . . . . . 36
4.16 PRODUCTS . . . . . . . . . . . . . . . . . . . . . . . . 37
4.17 LICENSES AND PERMITS. . . . . . . . . . . . . . . . . . . . 37
4.18 REAL PROPERTY . . . . . . . . . . . . . . . . . . . . . . . 37
4.19 PERSONAL PROPERTY . . . . . . . . . . . . . . . . . . . . . 39
4.20 INTELLECTUAL PROPERTY . . . . . . . . . . . . . . . . . . . 40
4.21 MATERIAL CONTRACTS. . . . . . . . . . . . . . . . . . . . . 41
4.22 GUARANTIES. . . . . . . . . . . . . . . . . . . . . . . . . 42
4.23 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . 42
4.24 EMPLOYEE BENEFITS . . . . . . . . . . . . . . . . . . . . . 43
4.25 COMPANY TAXES . . . . . . . . . . . . . . . . . . . . . . . 44
4.26 NOT A MEMBER OF A TAX OR ERISA GROUP. . . . . . . . . . . . 45
4.27 NO SUBSIDIARIES . . . . . . . . . . . . . . . . . . . . . . 45
4.28 FINDERS' FEES . . . . . . . . . . . . . . . . . . . . . . . 45
4.29 OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . 45
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ARTICLE 5
REPRESENTATIONS OF QFC AND NEWCO
5.1 CORPORATE EXISTENCE AND POWER. . . . . . . . . . . . . . . . . . 45
5.2 CORPORATE AUTHORIZATION. . . . . . . . . . . . . . . . . . . . . 46
5.3 GOVERNMENTAL AUTHORIZATION; CONSENTS . . . . . . . . . . . . . . 46
5.4 NON-CONTRAVENTION. . . . . . . . . . . . . . . . . . . . . . . . 46
5.5 CAPITALIZATION . . . . . . . . . . . . . . . . . . . . . . . . . 46
5.6 TAX-RELATED REPRESENTATIONS. . . . . . . . . . . . . . . . . . . 47
5.7 EMPLOYEES . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.8 FINDERS' FEES. . . . . . . . . . . . . . . . . . . . . . . . . . 47
5.9 QFC INFORMATION. . . . . . . . . . . . . . . . . . . . . . . . . 48
ARTICLE 6
COVENANTS OF THE COMPANY AND THE SHAREHOLDERS
6.1 CONDUCT OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . 48
6.2 WARN ACT NOTICE. . . . . . . . . . . . . . . . . . . . . . . . . 49
6.3 SEPTEMBER 30 FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . 49
6.4 ACCESS TO INFORMATION. . . . . . . . . . . . . . . . . . . . . . 49
6.5 PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . 50
6.6 OTHER OFFERS . . . . . . . . . . . . . . . . . . . . . . . . . . 50
6.7 NOTICES OF CERTAIN EVENTS. . . . . . . . . . . . . . . . . . . . 51
6.8 APPROVALS . . . . . . . . . . . . . . . . . . . . . . . . . . . 51
6.9 OBLIGATIONS OF THE COMPANY . . . . . . . . . . . . . . . . . . . 51
6.10 SATISFACTION OF CONDITIONS. . . . . . . . . . . . . . . . . 51
6.11 NONCOMPETITION. . . . . . . . . . . . . . . . . . . . . . . 52
6.12 CONTINUITY OF INTEREST AFTER THE MERGER TIME. . . . . . . . 53
6.13 EXCLUDED LIABILITIES. . . . . . . . . . . . . . . . . . . . 53
6.14 GUARANTY OF SWING OBLIGATIONS . . . . . . . . . . . . . . . 54
6.15 TAX-RELATED COVENANTS . . . . . . . . . . . . . . . . . . . 56
ARTICLE 7
COVENANTS OF QFC
7.1 PUBLIC ANNOUNCEMENTS . . . . . . . . . . . . . . . . . . . . . . 57
7.2 OBLIGATIONS OF NEWCO . . . . . . . . . . . . . . . . . . . . . . 57
7.3 WARN ACT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 57
7.4 ENVIRONMENTAL REPORTS. . . . . . . . . . . . . . . . . . . . . . 57
7.5 TAX-RELATED COVENANTS. . . . . . . . . . . . . . . . . . . . . . 58
ARTICLE 8
SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
8.2 GENERAL INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . 59
8.3 EXCLUDED PROPERTIES ENVIRONMENTAL INDEMNIFICATION. . . . . . . . 60
8.4 GUARANTY OBLIGATIONS . . . . . . . . . . . . . . . . . . . . . . 61
8.5 PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . 61
8.6 TAX INDEMNIFICATION. . . . . . . . . . . . . . . . . . . . . . . 62
8.7 ENFORCEMENT. . . . . . . . . . . . . . . . . . . . . . . . . . . 63
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ARTICLE 9
TERMINATION
9.1 TERMINATION. . . . . . . . . . . . . . . . . . . . . . . . . . . 64
9.2 EFFECT OF TERMINATION. . . . . . . . . . . . . . . . . . . . . . 64
ARTICLE 10
MISCELLANEOUS
10.1 NOTICES 65
10.2 REPRESENTATIVE SHAREHOLDER. . . . . . . . . . . . . . . . . 66
10.3 NATURE OF SHAREHOLDERS' OBLIGATIONS . . . . . . . . . . . . 66
10.4 AMENDMENTS; NO WAIVERS. . . . . . . . . . . . . . . . . . . 66
10.5 EXPENSES . . . . . . . . . . . . . . . . . . . . . . . . 66
10.6 SUCCESSORS AND ASSIGNS. . . . . . . . . . . . . . . . . . . 67
10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION . . . . . . . . . 68
10.8 ENTIRE AGREEMENT. . . . . . . . . . . . . . . . . . . . . . 68
10.9 HEADINGS AND CAPTIONS . . . . . . . . . . . . . . . . . . . 68
10.10 COUNTERPARTS; EFFECTIVENESS. . . . . . . . . . . . . . . . . . 68
Schedule 1 Excluded and Swing Property
4.3 Third-Party Consents
4.5 Shares Held by Each Shareholder
4.11 Litigation
4.12 Insurance Coverage
4.14 Environmental Matters
4.17 Licenses and Permits
4.18 Real Property
4.20 Intellectual Property
4.21 Material Contracts
4.22 Guaranties
4.23 Collective Bargaining Agreements
4.24 Employee Benefits
5.5 QFC Securities
Exhibit A Long-Term Store Leases
B Right of First Refusal
C AG Stock Agreement
D Investors Rights Agreement
E Pledge Agreement to secure Shareholders' indemnity obligations
F Opinion of Counsel for QFC
G Opinion of Counsel for the Company and the Shareholders
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AGREEMENT AND PLAN OF MERGER
AGREEMENT dated as of December 18, 1996 among Quality Food Centers,
Inc., a Washington corporation ("QFC"), KU Acquisition Corporation, a
Washington corporation ("Newco"), Xxxxx Xxxxxxxxx, Inc., a Washington
corporation (the "Company"), and the following (each, a "Shareholder"):
(i) A. Xxxxx Xxxxxxxxx and Xxxxxxx X. Xxxxxxxxx, husband and wife, each a
resident of Washington State;
(ii) Xxxx Xxx Xxxxxxx, as trustee of the Xxxx Xxx Xxxxxxx Trust;
(iii) Xxxx Xxxxxxx, a married individual resident of Washington State;
(iv) Xxxx Xxx Xxxxxxx and Xxx Xxxxxx, as trustees of the Xxxx Xxx Xxxxxxx
Trust;
(v) Xxxx Xxxxx, Xxxxxxx Xxxxx Xxxxxxxxx and Xxxx Xxx Xxxxxxx, as trustees
of the Xxxxxxx Xxxxx Xxxxxxxxx Trust;
(vi) Xxxxxx Xxxxxx Xxxxxx, Xxxx Xxx Xxxxxxx and Xxx Xxxxxx, as trustees of
the Xxxxxx Xxxxxx Xxxxxx Trust.
WHEREAS, QFC desires to acquire the Company after the Company disposes
of certain of its properties in a spin-off transaction;
WHEREAS, the boards of directors of QFC and the Company have
determined that it is in the best interests of their respective shareholders for
the Company to merge with and into Newco, a wholly-owned subsidiary of QFC, upon
the terms and subject to the conditions of this Agreement;
WHEREAS, for federal income tax purposes, it is intended that the
Merger (as defined below) shall qualify as a reorganization within the meaning
of Section 368(a) of the Internal Revenue Code; and
WHEREAS, QFC and the Company desire to make certain representations,
warranties, covenants and agreements in connection with the Merger;
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, the
parties hereto agree as follows:
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ARTICLE 1
DEFINITIONS
1.1 TERMS DEFINED ELSEWHERE. Each of the following terms, when
capitalized, is used herein with the meaning set forth in the Section or other
part of this Agreement identified opposite such term below:
AG Right of First Refusal. . . . . . . . . . . . . . . . . .2.9
Acquisition Proposal . . . . . . . . . . . . . . . . . . . .6.6
Benefit Arrangement. . . . . . . . . . . . . . . . . . . . .4.24
Building Laws. . . . . . . . . . . . . . . . . . . . . . . .4.15
CERCLA . . . . . . . . . . . . . . . . . . . . . . . . . . .4.14
Closing Date . . . . . . . . . . . . . . . . . . . . . . . .3.1
Closing Market Value . . . . . . . . . . . . . . . . . . . .2.6.(c)
Common Amount/Cash . . . . . . . . . . . . . . . . . . . . .2.3
Common Amount/QFC Shares . . . . . . . . . . . . . . . . . .2.3
Company. . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Damages. . . . . . . . . . . . . . . . . . . . . . . . . . .8.2
Environmental Damages. . . . . . . . . . . . . . . . . . . .8.3
Environmental Laws . . . . . . . . . . . . . . . . . . . . .4.14
Estimated Balance Sheet. . . . . . . . . . . . . . . . . . .2.8
Estimated Common Amount. . . . . . . . . . . . . . . . . . .2.3
Estimated Total Amount . . . . . . . . . . . . . . . . . . .2.3
Event of Default . . . . . . . . . . . . . . . . . . . . . .8.7
Excluded Liabilities . . . . . . . . . . . . . . . . . . . .2.1.(b)
Excluded Property. . . . . . . . . . . . . . . . . . . . . .2.1.(c)
Final Common Amount. . . . . . . . . . . . . . . . . . . . .2.3
Final Total Amount . . . . . . . . . . . . . . . . . . . . .2.3
Final Balance Sheet. . . . . . . . . . . . . . . . . . . . .2.8
Financial Statements . . . . . . . . . . . . . . . . . . . .4.8
401(k) Plan. . . . . . . . . . . . . . . . . . . . . . . . .4.24
Hazardous Substance. . . . . . . . . . . . . . . . . . . . .4.14
Indemnified Party. . . . . . . . . . . . . . . . . . . . . .8.5
Indemnifying Party . . . . . . . . . . . . . . . . . . . . .8.5
Intellectual Property Right. . . . . . . . . . . . . . . . .4.20
Lease-Back Property. . . . . . . . . . . . . . . . . . . . .2.1.(j)
Leased Real Property . . . . . . . . . . . . . . . . . . . .4.18
Long-Term Store Lease. . . . . . . . . . . . . . . . . . . .2.1
Merger . . . . . . . . . . . . . . . . . . . . . . . . . . .2.2
Merger Time. . . . . . . . . . . . . . . . . . . . . . . . .3.1.(h)
Newco. . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
90/70% Test. . . . . . . . . . . . . . . . . . . . . . . . .2.1.(c)
Notice of Alternative Calculation. . . . . . . . . . . . . .2.8.(d)
Period of Occupation . . . . . . . . . . . . . . . . . . . .4.14
Preferred Amount . . . . . . . . . . . . . . . . . . . . . .2.3
Preferred Amount/Cash. . . . . . . . . . . . . . . . . . . .2.3
Preferred Amount/QFC Shares. . . . . . . . . . . . . . . . .2.3
Principal Obligor. . . . . . . . . . . . . . . . . . . . . .6.14.(a)
Property Sold After Signing. . . . . . . . . . . . . . . . .2.9
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QFC. . . . . . . . . . . . . . . . . . . . . . . . . . . . .Preamble
QFC SEC Reports. . . . . . . . . . . . . . . . . . . . . . .4.29
Release. . . . . . . . . . . . . . . . . . . . . . . . . . .4.14
Shareholder. . . . . . . . . . . . . . . . . . . . . . . . .Preamble
Spin-Off . . . . . . . . . . . . . . . . . . . . . . . . . .2.1
Spin-Off Company . . . . . . . . . . . . . . . . . . . . . .2.1
Spin-Off Employee. . . . . . . . . . . . . . . . . . . . . .2.1.(i)
Surviving Company. . . . . . . . . . . . . . . . . . . . . .2.2.(b)
Swing Property . . . . . . . . . . . . . . . . . . . . . . .2.1.(c)
Swing Receivable . . . . . . . . . . . . . . . . . . . . . .2.1.(c)
Taxable Transaction Election . . . . . . . . . . . . . . . .2.7
Underlying Documents . . . . . . . . . . . . . . . . . . . .6.14.(a)
1.2 GENERAL DEFINITIONS. Each of the following terms, when capitalized,
is used herein with the meanings set forth below:
"Affiliate" of any Person (the "Reference Person") means (i) any
Person directly or indirectly controlling, controlled by or under common control
with the Reference Person or an Affiliate of the Reference Person, (ii) if the
Reference Person is a corporation or similar entity, each member of the
Reference Person's board of directors or similar body, (iii) if the Reference
Person is a limited liability company or similar entity, each manager of the
Reference Person (or holder of a similar office) and (if the Reference Person is
member-managed) each member of the Reference Person, (iv) if the Reference
Person is a general or limited partnership, each general partner of the
Reference Person, (v) if the Reference Person is an estate or trust, each
fiduciary of the Reference Person and each beneficiary of the Reference Person,
(vi) if the Reference Person is a natural person, each relative of the Reference
Person and any corporation or similar entity of whose board of directors or
similar body the Reference Person is a member, (vii) each general or limited
partnership of which the Reference Person is a general partner,(viii) each trust
or estate of which the Reference Person is a fiduciary or beneficiary and
(ix) each Affiliate of an Affiliate of the Reference Person. For the purpose of
this definition, "control" means possession, directly or indirectly, of the
power to direct or cause the direction of the management or policies of a
Person, whether through the ownership of voting securities, by contract or
otherwise.
"AG" means Associated Grocers, Inc.
"AG Stock" means 20 shares of class A stock and 223,750 shares of
class B stock of AG owned of record and beneficially by the Company at the date
hereof.
"AG Stock Agreement" means an agreement by QFC for the benefit of the
Shareholders in substantially the form of EXHIBIT C.
"Business Day" means any day other than a Saturday, Sunday or other
day on which banks in Seattle, Washington are not open for business.
"Common Merger Consideration" means the combination of one or more of
cash and QFC Shares into which the Common Shares are converted in the Merger,
pursuant to Article 2.
"Common Share" means each one of 12,830 issued and outstanding shares
of common stock, without par value, of the Company, owned of record and
beneficially by a Shareholder.
"Debt" of any Person means (i) all obligations for borrowed money,
(ii) all obligations evidenced by bonds, debentures, notes or other similar
instruments, (iii) all obligations to pay the deferred purchase price of
property or services (except trade accounts payable, payroll liabilities and
deferred revenues arising in the ordinary course of business consistent with
past practice), (iv) all obligations as lessee which are capitalized in
accordance with GAAP, (v) all Debt of others secured by a Lien on any asset of
such Person, whether or not such obligations are assumed by such Person, and all
(vi) all Debt of others guaranteed by such Person. The "principal amount" of
Debt referred to in clause (iii) means the entire unpaid deferred purchase
price. The "principal amount" of Debt referred to in clause (iv) means the
amount of such obligation that is capitalized in accordance with GAAP. The
"principal amount" of Debt referred to in clauses (v) and (vi) means the
principal amount of the Debt of another referred to therein.
"Election Deadline" means January 14, 1997.
"Fully Depreciated," when used with respect to any Improvement or item
of equipment, means that such Improvement or item has been fully depreciated in
accordance with GAAP, so that its book value, net of depreciation, on the Final
Balance Sheet is zero.
"GAAP" means generally accepted accounting principles applied on a
basis consistent with that used to prepare the statements at December 31, 1995
included in the Financial Statements.
"Guaranty" by any Person means any obligation, contingent or
otherwise, of such Person directly or indirectly guaranteeing any Debt or other
obligation of any other Person.
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"Xxxx-Xxxxx-Xxxxxx Act" means the Xxxx-Xxxxx-Xxxxxx Antitrust
Improvements Act of 1976, as amended from time to time.
"Improvement" means each store, building, structure, outbuilding,
parking lot, pad, improvement and fixture previously or now owned or operated by
the Company or located on any Leased Real Property, Swing Property or Excluded
Property.
"Included Property" means all property and assets of the Company (real
and personal, tangible and intangible) other then the Excluded Property.
"Internal Revenue Code" means the Internal Revenue Code of 1986 and
the rules and regulations promulgated thereunder, as amended from time to time.
"Investors Rights Agreement" means an agreement among the Shareholders
and QFC in substantially the form of EXHIBIT D.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset.
For the purposes of this Agreement, any Person will be deemed to own subject to
a Lien any asset which it has acquired or holds subject to the interest of a
vendor or lessor under any conditional sale agreement, capital lease or other
title retention agreement relating to such asset.
"Material Adverse Effect" means a material adverse effect on the
business, assets, condition (financial or otherwise), result of operations or
prospects of the Company or on any property or asset of the Company.
"Merger Consideration" means the Preferred Merger Consideration and
the Common Merger Consideration, in the aggregate.
"Outside Closing Date" means February 17, 1997, or another date agreed
upon by QFC and the Representative Shareholder as the Outside Closing Date.
"Person" means an individual, a corporation, a partnership, a limited
liability company, an association, a trust or other entity or organization,
including a government or political subdivision or an agency or instrumentality
thereof.
"Pledge Agreement" means an agreement made by the Shareholders for the
benefit of QFC in substantially the form of EXHIBIT E, completed as provided in
Section 3.1.(e).
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"Preferred Merger Consideration" means the combination of one or more
of cash and QFC Shares into which the Preferred Shares are converted in the
Merger, pursuant to Article 2.
"Preferred Share" means each one of 11,542 issued and outstanding
shares of Series A preferred stock, $100 par value per share, of the Company,
owned of record and beneficially by a Shareholder.
