THE TRANSFER OF THIS AGREEMENT IS
SUBJECT TO CERTAIN PROVISIONS
CONTAINED HEREIN AND TO RESALE
RESTRICTIONS UNDER THE SECURITIES
ACT OF 1933, AS AMENDED
STOCK OPTION AGREEMENT, dated as of October 18, 1998 (this "Agreement"),
between Xxxx Xxxxx, Inc., a Delaware corporation ("Issuer"), and The Kroger Co.,
an Ohio corporation ("Grantee").
WHEREAS, Issuer, Grantee, and a wholly owned subsidiary of Grantee (the
"Merger Sub") propose to enter into an Agreement and Plan of Merger, to be dated
as of this date (the "Merger Agreement"), pursuant to which Merger Sub is to
merge with and into Issuer, with Issuer continuing as the surviving corporation
and a wholly owned subsidiary of Grantee after such merger, and in such merger,
each share of common stock, par value $.01 per share, of Issuer ("Common Stock")
will be converted to a right to receive one share of common stock, par value
$1.00 per share, of Grantee as provided in the Merger Agreement;
WHEREAS, as an inducement and condition to Grantee's willingness to enter
into the Merger Agreement and in consideration thereof, Issuer is granting to
Grantee, pursuant to the terms and subject to the conditions contained in this
Agreement, an option to purchase 19.9% of the outstanding shares of Common
Stock; and
WHEREAS, the Board of Directors of Issuer has approved the grant by Issuer
to Grantee of the Option (defined below) pursuant to this Agreement.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements set forth in this Agreement and in the Merger Agreement, the
parties agree as follows:
1. The Option. Issuer hereby grants to Grantee an unconditional,
irrevocable option (the "Option") to purchase, pursuant to the terms and subject
to the conditions hereof, up to 30,799,665 fully paid and nonassessable shares
of Common Stock at a price of $44.125 per share (the "Option Price"); provided,
however, that in no event shall the number of shares for which the Option is
exercisable exceed 19.9 % of the shares of Common Stock issued and outstanding
at the time of exercise (without giving effect to the shares of Common Stock
issued or issuable under the Option). The number of shares of Common Stock
purchasable upon exercise of the Option and the Option Price are subject to
adjustment as set forth in this Agreement.
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2. Exercise; Closing.
(a) Conditions to Exercise; Termination. Grantee or any other person that
shall become a holder of all or a part of the Option in accordance with the
terms of this Agreement (each such person, including Grantee, being referred to
as "Holder") may exercise the Option, in whole or in part, from time to time, if
but only if a Triggering Event has occurred, and prior to the occurrence of an
Exercise Termination Event (as defined below). The right to exercise the Option
shall terminate upon either (i) the occurrence of the Effective Time (as defined
in the Merger Agreement) or (ii) (x) if a Notice Date (as defined in Section
2(d)) has not previously occurred, the close of business on the earlier of (A)
the day that is 150 days after the date of a Triggering Event, (B) the date upon
which the Merger Agreement is terminated if no Termination Fee (as defined in
the Merger Agreement) could be payable by Issuer pursuant to the terms of the
Merger Agreement upon the occurrence of certain events or the passage of time,
and (C) 700 days following the date upon which the Merger Agreement is
terminated, and (y) if a Notice Date has previously occurred, 150 days after
that Notice Date (the events in (i) or (ii) being referred to as "Exercise
Termination Events").
(b) Triggering Event. A "Triggering Event" shall have occurred at such time
at which Grantee becomes entitled to receive the Additional Xxxx Xxxxx
Termination Fee from Issuer pursuant to Section 8.2(b) of the Merger Agreement.
(c) Notice of Trigger Event by Issuer. Issuer shall notify Grantee promptly
in writing of the occurrence of any Triggering Event (it being understood that
the giving of the notice by Issuer shall not be a condition to the right of
Holder to exercise the option).
