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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(d)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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BUTTREY FOOD AND DRUG STORES COMPANY
(NAME OF SUBJECT COMPANY)
BUTTREY FOOD AND DRUG STORES COMPANY
(NAME OF PERSON FILING STATEMENT)
COMMON STOCK, PAR VALUE $.01 PER SHARE
(TITLE OF CLASS OF SECURITIES)
124234 10 5
(CUSIP NUMBER OF CLASS OF SECURITIES)
WAYNE S. PETERSON
SENIOR VICE PRESIDENT,
CHIEF FINANCIAL OFFICER AND SECRETARY
BUTTREY FOOD AND DRUG STORES COMPANY
601 6TH STREET, S.W.
GREAT FALLS, MONTANA 59404
TELEPHONE: (406) 761-3401
FACSIMILE: (406) 454-7251
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS
ON BEHALF OF THE PERSON FILING THIS STATEMENT)
Copies to:
CYNTHIA M. DUNNETT, ESQ.
RYAN S. HONG, ESQ.
RIORDAN & MCKINZIE
300 SOUTH GRAND AVENUE
29TH FLOOR
LOS ANGELES, CALIFORNIA 90071
TELEPHONE: (213) 629-4824
FACSIMILE: (213) 229-8550
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Buttrey Food and Drug Stores Company, a
Delaware corporation (the "Company" or "Buttrey"). The principal executive
offices of the Company are located at 601 6th Street, S.W., Great Falls, Montana
59404. The equity securities to which this Solicitation/Recommendation Statement
on Schedule 14D-9 ("Schedule 14D-9") relates is the shares of common stock, par
value $.01 per share (the "Shares"), of the Company.
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated as of January 26, 1998 (the "Schedule
14D-1"), filed by Locomotive Acquisition Corp., a Delaware corporation
("Purchaser") and a wholly owned subsidiary of Albertson's, Inc., a Delaware
corporation ("Parent" or "Albertson's") to purchase all outstanding shares of
Common Stock (the "Shares") at $15.50 per share (the "Offer Price"), net to the
seller in cash, without interest, upon the terms and subject to the conditions
set forth in the Schedule 14D-1 and the related letter of transmittal (which, as
amended and extended from time to time, together constitute the "Offer"). The
Offer is made pursuant to that certain Agreement and Plan of Merger, dated as of
January 19, 1998 (the "Merger Agreement"), by and among the Company, Purchaser
and Parent.
The principal executive offices of the Purchaser and Albertson's are
located at 250 Parkcenter Boulevard, Boise, Idaho 83726.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and business address of the Company, which is the person
filing this statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements or understandings
between the Company or its affiliates and certain of its executive officers,
directors or affiliates are described in the Company's Proxy Statement, dated
May 2, 1997, relating to the Company's Annual Meeting of Stockholders held on
May 28, 1997 (the "Proxy Statement") under the headings "Security Ownership of
Certain Beneficial Owners and Management," "Information Concerning Incumbent
Directors," "The Board of Directors," "Executive Officers, Compensation and
Other Information," "Summary Compensation Table," "Option Grants in Last Fiscal
Year," "Option Exercises and Year-End Value Table," "Certain Relationships and
Related Transactions," "Compensation Committee Interlocks and Insider
Participation" and "Report of the Compensation Committee of the Board of
Directors" on pages 2 through 16 of the Proxy Statement.
Sale of Real Property to Parent. In August 1994, in connection with an
assignment from an unrelated third party (the "Assignor") to Parent of the
Assignor's right to purchase one of the Company's stores in Kennewick,
Washington, Parent purchased certain related real property from the Company for
approximately $3.6 million and certain related equipment and inventory from the
Assignor for approximately $2.5 million.
Option Payment Agreements. In connection with the Offer, the Company
intends to enter into separate option payment agreements (collectively, the
"Payment Agreements") with holders of outstanding options to purchase Shares
("Options") under the Company's 1993 Special Option Plan, the Company's 1995
Stock Option Plan ("1995 Option Plan") and the Company's 1996 Nonqualified
Non-Employee Directors Stock Option Plan ("1996 Option Plan") (collectively, the
"Stock Option Plans") and intends to enter into an option payment agreement with
Joseph H. Fernandez, the Company's Chairman of the Board, President and Chief
Executive Officer, with respect to 56,140 shares subject to an option (the
"Performance Option") under the Company's 1990 Nonqualified Performance Stock
Option Plan (as amended, the "1990 Option Plan"). The Payment Agreements will
describe, as applicable, the various termination and acceleration provi-
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sions of the Stock Option Plans that are triggered by the Offer and the Merger
and will provide for the surrender to the Company of all Options, following
consummation of the Offer, for an amount in cash equal to the excess of the
Offer Price over the applicable exercise price per share of the Options and less
all taxes required to be withheld from such payment (the "Option
Consideration"). The Payment Agreement with Mr. Fernandez will describe the
decision of the Board of Directors of the Company (the "Board") to accelerate
the vesting of the Performance Option with respect to 28,070 of the Shares
covered thereby to the time of acceptance of Shares for payment and purchase
pursuant to the Offer and provide for payment of the Option Consideration with
respect to such Shares following consummation of the Offer. The Payment
Agreements for non-employee directors not affiliated with FS&Co. (as defined
below) will also describe the Board's decision to accelerate to the time of
acceptance of Shares for payment and purchase pursuant to the Offer the vesting
of options to purchase an aggregate of 9,524 Shares granted under the 1996
Option Plan. The Payment Agreements will further provide that payment of the
Option Consideration is subject to and contingent upon both the acceptance of
the Shares for payment and purchase pursuant to the Offer and the surrender by
the optionholder of the Options.
Severance and Other Arrangements. Pursuant to a letter agreement dated as
of January 19, 1998 (the "Letter Agreement"), Albertson's has agreed to provide
certain severance and retention benefits to certain employees of the Company,
including the Company's officers, upon consummation of the Offer and the Merger.
Under the severance program, an employee, including any officer, who is
terminated, other than for cause, within six months of the closing of the
purchase of the Company will receive a cash severance payment of 1 1/2 weeks of
pay for each full year of service with the Company, with a minimum payment of
$3,000 for employees with at least one full year of service and $1,500 for
employees with less than one full year of service. Executive officers with
current employment or severance agreements may elect to receive the payment
specified above or the payment provided for in such agreement, but not both. In
addition, the COBRA premiums for medical benefits will be paid for three months
following the last day of employment.
As authorized by the Board at its January 19, 1998 meeting, the Company
will enter into certain retention agreements (the "Retention Agreements") with
all executive officers other than Mr. Fernandez and with certain employees of
the Company. These Retention Agreements, which were approved by Albertson's in
the Letter Agreement, will provide that each of these officers and employees
will receive a specified retention incentive bonus ranging from $20,000 to
$120,000 if such officer or employee remains employed with the Company until 60
days after consummation of the Offer. Further, such bonuses will be paid if
employment is involuntarily terminated prior to the expiration of such 60 day
period, unless such termination is "for cause," and shall also be paid if
employment is terminated by such employee with "good reason," prior to the
expiration of such 60 day period, with "for cause" and "good reason" customarily
defined. The retention incentive bonuses will also be paid in the event that
such officer or employee dies or is permanently disabled prior to the expiration
of such 60 day period.
FS Equity Partners II, L.P., the majority stockholder of the Company (the
"Major Stockholder"), will also enter into agreements with each of Wayne S.
Peterson, Senior Vice President, Chief Financial Officer and Secretary, and
Louis J. Rizzo, Senior Vice President -- Retail Operations and Store
Development, providing that each of these executive officers will receive a
closing bonus of $40,000 and $20,000, respectively, from the Major Stockholder
if such officer remains employed with the Company until the consummation of the
Offer. These bonuses will also be paid if employment is involuntarily terminated
prior to the consummation of the Offer, unless such termination is "for cause"
and shall also be paid if employment is terminated prior to the consummation of
the Offer by the officer for "good reason," with "for cause" and "good reason"
customarily defined. The closing bonus will also be paid upon the death or
permanent disability of such officer. Notwithstanding the foregoing, neither
officer shall be entitled to receive the closing bonus if the Offer is not
consummated for any reason.
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(b)(2) Merger Agreement.
The following is a summary of certain provisions of the Merger Agreement
not discussed elsewhere in this Schedule 14D-9. The summary does not purport to
be complete and is qualified in its entirety by reference to the complete text
of the Merger Agreement, a copy of which is filed with the Securities and
Exchange Commission (the "Commission") as Exhibit 1 to the Schedule 14D-9 and is
incorporated herein by reference. Capitalized terms not otherwise defined below
shall have the meanings set forth in the Merger Agreement.
The Offer. In accordance with the terms of the Merger Agreement, Purchaser
will accept for payment and pay for all Shares validly tendered, and not
withdrawn, prior to the Expiration Date. The term "Expiration Date" shall mean
12:00 Midnight, New York City time, on Monday, February 23, 1998, unless and
until Purchaser shall have extended the period of time for which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire.
The Offer is conditioned upon, among other things, the satisfaction of the
Minimum Condition. If the Minimum Condition is not satisfied or any of the other
events set forth under "-- Conditions to the Offer" shall have occurred or shall
be determined by Purchaser to have occurred prior to the Expiration Date,
Purchaser reserves the right (but shall not be obligated), subject to the terms
of the Merger Agreement and subject to complying with applicable rules and
regulations of the Commission, to (i) decline to purchase any of the Shares
tendered in the Offer and terminate the Offer and return all tendered Shares to
the tendering stockholders, (ii) waive any or all conditions to the Offer and,
to the extent permitted by applicable law, purchase all Shares validly tendered,
(iii) extend the Offer and, subject to the right of stockholders to withdraw
Shares until the Expiration Date, retain the Shares which have been tendered
during the period or periods for which the Offer is extended or (iv) amend the
Offer.
Subject to the terms of the Merger Agreement, Purchaser may, and under
certain circumstances shall, from time to time, and regardless of whether any of
the events set forth under "-- Conditions to the Offer" shall have occurred,
extend the period of time during which the Offer is open and thereby delay the
acceptance for payment of, and payment for, any Shares by giving oral or written
notice of such extension to the Depositary.