"Prepayment Premium" means any premium, penalty or compensation
payable upon the repayment of any obligation prior to its stated maturity.
"QFC Share" means one share of common stock of QFC, $.001 par value
per share.
"RCW" means the Revised Code of Washington, as amended from time to
time.
"Recognized Tax Counsel" means a law or accounting firm, the partners
or members of which include highly specialized experts in United States federal
income tax law, as reasonably determined by QFC.
"Relevant Property" means all real property included in the Included
Property and the Excluded Property, and each other parcel or item of real
property now or previously owned, leased, occupied or used by the Company, any
predecessor of the Company or any subsidiary or predecessor of a subsidiary of
the Company.
"Representative Shareholder" means A. Xxxxx Xxxxxxxxx.
"Right of First Refusal" means an agreement between the Spin-Off
Company and QFC in substantially the form of EXHIBIT B.
"Tax" payable by any Person means any tax or governmental charge or
assessment imposed on such Person, including without limitation any tax or
governmental charge or assessment measured by such Person's net income, gross
income, gross receipts or sales; any use, ad valorem, value added, franchise,
profits, license, payroll, employment, excise, severance, stamp, occupation,
premium, property, environmental, windfall profit, alternative or add-on minimum
tax or governmental charge or assessment; any withholding of amounts paid to or
by such Person on account of any such tax, governmental charge or assessment;
and any interest or any penalty, addition to tax or additional amount imposed by
any governmental authority responsible for the imposition of any Tax.
"Transaction Expenses" means costs and expenses paid, incurred or
accrued by the Company (whether or not billed or
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invoiced before the Closing Date) in connection with the completion of the
transactions contemplated hereby, including without limitation (a) fees and
expenses of legal advisors, public relations firms and other consultants,
(b) costs incurred in preparing and negotiating this Agreement and related
documents and (c) costs and Taxes (including without limitation real estate
excise taxes) incurred in completing the Spin-Off.
"Treasury Regulations" means the regulations promulgated by the
Department of Treasury pursuant to the Internal Revenue Code, as published in
the Code of Federal Regulations, as amended from time to time.
"WARN Act" means the Worker Adjustment and Retraining Notification Act
of 1988, as amended from time to time.
"Washington BCA" means the Washington business corporation act, RCW
title 23B, as amended from time to time.
ARTICLE 2
THE MERGER
2.1 THE SPIN-OFF. (a) TRANSACTION. On or before the Closing Date
(and in any event before consummation of the Merger), the Company will effect
the following transaction (the "Spin-Off"): (i) cause a Washington corporation
(the "Spin-Off Company") to be incorporated and organized under the Washington
BCA, (ii) transfer the Excluded Property, as defined below, to the Spin-Off
Company in exchange for issuance of all of the shares of capital stock of the
Spin-Off Company to the Company, (iii) cause the Spin-Off Company to assume the
Excluded Liabilities, as defined below, and (iv) distribute to the Shareholders
who hold Common Shares all of the shares of capital stock of the Spin-Off
Company.
(b) EXCLUDED LIABILITIES. The "Excluded Liabilities" mean
(i) approximately $2,000,000 of Debt of the Company and (ii) such additional
Debt and other liabilities of the Company as the Company and QFC (in
consultation with their counsel and advisors) reasonably determine may be
assumed by the Spin-Off Company as contemplated hereby without adversely
affecting the qualification of the Merger for tax-free treatment as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code and the qualification of the Spin-Off for tax-free treatment as a
transaction described in Section 355(a)(1) of the Internal Revenue Code,
PROVIDED that if the Shareholders make a Taxable Transaction Election, the
"Excluded Liabilities" will mean whatever Debt of the Company the Company
designates as such by written notice to QFC not later than five Business Days
before the Closing Date. The Company will in any event prepare and deliver to
QFC a schedule
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describing the Excluded Liabilities in reasonable detail not later than two
Business Days before the Closing Date.
(c) EXCLUDED PROPERTY.
"Lacey Property," "Port Orchard Property," "Belfair Property" and
"Port Xxxxxxxx Property" have the respective meanings set forth on SCHEDULE 1,
and include the real property described therein and the improvements thereon
(subject to the limitations, if any, set forth on SCHEDULE 1).
"Swing Property" means each of the Lacey Property, the Port Orchard
Property, the Belfair Property and the Port Xxxxxxxx Property.
"Swing Receivable" means each of the following as more fully described
under that heading on SCHEDULE 1:
four promissory notes payable to the Company (respective principal amounts:
$318,000, $579,000, $50,000 and $225,000); and
a life insurance policy owned by the Company on the life of A. Xxxxx
Xxxxxxxxx (cash surrender amount: $271,621);
and the Company's rights thereunder and related thereto, including without
limitation the Company's rights under each Guaranty of such Swing Receivable,
all security for the obligations to the Company under such Swing Receivable and
such Guaranties and all of the Company's rights under each agreement, document
or instrument relating to such Swing Receivable or such Guaranties.
"Excluded Property" means the property and assets of the Company
listed under that heading on SCHEDULE 1, the Swing Receivables and the Swing
Properties, PROVIDED that the following property and assets of the Company will
not be included in the Excluded Property:
the Lacey Property
the Port Orchard Property,
and, unless the Shareholders make a Taxable Transaction Election, some or all of
the following property and assets of the Company may not be included in the
Excluded Property:
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the Belfair Property
the Port Xxxxxxxx Property
one of the Swing Receivables, as designated by QFC
another of the Swing Receivables, as designated by QFC
another of the Swing Receivables, as designated by QFC
another of the Swing Receivables, as designated by QFC
the remaining Swing Receivable, as designated by QFC
such property and assets being taken out of the Excluded Property in the order
listed above until (and only until) the Company and QFC (in consultation with
their counsel and advisors) reasonably determine that the following test (the
"90/70% Test") is complied with, and would be complied with even if the
aggregate fair market value of the Excluded Property were greater, by the
Cushion Amount, than the actual aggregate fair market value of the Excluded
Property:
(i) immediately after the Merger, the fair market value of the
assets of the Surviving Company, net of the liabilities of the
Surviving Company (not including the Excluded Liabilities), will be at
least 90% of the fair market value of the assets of the Company before
the Merger Time, net of the liabilities of the Company before the
Merger Time (determined as described in Section 2.1.(d) below), and
(ii) immediately after the Merger, the fair market value of the
assets of the Surviving Company will be at least 70% of the fair
market value of the assets of the Company before the Merger Time
(determined as described in Section 2.1.(d) below).
"Cushion Amount" means $2,000,000 or such lesser amount (but not less
than $1,000,000) as QFC and the Company determine is appropriate in light of the
uncertainties associated with ensuring that the 90/70% test is complied with.
(d) CALCULATION OF 90/70% TEST. For purposes of the 90/70% Test, the
assets of the Company before the Merger Time include (A) cash and other assets
of the Company used to pay Transaction Expenses, (B) cash and other assets
distributed by the Company to its shareholders before the Merger (including
without limitation cash and other property delivered to shareholders of the
Company in redemption of their Preferred Shares or Common Shares) and (C) the
cash and other assets contributed to the Spin-Off Company as described in
Section 2.1. For the purposes of the 90/70% Test, the liabilities of the
Surviving Company will not include liabilities of Newco before the Merger Time
and the assets of the Surviving Company will not include assets of Newco before
the Merger Time.
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(e) VALUES OF SWING PROPERTIES. QFC and the Company will negotiate
in good faith in order to agree upon the fair market value of each Swing
Property as promptly as reasonably practicable after the date hereof. If QFC
and the Company fail to agree on the fair market value of each Swing Property by
December 31, 1996, the fair market value will be determined by an appraisal as
described in Section 2.1.(h) below. Each fair market value so determined will
be conclusive and binding on the parties in determining the Estimated Total
Amount and Final Total Amount pursuant to Section 2.3.(a) and in determining
whether the 90/70% Test is complied with. If the fair market value of the Swing
Properties is determined by appraisal, each of QFC and the Company will bear
one-half the cost thereof.
(f) VALUES OF SWING RECEIVABLES. The fair market value of each Swing
Receivable will be the principal amount thereof or the cash surrender value (as
the case may be), PROVIDED that if the terms of any Swing Receivable do not
provide that it will be due and payable in full on a certain date that is within
six months after the Closing Date, then the fair market value of such Swing
Receivable will be the present discounted value of the payments to be made on
account thereof, calculated using a discount rate of 9.25%. If any Swing
Receivable referred to in the foregoing proviso is actually paid in full within
six months after the Closing Date, QFC will then pay to the Representative
Shareholder (for the account of the Shareholders) the excess (if any) of the
principal amount of such Swing Receivable over the fair market value determined
pursuant to the foregoing proviso.
(g) VALUES OF EXCLUDED PROPERTIES. The fair market value of each
Excluded Property other than the Swing Properties will be determined by an
appraisal as described in Section 2.1.(h) below. Such appraisal may be separate
from the appraisal of the Swing Properties (if any) and may be conducted by
different appraisers. Each fair market value so determined will be conclusive
and binding upon the parties in determining whether the 90/70% Test is complied
with.
(h) APPRAISAL PROCEDURE. If the fair market value of any property is
to be determined by appraisal as described herein, such fair market value will
be determined by any M.A.I appraiser mutually acceptable to QFC and the Company
who is experienced in appraising commercial real estate in the Puget Sound area.
If QFC and the Company are unable to agree on such an appraiser by December 31,
1996, each of them will appoint such an appraiser not later than January 8, 1997
and the two appraisers so selected will appoint a third appraiser who meets the
requirements described above, and the fair market value will be determined by
averaging the fair market value determined by such three appraisers. The
parties will supply the appraiser or
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appraisers with such information as they may reasonably require.
(i) EMPLOYEES. The Representative Shareholder will deliver a list of
all employees of the Company that are to be employed by the Spin-Off Company not
later than the Election Deadline (each, a "Spin-Off Employee"). The employment
of each Spin-Off Employee with the Company will terminate on the Closing Date.
(j) LEASES; RIGHT OF FIRST REFUSAL. On the Closing Date: (A) the
Spin-Off Company will lease such of the following (each, a "Lease-Back
Property") as are Excluded Properties:
(i) the Belfair Property,
(ii) the Port Xxxxxxxx Property and
(iii) the grocery store included in the South Park Villa Shopping
Center referred to under "Excluded Properties" on SCHEDULE 1,
to QFC pursuant to one or more leases (each, a "Long-Term Store Lease") in
substantially the form of EXHIBIT A and (B) the Spin-Off Company will grant to
QFC a right of first refusal with respect to certain Excluded Property, on the
terms and conditions set forth in the form of Right of First Refusal attached
hereto as EXHIBIT B.
2.2 THE MERGER. (a) At the Merger Time, the Company will be merged
with and into Newco in accordance with the Washington BCA (the "Merger"),
whereupon the separate existence of the Company will cease, and Newco will be
the surviving corporation. Notwithstanding the preceding sentence, if the
Shareholders make a Taxable Transaction Election, QFC may elect that Newco will
be merged with and into the Company in accordance with the Washington BCA,
whereupon the separate existence of Newco will cease, and the Company will be
the surviving corporation.
(b) From and after the Merger Time, title to all real estate and
other property owned by each of Newco and the Company will be vested in the
corporation that survives the Merger (the "Surviving Company"), and the
Surviving Company will have all liabilities of Newco and the Company, all as
provided by the Washington BCA.
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2.3 DETERMINATION OF AMOUNT OF CONSIDERATION.
(a) "ESTIMATED TOTAL AMOUNT" and "FINAL TOTAL AMOUNT" mean the
following amount determined, respectively, based on the Estimated Balance Sheet
and the Final Balance Sheet (each of which will be prepared in accordance with
Section 2.8.(c)):
(A) $65,000,000;
(B) MINUS the sum of the aggregate principal amount of the Debt of
the Company outstanding on the Closing Date (other than Debt included in
the Excluded Liabilities), plus the amount of accrued and unpaid interest
(or, in the case of a capitalized lease, the portion of rent accounted for
as interest) on such Debt of the Company to and including the Closing Date,
plus the aggregate amount of all Prepayment Premiums that would be payable
if all such Debt of the Company outstanding on the Closing Date were repaid
in full on the Closing Date;
(C) PLUS the total current assets of the Company on the Closing Date,
determined in accordance with Section 2.8.(c) (which will not, in any
event, include any Swing Receivable, the AG Stock or any part of any Swing
Property);
(D) MINUS the current liabilities of the Company on the Closing Date
(other than current liabilities included in clause (B) above), determined
in accordance with Section 2.8.(c);
(E) MINUS the amount of all liabilities of the Company of any kind
whatsoever, whether accrued, contingent, absolute, determined, determinable
or otherwise, other than:
(1) the liabilities referred to in clauses (B) and (D) above;
(2) other liabilities, if and to the extent disclosed and provided for on
the balance sheet of the Company at June 30, 1996 included in the
Financial Statements;
(3) liabilities incurred in the ordinary course of business, consistent
with past practice and in compliance with Section 4.9 since June 30,
1996, which in the aggregate are not material to the Company; and
(4) liabilities under this Agreement;
(F) PLUS $11,094,516.60 that being the number of shares of AG Stock
times the per-share shareholders' equity
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of AG as of September 30, 1996, as shown on the financial statements of AG
at such date;
(G) PLUS the fair market value (determined as provided in
Sections 2.1.(e) and 2.1.(f)) of each Swing Property and Swing Receivable
not included in Excluded Property.
(b) "PREFERRED AMOUNT" means $14,870,318, less the amount of any
dividend declared or paid on account of the Preferred Shares after the date
hereof.
(c) "ESTIMATED COMMON AMOUNT" and "FINAL COMMON AMOUNT" mean,
respectively, the Estimated Total Amount minus the Preferred Amount and the
Final Total Amount minus the Preferred Amount.
(d) "PREFERRED AMOUNT/QFC SHARES" means 50% of $11,542,000.
(e) "PREFERRED AMOUNT/CASH" means the Preferred Amount minus the
Preferred Amount/QFC Shares.
(f) "COMMON AMOUNT/QFC SHARES" means 50% of the Estimated Total
Amount minus the Preferred Amount/QFC Shares.
(g) "COMMON AMOUNT/CASH" means the Final Common Amount minus the
Common Amount/QFC Shares.
2.4 CONVERSION OF SHARES. At the Merger Time:
(a) each share of capital stock of the Company held by the Company as
treasury stock immediately prior to the Merger Time will be cancelled, and no
payment will be made with respect thereof;
(b) each share of common stock of Newco outstanding immediately prior
to the Merger Time will be converted into and become one share of common stock
of the Surviving Company and will constitute the only outstanding shares of
capital stock of the Surviving Company; and
(c) each Preferred Share outstanding immediately prior to the Merger
Time will, except as otherwise provided in Section 2.4.(a) and unless the
Shareholders make a Taxable Transaction Election, be converted into:
(i) a number of QFC Shares equal to the Preferred Amount/QFC Shares,
first divided by $39.075, then divided by the number of Preferred Shares
(subject to the adjustment set forth in Section 2.5);
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(ii) the right to receive (at the time and manner, and subject to the
conditions and adjustments, set forth in Section 2.6) an amount in cash,
without interest, equal to the Preferred Amount/Cash, divided by the number
of Preferred Shares; and
(iii) the number of QFC Shares that are included in the Preferred
Merger Consideration pursuant to Section 2.6.(c), divided by the number of
Preferred Shares.
(d) each Common Share outstanding immediately prior to the Merger
Time will, except as otherwise provided in Section 2.4.(a) and unless the
Shareholders make a Taxable Transaction Election, be converted into:
(i) a number of QFC Shares equal to the Common Amount/QFC Shares,
first divided by $39.075, then divided by the number of Common Shares
(subject to the adjustment set forth in Section 2.5);
(ii) the right to receive (at the time and manner, and subject to the
conditions and adjustments, set forth in Section 2.6) an amount in cash,
without interest, equal to the Common Amount/Cash, divided by the number of
Common Shares; and
(iii) the number of QFC Shares that are included in the Common
Merger Consideration pursuant to Section 2.6.(c), divided by the number of
Preferred Shares.
Delivery of Preferred Shares and Common Shares to QFC will be effected, the cash
included in the Merger Consideration will be paid, and risk of loss and title to
the Preferred Shares and Common Shares will pass, only upon proper delivery of
the certificates representing the Preferred Shares and Common Shares to QFC as
described in Section 3.1.(f).
2.5 FRACTIONAL SHARES. No fractional QFC Shares will be issued in
the Merger. If a Shareholder would be entitled to receive a fractional QFC
Share, such Shareholder will instead receive, in lieu thereof, an amount in cash
determined by multiplying $39.075 by the fraction of a QFC Share to which such
Shareholder would otherwise have been entitled.
2.6 PAYMENTS; POST-CLOSING STOCK ADJUSTMENT. (a) Unless the
Shareholders make a Taxable Transaction Election, on the Closing Date, QFC will
pay to the Representative Shareholder, for the account of the Shareholders, by
wire transfer to an account designated by the Representative Shareholder, the
amount by which:
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(i) the total amount of cash that would be payable to the Shareholders as
part of the Merger Consideration, if such amount were based on the
Estimated Balance Sheet, rather than the Final Balance Sheet,
EXCEEDS:
(ii) $4,000,000.
(b) Unless the Shareholders make a Taxable Transaction Election,
within 30 days after determination of the Final Common Amount pursuant to
Section 2.8 (whether upon the failure of the Representative Shareholder timely
to object to QFC's calculation thereof, upon agreement between QFC and the
Representative Shareholder or upon determination by a firm of independent
accountants), QFC will pay to the Representative Shareholder, for the account of
the Shareholders, by wire transfer to an account designated by the
Representative Shareholder, the amount (if any) by which:
(i) the total amount of cash payable to the Shareholders as part of the
Merger Consideration, based on the Final Balance Sheet;
EXCEEDS:
(ii) the amount previously paid pursuant to Section 2.6.(a),
subject to the adjustment described in the next subsection.
(c) If the Shareholders have not made a Taxable Transaction Election
and, after making the payment referred to in the preceding subsection, the
Closing Market Value (as defined below) of the QFC Shares included in the Merger
Consideration would be less than 50% of the sum of such Closing Market Value
plus the amount of cash paid pursuant to this Section on and after the Closing
Date:
(A) the aggregate amount of cash paid pursuant to subsection (b) will be
reduced by an amount (the "Cash Reduction Amount") and
(B) the Merger Consideration will include (in addition to the QFC Shares
referred to in Sections 2.4.(c)(i) and 2.4.(d)(i)) a number of QFC
Shares equal to the Cash Reduction Amount divided by $39.075,
so that the total Closing Market Value of the QFC Shares included in the Merger
Consideration is not less than 50% of the sum of such Closing Market Value plus
the amount of cash paid pursuant to this Section on or after the Closing Date.