(d) Notice of Exercise. If Holder shall be entitled to and desires to
exercise the Option, in whole or in part, it shall send to Issuer a written
notice (any date on which this notice is given, in accordance with Section 15,
is referred to as a "Notice Date") specifying (i) the total number of shares
that Holder will purchase pursuant to the exercise and (ii) a place and date (a
"Closing Date") not earlier than three business days nor later than 60 business
days from the related Notice Date for the closing of the purchase (a "Closing");
provided, that if a filing or any approval is required under the
Xxxx-Xxxxx-Xxxxxx Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), or prior notification to or prior approval from any regulatory authority
is required under any other law, statute, rule or regulation (including
applicable rules and regulations of national securities exchanges) in connection
with this purchase, Holder or Issuer, as required, promptly after the Notice
Date, shall file all necessary notices and applications for approval and shall
expeditiously process the same and the period of time referred to in clause (ii)
shall commence on the date on which all required notification and waiting
periods, if any, shall have expired or been terminated and all required
approvals, if any, shall have been obtained. Any exercise of the Option shall be
deemed to occur on the
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date of the Notice Date relating thereto. Each of Holder and Issuer agrees to
use its reasonable best efforts to cooperate with and provide information to the
other, for the purpose of any required notice or application for approval.
(e) Payment of Purchase Price; Delivery of Common Stock. (i) At each
Closing, Holder shall pay to Issuer the aggregate purchase price for the shares
of Common Stock purchased pursuant to the exercise of the Option in immediately
available funds by a wire transfer to a bank account designated by Issuer;
provided, that failure or refusal of Issuer to designate a bank account shall
not preclude Holder from exercising the Option, in whole or in part.
(ii) At each Closing, simultaneously with the payment of the aggregate
purchase price by Holder, Issuer shall deliver to Holder a certificate or
certificates representing the number of shares of Common Stock purchased by
Holder and, if the Option shall be exercised in part only, a new Agreement
providing for an Option evidencing the rights of Holder to purchase the balance
(as adjusted pursuant to the terms hereof) of the shares then purchasable
hereunder and the Holder shall deliver this Agreement and a letter agreeing that
the Holder will not offer to sell or otherwise dispose of such shares in
violation of applicable laws or the provisions of this Agreement.
(iii) Notwithstanding anything to the contrary contained in paragraphs (i)
and (ii) of this Section 2(e), Holder shall have the right (a "Cashless Exercise
Right") to direct the Issuer, in the written notice of exercise referred to in
Section 2(d), to reduce the number of shares of Common Stock required to be
delivered by Issuer to Holder at any Closing by such number of shares of Common
Stock that have an aggregate Market/Offer Price (as defined in Section 9(a))
equal to the aggregate purchase price payable at such Closing (but for this
paragraph (iii)), or any portion thereof, in lieu of Holder paying to the Issuer
at such Closing such aggregate purchase price or portion thereof, as the case
may be. Any exercise of the Option in which, and to the extent to which, Holder
exercises its Cashless Exercise Right pursuant to this paragraph (iii) shall be
referred to as a "Cashless Exercise."
(f) Restrictive Legend. Certificates for Common Stock delivered at a
Closing may be endorsed at the option of Issuer with a restrictive legend that
shall read substantially as follows:
"The transfer of the shares represented by this certificate is
subject to certain provisions of an agreement between the registered
holder hereof and Issuer, a copy of which agreement is on file at the
principal office of Issuer, and to resale restrictions arising under
the Securities Act of 1933, as amended. A copy of the aforementioned
agreement will be mailed to the holder without charge promptly after
receipt by Issuer of a written request therefor."
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It is understood and agreed that: (i) the reference to the resale restrictions
of the Securities Act of 1933, as amended (the "Securities Act"), in the above
legend shall be removed by delivery of substitute certificate(s) without this
reference if Holder shall have delivered to Issuer a copy of a letter from the
staff of the Securities and Exchange Commission, or a written opinion of
counsel, in form and substance reasonably satisfactory to Issuer, to the effect
that this legend is not required for purposes of the Securities Act; (ii) the
reference to the provisions of this Agreement in the above legend shall be
removed by delivery of substitute certificate(s) without such reference if the
shares have been sold or transferred in compliance with the provisions of this
Agreement and under circumstances that do not require the retention of such
reference; and (iii) the legend shall be removed in its entirety if the
conditions in the preceding clauses (i) and (ii) both are satisfied. In
addition, the certificates shall bear any other legend as may be required by
applicable law.