The Merger Agreement provides that Purchaser will not decrease the Offer
Price, change the form of consideration payable in the Offer, decrease the
number of Shares sought in the Offer, change or amend the conditions to the
Offer or impose additional conditions to the Offer, change the Expiration Date
or waive, add or amend any term of or condition to the Offer in any manner
adverse to the holders of the Shares without the written consent of the Company;
provided, however, that if on any scheduled Expiration Date, all conditions to
the Offer shall not have been satisfied or waived, Purchaser may extend the
Expiration Date. In addition, if on any scheduled Expiration Date, all
conditions to the Offer shall not have been satisfied or waived, Purchaser has
agreed to extend the Expiration Date as long as the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), shall not have expired or been terminated. Purchaser has further agreed
that if on any scheduled Expiration Date any order, decree, ruling or other
action of or an agreement with any United States or state governmental authority
or other agency or commission or United States or state court of competent
jurisdiction (a "Governmental Authority") that has the effect of restraining,
enjoining, prohibiting or delaying the consummation of the Offer or the Merger
or imposing material limitations on the ability of Purchaser to acquire the
Shares shall be in effect, Purchaser will extend the Expiration Date until it
has reached an agreement with the Department of Justice (the "DOJ"), the Federal
Trade Commission (the "FTC") or any other Governmental Authority that has
asserted that consummation of the Offer will violate Antitrust Laws (as defined
below) and any injunction or order prohibiting or limiting the consummation of
the Offer or the Merger shall have become final and non-appealable. If,
immediately prior to any scheduled Expiration Date, all conditions to the Offer
are satisfied as of such Expiration Date but the number of
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Shares tendered and not withdrawn pursuant to the Offer constitute less than 90%
of the Shares outstanding, Purchaser may extend the Offer for a period not to
exceed ten (10) business days; provided that in the event the Offer is so
extended, Parent and Purchaser must irrevocably waive all of the conditions to
the Offer set forth under "-- Conditions to the Offer" (other than the condition
that no law be enacted or any injunction or order be issued which has the effect
of making the acquisition of the Shares by Purchaser illegal or which imposes
material limitations on the ability of Purchaser to acquire the Shares or which
otherwise prohibits the consummation of the transactions contemplated by the
Merger Agreement) that subsequently may not be satisfied during such extension
of the Offer as grounds for its refusal to accept for payment and purchase, or
to pay for, or as grounds for its delay in the acceptance for payment for, any
Shares tendered in the Offer. As used in this Schedule 14D-9, "business day" has
the meaning set forth in Rule 14d-1 under the Securities Exchange Act, as
amended (the "Exchange Act").
The Merger. Pursuant to the Merger Agreement and subject to the Delaware
General Corporations Law ("the DGCL"), as soon as practicable after the
completion of the Offer and satisfaction or waiver, if permissible, of all
conditions to the Merger (as defined below), Purchaser will be merged with and
into the Company and the separate corporate existence of Purchaser will
thereupon cease. The merger, as effected pursuant to the immediately preceding
sentence, is referred to herein as the "Merger," and the Company as the
surviving corporation of the Merger is sometimes herein referred to as the
"Surviving Corporation." The directors of Purchaser immediately prior to the
Effective Time and the officers of the Company immediately prior to the
Effective Time shall be the directors and officers, respectively, of the
Surviving Corporation until their respective successors are duly elected and
qualified. The parties to the Merger Agreement shall cause the Merger to be
consummated by filing with the Secretary of State of the State of Delaware a
duly executed and vertified certificate of merger, as required by the DGCL. At
the effective time of the Merger (the "Effective Time"), each Share then
outstanding (other than Shares held by Parent or Purchaser and Shares held by
stockholders who properly perfect their dissenters' rights under the DGCL) will
be cancelled and extinguished and converted into the right to receive $15.50 in
cash or any higher price per Share paid in the Offer (the "Merger
Consideration"), without interest.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, capital stock, options
or other rights to acquire Shares, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and any applicable
laws and any agreements to which the Company or its assets may be bound,
financial statements, public filings, conduct of business, employee benefit
plans, ERISA, proprietary property, labor and employment matters, compliance
with laws, tax matters, litigation, environmental matters, material contracts,
conflicts of interest, brokers' and finders' fees, real property leases, title
to properties, absence of liens, insurance, inventory, suppliers, votes required
to approve the Merger Agreement, undisclosed liabilities, product liability,
disclosures in proxy statement and tender offer documents and the absence of
material adverse changes.
In the Merger Agreement, each of Parent and Purchaser has made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement,
required consents, no conflicts between the Merger Agreement and any applicable
laws and any agreements to which Parent or Purchaser or their assets may be
bound, availability of funds to consummate the Offer and the Merger, brokers'
fees, disclosures in proxy statement and tender offer documents, no prior
ownership of Shares and no prior activities by Purchaser.
Conditions to the Offer. The Offer is subject to the Minimum Condition
being satisfied by 12:00 Midnight on February 23, 1998 or such later date as the
Offer may be extended in accordance with the terms of the Merger Agreement.
Notwithstanding any other provisions of the Offer, and subject to the terms of
the Merger Agreement, Purchaser shall not be obligated to accept for payment any
Shares until expiration of the applicable waiting periods under the HSR Act, and
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Purchaser shall not be required to accept for payment, purchase or pay for, and
may delay the acceptance for payment of or payment for, any Shares tendered in
the Offer, or if the Minimum Condition shall not have been satisfied, Purchaser
may terminate or amend the Offer (subject to Purchaser's obligation to extend
the Offer pursuant to the Merger Agreement) if, prior to the time of acceptance
for payment of any such Shares (whether or not any other Shares have theretofore
been accepted for payment or paid for pursuant to the Offer), any of the
following shall have occurred and remain in effect:
(a) a United States or state governmental authority or other agency or
commission or United States or state court of competent jurisdiction shall
have enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, injunction or other order which is in effect and has the effect
of making the acquisition of the Shares illegal or imposing material
limitations on the ability of Purchaser to acquire the Shares or otherwise
prohibiting the consummation of the transactions contemplated by the Merger
Agreement subject to Parent's and Purchaser's obligations to reach an
agreement authorizing consummation of the Offer and Merger with the FTC or
DOJ, and any other Governmental Authority that may have asserted that
consummation of the Offer will violate Antitrust Laws, and to take, or
cause to be taken, all action, and to do, or cause to be done, all things
necessary or required by the FTC or DOJ in connection with the expiration
or termination of the waiting period under the HSR Act as a result of the
transactions contemplated by the Merger Agreement (provided, however, that
the foregoing shall not be construed so as to preclude, prevent or
otherwise limit Parent or Purchaser from instituting or prosecuting or
defending a suit or claim in good faith with respect to any suit,
objection, requirement or other action by the FTC, DOJ or any other such
Governmental Authority or any private party with respect to the
transactions contemplated by the Merger Agreement), and Parent's agreement
not to terminate the Offer so long as any such injunction or order has not
become final and nonappealable;
(b) there shall have occurred (i) any general suspension of trading
in, or limitation on prices for, securities on the NYSE, and such event
shall have continued to exist for a period in excess of 24 hours (excluding
suspensions or limitations resulting solely from physical damage or
interference with such exchange not related to market conditions), (ii) any
declaration of a banking moratorium or any suspension of payments in
respect of banks in the United States, (iii) any limitation by any United
States governmental authority on the extension of credit generally by banks
or other financial institutions, or (iv) in the case of any of the
foregoing existing at the time of the commencement of the Offer, a material
acceleration or worsening thereof;
(c) either (i)(A) any of the representations or warranties of the
Company with respect to capital stock, options and other rights to acquire
Shares, authority relative to the Merger Agreement and the vote required
for the approval of the Merger Agreement and the Merger shall not be true
and correct in all material respects or (B) any other representation or
warranty of the Company in the Merger Agreement shall not be true and
correct which inaccuracy, singly or in the aggregate, would have or be
reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary taken as a whole and in either case are not
reasonably capable of being cured by the Company or have not been cured
within ten (10) business days after the giving of written notice to the
Company in each case as if such representations or warranties were made as
of such time on or after January 19, 1998 (unless a representation speaks
as of an earlier date, in which case it shall be deemed to have been made
as of such earlier date), or (ii) the Company shall have failed to perform
any obligation or to comply with any agreement or covenant of the Company
to be performed or complied with by it under the Merger Agreement, which
failure, singly or in the aggregate, would have or be reasonably likely to
have a material adverse effect on the business, operations, properties
(including intangible properties), condition (financial or other-
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wise), results of operations, assets or liabilities of the Company and the
Subsidiary taken as a whole and is not reasonably capable of being cured by
the Company or has not been cured within ten (10) business days after the
giving of written notice to the Company; and the Chief Executive Officer of
the Company shall have provided a certificate to the effect that the
conditions set forth in clauses (i) or (ii) have not occurred on the date
Shares are to be accepted for payment pursuant to the Offer;
(d) since January 19, 1998 there shall have been any material adverse
change in the business, operations, properties (including intangible
properties), condition (financial or otherwise), results of operations,
assets or liabilities of the Company and the Subsidiary, taken as a whole,
excluding any such change occurring at any time after January 19, 1998
caused by (i) a general change in the economy (including any such change
caused by a general change in the markets served by the Company and the
Subsidiary) or (ii) the institution or threat of any suit, arbitration,
mediation, action, proceeding, complaint or grievance which challenges any
of the transactions contemplated by the Merger Agreement or any action
required in connection with the resolution of matters relating to the
Antitrust Laws and excluding any such change occurring on or after the 90th
day following January 19, 1998 caused by the voluntary termination of
employment by employees of the Company or the Subsidiary or a closure of,
or any labor disruption, slowdown or strike relating to, the Company's
principal distribution center located in Great Falls, Montana; provided,
however, that the foregoing right is subject to the Company MAC Right as
described above;
(e) the Board (i) shall have amended, modified or withdrawn its
recommendation of the Offer or the Merger other than as permitted by the
Merger Agreement, (ii) shall have endorsed, approved or recommended any
Superior Proposal or (iii) the Company shall have entered into any
agreement with respect to any Superior Proposal;
(f) any person or group (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent or Purchaser or any of their respective
subsidiaries or affiliates, shall have become the beneficial owner (as
defined in Rule 13d-3 promulgated under the Exchange Act) of more than 25%
of the Shares (either on a primary or a fully diluted basis); provided,
however, that this provision shall not apply to any person that
beneficially owns more than 25% of the outstanding Shares on January 19,
1998 so long as such person does not further increase its beneficial
ownership beyond the number of Shares such person beneficially owns on
January 19, 1998; or
(g) the Merger Agreement shall have been terminated by the Company or
Parent pursuant to its terms;
which, in the reasonable judgment of Parent and Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser) giving rise to any such condition, makes it inadvisable to proceed
with the Offer and/or with such acceptance for payment of or payment for the
Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser,
may be asserted by Parent or Purchaser regardless of the circumstances giving
rise to such condition and may be waived by Parent or Purchaser in whole or in
part and at any time and from time to time. The failure by Parent or Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any such right, and each such right shall be deemed an ongoing right that may
be asserted at any time and from time to time.