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In allocating the adjustment (if any) required by this Section 2.6.(c)
between the Preferred Merger Consideration and the Common Merger Consideration,
unless the Shareholders otherwise direct by delivering a joint written notice to
QFC on or before the Closing Date: (1) the aggregate amount of cash payable as
part of the Preferred Merger Consideration pursuant to subsection (b) will be
reduced, and the number of QFC Shares included in the Preferred Merger
Consideration will be increased, until either no cash is included in the
Preferred Merger Consideration or this Section 2.6.(c) is complied with, and
then, if necessary, (2) the aggregate amount of cash payable as part of the
Common Merger Consideration pursuant to subsection (b) will be reduced, and the
number of QFC Shares included in the Common Merger Consideration will be
increased, until this Section 2.6.(c) is complied with.
The "Closing Market Value" of each QFC Share will be equal to the
average closing price per share of the QFC Shares (as reported on the National
Market System of the National Association of Securities Dealers) for the five
trading days preceding the Closing Date.
(d) Within 30 days after determination of the Final Common Amount
pursuant to Section 2.8, the Shareholders jointly and severally agree that they
will return to QFC, by wire transfer to an account designated by QFC, the amount
(if any) by which:
(i) the amount previously paid pursuant to Section 2.6.(a) or Section 2.7,
as the case may be;
EXCEEDS:
(ii) the total amount of cash payable to the Shareholders as part of the
Merger Consideration, based on the Final Balance Sheet.
2.7 TAXABLE TRANSACTION ELECTION. If the Shareholders so elect
(which election would be a "Taxable Transaction Election" as defined herein), by
delivering to QFC a joint written notice to such effect executed by each
Shareholder not later than 9:00 am (Seattle time) on the Closing Date, then:
(a) CONVERSION OF SHARES. At the Merger Time:
(i) each Preferred Share outstanding immediately prior to the Merger Time
will, except as otherwise provided in Section 2.4.(a), be converted
into the right to receive (at the time and manner, and subject to the
conditions and adjustments, set forth in this Section below) an
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amount in cash, without interest, equal to the entire Preferred
Amount, divided by the number of Preferred Shares; and
(ii) each Common Share outstanding immediately prior to the Merger Time
will, except as otherwise provided in Section 2.4.(a), be converted
into the right to receive (at the time and manner, and subject to the
conditions and adjustments, set forth in this Section below) an amount
in cash, without interest, equal to the entire Final Common Amount,
divided by the number of Common Shares.
(b) CLOSING DATE PAYMENT. On the Closing Date, QFC will pay to the
Representative Shareholder, for the account of the Shareholders, by wire
transfer to an account designated by the Representative Shareholder, the
amount by which:
(i) the total amount of cash that would have been payable to the
Shareholders as part of the Merger Consideration, if the Shareholders
had not made a Taxable Transaction Election, and if such amount were
based on the Estimated Balance Sheet, rather than the Final Balance
Sheet,
EXCEEDS:
(ii) $4,000,000.
(c) ADDITIONAL CASH PAYMENT. On the twentieth Business Day after the
date the Shareholders deliver to QFC a Taxable Transaction Election (or, if
later, on the Closing Date), QFC will pay to the Representative
Shareholder, for the account of the Shareholders, by wire transfer to an
account designated by the Representative Shareholder, the amount by which:
(i) the Estimated Total Amount;
EXCEEDS:
(ii) the sum of the amount paid on the Closing Date pursuant to
Section 2.7.(b) plus $4,000,000.
(d) FINAL CASH PAYMENT. Within 30 days after determination of the
Final Common Amount pursuant to Section 2.8 (whether upon the failure of
the Representative Shareholder timely to object to QFC's calculation
thereof, upon agreement between QFC and the Representative Shareholder or
upon determination by a firm of independent
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accountants), QFC will pay to the Representative Shareholder, for the
account of the Shareholders, by wire transfer to an account designated by
the Representative Shareholder, the amount (if any) by which:
(i) the Final Total Amount,
EXCEEDS:
(ii) the aggregate amount previously paid pursuant to Sections 2.7.(b) and
2.7.(c).
2.8 ESTIMATED AND FINAL BALANCE SHEETS. (a) Not later than the
Business Day preceding the Closing Date and not earlier than the fifth Business
Day preceding the Closing Date, the Company will prepare in accordance with
Section 2.8.(c), and deliver to QFC, an estimated balance sheet of the Surviving
Company as of the close of business on the Closing Date and a certificate based
on such balance sheet setting forth the Company's calculation of the Final Total
Amount (such balance sheet, and such certificate, together, the "Estimated
Balance Sheet").
(b) The Shareholders jointly and severally agree that they will, as
promptly as practicable after the Closing Date, and in any event within 60 days
after the Closing Date, prepare in accordance with Section 2.8.(c), and deliver
to QFC, a balance sheet of the Surviving Company as of the close of business on
the Closing Date and a certificate, signed by the Representative Shareholder,
based on such balance sheet and setting forth the Shareholders' calculation of
the Final Total Amount (such balance sheet, and such certificate, together, the
"Final Balance Sheet"). QFC will reimburse the Shareholders for the reasonable
compensation payable to personnel that the Shareholders are required to employ
in order to prepare the Final Balance Sheet.
(c) The Estimated Balance Sheet and the Final Balance Sheet will be
prepared in accordance with GAAP and the next sentence (whether or not the next
sentence is consistent with GAAP). The Estimated Balance Sheet and the Final
Balance Sheet will: (i) reflect the effect of the Spin-Off, the Merger and the
other transactions contemplated hereby (but will not reflect any benefits to the
Company expected or contemplated after the Merger as a result of the Merger and
other transactions contemplated hereby); (ii) not include the Excluded
Properties as assets of the Company; (iii) not include the Excluded Liabilities
as liabilities of the Company; (iv) use reasonable methods for pro-ration of
periodic expenses and income (such as rent, Taxes, assessments and utility
charges), including them as current liabilities or assets, as the case may be;
(v)reflect the payment of any dividend on the Preferred Shares paid or to be
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paid to any Person who held such shares before the Closing Date;(vi) reflect the
payment of all Transaction Expenses paid on or before the Closing Date, and
include in current liabilities all Transaction Expenses incurred but not paid on
or before the Closing Date; (vii) include in current liabilities the effect on
the Company of any Tax incurred through the Closing Date or as a result of the
transactions contemplated hereby; (viii) not include the Right of First Refusal
as an asset of the Company; (ix) reflect the accrual of rent for all periods
before the Closing Date in accordance with generally accepted accounting
principles, as described in Section 4.8.(b) (though inconsistent with the method
of accrual used to prepare the Financial Statements), (x) treat as inventory
supplies purchased by the Company that are incorporated into a product that is
sold at retail (such as, without limitation, packaging, but excluding
maintenance supplies and supplies associated with the operation of stores) in
accordance with generally accepted accounting principles (though inconsistent
with the basis on which the Financial Statements were prepared), (xi) be
prepared using the "first in first out" method for valuing inventory in
accordance with generally accepted accounting principles (on a basis consistent
with that used to prepare the December 31, 1995 statements included in the
Financial Statements, including without limitation, using the percentages off
retail used in such statements, but on a "first in first out" basis) and
(xii) NOT reflect the effect of the sale of any Property Sold After Signing, but
be prepared as if each such sale had not occurred at the time of the Estimated
Balance Sheet and the Final Balance Sheet. Without limiting the generality of
clause (xii) of the preceding sentence, the Estimated Balance Sheet and the
Final Balance Sheet will (A) include in current assets all of the current assets
sold in any sale of Property Sold After Signing, (B) not include in current
assets the proceeds of any sale of a Property Sold After Signing,(C) include as
Debt any Debt repaid with the proceeds of a sale of a Property Sold After
Signing and (D) not reflect the payment or accrual of any expenses incurred by
the Company in completing each sale of a Property Sold After Signing in
accordance with terms of such sale (including without limitation federal income
taxes on the gain recognized by the Company upon such sale, real estate excise
and other Taxes incurred, and other expenses incurred in accordance with the
terms of such sale).
(d) If QFC disagrees with the Shareholders' calculation of Final
Total Amount, QFC may from time to time give to the Representative Shareholder
notice of such alternative calculation (the "Notice of Alternative
Calculation"), which will (i) set forth QFC's calculation of the Final Total
Amount, (ii) explain each item and amount with which QFC disagrees and (iii) set
forth a proposed alternate amount. The Notice of
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Alternative Calculation, if any, will be delivered to the Representative
Shareholder within 30 days after QFC receives the Final Balance Sheet.
(e) If a Notice of Alternative Calculation shall be delivered as
described in Section 2.8.(d), the parties will use their best efforts to reach
agreement on the disputed items or amounts in order to agree thereupon. Any
such amount agreed upon by QFC and the Representative Shareholder will be
conclusive and binding upon all parties hereto.
(f) If QFC and the Representative Shareholder are not able to reach
agreement as to the amount of the Final Total Amount within 60 days after the
Representative Shareholder's receipt of a Notice of Alternative Calculation,
then Deloitte & Touche will determine the Final Total Amount, which
determination will be binding upon all parties hereto. The parties will bear
their own costs and expenses associated with a disagreement resolved pursuant to
this subsection, and the cost of such accountants' review and determination will
be borne one-half by QFC and one-half by the Shareholders (jointly and
severally).
2.9 SALES OF STORES TO AG AND OTHERS. (a) The parties acknowledge
that certain of the leases listed on SCHEDULE 4.18 provide that AG, as lessor,
is entitled to a right of first refusal with respect to the property leased to
the Company under such lease, even to other members of AG (each such right of
first refusal, an "AG Right of First Refusal"). The Company will report to AG,
as the purchase price hereunder for the respective properties subject to the AG
Rights of First Refusal, an allocation of a portion the Merger Consideration in
accordance with QFC's written instructions. If AG exercises any AG Right of
First Refusal, the Company will perform its obligations thereunder, including
without limitation its obligation to sell the property subject to the AG Right
of First Refusal to AG in accordance with the AG Right of First Refusal. Any
such sale will take place either before the Closing Date, or on the Closing
Date, but in any event before the Merger Time. If the conditions to any party's
obligation to consummate the Merger will not be satisfied on the scheduled
Closing Date because such sale has not taken place, such party may designate a
Closing Date later than the scheduled Closing Date as provided in Section 3.1.
(b) The Company will, as directed by QFC in writing, sell one or more
of the Included Properties to such Persons and on such terms (and only such
terms) as QFC may direct. Each such sale will take place on the Closing Date
(but in any event before the Merger Time) or (subject to the consent of the
Company, which will not unreasonably be withheld) before the Closing Date.
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(c) Each Included Property that is sold to AG or any other Person
pursuant to subsection (a) above on or before the Closing Date is referred to
herein as a "Property Sold After Signing." The Company will hold all of the
proceeds of each sale of a Property Sold After Signing in the same form
received, and will not apply any such proceeds to pay any expenses or
liabilities of the Company, PROVIDED that the Company will repay Debt secured by
the Property Sold After Signing, if and to the extent required to do so by the
terms of such Debt and, to the extent necessary to complete such sale, the
Company will pay expenses associated with such sale in accordance with the terms
of such sale. The Estimated Total Amount and Final Total Amount will be
adjusted as set forth in Section 2.3.(a) to account for the sale of the
Properties Sold After Signing.
2.10 THE SURVIVING COMPANY. (a) At the Merger Time, the articles of
incorporation of the Surviving Company will continue to be (or will be amended
so that they are) substantially the same as the articles of incorporation of
Newco in effect at the Merger Time.
(b) At the Merger Time, the bylaws of the Surviving Company will
continue to be (or will be amended so that they are) substantially the same as
the bylaws of Newco in effect at the Merger Time.
(c) From and after the Merger Time, until successors are duly elected
or appointed and qualified in accordance with applicable law, the directors and
officers of Newco at the Merger Time will be the directors and officers of the
Surviving Company.
ARTICLE 3
CLOSING; CONDITIONS PRECEDENT
3.1 CLOSING. The "Closing Date" will be a Business Day on or before
the Outside Closing Date agreed upon by QFC and the Representative Shareholder
or, if they fail so to agree, the Outside Closing Date, PROVIDED that, if on or
before the Closing Date one or the other of QFC or the Representative
Shareholder reasonably determines that it (the "Performing Party") will satisfy
the conditions to the obligation of the other (the "Nonperforming Party") to
consummate the Merger on the scheduled Closing Date, but that the Nonperforming
Party will not satisfy the conditions to the obligation of the Performing Party
to consummate the Merger on the scheduled Closing Date, then the Performing
Party may designate (but will have no obligation so to designate) as the
"Closing Date" a later day, not more than 60 days after the Outside Closing
Date, that the Performing Party determines is the earliest practicable day on
which such conditions will be satisfied and PROVIDED further, that the
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"Closing Date" may, in any event, be any day agreed to by QFC and the
Representative Shareholder.
At a closing to be held at the offices of Xxxxx & Xxxxx P.L.L.C. in
Seattle, Washington, on the Closing Date:
(a) LEASES. The Company and the Shareholders will cause the Spin-Off
Company to execute and deliver to QFC one or more Long-Term Store Leases in
substantially the form of EXHIBIT A, covering such of the Lease-Back Properties
as are Excluded Properties. QFC will execute and deliver to the Spin-Off
Company Long-Term Store Leases in substantially the form of EXHIBIT A, covering
such of the Lease-Back Properties as are Excluded Properties.
(b) RIGHT OF FIRST REFUSAL. The Company and the Shareholders will
cause the Spin-Off Company to execute and deliver, to QFC (or, at QFC's option,
the Surviving Company), and QFC (or at QFC's option, the Surviving Company) will
execute and deliver to the Spin-Off Company, the Right of First Refusal in
substantially the form of EXHIBIT B.
(c) AG STOCK AGREEMENT. QFC will execute and deliver to the
Shareholders the AG Stock Agreement in substantially the form of EXHIBIT C.
(d) INVESTORS RIGHTS AGREEMENT. Each Shareholder will execute and
deliver to QFC, and QFC will execute and deliver to the Shareholders, the
Investors Rights Agreement in substantially the form of EXHIBIT D, unless no QFC
Shares are included in the Merger Consideration.
(e) PLEDGE OF QFC SHARES. Each Shareholder will execute and deliver
to QFC a Pledge Agreement in substantially the form of EXHIBIT E and perform all
of such Shareholder's obligations to be performed thereunder on or before the
Closing Date. The initial "Minimum Collateral Value" specified in Section 2(b)
of each Shareholder's Pledge Agreement will be a dollar figure designated by the
Representative Shareholder by written notice to QFC not later than the close of
business on the Business Day preceding the Closing Date, which Minimum
Collateral Values will, in the aggregate, not be less than $4,000,000. If the
Representative Shareholder fails so to designate the Minimum Collateral Value to
be included in each Pledge Agreement or designates Minimum Collateral Values
that are, in the aggregate, less than $4,000,000, QFC will designate the
"Minimum Collateral Value" specified in Section 2(b)(i) of each Shareholder's
Pledge Agreement.
(f) SURRENDER OF SHARES. Each Shareholder will surrender to QFC the
certificate or certificates representing the
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Preferred Shares and Common Shares held by it, duly endorsed or accompanied by
stock powers duly endorsed in blank with signatures appropriately guaranteed.
(g) MERGER CONSIDERATION. QFC will pay to the Representative
Shareholder, for the account of each Shareholder, the amount of cash (if any)
payable on the Closing Date pursuant to Section 2.6.(a). QFC will deliver to
the Representative Shareholder, for the account of each Shareholder,
certificates representing the QFC Shares (if any) to be delivered as part of the
Merger Consideration, registered in the name of the respective Shareholders.
(h) ARTICLES OF MERGER. On the Closing Date (or, if not reasonably
practicable, on the following Business Day), the Company and Newco will file
with the Secretary of State of the State of Washington articles of merger
complying with RCW 23B.11.050 and will make all other filings and take all other
actions required by the Washington BCA in connection with the Merger. The
Merger will become effective at the "Merger Time," which is the time at which
such articles of merger are duly filed with the Secretary of State of the State
of Washington.
(i) FURTHER ASSURANCES. Subject to the terms and conditions of this
Agreement, each party will use its best efforts to take, or cause to be taken,
all actions and to do, or cause to be done, all things necessary, proper or
advisable under applicable laws and regulations to consummate the Merger. At
and after the Merger Time, the officers and directors of the Company and Newco
will be authorized to execute and deliver, in the name and on behalf of the
Company or Newco, any deeds, bills of sale, assignments or assurances and to
take and do, in the name and on behalf of the Company or Newco, any other
actions and things to vest, perfect or confirm of record or otherwise in the
Surviving Company any and all right, title and interest in, to and under any of
the rights, properties or assets of the Company.
3.2 CONDITIONS TO THE OBLIGATIONS OF EACH PARTY. The obligations of
QFC, Newco, the Company and each Shareholder to consummate the Merger are
subject to the satisfaction (or joint written waiver by QFC, the Company and the
Representative Shareholder) of the following conditions precedent on the Closing
Date:
(a) no provision of any applicable law or regulation and no judgment,
injunction, order or decree shall prohibit the consummation of the Merger;
(b) any applicable waiting period under the Xxxx-Xxxxx-Xxxxxx Act
relating to the Merger shall have expired or been terminated;
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(c) no proceeding seeking to prohibit the Merger shall have been
instituted by any Person other than a party hereto before any court,
arbitrator or governmental body, agency or official and be pending; and
(d) the Merger qualifies for tax-free treatment as a reorganization
under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal Revenue Code
(unless the Shareholders have made a Taxable Transaction Election).