(g) Ownership of Record; Tender of Purchase Price; Expenses. Upon the
giving by Holder to Issuer of the written notice of exercise referred to in
Section 2(d) and, except to the extent this notice relates to a Cashless
Exercise, the tender of the applicable purchase price in immediately available
funds, Holder shall be deemed to be the holder of record of the shares of Common
Stock issuable upon the exercise, notwithstanding that the stock transfer books
of Issuer shall then be closed or that certificates representing the shares of
Common Stock shall not have been actually delivered to Holder. Issuer shall pay
all expenses, and any and all United States federal, state and local taxes and
other charges that may be payable in connection with the preparation, issuance
and delivery of stock certificates under this Section 2 in the name of Holder or
its assignee, transferee or designee.
3. Covenants of Issuer. In addition to its other agreements and covenants,
Issuer agrees:
(a) Shares Reserved for Issuance. To maintain, free from preemptive rights,
sufficient authorized but unissued or treasury shares of Common Stock so that
the Option may be fully exercised without additional authorization of Common
Stock after giving effect to all other options, warrants, convertible securities
and other rights of third parties to purchase shares of Common Stock;
(b) No Avoidance. Not to avoid or seek to avoid (whether by charter
amendment or through reorganization, consolidation, merger, issuance of rights,
dissolution or sale of assets, or by any other voluntary act) the observance or
performance of any of the covenants, agreements or conditions to be observed or
performed hereunder by Issuer and not to take any action which would cause any
of its representations or warranties not to be true in any material respect; and
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(c) Further Assurances. Promptly after this date to take all actions as may
from time to time be required (including (i) complying with all applicable
premerger notification, reporting and waiting period requirements under the HSR
Act and (ii) in the event that any other prior approval of or notice to any
regulatory authority is necessary under any applicable federal, state or local
law before the Option may be exercised, cooperating fully with Holder in
preparing and processing the required applications or notices) in order to
permit Holder to exercise the Option and purchase shares of Common Stock
pursuant to such exercise.
4. Representations and Warranties of Issuer. Issuer hereby represents and
warrants to Holder that Issuer has all requisite corporate power and authority
and has taken all corporate action necessary to authorize, execute, deliver and
perform its obligations under this Agreement and to consummate the transactions
contemplated hereby; and that this Agreement has been duly and validly
authorized, executed and delivered by Issuer. Issuer hereby further represents
and warrants to Holder that it has taken all necessary corporate action to
authorize and reserve for issuance upon exercise of the Option the number of
shares of Common Stock equal to the maximum number of shares of Common Stock at
any time or from time to time issuable upon exercise of the Option and that all
shares of Common Stock, upon issuance pursuant to the Option, will be delivered
free and clear of all claims, liens, encumbrances, and security interests (other
than those created by this Agreement and the Securities Act) and not subject to
any preemptive rights. Issuer has taken all action necessary to make
inapplicable to Grantee any state takeover, business combination, control share
or other similar statute and any charter provisions which would otherwise be
applicable to Grantee or any transaction involving Issuer and Grantee by reason
of the grant of the Option, the acquisition of beneficial ownership of shares of
Common Stock as a result of the grant of the Option, or the acquisition of
shares of Common Stock upon exercise of the Option.
5. Representations and Warranties of Grantee. Grantee hereby represents and
warrants to Issuer that Grantee has all requisite corporate power and authority
and has taken all corporate action necessary in order to authorize, execute,
deliver and perform its obligations under this Agreement and to consummate the
transactions contemplated hereby. This Agreement has been duly and validly
authorized, executed and delivered by Grantee. Grantee represents and warrants
to Issuer that any shares of Common Stock acquired upon exercise of the Option
will be acquired for Grantee's own account, and will not be, and the Option is
not being, acquired by Grantee with a view to the distribution thereof in
violation of any applicable provision of the Securities Act. Grantee has such
knowledge and experience in business and financial matters as to be capable of
utilizing the information which is available to Grantee to evaluate the merits
and risks of an investment by Grantee in the Common Stock and Grantee is able to
bear the economic risks of any investment in the shares of Common Stock which
Grantee may acquire upon exercise of the Option.