Conditions to the Merger. The respective obligations of Parent and
Purchaser, on the one hand, and the Company, on the other hand, to effect the
Merger are subject to the satisfaction of each of the following conditions: (i)
Purchaser shall have commenced the Offer and shall have purchased, pursuant to
the terms and conditions of the Offer, all Shares duly tendered and not
withdrawn, (ii) Parent, Purchaser or an affiliate thereof shall have purchased a
majority of the outstanding Shares pursuant to the Offer, unless such failure to
purchase is a result of a breach of
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Parent's or Purchaser's obligations under the Merger Agreement, (iii) the Merger
Agreement and the Merger shall have been approved and adopted by the requisite
vote of the holders of the Shares, unless Purchaser shall have acquired 90% or
more of the outstanding Shares, (iv) no Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule, regulation,
final non-appealable injunction or other final non-appealable order which is in
effect and has the effect of making the acquisition of Shares by Purchaser
illegal or otherwise prohibiting consummation of the transactions contemplated
by the Merger Agreement; provided, however, that such condition does not modify
Parent's obligation to take, or cause to be taken, all action, and to do, or
cause to be done, all things necessary or required by the FTC or the DOJ in
connection with the expiration or termination of the waiting period under the
HSR Act, or by any private party or Governmental Authority or other tribunal
under the Antitrust Laws or in a suit by a private party or Governmental
Authority as a result of the transactions contemplated by the Merger Agreement,
except that either Parent or Purchaser may institute, prosecute or defend a suit
or claim in good faith with respect to any suit, objection, requirement or other
action by the FTC, the DOJ, any other Governmental Authority or any private
party with respect to the transactions contemplated by the Merger Agreement, and
(v) the applicable waiting period under the HSR Act shall have expired or been
terminated.
Board Representation. The Merger Agreement provides that promptly upon the
purchase by Purchaser of the Minimum Shares pursuant to the Offer, Parent will
be entitled to designate up to such number of directors, rounded up to the next
whole number, on the Board as shall give Parent representation on the Board
equal to the product of the total number of directors (giving effect to the
directors designated by Parent pursuant to the Merger Agreement) multiplied by
the percentage, expressed as a decimal, that the aggregate number of Shares
beneficially owned by Purchaser following such purchase bears to the total
number of Shares then outstanding. The Company has agreed to promptly take all
actions necessary to cause Parent's designees to be elected as directors of the
Company, including, increasing the size of the Board and securing the
resignations of incumbent directors. The Company shall cause persons designated
by Parent to constitute the same percentage as persons designated by Parent
shall constitute of the Board of (i) each committee of the Board, (ii) the board
of directors of the Subsidiary (as defined below) and (iii) each committee of
each such board, in each case only to the extent permitted by applicable law.
The Company's obligation to appoint Parent's designees to the Board is subject
to compliance with Section 14(f) of the Exchange Act and Rule 14f-1 promulgated
thereunder.
In the event that Parent's designees are elected to the Board, until the
Effective Time, the Board shall have at least two (2) directors who are
directors on the date of the Merger Agreement (such directors, the "Independent
Directors"); provided, however, that in such event if the number of Independent
Directors will be reduced below two for any reason whatsoever, any remaining
Independent Directors (or Independent Director, if there be only one remaining)
shall be entitled to designate persons to fill such vacancies, who shall be
deemed to be Independent Directors for purposes of the Merger Agreement, or, if
no Independent Director then remains, the other directors shall designate
persons to fill such vacancies who shall not be stockholders, affiliates or
associates of Parent or Purchaser and such persons shall be deemed to be
Independent Directors for purposes of the Merger Agreement. Following the
election of Parent's designees to the Board and prior to the Effective Time, the
affirmative vote of a majority of the Independent Directors shall be required to
(i) amend or terminate the Merger Agreement on behalf of the Company, (ii)
exercise or waive any of the Company's rights, benefits or remedies under the
Merger Agreement or (iii) take any other action by the Board under or in
connection with the Merger Agreement which would adversely affect the rights of
the Company's stockholders under the Merger Agreement; provided, further, that
if there will be no such directors, such actions may be effected by the
unanimous vote of the entire Board.
Stockholders' Meeting; Proxy Statement. If required by applicable law in
order to consummate the Merger, the Company will (i) duly call, give notice of,
convene and hold a special meeting of its
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stockholders as promptly as practicable following the acceptance for payment and
purchase of the Minimum Shares by Purchaser pursuant to the Offer for the
purpose of considering and taking action upon the approval of the Merger and the
adoption of the Merger Agreement and (ii) prepare and file with the Commission,
subject to the prior approval of Parent (which approval shall not be
unreasonably withheld), preliminary and final versions of a proxy statement (the
"Proxy Statement") and proxy and other filings relating to such stockholders'
meeting as required by the Exchange Act. Subject to the terms of the Merger
Agreement, the Company has agreed to include in the Proxy Statement the
recommendation of the Board that stockholders of the Company vote in favor of
the approval of the Merger and the adoption of the Merger Agreement.
Employee Benefits. The Merger Agreement provides that, following the
Effective Time, Parent will cause the Surviving Corporation to provide or will
directly provide to the employees of the Subsidiary and the Company who continue
to be so employed employee benefits that are substantially equivalent in the
aggregate to those provided by Parent to similarly situated employees of Parent.
In determining the level of benefits to be received by employees of the
Subsidiary or the Company, Parent will ensure that such employees are credited
for years of service with the Company or the Subsidiary, as such years of
service are currently recognized by the Company and the Subsidiary for purposes
of eligibility, vesting and benefit accrual under its employee benefit plans,
but not for purposes of benefit accrual under any defined benefit pension plan.
Neither Parent nor the Company is required to continue any existing employee
benefit plan applicable to employees of the Company or the Subsidiary following
the Effective Time, except as may be required by any applicable collective
bargaining agreement.
Options. The Merger Agreement provides that, except as limited by the
terms of the Merger Agreement, prior to consummation of the Offer or the
Effective Time or both, the Company may enter into agreements in respect of
outstanding Options, providing for the payment upon surrender of each vested
Option immediately after the consummation of the Offer up to and including the
Effective Time an amount of cash per share subject to each such Option equal to
the excess, if any, of the Option Consideration. Any Options not so surrendered
or exercised prior to the Effective Time shall terminate no later than the
Effective Time in accordance with the terms of the Stock Option Plans or such
agreements with the optionees. The Merger Agreement provides that the Company
may accelerate the vesting of options to purchase 28,070 Shares granted to
Joseph H. Fernandez, Chairman of the Board, President and Chief Executive
Officer, under the 1990 Option Plan, and options to purchase an aggregate of
9,524 Shares granted to certain non-employee directors of the Company under the
1996 Option Plan. The Merger Agreement provides that, upon request of the
Company following consummation of the Offer, Parent shall advance to the Company
sufficient funds to enable the Company to pay the aggregate Option
Consideration.
Interim Operations; Covenants. Pursuant to the Merger Agreement, the
Company has agreed that, except (i) as expressly contemplated by the Merger
Agreement, (ii) as set forth in the applicable schedule thereto or (iii) as
consented to or approved in writing by Parent (such consent not to be
unreasonably withheld, except with respect to items (a), (b)(i) and (b)(v)
below, as to which consent may be withheld at any time and for any reason), the
business of the Company and the Buttrey Food and Drug Company, a Delaware
corporation and a wholly owned subsidiary of the Company (the "Subsidiary"),
will be conducted only in the ordinary course consistent in all material
respects with past practice. The Merger Agreement further provides that prior to
the Effective Time:
(a) each of the Company and the Subsidiary shall not (i) amend its
Certificate of Incorporation or Bylaws, (ii) change the number of
authorized, issued or outstanding shares of its capital stock, except upon
the exercise of certain stock options outstanding on the date of the Merger
Agreement, (iii) declare, set aside or pay any dividend or other
distribution or payment in cash, stock or property in respect of shares of
its capital stock, (iv) make any direct or indirect redemption, retirement,
purchase or other acquisition of any of its capital stock (except for
repurchases of Shares from employees pursuant to existing stock
subscription
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agreements between the Company and certain of its employees); or (v) split,
combine or reclassify its outstanding shares of capital stock.