3.3 CONDITIONS TO THE OBLIGATIONS OF THE COMPANY AND THE
SHAREHOLDERS. The obligation of the Company and the Shareholders to consummate
the Merger are subject to the satisfaction (or written waiver by the Company and
the Representative Shareholder) of the following further conditions precedent on
the Closing Date:
(a) tender by QFC and Newco of the payment and the documents required
to be delivered by them pursuant to Section 3.1;
(b) QFC and Newco shall have performed in all material respects all
of their respective obligations hereunder required to be performed on or
before the Closing Date;
(c) the representations and warranties of QFC and Newco contained in
this Agreement and in any certificate or other writing delivered by QFC
pursuant hereto shall be true in all material respects;
(d) receipt by the Company and the Representative Shareholder of a
certificate of an officer of QFC as to the satisfaction of the conditions
set forth in clauses (b) and (c) above;
(e) receipt by the Company and the Representative Shareholder of an
opinion, addressed to the Shareholders, of Xxxxx & Gates P.L.L.C., counsel
for QFC, in substantially the form of EXHIBIT F; and
(f) receipt by the Company of all documents it may reasonably request
relating to the existence, good standing and status of QFC and Newco and
the authority of the Persons executing this Agreement and other documents
on behalf of QFC and Newco.
3.4 CONDITIONS TO OBLIGATIONS OF QFC AND NEWCO. The obligations of
QFC and Newco to consummate the Merger are subject to the satisfaction (or
written waiver by QFC) of the following further conditions precedent on the
Closing Date:
-00- Xxxxxx Xxxxxxxxx
(a) tender by the Company, the Spin-Off Company and the Shareholders
of the documents required to be delivered by them pursuant to Section 3.1;
(b) QFC shall not have determined, based on the results of its
investigation of environmental matters related to the Company and the
Relevant Properties (including without limitation the Company's compliance
with Environmental Laws and potential liabilities of the Company pursuant
to Environmental Laws) performed by QFC's officers, attorneys, accountants
and other representatives, that there is a material likelihood that any
liability or liabilities exist or will arise relating to the environmental
matters so investigated that, in the aggregate, exceed $100,000;
(c) the Company and the Shareholders shall have performed in all
material respects all of their respective obligations hereunder required to
be performed on or before the Closing Date (including without the
limitation their obligation to complete the Spin-Off pursuant to
Section 2.1);
(d) the representations and warranties of the Company and the
Shareholders contained in this Agreement, the Long-Term Store Leases, the
Investors Rights Agreement and the Pledge Agreements and in any certificate
or other writing delivered by the Company or any Shareholder pursuant
hereto shall be true in all material respects;
(e) no court, arbitrator or governmental body, agency or official
shall have issued any order, and there shall not be any statute, rule or
regulation, restraining the effective operation of the business of the
Company after the Merger Time;
(f) receipt by QFC of certificates of the Representative Shareholder
and an officer of the Company as to the satisfaction of the conditions set
forth in clauses (b) through (d) above;
(g) receipt by QFC of an opinion of McGavick Xxxxxx, counsel for the
Company and the Spin-Off Company and special counsel for the Shareholders,
in substantially the form of EXHIBIT G;
(h) receipt by QFC of an opinion of Xxxxx & Gates P.L.L.C. addressed
to QFC and in form and substance reasonably acceptable to QFC, as to:
(i) the tax consequences of the Merger, including an opinion to the effect
that the Merger qualifies for tax-free treatment as a
-00- Xxxxxx Xxxxxxxxx
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code (unless the Shareholders have made a Taxable Transaction
Election, in which case such opinion will include an opinion to the effect
that the Company will not recognize any taxable income or gain in the
Merger under the Internal Revenue Code) and (ii) the tax consequences of
the Spin-Off, including an opinion that the Spin-Off qualifies for tax-free
treatment as a transaction described in Section 355(a)(1) of the Internal
Revenue Code; and receipt by QFC of a certificate of an officer of the
Company as to such factual matters as Xxxxx & Xxxxx P.L.L.C. reasonably
determines are necessary in order to enable it render such an opinion;
(i) receipt by QFC of a certificate of each Shareholder as required
by Section 1445 of the Internal Revenue Code; and
(j) receipt by QFC of all documents it may reasonably request
relating to the existence, good standing and status of the Company and the
Spin-Off Company and the authority of the Persons executing this Agreement
and other documents on behalf of the Company, the Spin-Off Company and the
Shareholders.
ARTICLE 4
REPRESENTATIONS OF THE COMPANY
AND THE SHAREHOLDERS
The Company and each of the Shareholders jointly and severally
represent and warrant to QFC, on the date hereof and on the Closing Date, as
follows:
4.1 CORPORATE EXISTENCE AND POWER. (a) The Company is a corporation
duly incorporated, validly existing and qualified to transact business in the
corporate form under the laws of the State of Washington, and has all corporate
powers and all governmental licenses, authorizations, consents and approvals
required to carry on its business as now conducted. The Company has heretofore
delivered to QFC true and complete copies of the Company's articles of
incorporation and bylaws as currently in effect.
(b) Each Shareholder that executes this Agreement or sells Preferred
Shares or Common Shares hereunder as a trustee has all fiduciary powers
(pursuant to the instruments and agreements establishing such trust and
applicable law) required to execute, deliver and perform this Agreement, the
Investors Rights Agreement and the Pledge Agreement to which it is a party, as
such a trustee, executor or personal representative.
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4.2 CORPORATE AUTHORIZATION. The execution, delivery and performance
by the Company of this Agreement and the consummation by the Company of the
Merger are within the Company's corporate powers and have been duly authorized
by all necessary corporate action on the part of the Company. The execution,
delivery and performance by each Shareholder that executes this Agreement as a
trustee and the consummation by each such Shareholder of the Merger are within
such Shareholder's fiduciary powers and have been duly authorized by all
necessary trustee, beneficiary and other legal action. The Company's board of
directors has adopted, approved and unanimously recommended to the Company's
shareholders this Agreement and the Merger. The Shareholders have unanimously
approved this Agreement and the Merger. This Agreement constitutes a valid and
binding agreement of the Company and each Shareholder.
4.3 GOVERNMENTAL AUTHORIZATION; CONSENTS. (a) The execution, delivery
and performance by the Company of this Agreement and the consummation by the
Company of the Merger require no action by or in respect of, or filing with, any
governmental body, agency, official or authority other than: (i) compliance with
the applicable requirements of the Xxxx-Xxxxx-Xxxxxx Act and expiration or early
termination of the waiting period thereunder; (ii) compliance with the
applicable notice requirements of the WARN Act; (iii) the filing of articles of
merger in accordance with Section 3.1.(h); (iv) actions or filings necessary in
connection with licenses, franchises, permits and other similar authorizations
that might be terminated or become terminable, as indicated in SCHEDULE 4.17 and
(v) compliance with the notice requirement of any license, franchise, permit or
other similar authorization listed in SCHEDULE 4.17.
(b) No consent, approval, waiver or other action by any Person under
any contract, agreement, indenture, lease, instrument or other document to which
the Company is a party or by which it or any Relevant Property or other asset of
the Company is bound (other than any agreement with respect to Debt of the
Company that QFC has advised the Company will be repaid immediately on
consummation of the Merger) is required or necessary for the execution, delivery
and performance of this Agreement by the Company or the consummation of the
Merger, except (on the date hereof, but not on the Closing Date) as set forth in
SCHEDULE 4.3.
4.4 NON-CONTRAVENTION. The execution, delivery and performance by
the Company and each Shareholder of this Agreement and the consummation by the
Company of the Merger do not and will not, assuming compliance with the matters
referred to in Section 4.3, (i) contravene or conflict with the articles of
incorporation or bylaws of the Company; (ii) contravene or
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conflict with the trust agreement or any other instrument or agreements
establishing the trust in which any Shareholder holds any Preferred Shares or
Common Shares as trustee; (iii) contravene or conflict with or constitute a
violation of any provision of any law, regulation, judgment, injunction, order
or decree binding upon or applicable to the Company or any Shareholder;
(iv) contravene or conflict with, constitute a violation of or a default under,
give rise to a right of termination, cancellation or acceleration of any right
or obligation of the Company or to a loss of any benefit to which the Company is
entitled under, any provision of any agreement, contract or other instrument
binding upon the Company or any license, franchise, permit or other similar
authorization held by the Company; (v) contravene or conflict with or constitute
a violation of any provision of any agreement, contract or other instrument
binding upon any Shareholder or (vi) result in the creation or imposition of any
Lien on any asset of the Company.
4.5 TITLE. Each Shareholder owns (and, at the Merger Time, QFC will
own), legally, beneficially and of record, the number of Preferred Shares or
Common Shares (as the case may be) set forth opposite such Shareholder's name on
SCHEDULE 4.5, subject to no Liens. All of the Preferred Shares and Common
Shares owned by each Shareholder have been duly authorized and validly issued
and are fully paid and non-assessable. No Shareholder has granted any proxy or
power of attorney with respect to the Preferred Shares or the Common Shares, has
not agreed to sell any of the Preferred Shares or Common Shares, has not granted
any option or right to acquire the Preferred Shares or Common Shares and is not
a party to any shareholder or voting agreement with respect to the Preferred
Shares or Common Shares, except as set forth on SCHEDULE 4.5.
4.6 CAPITALIZATION. The authorized capital stock of the Company
consists of 50,000 shares of common stock, without par value, and 50,000 shares
of preferred stock, $100 par value per share. Other than the Preferred Shares,
no shares of preferred stock of the Company are authorized or have been
designated. The Preferred Shares and the Common Shares are issued and
outstanding. Other than the Preferred Shares and the Common Shares, there are
no outstanding (i) shares of capital stock or other voting securities of the
Company, (ii) securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, or (iii) options or
other rights to acquire from the Company, or obligations of the Company to
issue, deliver, repurchase, redeem or otherwise acquire any capital stock,
voting securities or securities convertible into or exchangeable for capital
stock or voting securities of the Company (whether or not now exercisable).
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4.7 TAX-RELATED REPRESENTATIONS. (a) No Shareholder has any present
plan, intention or arrangement to dispose of any of the QFC Shares to be
delivered to it in the Merger (if any).
(b) Immediately before the Merger Time, the Company will have no
liabilities (including without limitation any liabilities enforceable against
assets of the Company, whether or not entitled to full recourse against all
assets of the Company) other than liabilities incurred by the Company in the
ordinary course of its business.
(c) No Shareholder received any of the Shares held by it except by
purchase, in exchange for fair consideration, or by BONA FIDE gift from a
relative (or, in the case of a Shareholder who is a trust, from a relative of
the beneficiary of such Shareholder). No Shareholder received any of the Shares
held by it as compensation for the performance of services by such Shareholder
or any Affiliate of such Shareholder. Each Shareholder has held its Shares as a
capital asset for more than one year.
(d) On the Closing Date each factual statement included in the
certificate of an officer of the Company relied upon in the opinion referred to
in Section 3.4.(h), and each factual assumption stated in such opinion, is true
and correct in all respects.
(e) The Company has no present plan, intention or arrangement to
dispose of any Excluded Property or Swing Property that will be subject to the
Right of First Refusal or any Long-Term Store Lease, except to the Spin-Off
Company in the Spin-Off. Neither the Spin-Off Company nor any Shareholder has
any present plan, intention or arrangement to dispose of any Excluded Property
or Swing Property that will be subject to the Right of First Refusal or any
Long-Term Store Lease.
4.8 FINANCIAL STATEMENTS. (a) The audited balance sheet, statement of
operations and statement of changes in shareholders' equity of the Company at
December 31, 1995 and for the fiscal year of the Company then ended, and the
unaudited balance sheet, statement of operations and statement of changes in
shareholders' equity of the Company at June 30, 1996 and for the six months then
ended, all of which have been delivered to QFC before the date hereof (the
"Financial Statements"), fairly present, in accordance with GAAP (except as
described in subsection (b) below), the financial position of the Company as of
the respective dates thereof and the results of operations for the respective
periods then ended (except, in the case of the June 30, 1996 statements, for
normal year-end adjustments and adjustments required to account for inventory on
a "last in first out" basis rather than a "first in first out" basis). The
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store-by-store statements of operations for each store included in the Included
Property for the nine months ended September 30, 1996, which have been delivered
to QFC before the date hereof, fairly present the results of operations of each
such store for the nine months then ended. The unaudited balance sheet,
statement of operations and statement of changes in shareholders' equity of the
Company at September 30, 1996 and for the nine months then ended, when delivered
to QFC in accordance with Section 6.3, will fairly present, in accordance with
GAAP (except as described in subsection (b) below), the financial position of
the Company as of the date thereof and the results of operations for the nine
months then ended, and will reflect all year-end adjustments, even though such
adjustments ordinarily, customarily or typically would not be reflected on
interim financial statements (but using estimated LIFO reserves to convert such
statements from a "first in first out" basis to a "last in first out" basis).
(b) The Company is the lessee under certain real property leases,
which have been disclosed to QFC before the date hereof, which provide for
scheduled increases in the rent payable by the Company thereunder. The
financial statements referred to in subsection (a) above were not prepared in
accordance with generally accepted accounting principles in that rent under such
leases was accrued for particular periods based on the rent actually payable
under such leases for such periods, while generally accepted accounting
principles require that such rent to be accrued in earlier, lower-rent periods
at a rate higher than the rate at which rent becomes payable during such
periods. The effect of adjusting the financial statements to reflect the
accruals in accordance with generally accepted accounting principles has been
disclosed to QFC before the date hereof.
(c) As of the time delivered to QFC, the Estimated Balance Sheet
fairly presents, in accordance with Section 2.8.(c), the Company's best estimate
of the financial position of the Surviving Company as of the close of business
on the Closing Date. Neither the Company nor any Shareholder is aware, as of
the time the Estimated Balance Sheet is delivered to QFC or on the Closing Date,
of any fact or information that would lead it to believe that the Estimated
Balance Sheet is incorrect or misleading in any material respect.
4.9 ABSENCE OF CERTAIN CHANGES. Since June 30, 1996, except for the
Spin-Off, the Company has conducted its business in the ordinary course
consistent with past practice and there has not been:
(a) any event, occurrence or development of a state of circumstances
or facts which has had or reasonably could be expected to have a Material
Adverse Effect;
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(b) any declaration, setting aside or payment of any dividend or
other distribution with respect to any shares of capital stock of the
Company, or any repurchase, redemption, retirement or acquisition by the
Company of any of its capital stock, options, warrants or rights to acquire
its capital stock, or other securities of, or other ownership interests in,
the Company, except for the declaration and payment of not more than
$4,000,000 of dividends with respect to the Preferred Shares as required by
the articles of incorporation of the Company, so long as such dividend is
paid in full on or before the Closing Date
(c) any amendment of any term of any outstanding security of the
Company;
(d) any incurrence, assumption or Guaranty by the Company of any
Debt, other than Debt incurred in connection with a property sometimes
referred to as the "Bethel property," as reflected on the Estimated Closing
Balance Sheet and the Final Closing Balance Sheet (the "Bethel Debt");
(e) any creation or assumption by the Company of any Lien other than
Liens securing the Bethel Debt and Liens arising in the ordinary course of
business consistent with past practice that (i) do not secure Debt,(ii) do
not secure any obligation other than real estate taxes not yet due and
payable, or other obligations in an amount not exceeding $25,000 in the
aggregate and (iii) do not in the aggregate materially detract from the
value of the Company's assets or materially impair the use thereof in the
operation of its business;
(f) any making or acquisition of any investment in any Person,
whether by means of share purchase, capital contribution, loan, time
deposit or otherwise, other than demand deposits and short-term cash
investments made in the ordinary course of business consistent with past
practice;
(g) any prepayment by the Company of any expense, including without
limitation any rent under any lease or any insurance premium, except in the
ordinary course of business consistent with past practice;
(h) any damage, destruction or other casualty loss (whether or not
covered by insurance) affecting the business or assets of the Company
which, individually or in the aggregate, has had or would reasonably be
expected to have a Material Adverse Effect;
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(i) any transaction or commitment made, or any contract or agreement
entered into, by the Company relating to its assets or business (including
the acquisition or disposition of any assets) or any relinquishment by the
Company of any contract or other right, in either case material to the
Company, other than transactions and commitments in the ordinary course of
business consistent with past practice;
(j) any change in any method of accounting or accounting practice by
the Company;
(k) any (i) grant of any severance or termination pay to any
director, officer or employee of the Company, (ii) entering into of any
employment, deferred compensation or other similar agreement (or any
amendment to any such existing agreement) with any director, officer or
employee of the Company, (iii) increase in benefits payable under any
existing severance or termination pay policy or employment agreement or
(iv) increase in compensation, bonus or other benefits payable to
directors, officers or employees of the Company (other than routine
periodic pay increases made in the ordinary course of business and
consistent with past practice and except as described in clause (iii) of
Section 4.9.(i) above); or
(l) any labor dispute, other than routine, immaterial individual
grievances, or any activity or proceeding by a labor union or
representative thereof to organize any employees of the Company, or any
lockouts, strikes, slowdowns, work stoppages or threats thereof by or with
respect to any employees of the Company.
4.10 NO UNDISCLOSED MATERIAL LIABILITIES. There are no liabilities of
the Company of any kind whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, and there is no existing condition,
situation or set of circumstances that could reasonably be expected to result in
such a liability, other than:
(a) liabilities disclosed or provided for on the balance sheet of the
Company at June 30, 1996 included in the Financial Statements;
(b) liabilities incurred in the ordinary course of business,
consistent with past practice and in compliance with Section 4.9 since
June 30, 1996, which in the aggregate are not material to the Company; and
(c) liabilities under this Agreement.
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4.11 LITIGATION. SCHEDULE 4.11 sets forth a list of every action,
suit, investigation or proceeding pending (or, to the knowledge of the Company,
threatened) against or affecting the Company, its business, any Included
Property, any Swing Property or any of its other properties or assets before any
court or arbitrator or any governmental body, agency or official (including
without limitation any matter brought by or on behalf of an employee,
prospective employee, former employee, retiree, labor organization or other
representative of any employee of the Company). Except as indicated in SCHEDULE
4.11, none of the matters described therein, if determined or resolved adversely
in accordance with the plaintiff's demands, would reasonably be expected to have
a Material Adverse Effect or in any manner challenges or seeks to prevent,
enjoin, alter or materially delay the Merger or any of the other transactions
contemplated hereby.
4.12 INSURANCE COVERAGE. (a) The Company has furnished to QFC a list
of, and true and complete copies of, all insurance policies and fidelity bonds
covering any Included Property, any Swing Property or any of the assets,
properties, business, operations, employees, officers and directors of the
Company, a summary of which is set forth in SCHEDULE 4.12. There is no claim by
the Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid
and the Company is otherwise in full compliance with the terms and conditions of
all such policies and bonds. Except as set forth in SCHEDULE 4.12, such
policies of insurance and bonds (or other policies and bonds providing
substantially similar coverage) have been in effect since January 1, 1991 and
remain in full force and effect. Such policies of insurance and bonds are of
the type and in amounts customarily carried by Persons conducting businesses
similar to the business conducted by the Company.