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6. Exchange; Replacement. This Agreement and the Option are exchangeable,
without expense, at the option of Holder, upon presentation and surrender of
this Agreement at the principal office of Issuer, for other Agreements providing
for Options of different denominations entitling the holder thereof to purchase
on the same terms and subject to the same conditions as set forth in this
Agreement in the aggregate the same number of shares of Common Stock purchasable
at such time hereunder, subject to corresponding adjustments in the number of
shares of Common Stock purchasable upon exercise so that the aggregate number of
such shares under all Agreements issued in respect of this Agreement shall not
exceed 19.9 % of the outstanding shares of Common Stock of the Issuer (without
giving effect to shares of Common Stock issued or issuable pursuant to the
Option). Unless the context shall require otherwise, the terms "Agreement" and
"Option" as used in this Agreement include any Agreements and related options
for which this Agreement (and the Option granted hereby) may be exchanged. Upon
(i) receipt by Issuer of reasonably satisfactory evidence of the loss, theft,
destruction, or mutilation of this Agreement, (ii) receipt by Issuer of
reasonably satisfactory indemnification in the case of loss, theft or
destruction and (iii) surrender and cancellation of this Agreement in the case
of mutilation, Issuer will execute and deliver a new Agreement of like tenor and
date. Any new Agreement executed and delivered shall constitute an additional
contractual obligation on the part of Issuer, whether or not the Agreement so
lost, stolen, destroyed or mutilated shall at any time be enforceable by any
Person other than the holder of the new Agreement.
7. Adjustments. The total number of shares of Common Stock purchasable upon
the exercise of the Option and the Option Price shall be subject to adjustment
from time to time as follows:
In the event of any change in, or distribution in respect of, the
outstanding shares of Common Stock by reason of stock dividends, split-ups,
mergers, recapitalizations, combinations, subdivisions, conversions, exchanges
of shares or the like, the type (including, in the event of any Major
Transaction described in Section 9(d) hereof in which Issuer is not the
surviving or continuing corporation, to provide that the Option shall be
exercisable for shares of common stock of the surviving or continuing
corporation in such Major Transaction) and number of shares of Common Stock
purchasable upon exercise of the Option and the Option Price shall be
appropriately adjusted in such manner as shall fully preserve the economic
benefits contemplated hereby, and proper provision shall be made in the
agreements governing any such transactions to provide for the proper adjustment
and the full satisfaction of Issuer's obligation hereunder.
8. Registration. At any time after a Triggering Event occurs and prior to
an Exercise Termination Event, Issuer shall, at the request of Grantee delivered
in the written notice of exercise of the Option provided for in Section 2(d),
and, with respect to the first demand registration as to which the Grantee
exercises its demand rights under
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this Section 8, delivered no later than 90 days following such Triggering Event,
as promptly as practicable, prepare, file and keep current a shelf registration
statement under the Securities Act covering any or all shares issued and
issuable pursuant to the Option and shall use its reasonable best efforts to
cause this registration statement to become effective and remain current in
order to permit the sale or other disposition of any shares of Common Stock
issued upon total or partial exercise of the Option ("Option Shares") in
accordance with any plan of disposition reasonably requested by Grantee;
provided, however, that Issuer may postpone filing a registration statement
relating to a registration request by Grantee under this Section 8 or suspend
effectiveness of that registration statement, in each case for a period of time
(not in excess of 90 days) if in Grantee's judgment this filing or continued
effectiveness would require the disclosure of material information that Issuer
has a bona fide business purpose for preserving as confidential. Issuer will use
its reasonable best efforts to cause such registration statement to remain
effective for a period of 365 days or such shorter time as is reasonably
appropriate to effect such sales or other dispositions. Grantee shall have the
right to demand two such registrations. In connection with any such
registration, Issuer and Holder shall provide each other with representations,
warranties, indemnities and other agreements customarily given in connection
with such registrations. To the extent reasonably requested by Holder in
connection with this registration, Issuer shall (x) become a party to any
underwriting agreement relating to the sale of such shares, but only to the
extent of obligating Issuer in respect of representations, warranties,
indemnities, contribution and other agreements (in each case reasonably
acceptable to Issuer) customarily made by issuers in these underwriting
agreements, and (y) use its reasonable best efforts to take all further actions
which shall be reasonably necessary to effect such registration and sale
(including participating in road-show presentations and causing to be delivered
customary certificates, opinions of counsel and "comfort letters").
Notwithstanding anything to the contrary contained in the Agreement, in no event
shall Issuer be obligated to effect more than two registrations pursuant to this
Section 8 by reason of the fact that there shall be more than one Grantee as a
result of any assignment or division of this Agreement. Upon the effectiveness
of a registration statement demanded pursuant to this Section 8, the Holder of
the Option Shares that are the subject of such registration may not thereafter
require the Issuer to repurchase such Option Shares so long as Issuer complies
with its obligations under this Section 8.