(b) neither the Company nor the Subsidiary shall, directly or
indirectly, (i) issue, grant or sell or agree or propose to issue, grant or
sell any shares of, or rights of any kind to acquire any shares of the
capital stock of the Company or the Subsidiary, except that the Company may
issue Shares upon the exercise of Options and warrants outstanding on the
date hereof, (ii) other than in the ordinary course of business, incur any
indebtedness for borrowed money, (iii) waive, release, grant or transfer
any intangible rights of material value, except in the ordinary course of
business, (iv) transfer, lease, license, sell, mortgage, pledge, dispose of
or encumber any personal property of the Company or the Subsidiary other
than in the ordinary course of business and consistent with past practice
or (v) transfer, lease, license, sell, mortgage, pledge, dispose of or
encumber any real property of the Company or the Subsidiary;
(c) the Company and the Subsidiary shall use their reasonable best
efforts to preserve intact the business organization of the Company and the
Subsidiary, to keep available the services of its operating personnel, to
preserve the goodwill of those having business relationships with each of
them and to carry on their respective businesses in substantially the same
manner as carried on heretofore;
(d) neither the Company nor the Subsidiary will, directly or
indirectly, (i) increase the compensation payable or to become payable by
it to any of its employees, officers, directors, agents or consultants or
under any bonus, insurance, pension or other employee benefit plan or
arrangement made to, for or with any such persons (other than as provided
in certain employment agreements and welfare and benefit plans as in effect
on January 19, 1998, except in accordance with certain collective
bargaining agreements, and except for cost of living adjustments and other
increases in the ordinary course consistent with past practice or other
increases which are reasonably necessary for the operation of the business
of the Company and the Subsidiary), (ii) adopt, or make any payment or
amend any provision, other than as required by existing plans or agreements
as in effect on January 19, 1998 and provisions and actions under existing
stock option plans authorized in connection with the Offer or the Merger,
any bonus, profit sharing, pension, retirement, deferred compensation,
employment or other payment or employee compensation plan, agreement or
arrangement for the benefit of any employee, officer, director, agent or
consultant of the Company or the Subsidiary or modify the terms of any
Option, except as described above, (iii) grant any stock appreciation
rights, (iv) enter into or amend in any respect any employment agreement,
(v) make any loan or advance to, or make any change in its existing
borrowing or lending arrangements for or on behalf of or enter into any
written contract, lease or commitment with, any affiliate, officer or
director of the Company or the Subsidiary (pursuant to an employee benefit
plan or otherwise), (vi) enter into any collective bargaining agreement or
(vii) pay or make any accrual or arrangement for payment of any pension,
retirement allowance or other employee benefit pursuant to any existing
plan, agreement or arrangement to any employee, officer, director, agent or
consultant, or pay or agree to pay or make any accrual or arrangement for
payment to any employee, officer, director, agent or consultant of the
Company or the Subsidiary of any amount relating to unused vacation days,
except payments and accruals made in the ordinary course consistent with
past practice or as required by the terms of any such plan or collective
bargaining agreement;
(e) neither the Company nor the Subsidiary shall, directly or
indirectly, assume, guarantee, endorse or otherwise become responsible for
the obligations of any other individual, firm or corporation other than the
Subsidiary, or make any loans or advance to any individual, firm or
corporation except in the ordinary course of its business and consistent
with past practice;
(f) except (i) as set forth on the applicable schedule to the Merger
Agreement, (ii) for replacement of equipment in the ordinary course of
business and (iii) for expenditures not in
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excess of $100,000 per month (with unexpended amounts to carry forward to
future months), neither the Company nor the Subsidiary shall make any
investment of a capital nature either by purchase of stock or securities,
contributions to capital, property transfers or otherwise, or by the
purchase of any property or assets of any other individual, firm or
corporation; provided, that the Company will confer with Parent if the
amount of any capital expenditure would exceed $25,000;
(g) neither the Company nor the Subsidiary shall enter into, modify or
amend in any material respect or take any action to terminate their
respective material contracts;
(h) neither the Company nor the Subsidiary shall take any action,
other than reasonable and usual actions in the ordinary course of business
and consistent with past practice, with respect to accounting policies or
procedures, except for changes required by United States generally accepted
accounting principles;
(i) neither the Company nor the Subsidiary shall, without the consent
of Parent, which consent shall not be unreasonably withheld, make any
material tax election, change any material tax election already made, adopt
any material tax accounting method, change any material tax accounting
method unless required by United States generally accepted accounting
principles, enter into any closing agreement, settle any tax claim or
assessment or consent to any tax claim or assessment or any waiver of the
statute of limitations for any such claim or assessment;
(j) neither the Company nor the Subsidiary shall take, or agree to
commit to take, any action that (i) would or is reasonably likely to result
in any of the conditions to the Offer or any of the conditions to the
Merger not being satisfied, (ii) would make any representation or warranty
of the Company contained in the Merger Agreement inaccurate in any material
respect at, or as of any time prior to, consummation of the Offer (provided
that any violation of this covenant will not give rise to any claim for
damage, but may be the subject of a claim for equitable relief), or (iii)
would materially impair the ability of the Company to consummate the Offer
or the Merger in accordance with the terms thereof or materially delay such
consummation, and the Company and the Subsidiary will promptly advise
Parent in writing of any material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary, taken as a whole, or any breach of the
Company's representations or warranties, or any material breach of a
covenant contained in the Merger Agreement of which the Company or the
Subsidiary has knowledge;
(k) neither the Company nor the Subsidiary shall adopt a plan of
complete or partial liquidation, dissolution, merger, consolidation,
restructuring, recapitalization or other reorganization of the Company or
the Subsidiary (other than the Merger);
(l) neither the Company nor the Subsidiary shall pay, discharge or
satisfy any material claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary course of business and consistent
with past practice, of claims, liabilities or obligations (i) reflected or
reserved against in, or contemplated by, the financial statements (or the
notes thereto) included in all forms, reports, schedules, statements and
other documents required to be filed by the Company since January 1, 1995
under the Exchange Act or the Securities Act of 1933, as amended (the
"Securities Act") or (ii) incurred in the ordinary course of business since
the date of such financial statements;
(m) neither the Company nor the Subsidiary shall permit any insurance
policy naming it as a beneficiary or a loss payable payee to be cancelled
or terminated without notice to Parent, except in the ordinary course of
business and consistent with past practice; and
(n) neither the Company nor the Subsidiary shall enter into an
agreement, commitment or arrangement to do any of the foregoing or
authorize, recommend, propose or announce an intention to do any of the
foregoing.
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Parent and the Company have further agreed that, with the consent of
Parent, the Company may purchase certain software and services required by the
Company to address the "year 2000" problem with respect to the information
services systems of the Company. Alternatively, at the election of Parent,
Parent may agree to provide such services to the Company pursuant to a services
agreement in form and substance reasonably satisfactory to Parent and the
Company.
Negotiations. Pursuant to the Merger Agreement, the Company has agreed to
notify Parent immediately of the existence of any proposal, discussion,
negotiation or inquiry received by the Company, in each case in connection with
the occurrence of any of the following events: (i) the acquisition of the
Company by merger, tender offer, exchange offer, consolidation or otherwise by
any person other than Parent, Purchaser or any affiliate of Parent or Purchaser
(a "Third Party"); (ii) the acquisition by any Third Party of all or
substantially all of the assets of the Company and the Subsidiary, taken as a
whole; (iii) the acquisition by a third party of 50% or more of the outstanding
Shares; (iv) the adoption by the Company of a plan of liquidation or the
declaration or payment of an extraordinary dividend; or (v) the repurchase by
the Company or the Subsidiary of 50% or more of the outstanding Shares (any of
the foregoing, a "Third Party Transaction"). The Company shall immediately
communicate to Parent the terms of any such proposal, discussion, negotiation or
inquiry which it may receive and the identity of the party making such proposal
or inquiry or engaging in such discussion or negotiation. The Company shall
promptly provide to Parent any non-public information concerning the Company
provided to any other party which was not previously provided to Parent. In
addition, the Company has agreed that it will immediately cease any existing
activities, discussions or negotiations with any parties conducted prior to the
date of the Merger Agreement with respect to any Third Party Transaction.
Pursuant to the Merger Agreement, neither the Company, nor the Subsidiary, nor
any affiliate of either of them, nor the directors, officers, employees,
representatives or agents of any of them, may, directly or indirectly, solicit,
initiate, encourage or participate in discussions or negotiations with or the
submission of any offer or proposal by or provide any information to, any
corporation, partnership, person or other entity or group (other than Purchaser
or Parent or any officer or other authorized representative of Purchaser or
Parent) concerning any Third Party Transaction or proposal related thereto or
participate in any negotiation regarding any Third Party Transaction or
otherwise cooperate in any way with or encourage any effort or attempt by any
other person to effectuate a Third Party Transaction; except that the Company or
the Board is not prohibited from (i) disclosing to the Company's stockholders a
position with respect to a tender offer by a third party pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act or (ii) from making such disclosure
to the Company's stockholders which, in the judgment of the Board after receipt
of advice from counsel may be required under applicable law. In addition, except
as specified below, the Company may not withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer or the Merger or
approve or recommend, or propose to approve or recommend, any Third Party
Transaction or proposal relating thereto, or enter into any agreement with
respect thereto. Notwithstanding the foregoing, prior to the acceptance for
payment of Shares pursuant to the Offer, the Company may (x) furnish information
and access to any corporation, partnership, person or other entity or group
pursuant to appropriate confidentiality agreements in response to unsolicited
written requests therefor, and (y) negotiate and participate in discussions and
negotiations with such entity or group concerning a Third Party Transaction or
proposal related thereto if (with respect to clause (y) only) the Board has
determined in its good faith judgment, based as to legal matters on the written
advice of outside legal counsel (i) that the exercise of the directors'
fiduciary duties requires the taking of such action and (ii) after consultation
with all of its principal advisors in connection with the transactions
contemplated in the Merger Agreement, that such Third Party Transaction or
proposal related thereto is a bona fide written proposal that would, upon
consummation thereof, result in a transaction more favorable to the stockholders
of the Company than the transactions contemplated in the Merger Agreement and in
the good faith reasonable judgment of the Board (based in part upon the advice
of all of its principal advisors in connection with the transactions
contemplated by the Merger Agreement) is proposed by a corporation, partnership,
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person or other entity or group with sufficient financial resources available to
it or available from third parties to consummate such transaction (a proposal
that satisfies clauses (i) and (ii) being referred to as a "Superior Proposal").
Moreover, prior to the time of acceptance for payment of Shares, the Board may
withdraw or modify its approval or recommendation of the Offer, the Merger
Agreement or the Merger, approve or recommend a Superior Proposal, or enter into
an agreement with respect to a Superior Proposal, in each case at any time after
the fifth business day following Parent's receipt of written notice advising
Parent that the Board has received a Superior Proposal, specifying the material
terms and conditions of such Superior Proposal, and identifying the person
making such Superior Proposal; provided, however, that the Company may not enter
into an agreement with respect to a Superior Proposal until the Company has
furnished Parent with written notice not later than 12:00 noon (Boise, Idaho
time) five (5) business days in advance of any date on which it intends to enter
into such agreement and has caused its financial and legal advisors to negotiate
with Parent to make such adjustments to the terms and conditions of the Merger
Agreement as would enable the Company to proceed with the transactions
contemplated by the Merger Agreement on such adjusted terms. In order to permit
the Company to enter into an agreement with respect to a Superior Proposal that
the Board has determined is more favorable to the stockholders of the Company
than the Offer and the Merger, the Company may terminate the Merger Agreement,
provided that (i) the Company has complied with all provisions with respect to a
Superior Proposal set forth above; and (ii) the Company makes simultaneous
payment to Parent of the Termination Fee (as defined below).