(b) The Company does not know of any threatened termination of any of
such policy or bond, or any planned premium increase, or any claim, loss, event,
occurrence or situation which might reasonably be expected to give rise before
or after the Merger Time to any premium increase, with respect to any such
policy or bond.
4.13 COMPLIANCE WITH LAWS. The Company is not in violation of, and
has not since January 1, 1991 violated, any law, statute, rule, ordinance or
regulation (including without limitation any Environmental Law, Building Law or
any law, agreement, contract or policy precluding discrimination in employment
or the wrongful or improper discharge of employees), or judgment, order or
decree entered by any court, arbitrator or governmental authority, domestic or
foreign, applicable to the Company or the Relevant Property (and the Company has
not been
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threatened to be charged with or given notice of any such violation, and is not,
to its knowledge, under investigation with respect to any such violation),
except such violations as have not had, and are not reasonably expected to have,
in the aggregate, a Material Adverse Effect.
4.14 ENVIRONMENTAL MATTERS.
"CERCLA" means the Comprehensive Environmental Response, Compensation
and Liability Act of 1980, as amended by the Superfund Amendments and
Reauthorization Act of 1986, 42 U.S.C. Sections 9601 - 9675, and as otherwise
amended from time to time.
"Environmental Laws" means any and all federal, state, local and
foreign statutes, laws (including common or case law), regulations, ordinances,
rules, judgments, judicial decisions, orders, decrees, codes, plans,
injunctions, permits, concessions, grants, franchises, licenses, agreements and
governmental restrictions, relating to the environment, the protection of the
environment or emissions, discharges, releases or threatened releases of
Hazardous Substances into the environment (including without limitation into
air, surface water, ground water, or land) or otherwise relating to the
manufacture, processing, distribution, use, treatment, storage, disposal,
transport or handling of Hazardous Substances or the clean-up or other
remediation thereof, including without limitation CERCLA, the Hazardous
Materials Transportation Act, the Resource Conservation and Recovery Act, the
Clean Air Act, the Clean Water Act, the Safe Drinking Water Act, the Toxic
Substances Control Act, the Federal Water Pollution Control Act, the Washington
State Environmental Policy Act of 1971, the Washington State Hazardous Waste
Management Act, the Washington State Waste Cleanup -- Model Toxics Control Act,
the Washington State Water Pollution Control Act, the Washington State Clean Air
Act and the Washington State Industrial Safety and Health Act, in each case as
amended from time to time.
"Hazardous Substance" mean any and all pollutants, contaminants,
asbestos, urea formaldehyde, polychlorinated biphenyls, petroleum, petroleum
products, natural gas, natural gas liquids, liquified natural gas, synthetic
gas, chemicals and industrial, toxic, radioactive or hazardous substances,
materials or wastes.
"Period of Occupation" of each Relevant Property means each period of
time during which the Company owned, leased, occupied, operated or used each
Relevant Property, or conducted any activity or business on such Relevant
Property.
Except as set forth in SCHEDULE 4.14:
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(a) No notice, notification, demand, request for information,
citation, summons, complaint or order has been issued or filed, no penalty has
been assessed and no investigation or review is pending, or to the knowledge of
the Company or any Shareholder threatened, by any government or other entity
(i) with respect to any alleged violation by the Company of any Environmental
Law or (ii) with respect to any alleged failure of the Company to have any
environmental permit, certificate, license, approval, registration or
authorization required in connection with the conduct of its business or
(iii) with respect to any generation, treatment, storage, recycling,
transportation, disposal, release (including a release as defined in either or
both of 42 USC Section 9601(22) or RCW 70.105D.020(19)) or threatened release
("Release") of any Hazardous Substance.
(b) During all Periods of Occupation of each Relevant Property:
(i) the Company has not caused any polychlorinated biphenyls, urea
formaldehyde or asbestos to be present at such Relevant Property, or
permitted any such Hazardous Substances known by it to be present to remain
present at such Relevant Property;
(ii) the Company has not installed or used any underground storage
tanks at such Relevant Property, or permitted any such storage tanks known
by it to be present, whether active or abandoned, to remain present at such
Relevant Property;
(iii) there has been no Release or threatened Release of a
Hazardous Substance at, on, to or under such Relevant Property and
(iv) the Company has not caused any Hazardous Substance to be present
(or permitted any Hazardous Substance known by it to be present to remain
present) in a reportable or threshold planning quantity (where such a
quantity has been established by any Environmental Law) at, on or under
such Relevant Property.
(c) To the Company's knowledge, at all times (including without
limitation times other than the Periods of Occupation):
(i) no polychlorinated biphenyls, urea formaldehyde or asbestos is or
has been present at such Relevant Property;
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(ii) there are or have been no underground storage tanks, whether
active or abandoned, at such Relevant Property;
(iii) there neither is nor has been any Release or threatened
Release of a Hazardous Substance at, on, to or under such Relevant Property
and
(iv) no Hazardous Substance is or has been present in a reportable or
threshold planning quantity, where such a quantity has been established by
any Environmental Law, at, on or under such Relevant Property.
(d) The Company has not generated, transported, disposed of or
arranged for the transportation or disposal (directly or indirectly) of any
Hazardous Substance to any location which is listed or proposed for listing on
the National Priorities List promulgated pursuant to CERCLA or on any similar
state list of sites requiring investigation or clean-up or which is the subject
of any federal, state or local enforcement action or other investigation which
may lead to any claim for clean-up costs, remedial work, damages to natural
resources or for personal injury claims, including, but not limited to, claims
under CERCLA.
(e) No oral or written notification of a Release of a Hazardous
Substance has been filed by or on behalf of the Company and no Relevant Property
(or any part thereof) is listed or proposed for listing on the National
Priorities List promulgated pursuant to CERCLA or any similar state list of
sites requiring investigation or clean-up.
(f) There are no environmental Liens on any Relevant Property or any
asset of the Company, and no government actions have been taken or are in
process which give raise to such a Lien. The Company would not be required to
place any notice or restriction relating to the presence of Hazardous Substances
at any Relevant Property in any deed to such property.
(g) There have been no environmental investigations, studies, audits,
tests, reviews, data or other analyses conducted by or for the Company or any
Shareholder, or that are in the possession of the Company or any Shareholder,
which concern or relate to the Relevant Property and which have not been
delivered to QFC prior to the date hereof.
4.15 BUILDING LAWS.
"Building Laws" means any and all federal, state, local and foreign
statutes, laws (including common or case law), regulations, ordinances, rules,
judgments, judicial decisions,
-00- Xxxxxx Xxxxxxxxx
orders, decrees, codes, plans, injunctions, permits, concessions, grants,
franchises, licenses, agreements and governmental restrictions, relating to
zoning, planning, subdivision, building, access, preservation, fire safety and
safety generally, including without limitation the Americans with Disabilities
Act of 1990, in each case as amended from time to time.
No notice, notification, demand, request for information, citation,
summons, complaint or order has been issued or filed, no penalty has been
assessed and no investigation or review is pending or threatened by any
government or other entity (i) with respect to any alleged violation by the
Company of any Building Law or (ii) with respect to any alleged failure of the
Company to have any building permit, certificate, license, approval,
registration or authorization required in connection with the conduct of its
business.
4.16 PRODUCTS. To the knowledge of the Company and the Shareholders,
each of the products produced or sold by the Company is, and at all relevant
times has been, (i) in compliance in all material respects with all applicable
federal, state, local and foreign laws and regulations, (ii) fit for the
ordinary purposes for which it is intended to be used and conforms in all
material respects to any promises or affirmations of fact made in connection
with its sale and (iii) free of design defects.
4.17 LICENSES AND PERMITS. SCHEDULE 4.17 correctly describes each
license, franchise, permit or other similar authorization affecting, or relating
in any way to, the Company or any Included Property or Swing Property, together
with the name of the government agency or entity issuing such license or permit.
Each such authorization is valid and in full force and effect and, except as
described in SCHEDULE 4.17, none of such authorizations will be terminated or
impaired or become terminable as a result of the Merger and the other
transactions contemplated hereby.
4.18 REAL PROPERTY. (a) The Company has and will, after the Merger
Time (except in the case of Excluded Property) have:
(i) good, valid and marketable title to each Swing Property and
(ii) a valid leasehold interest in all real property (other than the
Swing Property) leased or occupied by the Company at any time on or after
June 30, 1996, used by the Company in the conduct of its business at any
time on or after June 30, 1996, or necessary to the conduct of the
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Company's business as presently conducted or as proposed to be conducted
(the "Leased Real Property"),
in each case free and clear of all Liens other than (A) Liens disclosed on the
balance sheets of the Company at December 31, 1995 and June 30, 1996 included in
the Financial Statements, securing obligations disclosed in such balance sheets,
(B) Liens which could be incurred after June 30, 1996 without causing the
representation in Section 4.9.(e) to be untrue and (C) minor imperfections of
title that do not in the aggregate materially detract from the value of the
Company's assets or materially impair the use thereof in the operation of its
business. The Company does not own any real property, other than certain of the
Excluded Properties.
(b) SCHEDULE 4.18 includes a complete list, under the following
separate headings of:
(i) all Leased Real Property included in the Included Property, under
the heading "Included Leased Real Property," identifying for each item or
parcel the lease (and all amendments modifications and supplements thereto)
pursuant to which the Company occupies such Leased Real Property and the
Improvements thereon;
(ii) all real property owned by the Company and included in the
Excluded Property (and each Swing Property), under the heading "Excluded
Owned Real Property," identifying for each item or parcel the Improvements
thereon; and
(iii) all Leased Real Property included in the Excluded Property,
under the heading "Excluded Leased Real Property," identifying for each
item or parcel the lease (and all amendments modifications and supplements
thereto) pursuant to which the Company occupies such Leased Real Property
and the Improvements thereon.
(c) To the knowledge of the Company and the Shareholders, there is no
circumstance existing, and there are no developments affecting the Leased Real
Property, the Swing Property or any of the Improvements or other properties or
assets of the Company pending or threatened, which could materially detract from
the value thereof, materially interfere with any present or intended use thereof
or materially adversely affect the marketability thereof, other than (in the
case of the Swing Property and Improvements thereon only) circumstances that are
(i) fully disclosed to QFC and, if the fair market value of any Swing Property
is determined by appraisal pursuant to Section 2.1.(h), to the appraiser or
appraisers conducting such
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appraisal, and (ii) considered in reaching a determination of the fair market
value of such Swing Property.
(d) The Company has paid all rent required to be paid under each
lease of Leased Real Property when due and has performed all other obligations
thereunder in a timely manner. To the knowledge of the Company and the
Shareholders, the lessor under each such lease has performed all of its
obligations thereunder in a timely manner. No event or condition that permits
the lessor under any such lease to terminate the term of such lease before its
scheduled expiration (nor any event or condition that, with notice or the
passage of time or both, would permit the lessor so to terminate such lease) has
occurred and is continuing or is a reasonably foreseeable result of any present
event or condition.
(e) To the knowledge of the Company and the Shareholders, the
Improvements are in good operating condition and repair and have been reasonably
maintained consistent with standards generally followed in the industry (giving
due account to the age and length of use of same, ordinary wear and tear
excepted, and excluding any Fully Depreciated Improvements), are suitable for
their present uses and are structurally sound.
(f) Each item or parcel of Leased Real Property and Swing Property,
and each Improvement thereon, has, and after the Merger Time will have, access
to:
(i) a public road and
(ii) all public utilities necessary for conduct of the Company's
business as currently conducted or as proposed to be conducted (including,
as applicable, water supply, storm and sanitary sewers, telephone, gas and
electrical connections and fire protection),
in each case either directly or by a public right of way or duly recorded and
perfected perpetual private easement. There is no circumstance existing, and
there are no developments pending or threatened, which would interfere with such
access or the availability of such public utilities.
(g) To the knowledge of the Company and the Shareholders, none of the
Improvements encroaches upon real property of another Person, and no structure
of any other Person encroaches upon any Leased Real Property or Swing Property.
4.19 PERSONAL PROPERTY. (a) The Company has and will, after the
Merger Time (except in the case of Excluded Property), have valid, good and
marketable title to (or, in the case of leased property, valid leasehold
interests in) all personal
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property and assets (whether tangible or intangible) reflected on the balance
sheet of the Company at June 30, 1996 included in the Financial Statements or
acquired after June 30, 1996, except for (i) properties that are not necessary
to the operations of the Company and are in the aggregate not material and
(ii) inventory, in each case to the extent sold in the ordinary course of
business consistent with past practice. The personal property owned or leased
by the Company includes all personal property located on each item or parcel of
Leased Real Property, Swing Property or Excluded Property (other than transitory
personal property of customers of the Company and others). None of such
personal property or assets is subject to any Lien other than (A) Liens
disclosed on the balance sheets of the Company at December 31, 1995 and June 30,
1996 included in the Financial Statements, securing obligations disclosed in
such balance sheets and (B) Liens which could be incurred after June 30, 1996
without causing the representation in Section 4.9.(e) to be untrue.
(b) To the knowledge of the Company and the Shareholders, the
equipment owned or leased by the Company is in good operating condition and
repair and has been reasonably maintained consistent with standards generally
followed in the industry (giving due account to the age and length of use of
same, ordinary wear and tear excepted, and excluding any Fully Depreciated
equipment) and is suitable for its present uses.
(c) The Company owns, legally, beneficially and of record, the AG
Stock, subject to no Liens. The AG Stock is fully paid and non-assessable and,
to the knowledge of the Company and the Shareholders, was duly authorized and
validly issued.
4.20 INTELLECTUAL PROPERTY.
"Intellectual Property Right" means any trademark, service xxxx,
registration thereof or application for registration therefor, trade name,
invention, patent, patent application, trade secret, know-how, copyright,
copyright registration, application for copyright registration, or any other
similar type of proprietary intellectual property right, in each case which is
owned or licensed by the Company or any Affiliate of the Company or used or held
for use in connection with any Included Property or Swing Property.
(a) SCHEDULE 4.20 is a complete list of all Intellectual Property
Rights of the Company, specifying as to each, as applicable: (i) the nature of
such Intellectual Property Right; (ii) the owner of such Intellectual Property
Right; (iii) the jurisdiction by or in which such Intellectual Property Right
has been issued or registered, or in which an application for such issuance or
registration has been filed (including the respective registration or
application numbers), or in which such
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Intellectual Property Right is recognized without regard to registration; and
(iv) material licenses, sublicenses and other agreements as to which the Company
is a party and pursuant to which any Person is authorized to use such
Intellectual Property Right, including the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty and
the term thereof.
(b) The Company has not since January 1, 1991 been sued or charged in
writing with, or been a defendant in, any claim, suit, action or proceeding
relating to its business (other than matters that have been finally terminated
prior to the date hereof without liability to the Company) and that involves a
claim of infringement of any patent, trademark, service xxxx or copyright, and
neither the Company nor any Shareholder has knowledge of any claim or
infringement by the Company, nor knowledge of any continuing infringement by any
other Person of any Intellectual Property Right. No Intellectual Property Right
is subject to any outstanding order, judgment, decree, stipulation or agreement
restricting the use thereof by the Company or restricting the licensing thereof
by the Company. The Company has not entered into any agreement to indemnify any
other Person against any charge of infringement of any patent, trademark,
service xxxx or copyright.
4.21 MATERIAL CONTRACTS. (a) SCHEDULE 4.21 is a complete list of all
of the following to which the Company is a party or by which it or any Included
Property, Swing Property or other asset is subject:
(i) any lease providing for annual rentals of $10,000 or more, other
than the leases listed on SCHEDULE 4.18;
(ii) any contract for the purchase of materials, supplies, goods,
services, equipment or other assets providing for annual payments by the
Company of $10,000 or more;
(iii) any sales, distribution or other similar agreement providing for
the sale by the Company of materials, supplies, goods, services, equipment
or other assets;
(iv) any partnership, joint venture or other similar contract,
arrangement or agreement;
(v) any contract relating to Debt of the Company;
(vi) any license agreement, franchise agreement or agreement in
respect of similar rights granted to or held by the Company;
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(vii) any agency, dealer, sales representative or other similar
agreement;
(viii) any agreement, contract or commitment that currently does, or
after the Merger Time may, restrain or limit the Company from competing
with any Person, in any line of business or in any area;
(ix) any agreement, contract or commitment which is or relates to an
agreement with or for the benefit of any Affiliate of the Company; or
(x) any other agreement, contract or commitment not made in the
ordinary course of business consistent with past practice which is material
to the Company.
(b) Each agreement, contract, plan, lease, arrangement and commitment
listed in any Schedule to this Agreement or required to be disclosed by this
Section is a valid and binding agreement of the Company and is in full force and
effect; neither the Company nor, to the knowledge of the Company, any other
party thereto is in default in any material respect under the terms of any such
agreement, contract, plan, lease, arrangement or commitment; and, to the
knowledge of the Company, no event or circumstance has occurred that, with
notice or lapse of time or both, would constitute any event of default
thereunder.
(c) Each sublease, concession, license or similar agreement pursuant
to which any Person occupies, or conducts any business on, any Included Property
or Swing Property (including without limitation any espresso cart lease) is
terminable by the Company without compensation to the other party by not more
than 60 days advance notice.
4.22 GUARANTIES. SCHEDULE 4.22 is a complete list of each Guaranty by
any Shareholder, or any other Person, of any Debt or other obligation of the
Company (whether or not a monetary obligation or obligation to pay money).
4.23 EMPLOYEES. (a) The Company has provided a true and complete list
of the names and titles of all employees of the Company. The information
regarding annual salaries and other compensation of all employees of the Company
to be provided by the Company after the date hereof pursuant to Section 6.4 will
be true, correct and complete.
(b) The Company is not a party to any written or unwritten employment
agreement with any Person. The Company has not, at any time on or after
January 1, 1991, been a party to any collective bargaining agreement, other than
the agreements as listed on SCHEDULE 4.23. Except as set forth on SCHEDULE
4.23:
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(i) the Company is in compliance with all collective bargaining agreements,
(ii) there is no grievance or dispute related to any collective bargaining
agreement, nor any unfair labor practice charge or complaint, pending or, to the
knowledge of the Company or any Shareholder, threatened with regard to any
employee of the Company;(iii) to the knowledge of the Company or any
Shareholder, there is no strike, slowdown, work stoppage or other labor
controversy threatened that would involve the Company; (iv) the Company has not
closed any facility, effected any layoffs of employees or implemented any early
retirement, separation or window program within the past five years, nor has the
Company planned or announced any such action or program.
