EXHIBIT 2
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.
2. Exercise; Closing.
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(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 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."
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
(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.
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 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.
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(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 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 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 five 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 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 governmental 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 to Sections 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.
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 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 was 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 was 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.
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:
(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 provisions 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).
"Person" means an individual, corporation, partnership,
limited liability company, association, trust, unincorporated organization,
entity or group (as defined in the Exchange Act).
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: /s/ Xxxx X. Xxxxxxx
-----------------------------
Name: Xxxx X. Xxxxxxx
Title: Senior Vice President,
Secretary and General Counsel
XXXX XXXXX, INC.
By: /s/ Xxxxxx X. Xxxxxx
-----------------------------
Name: Xxxxxx X. Xxxxxx
Title: President and Chief
Executive Officer