Indemnification. The Merger Agreement provides that, from and after the
Effective Time, in addition to any indemnification available to any officer or
director by the Company or the Subsidiary, Parent and the Surviving Corporation
shall (in each case to the fullest extent permitted by applicable law)
indemnify, defend and hold harmless each person who is now, or has been at any
time prior to the date hereof or who becomes prior to the Effective Time, an
officer, director, or employee of the Company or the Subsidiary (the
"Indemnified Parties") against any and all losses, damages, costs, expenses,
liabilities or judgments, or amounts that are paid in settlement of, or in
connection with, any claim, action, suit, proceeding or investigation based in
whole or in part on or arising in whole or in part out of the fact that such
person is or was a director, officer or employee of the Company or the
Subsidiary at or prior to the Effective Time and whether asserted or claimed
prior to, or at or within five (5) years after the Effective Time, and
including, without limitation, any which arise out of or relate to the
transactions contemplated by the Merger Agreement (collectively, the
"Indemnified Liabilities") (and Parent and the Surviving Corporation must pay
reasonable expenses in advance of the final disposition of any such action or
proceeding to each Indemnified Party to the fullest extent permitted by law);
provided, however, that neither Parent nor Surviving Corporation is required to
indemnify any Indemnified Party in connection with any proceeding (or portion
thereof) involving any claim, action, suit, proceeding or investigation
initiated by such Indemnified Party unless the initiation of such proceeding (or
portion thereof) was authorized by the Board of Directors of Parent or unless
such proceeding is brought by an Indemnified Party to enforce such Indemnified
Party's indemnification rights under the Merger Agreement. Parent and Surviving
Corporation may not take, or cause to be taken, at any time, any action to
modify or terminate the indemnification arrangements or limitation of liability
provisions contained in the Certificate of Incorporation or Bylaws of either the
Company or the Subsidiary, or in any indemnification agreement entered into by
either the Company or the Subsidiary, in a manner that would adversely affect
the Indemnified Parties. Without limiting the foregoing, in the event any such
claim, action, suit, proceeding or investigation is brought against any
Indemnified Party (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time shall be reasonably satisfactory to Parent; (ii) after the Effective Time,
Parent or the Surviving Corporation shall pay all reasonable fees and expenses
of counsel for the Indemnified Parties promptly as statements therefor are
received; provided, that Parent is not obligated to pay for more than one
counsel for all Indemnified Parties with respect to the same matter unless (A)
Parent and an Indemnified Party shall have mutually agreed to the contrary; or
(B) the
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representation of one or more such Indemnified Party and any other Indemnified
Party pursuant to the preceding sentence in any such proceeding by the same
counsel would be inappropriate due to actual or potential differing interests
between such Indemnified Parties; and (iii) after the Effective Time, Parent and
the Surviving Corporation shall use all reasonable efforts to assist in the
vigorous defense of any such matter, provided that Parent and the Surviving
Corporation will not be liable for any settlement of any claim effected without
their written consent, which consent, however, may not be unreasonably withheld.
Any Indemnified Party wishing to claim indemnification under the Merger
Agreement, upon learning of any such claim, action, suit, proceeding or
investigation, must notify Parent, and the Surviving Corporation (but the
failure so to notify Parent and the Surviving Corporation shall not relieve
either such corporation from any liability which it may have under the Merger
Agreement except to the extent such failure materially prejudices Parent or the
Surviving Corporation).
Antitrust. In the Merger Agreement, Parent has agreed to take any action
(including, without limitation, agreeing to hold separate or to divest any of
the businesses, stores, products or assets of Parent or any of its affiliates or
of the Company or the Subsidiary) that may be required (i) by any Governmental
Authority (including the DOJ or the FTC) in order to resolve such objections as
such Governmental Authority may have under the Antitrust Laws to the
transactions contemplated by the Merger Agreement, or (ii) by any court or
similar tribunal, in any suit brought by a private party or Governmental
Authority challenging the transactions contemplated by the Merger Agreement as
violative of any Antitrust Law, in order to avoid the entry of, or to effect the
dissolution of, any injunction, temporary restraining order or other order that
has the effect of preventing the consummation of any of such transactions. The
Merger Agreement provides that either Parent or Purchaser may institute,
prosecute or defend a suit or claim in good faith with respect to any suit,
objection, requirement or other action by the FTC, the DOJ, any other
Governmental Authority or any private party with respect to the transactions
contemplated by the Merger Agreement. The Merger Agreement further provides that
an entry by a court, in any suit brought by a private party or a Governmental
Authority challenging the transactions contemplated by the Merger Agreement as
violative of any Antitrust Law, of an order or decree permitting the
transactions contemplated by the Merger Agreement, but requiring that any of the
businesses, product lines or assets of Parent or any of its affiliates or of the
Company or the Subsidiary be divested or held separate by Parent, or that would
otherwise limit Parent's freedom of action with respect to, or its ability to
retain, the Company and the Subsidiary or any portion thereof or any of Parent's
or its affiliates' other assets or businesses, shall not (A) be deemed a failure
to satisfy any of the conditions (i) to each party's obligations to effect the
Merger which are specified in the Merger Agreement, or (ii) to the Offer as
described above, or (B) give rise to a right of termination under the Merger
Agreement.
As used in the Schedule 14D-9, "Antitrust Laws" shall mean and include the
Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the Federal
Trade Commission Act, as amended, and all other Federal and state statutes,
rules, regulations, orders, decrees, administrative and judicial doctrines, and
other laws that are designed or intended to prohibit, restrict or regulate
actions having the purpose or effect of monopolization or restraint of trade.
Termination. The Merger Agreement may be terminated and the transactions
contemplated therein abandoned at any time prior to the Effective Time, whether
before or after approval of the stockholders of the Company,
(a) by the mutual written consent of Parent and the Company, pursuant
to action by their respective Boards of Directors;
(b) by Parent if, without any material breach by Parent or Purchaser
of their obligations under the Merger Agreement, the purchase of Shares
pursuant to the Offer will not have occurred within 30 days after the later
of (i) the expiration or termination of the waiting period under the HSR
Act and (ii) the lifting, rescission or termination of any order, decree,
ruling or other action of or agreement with a Governmental Authority
theretofore in effect that has the effect of prohibiting, enjoining,
restraining or delaying the consummation of the Offer or the
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Merger or imposes material limitations on the ability of Purchaser to
acquire Shares, provided that Parent may not terminate the Merger Agreement
on the foregoing basis unless (i) it has reached an agreement authorizing
consummation of the Offer and the Merger with the FTC or DOJ and any other
Governmental Authority that may have asserted that consummation of the
Offer would violate the Antitrust Laws and (ii) any injunction or order
prohibiting or limiting consummation of the Offer or the Merger (whether or
not issued or entered on antitrust grounds) has become final and
non-appealable;
(c) by the Company on or after July 19, 1998, if (i) the Company is
not then in material breach of any of its obligations hereunder; (ii) the
Company gives written notice to Parent (the "Termination Notice") of its
intention to terminate the Merger Agreement; (iii) Parent has not accepted
a majority of the Shares for payment pursuant to the terms of the Offer;
and (iv) Parent does not, within five (5) business days of receipt of the
Company's Termination Notice, give the Company a notice of its intention to
continue the Merger Agreement in effect (a "No Termination Notice"). A No
Termination Notice may not be given by Parent unless the waiting period
under the HSR Act has expired or been terminated and all other obligations
under the Antitrust Laws necessary to consummate the Offer have been
satisfied, including reaching an agreement, if necessary, authorizing
consummation of the Offer and the Merger with the FTC or DOJ and any other
Governmental Authority that may have asserted that consummation of the
Offer would violate Antitrust Laws. A No Termination Notice shall not be
effective (i) at any time when Parent is not using best efforts to lift,
rescind or terminate a temporary, preliminary or appealable injunction or
order (which does not relate to the Antitrust Laws) or (ii) if such notice
does not contain a binding, unconditional undertaking by Parent to accept
Shares pursuant to the terms of the Offer at the earliest practicable date
after such injunction or order has been lifted, rescinded or terminated,
without regard to the satisfaction of any other conditions to the Offer or
any termination event set forth in the Merger Agreement.