4.24 EMPLOYEE BENEFITS. (a) The Company maintains a 401(k) Plan (the
"401(k) Plan") that is accurately described in the Financial Statements. The
Company has delivered to QFC copies of the 401(k) Plan and related trust
agreement, together with all amendments thereto and written interpretations
thereof and the three most recent annual reports prepared in connection
therewith. The 401(k) Plan is qualified under Section 401(a) of the Internal
Revenue Code and has been so qualified during the period from its adoption to
date, and the trust forming a part thereof is exempt from tax pursuant to
Section 501(a) of the Internal Revenue Code. The 401(k) Plan has been
maintained in compliance with its terms and with the requirements prescribed by
any and all statutes, orders, rules and regulations (including but not limited
to ERISA and the Internal Revenue Code) which are applicable to the 401(k) Plan.
(b) Except for the 401(k) Plan and as required by the collective
bargaining agreements listed on SCHEDULE 4.23, the Company has never maintained
any employee pension benefit plan which is covered by Title IV of ERISA or
subject to the minimum funding standards under Section 412 of the Internal
Revenue Code. The Company has not partially or completely withdrawn from any
such pension benefit plan. If a "complete withdrawal" by the Company and all of
its affiliates were to occur as of the Effective Time with respect to all such
employee pension benefit plans, the Company would not incur any withdrawal
liability under Title IV of ERISA.
(c) SCHEDULE 4.24 sets forth a summary description of each
arrangement, policy or plan (whether or not written) pursuant to which the
Company provides to any of its employees or their families any employee benefit,
including without limitation any vacation, sick or personal days (or payment on
account thereof); health, life, disability or other insurance coverage; workers'
compensation; disability benefit; supplemental unemployment benefit; severance
benefit; tuition reimbursement or other educational or training benefit;
deferred compensation; retirement benefit; postretirement insurance,
compensation or
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benefit; or profit-sharing, bonus, stock option, stock appreciation right or
other form of incentive compensation (including without limitation each employee
benefit plan within the meaning of Section 3(3) of ERISA) (each, a "Benefit
Arrangement"). Each Benefit Arrangement has been maintained in substantial
compliance with its terms and with the requirements prescribed by any and all
applicable statutes, orders, rules and regulations. Since January 1, 1995 there
has been no amendment or modification of, or any announcement (whether or not
written) by the Company of any future amendment or modification of any Benefit
Arrangement, which would increase the expense of maintaining such Benefit
Arrangement.
(d) Except as described on SCHEDULE 4.24, the Company will have no
obligation to any Spin-Off Employee, any labor union, any representative of any
Spin-Off Employee or the 401(k) Plan (by the terms of any agreement, by
operation of law or otherwise) after the Closing Date on account of the 401(k)
Plan or any Benefit Arrangement.
4.25 COMPANY TAXES. (a) The Company has filed all tax returns,
statements, reports and forms required to be filed by it with respect to any Tax
when due in accordance with all applicable laws (including without limitation
federal income tax returns for all periods through December 31, 1995), and has
paid all Taxes shown as due and payable pursuant to such returns, statements,
reports and forms, or pursuant to any assessment. The Company has delivered
true and correct copies of its federal income tax returns for the years ended
December 31, 1993, 1994 and 1995. The charges, accruals and reserves on the
books of the Company in respect of Taxes are adequate and in compliance with
GAAP. There is no government, state, local jurisdiction or authority to which
any Tax is or will be properly payable by the Company, other than the United
States, the State of Washington and one or more counties in the State of
Washington.
(b) The Company has not made, nor is it required to make, any
adjustment under Section 481(a) of the Internal Revenue Code by reason of a
change in accounting method or otherwise. The Company is not, and has not been,
a United States real property holding corporation (as defined in
Section 897(c)(2) of the Internal Revenue Code) during the applicable period
specified in Section 897(c)(1)(A)(ii) of the Internal Revenue Code. Each
Shareholder is a United States person within the meaning of the Internal Revenue
Code.
(c) No federal income tax returns of the Company, and no reports or
returns of the Company to the Washington State Department of Revenue, have been
audited by the Internal Revenue Service (except as described on SCHEDULE 4.11)
or the Washington State Department of Revenue, and the Company has not agreed
with
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the Internal Revenue Service or the Washington State Department of Revenue to
any extension of the statute of limitations with respect to its Taxes for any
period.
4.26 NOT A MEMBER OF A TAX OR ERISA GROUP. No Person other than the
Company has ever operated a store at any Relevant Property, or conducted the
Company's business. The Company has never been a member of an affiliated group
of corporations (as defined in Section 1504(a) of the Internal Revenue Code) or
a combined, consolidated or unitary group (for purposes of any applicable state
or local Tax). The Company has never been a member of a controlled group of
corporations or of a group of trades or businesses (whether or not incorporated)
under common control that were treated as a single employer under Section 414 of
the Internal Revenue Code.
4.27 NO SUBSIDIARIES. There are no subsidiaries of the Company. The
Company does not hold any shares of capital stock of any corporation (other than
the AG Stock), is not a general or limited partner of any partnership, is not a
member of any limited liability company and does not otherwise hold or own any
equity or ownership interest in any Person.
4.28 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by or is authorized to act on behalf
of the Company or any Shareholder who might be entitled to any fee or commission
from QFC or any of its Affiliates upon consummation of the transactions
contemplated by this Agreement, other than Exvere, Inc., whose fees and expenses
will be paid by the Shareholders (and not by the Company).
4.29 OTHER INFORMATION. None of the documents or information
regarding the Company delivered to QFC in connection with the transactions
contemplated by this Agreement, taken together with this Agreement and the
Schedules hereto, contains any untrue statement of a material fact or omits to
state a material fact necessary in order to make the statements contained
therein not misleading.
ARTICLE 5
REPRESENTATIONS OF QFC AND NEWCO
QFC and Newco represent and warrant to the Company and the
Shareholders, on the date hereof and on the Closing Date, as follows:
5.1 CORPORATE EXISTENCE AND POWER. Each of QFC and Newco is a
corporation duly incorporated, validly existing and qualified to transact
business in the corporate form under the laws of the State of Washington, and
has all corporate powers and
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all governmental licenses, authorizations, consents and approvals required to
carry on its business as now conducted. Since the date of its incorporation,
Newco has not engaged in any activities other than in connection with or as
contemplated by this Agreement.
5.2 CORPORATE AUTHORIZATION. The execution, delivery and performance
by QFC and Newco of this Agreement and the consummation by QFC and Newco of the
Merger are within their respective corporate powers and have been duly
authorized by all necessary corporate action on the part of QFC and Newco. On
the Closing Date, Newco's board of directors will have adopted, approved and
unanimously recommended to Newco's shareholders this Agreement and the Merger.
QFC's board of directors has approved this Agreement and the Merger. This
Agreement constitutes a valid and binding agreement of QFC and Newco. At the
Merger Time, all of the QFC Shares issued to each Shareholder as part of the
Merger Consideration will have been duly authorized and validly issued, will be
fully paid and non-assessable and will be owned of record by the Shareholders
named on the certificates therefor.
5.3 GOVERNMENTAL AUTHORIZATION; CONSENTS. (a) The execution, delivery
and performance by QFC and Newco of this Agreement and the consummation by QFC
and Newco of the Merger require no action by or in respect of, or filing with,
any governmental body, agency, official or authority other than: (i) compliance
with the applicable requirements of the Xxxx-Xxxxx-Xxxxxx Act and expiration or
early termination of the waiting period thereunder; (ii) compliance with the
applicable notice requirements of the WARN Act; and (iii) the filing of articles
of merger in accordance with Section 3.1.(h).
5.4 NON-CONTRAVENTION. The execution, delivery and performance by
QFC and Newco of this Agreement and the consummation by QFC and Newco of the
Merger do not and will not, (i) contravene or conflict with the articles of
incorporation or bylaws of QFC or Newco; (ii) contravene or conflict with or
constitute a violation of any provision of any law, regulation, judgment,
injunction, order or decree binding upon or applicable to QFC or Newco;
(iii) contravene or conflict with or constitute a violation of or a default
under any provision of any agreement, contract or other instrument binding upon
QFC or Newco.
5.5 CAPITALIZATION. The authorized capital stock of QFC consists of
60,000,000 QFC Shares and 1,000,000 shares of preferred stock, par value $.001
per share. On September 7, 1996, 14,579,000 QFC Shares were issued and
outstanding. No class or series of preferred stock of QFC has been designated.
Other than as described in the preceding sentence and SCHEDULE 5.5, on
September 7, 1996 there were no outstanding
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(i) shares of capital stock or other voting securities of QFC, (ii) securities
of QFC convertible into or exchangeable for shares of capital stock or voting
securities of QFC, or (iii) options or other rights to acquire from QFC, or
obligations of QFC to issue, deliver, repurchase, redeem or otherwise acquire
any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of QFC (whether or not now
exercisable).
5.6 TAX-RELATED REPRESENTATIONS. (a) QFC is and has been in control
of Newco at all times up to the Merger Time, within the meaning of
Section 368(c) of the Internal Revenue Code.
(b) Newco has no current plan or intention to issue additional shares
of its stock that would result in QFC ceasing to have control of Merger Sub
within the meaning of Section 368(c) of the Internal Revenue Code.
(c) QFC has no current plan or intention to reacquire any of the QFC
Shares issued in the Merger.
(d) QFC has no current plan or intention: (i) to cause the Surviving
Company to be liquidated, (ii) to cause the Surviving Company to merge with and
into another corporation after the Merger Time, (iii) to sell or otherwise
dispose of any stock of the Surviving Company or (iv) to cause the Surviving
Company to sell or otherwise dispose of its assets except in the ordinary course
of business, if and to the extent that the same would cause the Merger not to
qualify for tax-free treatment as a reorganization under Sections 368(a)(1)(A)
and 368(a)(2)(D) of the Internal Revenue Code (unless the Shareholders have made
a Taxable Transaction Election).
(e) After the Merger Time, the Surviving Company will continue the
historic business of the Company or use a significant portion of the Company's
business assets in a business, in each case, within the meaning of
Section 1.368-1(d) of the Treasury Regulations.
5.7 EMPLOYEES. QFC anticipates that the operators of the Included
Properties will maintain the employment of the Company's store employees (other
than the employees employed at stores included in the Excluded Property) until
such time as their employment is terminated in the ordinary course of business.
QFC intends to interview administrative personnel of the Company regarding
continued employment with the Company after the Closing Date.
5.8 FINDERS' FEES. There is no investment banker, broker, finder or
other intermediary which has been retained by
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or is authorized to act on behalf of QFC or Newco who might be entitled to any
fee or commission from the Company or any Shareholder upon consummation of the
transactions contemplated by this Agreement.
5.9 QFC INFORMATION. QFC has filed all reports required to be filed
with the Securities and Exchange Commission since January 1, 1995 (collectively,
the "QFC SEC Reports") and has previously furnished or made available to the
Company and the Representative Shareholder true and complete copies of all QFC
SEC Reports. None of the QFC SEC Reports, as of their respective dates (as
amended through the date hereof), contained any untrue statement of material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading. The QFC SEC Reports, taken together with
this Agreement and the Schedules hereto, and the other information regarding QFC
provided by QFC to the Representative Shareholder on or before the Closing Date,
do not, as of the Closing Date, contain any untrue statement of a material fact
or omit to state a material fact necessary in order to make the statements
contained therein not misleading.
ARTICLE 6
COVENANTS OF THE COMPANY
AND THE SHAREHOLDERS
The Company and the Shareholders jointly and severally agree for the
benefit of QFC:
6.1 CONDUCT OF THE COMPANY. From the date hereof until the Merger
Time, the Company will conduct its business in the ordinary course consistent
with past practice, will maintain inventory in the quantities and types
advisable for its business and will use its best efforts to preserve intact its
business organization and relationships with third parties and to keep available
the services of its present officers and employees. Without limiting the
generality of the foregoing, from the date hereof until the Merger Time, the
Company will not, without QFC's prior written consent:
(a) adopt or propose any change in its articles of incorporation or
bylaws;
(b) merge or consolidate with any other Person or acquire a material
amount of assets of any other Person;
(c) sell, lease, license or otherwise dispose of any assets or
property except (i) pursuant to existing contracts or commitments, (ii) in
the ordinary course consistent with past practice and (iii) as described in
Section 2.1;
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(d) incur Transaction Expenses other than Transaction Expenses
reasonably incurred in an amount that does not exceed $50,000;
(e) enter into any transaction with any Affiliate of the Company;
(f) agree or commit to do any of the foregoing; or
(g) take or agree or commit to take any action that would make any
representation and warranty of the Company hereunder inaccurate in any
respect at, or as of any time prior to, the Merger Time or omit or agree or
commit to omit to take any action necessary to prevent any such
representation or warranty from being inaccurate in any respect at any such
time.
Without limiting the generality of the foregoing, from the date hereof until the
Merger Time, the Company will repair or replace each Improvement and item of
equipment owned or leased by the Company that is not in good operating condition
and repair (ordinary wear and tear excepted), will reasonably maintain the
Improvements and such equipment consistent with standards generally followed in
the industry and will cause the Improvements and such equipment to be suitable
for their present uses and (in the case of Improvements) to remain structurally
sound.
6.2 WARN ACT NOTICE. At the written direction of QFC, the Company
will distribute a notice as contemplated by the WARN Act to all of the Company's
non-store management employees, in form and substance reasonably satisfactory to
both QFC and the Company. If, at the request of the Representative Shareholder,
the Closing Date is earlier than the Outside Closing Date, the Company and the
Shareholders jointly and severally agree to pay to QFC on the Closing Date an
amount equal to the salary and cost of benefits for all non-store employees from
the Closing Date through the Outside Closing Date.
6.3 SEPTEMBER 30 FINANCIAL STATEMENTS. On or before December 31,
1996, the Company will prepare and deliver to QFC an unaudited balance sheet,
statement of operations, statement of changes in shareholders' equity and
statement of cash flows of the Company at September 30, 1996 and for the nine
months then ended.
6.4 ACCESS TO INFORMATION. From the date hereof until the Merger
Time, the Company will give QFC, its counsel, financial advisors, auditors and
other authorized representatives full access to the offices, properties, books
and records of the
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Company, will furnish to QFC, its counsel, financial advisors, auditors and
other authorized representatives such financial and operating data and other
information as such Persons may reasonably request and will instruct the
Company's employees, counsel and financial advisors to cooperate with QFC in its
investigation of the business of the Company, PROVIDED that no investigation
pursuant to this Section will affect any representation or warranty given by the
Company to QFC hereunder, and PROVIDED further that any investigation pursuant
to this Section will be conducted in such manner as not to interfere
unreasonably with the conduct of the business of the Company. Without limiting
the generality of the foregoing, after the date hereof the Company will provide
to QFC full information regarding its employees, including without limitation
their annual salaries and other compensation.
6.5 PUBLIC ANNOUNCEMENTS. The Company and each Shareholder will
consult with QFC before issuing any press release or making any public statement
with respect to this Agreement or the transactions contemplated hereby and will
not issue any such press release or make any such public statement prior to such
consultation.
6.6 OTHER OFFERS.
"Acquisition Proposal" means any offer or proposal for, or any
indication of interest in, a merger or business combination involving the
Company, a transaction involving the change of the control of the Company, the
acquisition of any of the Preferred Shares or the Common Shares or the
acquisition of any equity interest in or Debt of, or a substantial portion of
the assets of, the Company, other than the transactions with QFC and Newco
contemplated by this Agreement.
Neither any Shareholder, the Company nor any of the officers,
directors, employees, agents, advisors or representatives of the Company or any
Shareholder will, directly or indirectly, (i) take any action to solicit,
continue, initiate or encourage any Acquisition Proposal, (ii) disclose the
terms of this Agreement or the other agreements contemplated hereby, or the
status of the transactions contemplated hereby and related negotiations, to any
Person who is or may be considering making an Acquisition Proposal or
(iii) engage in negotiations with, or disclose any non-public information
relating to the Company or afford access to the properties, books or
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records of the Company to, any Person that may be considering making, or has
made, an Acquisition Proposal. The Company and each Shareholder will promptly
notify QFC after receipt of any Acquisition Proposal or any indication that any
Person is considering making an Acquisition Proposal or any request for
non-public information relating to the Company or for access to the properties,
books or records of the Company by any Person that may be considering making, or
has made, an Acquisition Proposal, and will keep QFC fully informed of the
status and details of any such Acquisition Proposal, indication or request.
6.7 NOTICES OF CERTAIN EVENTS. From the date hereof to the Merger
Time, the Company and the Shareholders will promptly notify QFC of:
(a) any notice or other communication from any Person alleging that
the consent of such Person is or may be required in connection with the
transactions contemplated by this Agreement;
(b) any notice or other communication from any governmental or
regulatory agency or authority in connection with the transactions
contemplated by this Agreement; and
(c) any action, suit, claim, investigation or proceeding commenced
or, to the best of its knowledge threatened, against, relating to or
involving or otherwise affecting the Company which are required to be
disclosed by Section 4.11 or which relate to the consummation of the
transactions contemplated by this Agreement.
6.8 APPROVALS. The Company will obtain all consents, authorizations
or approvals from the governmental agencies referred to in Section 4.3, and all
other consents, authorizations or approvals required for it to consummate the
Merger.
6.9 OBLIGATIONS OF THE COMPANY. The Shareholders jointly and
severally agree to take all action necessary to cause the Company to perform its
obligations under this Agreement and to consummate the Merger on the terms and
conditions set forth in this Agreement. Without limiting the generality of the
foregoing, each Shareholder agrees to vote all of the Preferred Shares and
Common Shares in favor of approval of this Agreement and the Merger and agrees
that it will not dissent from the Merger pursuant to RCW Chapter 23B.13.
6.10 SATISFACTION OF CONDITIONS. If any condition set forth in
Section 3.4 is not satisfied or waived by QFC in a writing expressly referring
to such condition and stating that such condition is waived, and QFC and Newco
consummate the Merger, the Shareholders jointly and severally agree to cause
each such condition to be satisfied as promptly as practicable after the Closing
Date, and in any event within 30 days after the Closing Date.