9. Repurchase of Option and/or Shares.
(a) Repurchase; Repurchase Price. Upon the occurrence of a Triggering Event
and prior to an Exercise Termination Event, (i) at the request of Holder,
delivered in writing within 150 days of this occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase the Option from Holder, in whole or in
part, at a price (the "Option Repurchase Price") equal to the number of shares
of Common Stock then purchasable
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upon exercise of the Option (or such lesser number of shares as may be
designated in the Repurchase Notice (as defined in Section 9(b)) multiplied by
the amount by which the Market/Offer Price (as defined below) exceeds the Option
Price or (ii) at the request of any owner of Option Shares (an "Owner")
delivered in writing within 150 days of this occurrence (or such later period as
provided in Section 2(d) with respect to any required notice or application or
in Section 10), Issuer shall repurchase such number of Option Shares from the
Owner as the Owner shall designate in the Repurchase Notice at a price (the
"Option Share Repurchase Price") equal to the number of shares designated
multiplied by the Market/Offer Price. The term "Market/Offer Price" shall mean
the highest of (x) the price per share of Common Stock at which a tender or
exchange offer for Common Stock either has been consummated, or at which a
Person has publicly announced its intention to commence a tender or exchange
offer, after the date of this Agreement and prior to the delivery of the
Repurchase Notice, and which offer either has been consummated and not withdrawn
or terminated as of the date payment of the Repurchase Price is made, or has
been publicly announced and the intention to make a tender or exchange offer has
not been withdrawn as of the date payment of the Repurchase Price is made, (y)
the price per share of Common Stock to be paid by any third party pursuant to a
valid agreement with Issuer for a merger, share exchange, consolidation or
reorganization entered into after the date hereof and on or prior to the
delivery of the Repurchase Notice or (z) the average closing price for shares of
Common Stock on the New York Stock Exchange (the "NYSE") (or, if the Common
Stock is not then listed on the NYSE, any other national securities exchange or
automated quotation system on which the Common Stock is then listed or quoted)
for the twenty consecutive trading days immediately preceding the delivery of
the Repurchase Notice. In the event that a tender or exchange offer is made for
the Common Stock or an agreement is entered into for a merger, share exchange,
consolidation or reorganization involving consideration other than cash, the
value of the securities or other property issuable or deliverable in exchange
for the Common Stock shall be determined in good faith by a nationally
recognized investment banking firm mutually selected by Issuer and Holder or
Owner, as the case may be.
(b) Method of Repurchase. Subject to the terms of Section 9(a), Holder or
Owner, as the case may be, may exercise its right to require Issuer to
repurchase the Option, in whole or in part, and/or any Option Shares then owned
by Holder or Owner pursuant to this Section 9 by surrendering for this purpose
to Issuer, at its principal office, this Agreement or certificates for Option
Shares, as applicable, accompanied by a written notice or notices stating that
Holder or Owner elects to require Issuer to repurchase the Option and/or such
Option Shares in accordance with the provisions of this Section 9 (each such
notice, a "Repurchase Notice"). Within four business days after the surrender of
the Agreement for the Option and/or certificates representing Option Shares and
the receipt of the Repurchase Notice, Issuer shall deliver or cause to be
delivered to Holder or Owner of Option Shares, as the case may be, the
applicable Option Repurchase Price
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and/or the Option Share Repurchase Price or, in either case, the portion that
Issuer is not then prohibited under applicable law and regulation from so
delivering, in immediately available funds by a wire transfer to a bank account
designated by Grantee. In the event that the Repurchase Notice shall request the
repurchase of the Option in part, Issuer shall deliver with the Option
Repurchase Price a new Agreement evidencing the right of the Holder to purchase
that number of shares of Common Stock purchasable pursuant to the Option at the
time of delivery of the Repurchase Notice minus the number of shares of Common
Stock represented by that portion of the Option then being repurchased.