(d) by the Company, by action of the Board, if (i) Parent or Purchaser
shall have failed to comply with any of the covenants or agreements
contained in the Merger Agreement to be complied with or performed by
Purchaser or Parent at or prior to such date of termination, which failure
is material in the context of the transactions contemplated by the Merger
Agreement and is not reasonably capable of being cured or has not been
cured within ten (10) business days after the giving of written notice to
Parent or Purchaser, or (ii) any representation or warranty of Parent or
Purchaser in the Merger Agreement which is qualified as to materiality
shall not be true and correct, or any such representation or warranty that
is not so qualified shall not be true and correct in any material respect,
and in either event is not reasonably capable of being cured by Parent or
Purchaser, or has not been cured as the case may be, within ten (10)
business days of the notice, in each case as if such representation or
warranty was made as of such time on or after January 19, 1998 (unless such
representation speaks as of an earlier date, in which case it shall be
deemed to have been made as of such earlier date);
(e) by the Company, prior to the purchase by Purchaser of at least the
Minimum Shares pursuant to the Offer, in order to permit the Company to
enter into an agreement with respect to a Superior Proposal that the Board
has determined is more favorable to the stockholders of the Company than
the Offer and the Merger, provided that (i) the Company has complied with
all provisions of the Merger Agreement with regard to such Superior
Proposal, including the notice provisions and (ii) the Company makes
simultaneous payment to Parent of the Termination Fee;
(f) by Parent, at any time prior to the purchase of Shares pursuant to
the Offer, if (i) the Board shall have withdrawn, modified, or changed its
recommendation or approval in respect of the Merger Agreement or the Offer
in a manner adverse to Purchaser, (ii) the Board shall have recommended to
the stockholders of the Company any proposal relating to a Third Party
Transaction, (iii) the Company shall have exercised a right with respect to
a Third Party
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Transaction and has, directly or through its representatives, continued
discussions with any Third Party concerning such a proposal relating to a
Third Party Transaction for more than ten (10) business days after the date
of receipt of such proposal or (iv) a proposal relating to a Third Party
Transaction that is publicly disclosed shall have been commenced, publicly
proposed or communicated to the Company which contains a proposal as to
price (without regard to whether such proposal specifies a specific price
or a range of potential prices) and the Company will not have rejected such
proposal within ten (10) business days of its receipt or, if sooner, the
date its existence first becomes publicly disclosed. A right of termination
will not arise solely as a result of the Company or the Board issuing to
its stockholders a communication that contains only the statements
permitted by Rule 14d-9e promulgated under the Exchange Act and within five
(5) business days of issuing such communication the Company publicly
reconfirms its approval and recommendation of the Offer;
(g) by the Company, by action of the Board, if Purchaser shall have
failed to commence the Offer on or before January 26, 1998; provided, that
the Company may not so terminate the Merger Agreement if the Company is at
such time in material breach of its obligations under the Merger Agreement;
(h) by Parent or the Company if any Governmental Authority shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, final non-appealable injunction or other final non-appealable
order which is in effect and has the effect of making the acquisition of
Shares by Purchaser illegal or otherwise prohibiting consummation of the
transactions contemplated by the Merger Agreement (provided, however, that
this termination right does not modify Parent's obligation to take, or
cause to be taken, all action, and to do or cause to be done, all things
necessary or required by the FTC or the DOJ in connection with the
expiration or termination of the waiting period under the HSR Act, or by
any Governmental Authority, under the Antitrust Laws or in a suit by a
private party under the Antitrust Laws as a result of the transaction
contemplated by the Merger Agreement, except that either Parent or
Purchaser may institute, prosecute or defend a suit or claim in good faith
with respect to any suit, objection, requirement or other action by the
FTC, the DOJ, any other Governmental Authority or any private party with
respect to the transactions contemplated by the Merger Agreement);
(i) by Parent, by action of its Board of Directors, if prior to the
purchase of Shares pursuant to the Offer, (i) the Company shall have failed
to comply with any of the covenants or agreements contained in the Merger
Agreement to be complied with or performed by the Company prior to the date
of such termination, which failure singly or in the aggregate would have or
is reasonably likely to have a material adverse effect on the business,
operations, properties (including intangible properties), condition
(financial or otherwise), results of operations, assets or liabilities of
the Company and the Subsidiary taken as a whole and is not reasonably
capable of being cured or has not been cured within ten (10) business days
after the giving of written notice to the Company or (ii) (A) any of the
representations and warranties made by the Company in the Merger Agreement
and relating to capital stock, options or other rights to acquire Shares,
authority relative to the Merger Agreement or the vote required to approve
the Merger and the Merger Agreement shall not be true and correct in all
material respects or (B) any other representations or warranties of the
Company in the Merger Agreement shall not be true and correct which
inaccuracy singly or in the aggregate would have or is reasonably likely to
have a material adverse effect on the business, operations, properties
(including intangible properties), condition (financial or otherwise),
results of operations, assets or liabilities of the Company and the
Subsidiary taken as a whole, in either case which is not reasonably capable
of being cured by the Company or has not been cured, as the case may be,
within ten (10) business days after the giving of written notice by Parent
to the Company;
(j) by Parent, prior to the purchase of Shares pursuant to the Offer,
if, since January 19, 1998, there shall have been any material adverse
change in the business, operations, properties
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(including intangible properties), condition (financial or otherwise),
results of operations, assets or liabilities of the Company and the
Subsidiary, taken as a whole, excluding any such change occurring at any
time after the date of the Merger Agreement caused by (a) a general change
in the economy (including any such change caused by a general change in the
markets served by the Company and the Subsidiary) or (b) the institution or
threat of any suit, arbitration, mediation, action, proceeding, complaint
or grievance which challenges any of the transactions contemplated by the
Merger Agreement or any action required in connection with the resolution
of matters relating to the Antitrust Laws and excluding any such change
occurring on or after April 20, 1998 (the 90th day following the execution
of the Merger Agreement) caused by the voluntary termination of employment
by employees of the Company or the Subsidiary or a closure of, or any labor
disruption, slowdown or strike relating to, the Company's principal
distribution center located in Great Falls, Montana; and
(k) by the Company, beginning on April 20, 1998 (which is 90 days
after the date of the Merger Agreement) and subject to Purchaser's rights
described below, if, since January 19, 1998, there has been a material
adverse change in the business, operations, properties (including
intangible properties), condition (financial or otherwise), results of
operations, assets or liabilities of the Company and the Subsidiary, taken
as a whole. In order to exercise the foregoing right to terminate the
Merger Agreement (the "Company MAC Right"), the Company must first deliver
to Parent a certificate (the "MAC Certificate") executed by the Company's
Chief Executive Officer or Chief Financial Officer describing in detail the
conditions, events and occurrences causing or contributing to the material
adverse change (the "Termination Conditions") and asserting the Company's
intention to terminate the Merger Agreement. Parent is not required to
respond to a MAC Certificate until the No MAC Deadline. As used in the
Merger Agreement, the "No MAC Deadline" means the later of April 21, 1998
(the 91st day after the date of the Merger Agreement) or five (5) business
days after Parent's receipt of the MAC Certificate. If Parent confirms in
writing (a "No MAC Certificate") on or prior to the No MAC Deadline that it
is electing not to have the Company terminate the Merger Agreement with
respect to the Termination Conditions set forth in the MAC Certificate, the
Company shall not be entitled to so terminate the Merger Agreement. If
Parent exercises this right to prevent the Company's termination of the
Merger Agreement, Parent will not thereafter be entitled, as a result of
any of the conditions, events or occurrences described in such MAC
Certificate, to assert that a material adverse change has occurred, or that
the condition of the Offer relating to material adverse changes has not
been satisfied, or to assert that a representation, warranty or covenant of
the Company under the Merger Agreement has been breached unless the adverse
impact on the business, operations, properties (including intangible
properties), condition (financial or otherwise), results of operations,
assets or liabilities of the Company or the Subsidiary, taken as a whole,
of such conditions, events or occurrences described in the MAC Certificate
increases substantially after the date of such MAC Certificate. In
determining whether the adverse impact of a condition, event or occurrence
described in any MAC Certificate on the Company and the Subsidiary taken as
a whole has increased substantially, the adverse impact resulting from the
passage of time and from the impact of the condition, event or occurrence
at up to the same level and in substantially the same manner as described
in such MAC Certificate will not be taken into account. The Company may
present a new MAC Certificate to Parent at any time (i) if a material
adverse change has occurred as a result of a condition, event or occurrence
not described in a prior MAC Certificate or (ii) if the adverse impact of
any condition, event or occurrence described in the prior MAC Certificate
has increased substantially after the date of the prior MAC Certificate. If
the Company presents a new MAC Certificate the procedures and effect on
Parent's rights described above shall apply with respect to the conditions,
events or occurrences described in the new MAC Certificate. If the Company
delivers a MAC Certificate to Parent and Parent does not deliver a No MAC
Certificate to the Company on or prior to the No MAC Deadline, the Merger
Agreement shall terminate on the day immediately following the No MAC
Deadline.
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Subject to the terms and conditions of the Merger Agreement, in the event
of termination and abandonment of the Merger Agreement, written notice thereof
shall forthwith be given to the other party or parties specifying the provision
thereof pursuant to which such termination is made, and the Merger Agreement
shall forthwith become null and void, and no party thereto (or any of its
directors or officers) will have any liability or further obligation to any
other party thereto except with respect to the obligations regarding
confidentiality, payment of expenses and fees, and payment by the Company of the
Termination Fee (as defined below), if applicable, and except that termination
of the Merger Agreement will not relieve any party from liability for any
willful breach of the Merger Agreement prior to such termination or abandonment.
Termination Fee. If (A) the Company terminates the Merger Agreement, prior
to the purchase by Purchaser of at least the Minimum Shares pursuant to the
Offer, in order to permit the Company to enter into an agreement with respect to
a Superior Proposal, or (B) Parent, at any time prior to the purchase by
Purchaser of Shares pursuant to the Offer, terminates the Merger Agreement on
the basis that (i) the Board has withdrawn, modified, or changed its
recommendation or approval of the Merger Agreement or the Offer in a manner
adverse to Purchaser, (ii) the Board has recommended to the stockholders of the
Company any proposal relating to a Third Party Transaction, (iii) the Company
has exercised a right with respect to a Third Party Transaction and has,
directly or through its representatives, continued discussions with any Third
Party concerning such a proposal relating to a Third Party Transaction for more
than ten (10) business days after the date of receipt of such proposal or (iv) a
proposal relating to a Third Party Transaction is publicly communicated to the
Company which contains a proposal as to price (without regard to whether such
proposal specifies a specific price or a range of potential prices) and the
Company fails to reject such proposal within ten (10) business days of its
receipt or, if sooner, the date its existence first becomes publicly
communicated, then the Company is required to pay to Parent simultaneously with
such termination, in the case of clause (A) of this sentence, and promptly, but
in no event later than two (2) business days thereafter, in the case of clause
(B) of this sentence, a termination fee (the "Termination Fee") of 3% of (x) the
product of $15.50 and the number of Shares outstanding on the date of
termination, plus (y) an amount (which shall not in any event exceed $1 million)
equal to the actual and reasonable documented out-of-pocket expenses incurred by
Parent and Purchaser in connection with the Offer, the Merger and the Merger
Agreement. The Termination Fee shall be payable by wire transfer to such account
as Parent may designate in writing to the Company.
Appraisal Rights. No appraisal rights are available in connection with the
Offer. However, if the Merger is consummated, stockholders of the Company will
have certain rights under the DGCL to dissent and demand appraisal of, and to
receive payment in cash of the fair value of, their Shares. Such rights to
dissent, if the statutory procedures are complied with, could lead to a judicial
determination of the fair value of the Shares (excluding any element of value
arising from the accomplishment or expectation of the Merger), required to be
paid in cash to such dissenting holders for their Shares. In addition, such
dissenting stockholders would be entitled to receive payment of a fair rate of
interest from the date of consummation of the Merger on the amount determined to
be the fair value of their Shares. In determining the fair value of the Shares,
a Delaware court would be required to take into account all relevant factors.