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6.11 NONCOMPETITION. (a) Each Shareholder agrees that for a period of
five full years from the Merger Time, neither it nor any of its Affiliates will:
(i) engage, either directly or indirectly, as a principal or for its
own account or solely or jointly with others, or as shareholder in any
corporation or holder of an ownership interest in any other entity, in any
business that operates a retail grocery store (other than the one retail
grocery store included in the Excluded Properties) within the State of
Washington; or
(ii) solicit, receive or accept the performance of services by any
employee employed by the Company at June 30, 1996, the date hereof or the
Closing Date, unless such employee was (1) not retained by the Surviving
Company or QFC after the Closing Date or (2) not employed by QFC or the
Surviving Company at the time of receipt or acceptance of the performance
by such employee of services;
except that:
(A) any Shareholder may own (directly or indirectly) the QFC Shares
and other shares of capital stock of QFC;
(B) any Shareholder may own (directly or indirectly) less than 5% of
the publicly traded stock of any corporation, including a corporation that
operates retail grocery stores;
(C) the Spin-Off Company may lease or sell the Excluded Properties
that, at the date hereof, constitute undeveloped real property to a Person
(other than any Shareholder or Affiliate of a Shareholder) that operates a
retail grocery store on such Excluded Property; and
(D) any Shareholder, or the Spin-Off Company, may employ store-level
employees of the Company who worked at an Excluded Property, as well as any
former employee of the Company if such former employee's employment with
the Company has been terminated by QFC and QFC has not offered such
employee employment with QFC.
(b) If any provision contained in this Section 6.11 shall for any
reason be held invalid, illegal or unenforceable in any respect, such
invalidity, illegality or unenforceability will not affect any other provisions
of this Section, but this Section will be construed as if such invalid, illegal
or unenforceable provision had never been contained herein. It is the intention
of the parties that if any of the restrictions or covenants contained herein is
held to cover a geographic area or
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to be for a length of time which is not permitted by applicable law, or in any
way construed to be too broad or to any extent invalid, such provision will not
be construed to be null, void and of no effect, but to the extent such provision
would be valid or enforceable under applicable law, a court of competent
jurisdiction will construe and interpret or reform this Section to provide for a
covenant having the maximum enforceable geographic area, time period and other
provisions (not greater than those contained herein) as shall be valid and
enforceable under such applicable law. Each Shareholder acknowledges that QFC
would be irreparably harmed by any breach of this Section and that there would
be no adequate remedy at law or in damages to compensate QFC for any such
breach. Each Shareholder agrees that QFC will be entitled to injunctive relief
requiring specific performance by such Shareholder of this Section, and each
Shareholder consents to the entry thereof.
(c) The parties hereto agree that $250,000 of the cash included in
the Merger Consideration represents payment QFC for the noncompetition covenant
contained in this Section 6.11.
6.12 CONTINUITY OF INTEREST AFTER THE MERGER TIME. No Shareholder
will dispose of any of the QFC Shares received in the Merger within two years
after the Merger Time, unless such Shareholder (at its expense) delivers to QFC
an opinion of Recognized Tax Counsel that such transfer will not violate the
continuity of shareholder interest requirement set forth in Section 1.368-1 of
the Treasury Regulations. Any Shareholder desiring to dispose of any QFC Shares
received in the Merger within two years after the Merger Time will give written
notice to QFC not less than 30 days before the date of disposition, specifying
the number of QFC Shares of which such Shareholder proposes to dispose.
6.13 EXCLUDED LIABILITIES. The Spin-Off Company and the Shareholders
hereby jointly and severally assume, and agree punctually to pay, perform and
discharge directly to the Person entitled to payment or performance when and as
required, the Excluded Liabilities (including all principal thereof and interest
thereon) and all covenants and agreements included in the agreements governing
or relating to the Excluded Liabilities, in each case as if the Spin-Off Company
and the Shareholders (jointly and severally) had been named as the original
party thereto rather than the Company, and as principal obligors and not merely
as guarantors or sureties for the Company. Without limiting the generality of
the foregoing, the Spin-Off Company and the Shareholders will perform all
covenants included in any loan agreement related to any Excluded Liability and
will cause any obligation to provide security for any Excluded Liability to be
performed by providing such security with respect to Excluded Properties or
other assets of the Spin-Off Company or the
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Shareholders, and not any Included Property or assets of the Company.
6.14 GUARANTY OF SWING OBLIGATIONS. (a) The Shareholders and the
Spin-Off Company hereby jointly and severally guaranty, for the benefit of the
Surviving Company, effective on the Closing Date, the full and punctual payment
of the Swing Obligations not included in the Excluded Property, including
without limitation all principal, interest and other amounts payable on account
of any such Swing Obligations and the full and punctual performance of all of
the obligations of the person obligated for such Swing Obligations (each, a
"Principal Obligor"). Upon failure by any Principal Obligor to pay punctually
any such amount or to perform punctually any such obligation, the Shareholders
and the Spin-Off Company jointly and severally agree that they will forthwith on
demand pay such amount or perform such obligation at the place and in the manner
specified in the agreements, documents and instruments that set forth the terms
of the relevant Swing Obligation (the "Underlying Documents"). Without limiting
the generality of the foregoing, the obligations guaranteed hereby include
(i) payment in full of the principal amount or amount payable, as the case may
be, as set forth in the definition of "Swing Receivable" in Section 2.1.(c) and
(ii) all obligations to pay amounts and to perform obligations as set forth in
the Underlying Agreements, notwithstanding the fact that the same do not accrue,
are not payable or are not incurred by the relevant Principal Obligor as a
result of any insolvency, bankruptcy, liquidation, reorganization or other
similar proceeding affecting any Principal Obligor or its assets, as fully as if
such proceeding had never been commenced.
(b) The obligations of the Shareholders and the Spin-Off Company
hereunder will be unconditional and absolute and, without limiting the
generality of the foregoing, will not be released, discharged or otherwise
affected by:
(i) any extension, renewal, settlement, compromise, waiver or release
in respect of any obligation of any Principal Obligor under any Underlying
Agreement, by operation of law or otherwise;
(ii) any modification, amendment or restatement of or supplement to
any Underlying Agreement that does not increase the amount payable on
account of the relevant Swing Obligation;
(iii) any release, non-perfection or invalidity of any direct or
indirect security for any obligation of any Principal Obligor under any
Underlying Agreement;
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(iv) any change in the corporate existence, structure or ownership of
any Principal Obligor, or any insolvency, bankruptcy, liquidation,
reorganization or other similar proceeding affecting any Principal Obligor
or its assets or any resulting release or discharge of any obligation of
such Principal Obligor contained in any Underlying Agreement;
(v) the existence of any claim, set-off or other rights which any
Shareholder or the Spin-Off Company may have at any time against any
Principal Obligor, the Surviving Company, QFC, another Shareholder, the
Spin-Off Company or any other or Person, whether in connection herewith or
any unrelated transactions, PROVIDED that nothing herein will prevent the
assertion of any such claim by separate suit or compulsory counterclaim;
(vi) any invalidity or unenforceability relating to or against any
Principal Obligor for any reason of any Underlying Agreement, or any
provision of applicable law or regulation purporting to prohibit the
performance by any Principal Obligor of any of its obligations under any
Underlying Agreement; or
(vii) any other act or omission to act or delay of any kind by any
Principal Obligor, the Surviving Company, QFC, another Shareholder, the
Spin-Off Company or any other Person or any other circumstance whatsoever
which might, but for the provisions of this paragraph, constitute a legal
or equitable discharge of any Shareholder's, or the Spin-Off Company's,
obligations hereunder.
(c) If at any time any payment of any amount payable by any Principal
Obligor under any Underlying Agreement is rescinded or must be otherwise
restored or returned upon the insolvency, bankruptcy or reorganization of such
Principal Obligor or otherwise, the Shareholders' and the Spin-Off Company's
obligations hereunder with respect to such payment will be reinstated as though
such payment had been due but not made at such time.
(d) If acceleration of the time for payment of any amount payable by
any Principal Obligor under any Underlying Agreement is stayed upon the
insolvency, bankruptcy or reorganization of such Principal Obligor, all such
amounts otherwise subject to acceleration under the terms of the Underlying
Agreements will nonetheless be payable by the Shareholders and the Spin-Off
Company hereunder forthwith on demand by the Surviving Company.
(e) The Shareholders and the Spin-Off Company irrevocably waive
acceptance hereof, presentment, demand, protest
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and any notice not provided for herein, as well as any requirement that at any
time any action be taken by any Person against any Principal Obligor or any
other Person.
(f) The Shareholders and the Spin-Off Company irrevocably waive any
and all rights to which any of them may be entitled, by operation of law or
otherwise, upon performing any obligation or making any payment hereunder to be
subrogated to the rights of the payee against any Principal Obligor with respect
to such payment or performance or otherwise to be reimbursed, indemnified or
exonerated by any Principal Obligor, another Shareholder, the Spin-Off Company
or any other Person in respect thereof.
(g) Notwithstanding any provision in any Long-Term Store Lease to the
contrary, if the Spin-Off Company fails to pay any obligation under this
Section 6.14 within 30 days after demand by QFC, QFC may set off its obligation
to pay rent under the Long-Term Store Leases against such obligation of the
Spin-Off Company, reducing the amount payable under the Long-Term Store Leases
by the amount not so paid by the Spin-Off Company hereunder.
6.15 TAX-RELATED COVENANTS. (a) The Company will not distribute cash
or other assets to its shareholders before the Merger, will not redeem any
Preferred Shares or Common Shares and will not pay any dividends on the
Preferred Shares or the Common Shares, other than (i) pursuant to the Spin-Off
and (ii) regular, normal dividends.
(b) The Company will use its best efforts to cause the Spin-Off to
qualify for tax-free treatment as a transaction described in Section 355(a)(1)
of the Internal Revenue Code and will use its best efforts to prevent the
Company from realizing any taxable gain or income, or incurring any Tax, as a
result of the Spin-Off.
(c) No Shareholder will pay to any other Shareholder, and no
Shareholder will accept from any Person other than QFC, any consideration for
entering into this Agreement or consummating any of the transactions
contemplated hereby. The Shareholders will not reallocate the Merger
Consideration among themselves or transfer any of the Merger Consideration from
one Shareholder to another, and will receive the Merger Consideration as
follows: (i) the Shareholder who holds Preferred Shares will receive all of the
Preferred Merger Consideration and (ii) each Shareholder who holds Common Shares
will receive a PRO RATA portion of the Common Merger Consideration based on the
number of Common Shares held by the respective Shareholders. Neither the
Company nor any Shareholder will treat any of the Merger Consideration as
compensation to any Shareholder who is an
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employee of the Company or allocate any of the Merger Consideration to any
employment agreement to which any Shareholder is a party.
(d) Each Shareholder will vigorously contest any Internal Revenue
Service audit in which it is asserted that the Merger does not qualify for
tax-free treatment as a reorganization under Sections 368(a)(1)(A) and
368(a)(2)(D) of the Internal Revenue Code (unless the Shareholders have made a
Taxable Transaction Election).
ARTICLE 7
COVENANTS OF QFC
QFC agrees for the benefit of the Company and the Shareholders:
7.1 PUBLIC ANNOUNCEMENTS. QFC will consult with the Representative
Shareholder before issuing any press release or making any public statement with
respect to this Agreement or the transactions contemplated hereby and, except as
may be required by applicable law or any listing agreement with any national
securities exchange, will not issue any such press release or make any such
public statement prior to such consultation.
7.2 OBLIGATIONS OF NEWCO. QFC will take all action necessary to
cause Newco to perform its obligations under this Agreement and to consummate
the Merger on the terms and conditions set forth in this Agreement.
7.3 WARN ACT. QFC acknowledges and agrees that the Surviving
Company, and not any Shareholder, will be responsible for whatever salaries may
be payable to non-store employees of the Company between the Closing Date and
the date the Surviving Company may terminate such employees in compliance with
the WARN Act (other than the Spin-Off Employees and other employees who are
employed by the Spin-Off Company, any Shareholder or any Affiliate of a
Shareholder).
7.4 ENVIRONMENTAL REPORTS. QFC will provide to the Company, as soon
as practicable after they become available (and in any event on or before the
Closing Date) copies of all written reports prepared by environmental
consultants and engineers regarding the Relevant Property, PROVIDED that no
failure by QFC to comply with this Section will affect any other provision of
this Agreement (including without limitation Sections 8.2 and 8.3 and the
representation and warranties of the Company in Sections 4.13 and 4.14), the
Company's obligations thereunder or QFC's rights and remedies under this
Agreement.
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7.5 TAX-RELATED COVENANTS. If and to the extent that any of the
following would cause the Merger not to qualify for tax-free treatment as a
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code, QFC will not (unless the Shareholders make a Taxable Transaction
Election):
(a) fail to remain in control of Newco at all times up to the Merger
Time, within the meaning of Section 368(c) of the Internal Revenue Code;
(b) permit Newco or the Surviving Company to issue additional shares
of its stock that would result in QFC ceasing to have control of Merger Sub
within the meaning of Section 368(c) of the Internal Revenue Code;
(c) reacquire any of the QFC Shares issued in the Merger;
(d) (i) permit the Surviving Company to be liquidated, (ii) permit
the Surviving Company to merge with and into another corporation after the
Merger Time, (iii) sell or otherwise dispose of any stock of the Surviving
Company or (iv) permit the Surviving Company to sell or otherwise dispose
of its assets except in the ordinary course of business; or
(e) after the Merger Time, permit the Surviving Company not to
continue the historic business of the Company or not to use a significant
portion of the Company's business assets in a business, in each case within
the meaning of Section 1.368-1(d) of the Treasury Regulations,
ARTICLE 8
SURVIVAL; INDEMNIFICATION
8.1 SURVIVAL. (a) The covenants, agreements, representations and
warranties of QFC and each Shareholder contained in this Agreement or in any
certificate or other writing delivered pursuant hereto will survive the
completion of the Merger until the third anniversary of the Closing Date or
(i) in the case of Sections 6.11 and 6.12, for the period set forth therein,
(ii) in the case of the representations and warranties contained in Sections
4.7, 4.14, 4.15, 4.24, 4.25, until expiration of the applicable statutory period
of limitations under ERISA, the Internal Revenue Code or other relevant law
(giving effect to any waiver, mitigation or extension thereof), if later and
(iii) the agreements in Sections 6.13, 6.14, Article 10 and this Article 8 will
survive indefinitely (except, in the case of the indemnity obligations under
Section 8.2, that such obligations will survive only so
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long as the representation, warranty, covenant or agreement (if any) whose
failure or breach is the basis of such indemnification obligation).
Notwithstanding the preceding sentence, any covenant, agreement, representation
or warranty in respect of which indemnity may be sought under this Article 8
will survive the time at which it would otherwise terminate pursuant to the
preceding sentence, if notice of the inaccuracy or breach thereof giving rise to
such right to indemnity shall have been given to the party against whom such
indemnity may be sought prior to such time.
(b) The covenants, agreements, representations and warranties of the
Company and Newco contained herein or in any certificate or other writing
delivered pursuant hereto will not survive the Merger Time.
8.2 GENERAL INDEMNIFICATION. (a) Subject to Section 8.2.(b), the
Shareholders jointly and severally indemnify QFC and, effective at the Merger
Time, the Surviving Company, against, and agree to hold them harmless from, any
and all damages, losses, liabilities and expenses (including without limitation
expenses of investigation and attorneys' fees and expenses in connection with
any action, suit or proceeding) ("Damages") incurred or suffered by QFC or the
Surviving Company arising out of any misrepresentation or breach of warranty,
covenant or agreement made or to be performed by any Shareholder or the Company
pursuant to this Agreement (other than breach of the representations and
warranties in Section 4.7 and 4.25 and the covenants in Section 6.12 and 6.15),
to the extent covered by Section 8.6) or arising out of the currently existing
or threatened dispute between the Company and certain labor unions regarding the
Company's contribution to employee benefit plans or arising out of the
termination by the Surviving Company of the employment of any Spin-Off Employee
or the employment by the Spin-Off Company of any Spin-Off Employee. In
determining the amount of Damages incurred or suffered by QFC or the Surviving
Company arising out of any circumstance or event, among other things, due
account shall be taken of the proceeds of insurance policies received by them,
and also of costs incurred or to be incurred by them as a result of such
circumstance or event by way of an increase in insurance premiums or compliance
with loss prevention policies and similar requirements of insurers.
(b) The Shareholders will not be obligated to pay any amount to QFC
or the Company pursuant to this Section 8.2 unless the total amount that would
be payable by the Shareholders to QFC and the Company pursuant to this
Section for all Damages indemnified hereunder (without regard to the limitation
in this subsection) exceeds $50,000.
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8.3 EXCLUDED PROPERTIES ENVIRONMENTAL INDEMNIFICATION. In addition
to the indemnity obligation set forth in Section 8.2, the Shareholders jointly
and severally indemnify QFC and, effective at the Merger Time, the Surviving
Company, against, and agree to hold them harmless from, any and all damages,
losses, liabilities and expenses (including without limitation expenses of
investigation and attorneys' and other experts' fees and expenses in connection
with any action, suit or proceeding) ("Environmental Damages") incurred or
suffered by QFC or the Surviving Company arising out of:
(a) the presence of any Hazardous Substance on, under or about any
Excluded Property, whether before or after the Closing Date;
(b) the use, production, generation, manufacture, treatment, storage,
recycling, transportation, disposal or Release of any Hazardous Substance
on or to the Excluded Property by any Person (including without limitation
the Company, the Spin-Off Company, any Shareholder, any Person who held or
holds any interest in any Excluded Property, any Person who occupies or
occupied any Excluded Property, any Affiliate of any of them and any Person
who in any manner controls or controlled any of them), whether before or
after the Closing Date;
(c) the violation by any Person (including without limitation the
Persons referred to in the preceding clause) of any Environmental Law
pertaining to any Excluded Property, whether before or after the Closing
Date (but excluding any violation by QFC of an Environmental Law that would
have occurred even if this Agreement had not been entered into and neither
the Merger nor any other transaction contemplated hereby had occurred); or
(d) any liability of any Person under any Environmental Law
pertaining to any Excluded Property, whether before or after the Closing
Date.
Without limiting the generality of the foregoing, "Environmental Damages"
includes without limitation damages, losses, liabilities and expenses,
(i) arising out of events and circumstances occurring or existing before the
Company owned the relevant Excluded Property; (ii) arising out of, or
constituting, fines, penalties, judgments, awards, liens, whether the same arise
under Environmental Laws or otherwise; (iii) whether actual, incidental or
consequential, and whether foreseeable or unforeseeable at the date hereof, the
Closing Date or any other particular time; (iv) that are "response costs" under
CERCLA or "remedial action costs" under the Model Toxics Control Act or (v) that
are incurred in connection with the remediation, investigation,
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testing, monitoring, cleanup, containment, transportation or removal of any
Hazardous Substance from any Excluded Property by the Spin-Off Company, the
Surviving Company, QFC or any other Person, regardless of whether such actions
are required by Environmental Laws.