(c) Effect of Statutory or Regulatory Restraints on Repurchase. To the
extent that, upon or following the delivery of a Repurchase Notice, Issuer is
prohibited under applicable law or regulation from repurchasing the Option (or a
portion thereof) and/or any Option Shares subject to this Repurchase Notice (and
Issuer hereby undertakes to use its reasonable best efforts to obtain all
required regulatory and legal approvals and to file any required notices as
promptly as practicable in order to accomplish this repurchase), Issuer shall
promptly so notify Holder or Owner, as the case may be, in writing and
thereafter deliver or cause to be delivered, from time to time, to Holder or
Owner, as the case may be, the portion of the Option Repurchase Price and the
Option Share Repurchase Price that Issuer is no longer prohibited from
delivering, within four business days after the date on which it is no longer so
prohibited; provided, however, that upon notification by Issuer in writing of
this prohibition, Holder or Owner, as the case may be, may, within 5 days of
receipt of this notification from Issuer, revoke in writing its Repurchase
Notice, whether in whole or to the extent of the prohibition, whereupon, in the
latter case, Issuer shall promptly (i) deliver to Holder or Owner, as the case
may be, that portion of the Option Repurchase Price and/or the Option Share
Repurchase Price that Issuer is not prohibited from delivering; and (ii) (a)
deliver to Holder with respect to the Option, a new Agreement evidencing the
right of Holder to purchase that number of shares of Common Stock for which the
surrendered Agreement was exercisable at the time of delivery of the Repurchase
Notice less the number of shares as to which the Option Repurchase Price has
theretofore been delivered to Holder, and/or (b) deliver to the owner of Option
Shares, with respect to its Option Shares, a certificate for the Option Shares
as to which the Option Share Repurchase Price has not theretofore been delivered
to such owner. Notwithstanding anything to the contrary in this Agreement,
including, without limitation, the time limitations on the exercise of the
Option, Holder may exercise the Option at least until 150 days after the date
upon which Issuer is no longer prohibited from delivering all of the Option
Repurchase Price.
(d) Major Transactions. Issuer hereby agrees that, prior to the occurrence
of an Exercise Termination Event, Issuer shall not enter into or agree to enter
into any agreement for a Major Transaction (defined below) unless the other
party or parties thereto agree to assume in writing Issuer's obligations under
this Agreement. "Major Transaction" shall mean any merger or consolidation
involving the Issuer and any
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transaction involving a sale, transfer or other disposition of a majority of
the assets or shares of capital stock of the Issuer.
10. Extension of Exercise Periods. The 150 and 700 day periods for exercise
of certain rights under Sections 2 and 9 shall be extended in each such case at
the request of Holder or Owner to the extent necessary to avoid liability by a
Holder or Owner under Section 16(b) of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), by reason of this exercise.
11. Assignment. Neither party may assign any of its rights or obligations
under this Agreement or the Option to any other person without the express
written consent of the other party except that Holder or Owner may assign its
rights in whole or in part to any of its affiliates and, in the event that a
Triggering Event shall have occurred prior to the occurrence of an Exercise
Termination Event, Holder or Owner may within 90 days following this Triggering
Event assign the Option or any of its other rights hereunder, in whole or in
part, to one or more third parties, provided that the affiliate and any such
third party shall execute this Agreement and agree to become subject to its
terms. Any attempted assignment in contravention of the preceding sentence shall
be null and void.
12. Filings; Other Actions. Each party will use its reasonable best efforts
to make all filings with, and to obtain consents of, all third parties and
govern mental authorities necessary for the consummation of the transactions
contemplated by this Agreement.
13. Specific Performance. The parties acknowledge that damages would be an
inadequate remedy for a breach of this Agreement by either party and that the
obligations of the parties shall be specifically enforceable through injunctive
or other equitable relief.
14. Severability; Etc. If any term, provision, covenant, or restriction
contained in this Agreement is held by a court or a federal or state regulatory
agency of competent jurisdiction to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions contained in
this Agreement shall remain in full force and effect, and shall in no way be
affected, impaired, or invalidated. If for any reason a court or regulatory
agency determines that Holder is not permitted to acquire, or Issuer is not
permitted to repurchase pursuant to Section 9, any portion of the Option or the
full number of shares of Common Stock provided in Section l(a) (as adjusted
pursuant Section 1(b) and 7), it is the express intention of the parties to
allow Holder to acquire or to require Issuer to repurchase such lesser portion
of the Option or number of shares as may be permissible, without any amendment
or modification of this Agreement.
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15. Notices. All notices, requests, instructions, or other documents to be
given hereunder shall be furnished in accordance with Section 9.2 of the Merger
Agreement.