Accordingly, such determination could be based upon considerations other than,
or in addition to, the market value of the Shares, including, among other
things, asset values and earning capacity. In Weinberger v. UOP, Inc., the
Delaware Supreme Court stated, among other things, that "proof of value by any
techniques or methods which are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in an
appraisal proceeding. Therefore, the value so determined in any appraisal
proceeding could be different from the price being paid in the Offer.
In addition, several decisions by Delaware courts have held that, in
certain circumstances, a controlling stockholder of a company involved in a
merger has a fiduciary duty to other stockholders
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which requires that the merger be fair to such other stockholders. In
determining whether a merger is fair to minority stockholders, Delaware courts
have considered, among other things, the type and amount of consideration to be
received by the stockholders and whether there was fair dealing among the
parties. The Delaware Supreme Court stated in Weinberger and Rabkin v. Philip A.
Hunt Chemical Corp. that although the remedy ordinarily available to minority
stockholders in a cash-out merger is the right to appraisal described above, a
damages remedy or injunctive relief may be available if a merger is found to be
the product of procedural unfairness, including fraud, misrepresentation or
other misconduct.
Tender Agreement.
The following is a summary of certain provisions of the Tender Agreement.
This summary does not purport to be complete and is qualified in its entirety by
reference to the complete text of the Tender Agreement, a copy of which is filed
with the Commission as Exhibit 2 to the Schedule 14D-9 and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Tender Agreement.
Pursuant to the Tender Agreement, the Major Stockholder has agreed (i) to
tender all Shares owned by it pursuant to the Offer no later than the fifth
business day following the commencement of the Offer, or, if the Major
Stockholder has not received this Offer to Purchase, the related Letter of
Transmittal and the other tender offer documents distributed herewith and
therewith by such time, within two (2) business days following the receipt of
such documents, and (ii) not to withdraw any Shares so tendered (except in the
event that the Stock Option (as defined below) is exercised).
The Major Stockholder has also agreed in the Tender Agreement that, during
the term thereof, at any meeting (whether annual or special and whether or not
an adjourned or postponed meeting) of the holders of Shares, however called, or
in connection with any written consent of the holders of Shares, the Major
Stockholder will appear at the meeting or otherwise cause its Shares to be
counted as present thereat for purposes of establishing a quorum and vote or
consent (or cause to be voted or consented) the Shares (i) in favor of the
Merger, and (ii) against any action or agreement that would impede, interfere
with or prevent the Merger, including any other extraordinary corporate
transaction, such as a merger, reorganization or liquidation involving the
Company and any third party or any other proposal of a third party to acquire
the Company. The Major Stockholder has also granted to Parent an irrevocable
proxy to vote its Shares in connection with any meeting of the Company's
stockholders, in the manner provided in clauses (i) and (ii) in the immediately
preceding sentence.
The Major Stockholder has further agreed in the Tender Agreement that,
during the term thereof, it will not (i) except pursuant to the Offer or the
Stock Option, offer to sell, sell, pledge or otherwise dispose of or transfer
any interest in or encumber with any lien any of its Shares; (ii) enter into any
contract, option or other agreement or understanding with respect to any
transfer of any or all of its Shares or any interest therein; (iii) except for
the proxy granted to Parent, grant any proxy, power-of-attorney or other
authorization or consent with respect to its Shares; (iv) deposit any of its
Shares into a voting trust or enter into a voting agreement or arrangement with
respect to such Shares; or (v) take any other action with respect to its Shares
that would, in any way, restrict, limit or interfere with the performance of its
obligations under the Tender Agreement.
In the Tender Agreement, the Major Stockholder has granted to Parent an
irrevocable option (the "Stock Option") to purchase its Shares at a purchase
price of $15.50 per Share. The Stock Option is exercisable, in whole only, if,
on or after January 19, 1998, any third party (i) commences or announces an
intention to commence a bona fide tender offer or exchange offer, the
consummation of which would result in such third party beneficially owning 50%
or more of the then outstanding voting equity of the Company; (ii) acquires
beneficial ownership of Shares that, when aggregated with any Shares already
owned by such third party, would result in such third party beneficially owning
25% or more of the outstanding voting equity of the Company; provided that the
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foregoing shall not apply to any third party that beneficially owns more than
25% of the outstanding voting equity of the Company as of January 19, 1998 and
that does not thereafter increase such ownership percentage by more than an
additional 1% of the outstanding voting equity of the Company; (iii) acquires
assets constituting 25% or more of the total assets or earning power of the
Company taken as a whole; or (iv) enters into an agreement with the Company that
contemplates the acquisition of (x) assets constituting 25% or more of the total
assets or earning power of the Company taken as a whole or (y) beneficial
ownership of 25% or more of the outstanding voting equity of the Company. The
Stock Option is also exercisable, in whole only, on or after January 19, 1998,
if (i) the Board withdraws, modifies or changes its recommendation or approval
in respect of the Merger Agreement or the Offer in a manner adverse to Purchaser
or recommends to the stockholders of the Company any proposal relating to a
Third Party Transaction; (ii) the Company, directly or through its
representatives, continues discussions with any third party concerning a Third
Party Transaction for more than ten (10) business days after the date of receipt
of such third party's proposal relating thereto; or (iii) the Company fails to
reject a publicly communicated proposal relating to a Third Party Transaction
and the possible price or prices to be paid pursuant thereto within ten (10)
days of the earlier of the receipt or the first public disclosure of such
proposal.
Pursuant to the Tender Agreement, the Major Stockholder has agreed not to,
and to use its best efforts to ensure that its officers, directors, employees,
investment bankers, attorneys, accountants and other agents do not, directly or
indirectly: (i) initiate, solicit or encourage, or take any action to facilitate
the making of, any offer or proposal that constitutes or is reasonably likely to
lead to a Third Party Transaction; (ii) enter into any agreement with respect to
any Third Party Transaction; or (iii) in the event of an unsolicited written
proposal in respect of a Third Party Transaction, engage in any negotiations or
discussions with, or provide information or data to, any person (other than
Parent, Purchaser, any of their affiliates or representatives and except for
information that has been previously publicly disseminated by the Company)
relating to any Third Party Transaction.
The Tender Agreement, and all rights and obligations of the parties
thereunder, terminates upon the earliest of (i) the date the Merger Agreement is
terminated in accordance with its terms or the date the Offer is terminated by
Parent or Purchaser as a result of any failure of a condition to the Offer;
provided, however, that the provisions of the Tender Agreement providing for the
Stock Option shall, under certain circumstances, not terminate until at least
sixty (60) days thereafter; (ii) the purchase of all of the Major Stockholder's
Shares pursuant to the Offer or pursuant to the Stock Option; or (iii) July 19,
1998 (which date may be extended, under certain circumstances, to the date of
termination of the Merger Agreement).
Confidentiality Agreement.
The following is a summary of certain provisions of the Confidentiality
Agreement. This summary does not purport to be complete and is qualified in its
entirety by reference to the complete text of the Confidentiality Agreement, a
copy of which is filed with the Commission as Exhibit 7 to the Schedule 14D-9
and is incorporated herein by reference. Capitalized terms not otherwise defined
below shall have the meanings set forth in the Confidentiality Agreement.
The Confidentiality Agreement contains customary provisions pursuant to
which, among other matters, Parent has agreed, subject to certain exceptions, to
keep confidential all nonpublic, confidential or proprietary information
concerning the Company which is furnished to Parent by or on behalf of the
Company (the "Confidential Information"), and to use the Confidential
Information solely for the purpose of evaluating a possible transaction
involving the Company and Parent and not in any way detrimental to the Company.
Parent has also agreed in the Confidentiality Agreement that for a period
of two years from the date thereof, unless and until it receives the prior
written invitation or approval of a majority of the Board, neither it nor any of
its affiliates will, among other things, directly or indirectly, alone or with
others (a) negotiate with or provide any information to any party with respect
to, or make any
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statement or proposal to the Board, to any of its agents or to any stockholder
of the Company with respect to, or make any public announcement or proposal or
offer whatsoever (including, but not limited to any "solicitation" of "proxies"
as such terms are defined or used in Regulation 14A of the Exchange Act) with
respect to, or otherwise solicit, seek or offer to effect (i) any form of
business combination or transaction involving the Company or any affiliate
thereof, including, without limitation, a merger, tender or exchange offer or
liquidation of the Company's assets, (ii) any form of restructuring,
recapitalization or similar transaction with respect to the Company or any
affiliate thereof, (iii) any purchase of any securities or assets, or rights to
acquire any securities or assets, of the Company, (iv) any proposal to seek
representation on the Board or otherwise to seek to control or influence the
Board or the management or policies of the Company, (v) any request or proposal
to waive, terminate or amend the provisions of the Confidentiality Agreement, or
(vi) any proposal or other statement inconsistent with the terms of the
Confidentiality Agreement, (b) instigate, encourage or assist any third party to
do any of the foregoing, or (c) become a beneficial owner of any securities of
the Company (other than through purchases by persons affiliated with Parent for
investment in open market transactions not to exceed 1.0% of the Shares).
Parent has further agreed in the Confidentiality Agreement that, for a
period of two years from the date of the Confidentiality Agreement, unless
Parent receives the prior written consent of the Company, Parent will not,
directly or indirectly, solicit any management employee of the Company for
employment and will not initiate, participate in or contribute to any
interference with the Company's employment relationship with any such person;
provided, however, that nothing in the Confidentiality Agreement shall (i)
restrict or preclude Parent's right to make generalized searches for employees
by use of advertisements in the media (including without limitation trade media)
or by engaging search firms which are not targeted or focused on employees of
the Company or (ii) prohibit Parent from the hiring of any employee of the
Company who initially contacts Parent without prior contact by Parent or anyone
acting on Parent's behalf.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a) Board Action. At a telephonic meeting held on January 12, 1998, the
Board reviewed the status of acquisition discussions with Parent and
particularly considered antitrust matters and agreements and certain closing
conditions to the Offer and the Merger. At a meeting held on January 19, 1998,
the Board reviewed the Offer, the Merger, the Merger Agreement and the Tender
Agreement, and other matters pertaining to the Offer and the Merger. At this
meeting, the Board also received presentations from Morgan Stanley & Co.