8.4 GUARANTY OBLIGATIONS. QFC will use its best efforts to cause A.
Xxxxx Xxxxxxxxx and Xxxxxxx X. Xxxxxxxxx to be released from their obligations
under the Guaranties listed on SCHEDULE 4.22. In the event any such Guaranty is
not so released, QFC will indemnify and hold harmless each Shareholder from and
against any liability or obligation under any Guaranty of a Shareholder
(i) listed on SCHEDULE 4.22, (ii) of Debt of the Company disclosed to QFC that
reduced the Final Total Amount pursuant to Section 2.3 or (iii) of obligations
under leases listed on SCHEDULE 4.18 or SCHEDULE 4.21, other than (in each case)
any Excluded Liability and other than (in each case) the Guaranty set forth in
Section 6.14.
8.5 PROCEDURES. The party seeking indemnification under Section 8.2,
8.4 or 8.3 (the "Indemnified Party") agrees to give prompt notice to the parties
against whom indemnity is sought (each, an "Indemnifying Party") of the
assertion of any claim, or the commencement of any suit, action or proceeding in
respect of which indemnity may be sought. The Indemnifying Parties may at the
request of the Indemnified Party participate in and control the defense of any
such suit, action or proceeding at their own expense. No Indemnifying Party
will, in the defense of any such suit, action or proceeding, consent to the
entry of any judgement or enter into any settlement (except, in each case, with
the written consent of the Indemnified Party) which does not include, as to the
Indemnified Party, an unconditional release of the Indemnified Party from any
and all liability in respect of such suit, claim or proceeding. The Indemnified
Party will cooperate reasonably in the defense of any such suit, action or
proceeding. The Indemnified Party will so request the Indemnifying Parties to
control the defense of such a suit, action or proceeding at the Indemnifying
Parties' expense, PROVIDED that (i) the Indemnified Party reasonably determines
that the defense or failure to defend such suit, action or proceeding will
affect only the matters indemnified hereunder and could not reasonably be
expected to cause the Indemnified Party to incur or suffer any damage, loss,
liability or expenses not indemnified hereunder, (ii) the Indemnifying Parties
provide security by way of surety bond (or other assurances satisfactory to the
Indemnified Party in its sole discretion) of performance of their indemnity
obligations under this Agreement and (iii) failure by the Indemnifying Parties
to notify the Indemnified Party of their election to control the defense of any
such suit, action or proceeding within 15 days after notice thereof is given to
the Indemnifying Party will be deemed a
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waiver by the Indemnifying Party of its right to control the defense of such
suit, action or proceeding.
8.6 TAX INDEMNIFICATION. (a) Except as provided in Section 8.6(b),
the Shareholders jointly and severally indemnify QFC and, effective at the
Merger Time, the Surviving Company, against, and agree to hold them harmless
from, any and all damages of any type whatsoever, incurred or suffered by QFC or
the Surviving Company arising out of the fact that, as a result of events
occurring before and after the Closing Date and the Merger Time:
(i) the Spin-Off does not qualify for tax-free treatment as a
transaction described in Section 355(a)(1) of the Internal Revenue Code or
results in the realization of any taxable gain or income to the Company, or
the incurrence of any Tax by the Company, the Surviving Company or QFC; or
(ii) any representation or warranty in Section 4.7 or 4.25 proves not
to have been true and correct at the Closing Date and the Merger Time or
any covenant in Section 6.12 or 6.15 is not complied with;
except if and to the extent such Taxes or Tax Damages would not have been
incurred or suffered but for a breach of the representations and warranties of
QFC in Section 5.6 or the covenants of QFC in Section 7.5, and net of the
present value (calculated using a 9.25% discount rate) of any Tax benefit that
QFC or the Surviving Company could realize as a result of the fact giving rise
to such Tax Damages (including without limitation the Tax benefit to the
Surviving Company of the increased tax depreciation arising out of any increase
in the basis of its assets).
(b) If the representations and warranties in Section 4.7 and 4.25 are
true and correct at the Closing Date and the Merger Time and the Company
complies with the covenant in Section 6.15, then the Shareholders will not be
required to indemnify QFC or the Surviving Company for any damages of any type
whatsoever incurred or suffered by QFC or the Surviving Company arising:
(i) out of the fact that the Merger does not qualify as a tax-free
reorganization under Sections 368(a)(1)(A) and 368(a)(2)(D) of the Internal
Revenue Code, or
(ii) by reason of the appraised valuation of the Excluded Property
proving to be incorrect, so that the 90/70% test is not complied with.
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(c) In addition, the Shareholders jointly and severally indemnify QFC
and, effective at the Merger Time, the Surviving Company, against all Taxes
imposed on any party to this Agreement by reason of its entry into this
Agreement and the completion of the transactions contemplated hereby on the
Closing Date (excluding federal income Taxes, or other taxes imposed by the
State of Washington on QFC or the Surviving Company measured by the net or gross
income of QFC or the Surviving Company).
(d) QFC agrees to advise and consult with the Representative
Shareholder regarding any Taxes or Tax Damages for which indemnity may be sought
under this Section. For the purpose of determining the amount the Shareholders
are required to pay to QFC by way of indemnification under Section 8.6.(a), the
federal income Tax payable by QFC and the Surviving Company will be calculated
on the assumption that all income of QFC and the Surviving Company is taxable at
the highest marginal federal income tax rate for corporate taxpayers. Promptly
after QFC files any federal income tax return or other tax return or report
reflecting any Tax for which indemnity may be sought, QFC will deliver to the
Representative Shareholder a certificate setting forth the estimated amount of
indemnity sought. Whenever QFC amends any return filed by it, enters into any
closing agreement, settles any tax audit, tax review or tax litigation, makes a
payment of federal income Tax calculated on a basis other than that set forth in
its tax return, and whenever any judgment is entered for or against it in any
tax litigation, if the same affects the amount of indemnity sought, QFC will
deliver to the Representative Shareholder a certificate setting forth a revised
calculation of the estimated amount of indemnity sought. The failure to deliver
any such certificate will not affect the amount of indemnity payable to QFC or
the Surviving Company under this Section.
8.7 ENFORCEMENT. If within five days of demand by QFC, any
Shareholder fails to pay any amount payable pursuant to this Article 8 (unless
such Shareholder provides QFC with evidence satisfactory to QFC in its sole
discretion to establish that the circumstance giving rise to the obligation to
pay such amount will be cured not later than 20 days after such demand, so that
no amount will then be payable hereunder, and provides QFC with a surety bond in
form satisfactory to QFC for its obligation to pay any amount that is or may
(during such 20 days) become payable pursuant to this Article 8), an "Event of
Default" hereunder will have occurred and QFC will have the rights and remedies
set forth in the Pledge Agreement. If any Shareholder avoids the occurrence of
an Event of Default by providing QFC with evidence that it will cure a failure
to pay as contemplated by the preceding sentence, and such Shareholder fails to
cure the circumstance giving rise to the obligation to as set forth in such
evidence, an "Event of Default" hereunder will have occurred
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and QFC will have the rights and remedies set forth in the Pledge Agreement.
ARTICLE 9
TERMINATION
9.1 TERMINATION. This Agreement may be terminated and the Merger may
be abandoned (notwithstanding any approval of this Agreement by the shareholders
of the Company):
(a) by mutual written consent of the Representative Shareholder and
QFC at any time prior to the Merger Time;
(b) by the Representative Shareholder, at any time after the Outside
Closing Date, if the Closing Date has not occurred before the Outside
Closing Date, notwithstanding the fact that all of the conditions precedent
set forth in Section 3.4 have been satisfied, or waived by QFC;
(c) by QFC, at any time after the Outside Closing Date, if the
Closing Date has not occurred before the Outside Closing Date,
notwithstanding the fact that all of the conditions precedent set forth in
Section 3.3 have been satisfied, or waived by the Company and the
Representative Shareholder;
(d) by QFC, at any time before the Merger Time (whether or not before
the Outside Closing Date) if the Company or any Shareholder has breached
the covenant in Section 6.6; or
(e) by either the Representative Shareholder or QFC, at any time
after the Outside Closing Date, if the Closing Date has not occurred before
the Outside Closing Date and one or more of the conditions precedent set
forth in Section 3.2 has not been satisfied, unless the Person seeking to
terminate this Agreement caused such condition precedent not to be
satisfied, or did not use best efforts to cause such condition precedent to
be satisfied.
9.2 EFFECT OF TERMINATION. If this Agreement is terminated pursuant
to Section 9.1, this Agreement will become void and of no effect with no
liability on the part of any party hereto, PROVIDED that if such termination is
pursuant to clause (b), (c) or (d) of Section 9.1, QFC (if this Agreement is so
terminated by the Representative Shareholder) or the Company and the
Shareholders, jointly and severally (if this Agreement is so terminated by QFC),
will be fully liable for any breach of this Agreement and PROVIDED FURTHER that
the agreements contained in this Section and in and Article 10 will survive the
termination of this Agreement.
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ARTICLE 10
MISCELLANEOUS
10.1 NOTICES. All notices, requests and other communications to any
party hereunder will be in writing (including facsimile transmission or similar
writing) and will be given,
IF TO QFC OR NEWCO, OR TO THE SURVIVING COMPANY AFTER THE MERGER TIME:
c/o Quality Food Centers, Inc.
00000 X.X. 00xx Xxxxxx
Xxxxxxxx, Xxxxxxxxxx 00000
Attn: Xxx Xxxxxxxxxxxx
Telecopier: 000-000-0000
WITH A COPY TO:
Xxxxx & Gates P.L.L.C.
Two Union Square
000 Xxxxx Xxxxxx
Xxxxxxx, Xxxxxxxxxx 00000
Attn: Xxxx X. Xxxxxxxx
Telecopier: 000-000-0000
IF TO ANY SHAREHOLDER, OR TO THE COMPANY BEFORE THE MERGER TIME:
c/o A. Xxxxx Xxxxxxxxx
Xxx Xxxxxx, Xxxxxxxxxx 00000
Attn: A. Xxxxx Xxxxxxxxx
Telecopier:
WITH A COPY TO:
McGavick Xxxxxx
0000 Xxxxxxxx
Xxxxx 000
Xxxxxx, Xxxxxxxxxx 00000-0000
Attn: Xxx Xxxxxx
Telecopier: 000-000-0000
or such other address (within the State of Washington) or telecopier number as
such party may hereafter specify for the purpose by notice to the others. Each
such notice, request or other communication will be effective (a) if given by
mail, 72 hours after such communication is deposited in the mails with first
class postage prepaid, addressed as aforesaid or (b) otherwise, when delivered
at the address specified in this Section. Failure to provide a copy of any
notice to a person that is not a party to this Agreement will not affect the
effectiveness of the notice to such party.
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10.2 REPRESENTATIVE SHAREHOLDER. Each Shareholder hereby irrevocably
appoints and authorizes the Representative Shareholder to take such action as
agent on its behalf and to exercise such powers under this Agreement and the AG
Stock Agreement as are delegated to the Representative Shareholder by the terms
hereof and thereof, together with all such powers as are reasonably incidental
thereto, and to communicate with QFC on behalf of the Shareholders. QFC is
entitled to rely on written notices, representations and communications given to
it by the Representative Shareholder, and to treat the same as accurately
reflecting decisions of the Shareholders, without any duty to determine that
such decisions were in fact made by the Shareholders, or any duty to make
inquiry of any other Shareholder.
10.3 NATURE OF SHAREHOLDERS' OBLIGATIONS. All obligations of any
Shareholder under this Agreement are joint and several obligation of all the
Shareholders, whether or not described as joint and several in the provision of
this Agreement creating such obligation.
10.4 AMENDMENTS; NO WAIVERS. (a) Any provision of this Agreement may
be amended or waived if, and only if, such amendment or waiver is in writing and
signed, in the case of an amendment, by each party hereto, or, in the case of a
waiver, by the party against whom the waiver is to be effective (which may be
the Representative Shareholder alone, in the case of the waiver that is to be
effective against one or more of the Shareholders or the Company, if this
Agreement contemplates that such waiver may be given by the Representative
Shareholder).
(b) No failure or delay by any party in exercising any right, power
or privilege hereunder will operate as a waiver thereof nor will any single or
partial exercise thereof preclude any other or further exercise thereof or the
exercise of any other right, power or privilege. The rights and remedies herein
provided will be cumulative and not exclusive of any rights or remedies provided
by law.
10.5 EXPENSES. All costs and expenses incurred in connection with
this Agreement will be paid by the party incurring such cost or expense, except:
(a) as otherwise set forth in this Agreement (including without
limitation in Section 9.2),
(b) that if this Agreement is terminated by QFC pursuant to clause
(c) or (d) of Section 9.1, the Shareholders and the Company jointly and
severally agree to pay all expenses incurred by QFC in connection with the
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transactions contemplated hereby, including without limitation (i) fees and
expenses of legal advisors, public relations firms and other consultants
and (ii) costs incurred in preparing and negotiating this Agreement and
related documents,
(c) that if this Agreement is terminated by the Representative
Shareholder pursuant to clause (b) of Section 9.1, QFC agrees to pay all
expenses incurred by the Company and the Shareholders in connection with
the transactions contemplated hereby, including without limitation (i) fees
and expenses of legal advisors, public relations firms and other
consultants and (ii) costs incurred in preparing and negotiating this
Agreement and related documents, and
(d) if this Agreement is otherwise terminated and the Company or any
Shareholder within two years thereafter agrees to any Acquisition Proposal
(including without limitation by entering into a definitive agreement or
letter or intent, or otherwise indicating or announcing its acceptance of
any Acquisition Proposal), the Shareholders and the Company jointly and
severally agree to pay the following expenses incurred by QFC in connection
with the transaction contemplated hereby, whether incurred before or after
the date hereof: (i) real estate title commitment fees and title policy
premiums incurred in connection with ALTA extended coverage owner's or
lessee's (as appropriate) policies of title insurance in form and substance
reasonably acceptable to QFC, covering all of the Included Properties to be
issued to the Surviving Company shortly after the Merger Time,
(ii) expenses incurred to obtain a phase I environmental audit of each of
the Included Properties, and to obtain any phase II environmental audit, or
other environmental audit, report, survey, evaluation or investigation,
(iii) fees and expenses of independent accountants, real estate and other
appraisers and valuation experts and other advisors and counsel, but (in
each case) only if the party making such Acquisition Proposal makes use of
any information produced (such as title reports and environmental audit
reports) in connection with the expenses referred to in clauses (i) through
(iii) above.
Without limiting the generality of the foregoing, if the Company undertakes any
appraisals of the Excluded Properties (other than the Swing Properties) in order
to ensure compliance with the 90/70% Test, the cost thereof will be expenses to
be incurred and paid by the Company.
10.6 SUCCESSORS AND ASSIGNS. This Agreement will inure to the benefit
of and be binding upon each of the parties hereto
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and their respective successors, but no party hereto may assign, delegate or
otherwise transfer any of its obligations or rights under this Agreement, except
as provided herein.
10.7 GOVERNING LAW; SUBMISSION TO JURISDICTION. This Agreement will
be governed by and construed in accordance with the laws of the State of
Washington. The parties hereby submit to the nonexclusive personal jurisdiction
of the United States District Court for the Western District of Washington and
of any Washington state court sitting in Xxxxxx County for purposes of all legal
proceedings arising out of or relating to this Agreement or the transactions
contemplated hereby. Each party irrevocably waives, to the fullest extent
permitted by law, any objection which it may now or hereafter have to the laying
of the venue of any such proceeding brought in such a court and any claim that
any such proceeding brought in such a court has been brought in an inconvenient
forum. Each Shareholder hereby irrevocably appoints the Representations
Shareholder and each of his personal representatives as its agent to receive on
its behalf and on behalf of its property service of copies of the summons and
complaint and any other process, by personal service or by mail, which may be
served in any such proceeding. Such service may be made by mailing or
delivering a copy of such process to such agent at the address for notices
hereunder.
10.8 ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements, understandings and negotiations, both written
and oral, among any of the parties with respect to the subject matter of this
Agreement (other than the letter agreement dated November 11, 1996 regarding
confidentiality of certain information, with which the Shareholders and QFC will
comply for two years after the Closing Date or the termination of this
Agreement). No representation, inducement, promise, understanding, condition or
warranty not set forth herein has been made or relied upon by either party
hereto. Neither this Agreement nor any provision hereof is intended to confer
upon any Person other than the parties hereto any rights or remedies hereunder.
10.9 HEADINGS AND CAPTIONS. The headings and captions in this
Agreement are included for convenience of reference only and will be ignored in
the construction or interpretation hereof.
10.10 COUNTERPARTS; EFFECTIVENESS. This Agreement may be signed in any
number of counterparts, each of which will be an original, with the same effect
as if the signatures thereto and hereto were upon the same instrument. Delivery
by facsimile transmission of a signed signature page of this Agreement will be
effective as delivery of a manually executed counterpart of this Agreement.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed as of the date first above written.
QUALITY FOOD CENTERS, INC.
By
--------------------------
Title:
KU ACQUISITION CORPORATION
By
--------------------------
Title:
XXXXX XXXXXXXXX, INC.
By
--------------------------
Title:
-----------------------------
A. XXXXX XXXXXXXXX
-----------------------------
XXXXXXX X. XXXXXXXXX
-----------------------------
XXXX XXX XXXXXXX, as trustee
of the Xxxx Xxx Xxxxxxx
Trust
-----------------------------
XXXX XXXXXXX
-----------------------------
XXXX XXX XXXXXXX, as trustee
of the Xxxx Xxx Xxxxxxx
Trust
-----------------------------
XXX XXXXXX, as trustee of the
Xxxx Xxx Xxxxxxx Trust
-----------------------------
XXXX XXXXX, as trustee of the
Xxxxxxx Xxxxx Xxxxxxxxx
Trust
-----------------------------
XXXXXXX XXXXX XXXXXXXXX, as
trustee of the Xxxxxxx
Xxxxx Xxxxxxxxx Trust
-----------------------------
XXXX XXX XXXXXXX, as trustee
of the Xxxxxxx Xxxxx
Xxxxxxxxx Trust
-----------------------------
XXXXXX XXXXXX XXXXXX, as
trustee of the Xxxxxx
Xxxxxx Xxxxxx Trust
-----------------------------
XXXX XXX XXXXXXX, as trustee
of the Xxxxxx Xxxxxx
Xxxxxx Trust
-----------------------------
XXX XXXXXX, as trustee of the
Xxxxxx Xxxxxx Xxxxxx
Trust