16. Expenses. Except as otherwise expressly provided in this Agreement or
in the Merger Agreement, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated by this Agreement shall be paid by
the party incurring the expense, including fees and expenses of its own
financial consultants, investment bankers, accountants, and counsel.
17. Entire Agreement, Etc. This Agreement and Merger Agreement constitute
the entire agreement, and supersede all other prior agreements, understandings,
representations and warranties, both written and oral, between the parties, with
respect to the subject matter of this Agreement. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the parties
hereto and their respective successors and permitted assigns. Nothing in this
Agreement, expressed or implied, is intended to confer upon any party, other
than the parties, and their respective successors and permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
18. Limitation on Profit. (a) Notwithstanding any other provision of this
Agreement, in no event shall the Total Profit (as defined) plus any Liquidation
Amounts (as defined) exceed in the aggregate $275,000,000 and, if it otherwise
would exceed this amount, the Grantee, at its sole election, shall either (i)
reduce the number of shares of Common Stock subject to this Option, (ii) deliver
to the Issuer for cancellation Option Shares previously purchased by Grantee or
any other Holder or Owner, (iii) pay to the Issuer cash or refund in cash
Liquidation Amounts previously paid or reduce or waive the amount of any
Liquidation Amount payable pursuant to Section 8.2 of the Merger Agreement, or
(iv) any combination thereof, so that Grantee's realized Total Profit, when
aggregated with any Liquidation Amounts so paid or payable to Grantee, shall not
exceed $275,000,000 after taking into account the foregoing actions.
The term "Liquidation Amounts" means the aggregate amount of any
Initial Xxxx Xxxxx Termination Fee and Additional Xxxx Xxxxx Termination Fee
(each as defined in the Merger Agreement) payable or paid to Grantee and its
assigns pursuant to Section 8.2 of the Merger Agreement (and not repaid or
refunded to the Issuer pursuant to this Section 18 or otherwise).
(b) Notwithstanding any other provision of this Agreement, the Option may
not be exercised for a number of shares as would, as of the date of exercise,
result in a Notional Total Profit (as defined) which, together with any
Liquidation Amount theretofore paid or then payable to Grantee (and not repaid
or refunded to the Issuer pursuant to Section 18 or otherwise), would exceed
$275,000,000 provided, that nothing
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in this sentence shall restrict any exercise of the Option permitted hereby on
any subsequent date.
(c) As used in this Agreement, the term "Total Profit" shall mean the
aggregate amount (before taxes) of the following: (i) (x) the amount received by
Grantee, any other Holder and any Owner pursuant to Issuer's repurchase of the
Option (or any portion) or any Option Shares pursuant to Section 9, less, in the
case of any repurchase of Option Shares, (y) the Grantee's, any other Holder's
and any Owner's purchase price for such Option Shares, as the case may be, (ii)
(x) the net cash amounts (and the fair market value of any other consideration)
received by Grantee, any other Holder and any Owner pursuant to the sale of
Option Shares (or any other securities into which such Option Shares are
converted or exchanged) to any unaffiliated party, less (y) the Grantee's (or
any other Holder's or Owner's) purchase price of such Option Shares, and (iii)
the net cash amounts (and the fair market value of any other consideration)
received by Grantee (or any other Holder) on the transfer of the Option (or any
portion thereof) to any unaffiliated party. In the case of clauses (ii)(x) and
(iii) above, the Grantee and each Holder and Owner agrees to furnish as promptly
as reasonably practicable after any disposition of all or a portion of the
Option or Option Shares a complete and correct statement, certified by a
responsible executive officer or partner of Grantee, Holder or Owner, as
applicable, of the net cash amounts (and the fair market value of any other
consideration) received in connection with any sale or transfer of the Option or
Option Shares.
(d) As used in this Agreement, the term "Notional Total Profit" with
respect to any number of shares as to which Grantee and any other Holder may
propose to exercise the Option shall be the Total Profit determined as of the
date of such proposal (taking into account the provision of Section 18(a))
assuming that the Option were exercised on such date for such number of shares
and assuming that such shares, together with all other Option Shares held by
Grantee and any other Holders and Owners and their respective affiliates as of
such date were sold for cash at the closing market price for the Common Stock on
the NYSE Composite Transaction Tape as of the close of business on the preceding
trading day (less customary brokerage commissions).
19. Captions. The section, paragraph and other captions in this Agreement
are for convenience of reference only, do not constitute part of this Agreement
and shall not be deemed to limit or otherwise affect any of the provisions of
this Agreement.
20. Counterparts. This Agreement may be executed in one or more
counterparts, and by both parties in separate counterparts, each of which when
exercised shall be deemed to be an original, but all of which shall constitute
one and the same agreement.
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21. Restrictions on Certain Actions; Covenants of Grantee. From and after
the date of exercise of the Option in whole or part, and for as long as Grantee
owns shares of Common Stock acquired pursuant to the exercise of the Option that
represent at least 2% of the then outstanding Voting Securities:
(a) Without the prior consent of the Board of Directors of Issuer
specifically expressed in a resolution, Grantee will not, and will not permit
any of its Affiliates (as defined) to:
(i) acquire or agree, offer, seek or propose to acquire, ownership
(including, but not limited to, beneficial ownership as defined
in Rule 13d-3 under the Exchange Act) of more than 20% of any
class of Voting Securities (as herein defined), or any rights or
options to acquire such ownership (including from a third
party);
(ii) propose a merger, consolidation or similar transaction involving
the Issuer;
(iii) offer, seek or propose to purchase, lease or otherwise acquire
all or a substantial portion of the assets of the Issuer;
(iv) seek or propose to influence or control the management or
policies of the Issuer or to obtain representation on the
Issuer's Board of Directors, or solicit or participate in the
solicitation of any proxies or consents with respect to the
securities of the Issuer;
(v) enter into any discussions, negotiations, arrangements or
understandings with any third party with respect to any of the
foregoing; or
(vi) seek or request permission to do any of the foregoing or seek
any permission to make any public announcement with respect to
any of the foregoing.
The provisions of this Section 21 shall not apply to actions taken pursuant
to the Merger Agreement; and
(b) Grantee may not sell, transfer any beneficial interest in, pledge,
hypothecate or otherwise dispose of any Voting Securities at any time except as
follows:
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(i) pursuant to a tender offer, exchange offer, merger or
consolidation of the Issuer, or in connection with a sale of all
or substantially all of the Issuer's assets; or
(ii) pursuant to a registered public offering under Section 8; or
(iii) in compliance with Rule 144 of the General Rules and Regulations
under the Securities Act (or any similar successor rule); and
(c) (i) Grantee agrees to be present in person or to be represented by
proxy at all stockholder meetings of Issuer so that all shares of Voting
Securities beneficially owned by it or its Affiliates may be counted for the
purpose of determining the presence of a quorum at such meetings.
(ii) Grantee agrees to vote or cause to be voted all Voting
Securities beneficially owned by it or its Affiliates
proportionately with the votes cast by all other stockholders
present and voting.
(iii) The provision of this Section 21 shall terminate at such time as
Grantee beneficially owns more than 50% of the outstanding
Common Stock of Issuer.
22. Governing Law. This Agreement shall be governed by and continued in
accordance with the internal law of the State of New York.
23. Definitions. For the purposes of this Agreement the following terms
shall have the meanings specified below:
"Affiliate" shall mean, as to any Person, any other Person which
directly or indirectly controls, or is under common control with, or is
controlled by, such Person. As used in this definition, "control" (including,
with its correlative meanings, "controlled by" and "under common control with")
shall mean the possession, directly or indirectly, of the power to direct or
cause the direction of management or policies, whether through ownership or
securities or partnership or other ownership interest, by contract or
otherwise).
"Voting Securities" means the shares of Common Stock, preferred stock
and any other securities of Issuer entitled to vote generally for the election
of directors or any other securities (including rights and options), convertible
into, exchangeable into or exercisable for, any of the foregoing (whether or not
presently exercisable, convertible or exchangeable).
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"Person" means an individual, corporation, partnership, limited
liability company, association, trust, unincorporated organization, entity or
group (as defined in the Exchange Act).
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IN WITNESS WHEREOF, this Agreement has been duly executed and delivered by
the duly authorized officers of the parties hereto as of the date first written
above.
THE KROGER CO.
By: XXXX XXXXXXX
------------------------------------
Name: Xxxx Xxxxxxx
Title: Senior Vice President
XXXX XXXXX, INC.
By: XXXXXX X. XXXXXX
------------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Vice Chairman and Chief
Executive Officer