Incorporated ("Morgan Stanley") and from the Company's legal counsel. At such
meeting, Morgan Stanley delivered its fairness opinion to the Board, dated as of
January 19, 1998 (the "Fairness Opinion"), that, as of the date of such opinion,
the consideration to be received by the stockholders of the Company in the Offer
and the Merger was fair to such stockholders from a financial point of view. A
copy of the Fairness Opinion is attached to the Schedule 14D-9 as Annex 1 and is
incorporated herein by reference. The Fairness Opinion is described in more
detail below. At the conclusion of the meeting, the Board, by the unanimous vote
of its directors, determined that the Offer, the Merger and the Merger Agreement
are fair to, and in the best interests of, the Company's stockholders and
unanimously approved the Tender Agreement. The Board also unanimously
recommended that the Company's stockholders accept the Offer and tender their
Shares pursuant to the Offer.
(b) Background.
Background of the Offer. On November 13, 1997, Gary G. Michael, Chairman
of the Board of Directors and Chief Executive Officer of Parent, and Thomas C.
Young, a director of the Company, had a preliminary discussion regarding the
possibility of Parent acquiring the Company. Mr. Young responded to Mr. Michael
that he would discuss the possibility with the Company and Freeman Spogli & Co.,
an affiliate of the Major Stockholder ("FS&Co.").
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On or about November 17, 1998, Mr. Michael spoke via telephone with Ronald
P. Spogli, a partner in FS&Co. and a director of the Company. Mr. Spogli
indicated during such telephone call that the Company and FS&Co. would be
willing to meet with representatives of Parent to discuss Parent's interest in
acquiring the Company.
On November 24, 1997, Mr. Michael and Michael F. Reuling, Executive Vice
President, Store Development of Parent, met with Mr. Young, Mr. Spogli, Bradford
M. Freeman, a partner in FS&Co., and J. Frederick Simmons, also a partner in
FS&Co. and a director of the Company, and continued preliminary discussions
concerning the potential acquisition of the Company by Parent.
On December 19, 1997, Mr. Michael and Mr. Reuling spoke to Mr. Simmons by
telephone concerning a structure for the proposed acquisition and, in addition,
a schedule for conducting due diligence and negotiating a definitive agreement
in respect of the acquisition. At that time, Mr. Michael and Mr. Reuling also
requested that Parent be provided with information concerning the Company's
sales and expenses, as well as summaries of leases to which the Company was a
party.
On December 22, 1997, Parent and the Company entered into a Confidentiality
Agreement pursuant to which Parent agreed, among other things, to treat as
confidential certain information provided to it by or on behalf of the Company.
See Item 3(b)(2) "-- Confidentiality Agreement". Following the execution of the
Confidentiality Agreement, the Company made available to Parent certain
information concerning the Company in order to enable Parent to evaluate further
its interest in the Company.
From December 22, 1997 through January 7, 1998, the parties held a number
of discussions by telephone relating to the structure of the proposed
acquisition and the information concerning the Company which had been delivered
to Parent. The parties also discussed a framework for further due diligence
review of the Company by Parent. Representatives of Parent also discussed with
representatives of FS&Co. Parent's requirement that the Major Stockholder grant
to Parent an option to purchase Shares held by the Major Stockholder, or enter
into such other agreement as Parent would require with respect to the Major
Stockholder's Shares. Representatives of Parent and FS&Co. agreed to continue
discussions on this requirement.
On December 30, 1997, Parent delivered a due diligence request to Mr.
Simmons.
On December 30 and 31, 1997, Mr. Reuling and Mr. Simmons spoke by telephone
regarding the scope of the information the Company would make available to
Parent for purposes of its due diligence review of the Company.
On January 6, 1998, Parent forwarded to Mr. Simmons a revised due diligence
request reflecting the conversations held by Mr. Reuling and Mr. Simmons on
December 30 and 31, 1997.
On January 8 and 9, 1998, Mr. Reuling, Mr. Richard J. Navarro, Group Vice
President and Controller of Parent and Mr. Paul G. Rowan, Vice President,
Business Law of Parent, along with Parent's legal advisors, met with Mr. Simmons
and Mr. William M. Wardlaw, a partner in FS&Co. and a director of the Company,
along with FS&Co.'s and the Company's legal advisors, to negotiate the terms of
the proposed acquisition. The meeting was also attended by Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company, and
Wayne S. Peterson, Senior Vice President, Chief Financial Officer and Secretary
of the Company.
On January 9, 1998, Parent convened a meeting of its Board of Directors at
which Parent's Board unanimously authorized certain officers of Parent to
proceed on behalf of Parent with negotiations related to the proposed
acquisition and, if terms satisfactory to such officers could be reached, to
enter into a definitive agreement or agreements on behalf of the Parent in
respect of such acquisition. On January 12, 1998, the Board met and reviewed the
status of negotiations with Parent and particularly considered antitrust matters
and certain closing conditions.
On January 12, 1998, Mr. Michael and Mr. Reuling spoke with Mr. Spogli and
Mr. Simmons by telephone concerning various issues related to the proposed
acquisition that had been raised during
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the parties' meetings on January 8 and 9, 1998. Such issues included employee
transition issues, antitrust matters, closing conditions and a schedule for
continued negotiations in respect of the proposed acquisition.
Beginning on January 14, 1998, and continuing through the evening of
January 19, 1998, representatives of Parent, the Company and the Major
Stockholder, together with their respective legal advisors, met to continue
negotiations of the terms of the proposed acquisition. On January 14, 1998, the
parties determined conclusively to structure the acquisition as a tender offer
for all of the Shares followed by a merger of Purchaser with and into the
Company, provided that the Major Stockholder would agree to tender its Shares in
the Offer and to grant Parent a proxy with respect to the voting of such Shares
in favor of the Merger. During this period, representatives of Parent conducted
further due diligence of the Company.
Thereafter at its January 19, 1998 meeting, the Board determined that the
terms of the Offer and the Merger were fair to, and in the best interests of,
the stockholders of the Company and resolved unanimously to approve the Merger
Agreement, the Offer and the Merger and to recommend that the Company's
stockholders approve and adopt the Merger Agreement and tender their Shares
pursuant to the Offer. The Board also approved the Tender Agreement.
Additionally, on January 19, 1998, Morgan Stanley delivered to the Board the
Fairness Opinion to the effect that on such date, based on the assumptions,
procedures and matters referred to therein, the consideration to be received by
the holders of the Shares pursuant to the Merger Agreement is fair from a
financial point of view to such holders. See "-- Financial Advisor; Fairness
Opinion".
On the evening of January 19, 1998, Parent, Purchaser and the Company
executed and delivered the Merger Agreement, and Parent, Purchaser and the Major
Stockholder executed and delivered the Tender Agreement.
On the morning of January 20, 1998, Parent issued the following press
release:
Jan. 20, 1998 -- Albertson's, Inc. (NYSE:ABS) announced today that it
has entered into a definitive agreement whereby Albertson's will acquire
Buttrey Food and Drug Stores Company (NASDAQ: BTRY) for $15.50 per share.
Buttrey is headquartered in Great Falls, Montana and is a leading
supermarket and pharmacy retailer operating 43 stores in Montana, North
Dakota and Wyoming.
The agreement calls for a wholly-owned subsidiary of Albertson's to
commence a cash tender offer at $15.50 per share no later than Monday,
January 26, 1998, for all Buttrey outstanding shares. The offer will be
subject to regulatory approval and certain conditions, including the tender
of a majority of the Buttrey shares. Financing is not a condition.
Following the consummation of the offer, Albertson's subsidiary will be
merged with Buttrey and any remaining shares will be converted into the
right to receive $15.50 per share in cash. The transaction was unanimously
approved by the board of directors of Buttrey.
As a part of this transaction, the Buttrey shareholder owning a
majority of the outstanding Buttrey stock has agreed to tender promptly all
its Buttrey shares and has granted Albertson's an option to purchase all
its Buttrey shares under certain circumstances.
"This announcement marks our second acquisition in as many weeks and
is another important step in our acquisition strategy. We will continue to
pursue opportunities that allow us to strengthen our market presence in
existing markets or efficiently enter new markets," said Mr. Gary Michael,
Chairman and Chief Executive Officer of Albertson's.
"This transaction will yield both strategic and financial benefits as
well as continue our program to accelerate top-line growth, increase
profitability and enhance shareholder value. We are joining together two
companies with complementary strengths and a shared commitment to providing
customers with high-quality products at a good value with top-notch
service.
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"We will be obtaining an outstanding retailer with quality stores in
excellent locations. From a strategic standpoint, this transaction will
strengthen our market presence in Montana, North Dakota and Wyoming,
especially in many of the smaller towns where Albertson's does not
currently operate.
"From a financial standpoint, we expect to realize synergies in our
combined purchasing power, distribution efficiencies and merchandising and
systems opportunities. These synergies will enable us to build from the
solid sales and earnings base that Buttrey has created.
"We look forward to welcoming the well-trained, motivated and loyal
employees of Buttrey. Their commitment to customer service is a great fit
with the Albertson's employees who deliver the same outstanding service to
over 700 million customers a year," Mr. Michael concluded.
Albertson's, Inc. is one of the largest retail food-drug chains in the
United States. The Boise, Idaho based company currently operates 866 retail
stores in 20 Western, Midwestern and Southern states.
The tender offer would be made only pursuant to an offer to purchase
and related documents to be filed with the Securities and Exchange
Commission.
Forward-looking statements in this news release, if any, are not
updated to reflect actual results, changes in assumptions or changes in
other factors affecting such forward-looking information. Assumptions and
other information that could cause actual results to differ from those set
forth in the forward-looking information can be found in the Company's Form
10-Q.
On the morning of January 20, 1998, the Company issued the following
press release:
Great Falls, Montana, Jan. 20, 1998 -- Buttrey Food and Drug Stores
Company (NASDAQ: BTRY) today announced that it has entered into a
definitive agreement with Albertson's, Inc. (NYSE:ABS) providing for the
acquisition of Buttrey by Albertson's for $15.50 per share.
Under the terms of the agreement, Albertson's will begin a cash tender
offer on or before January 26, 1998 for all of Buttrey's approximately
8,645,000 outstanding common shares. Buttrey's Board of Directors
unanimously approved the agreement and recommended that Buttrey
stockholders tender their shares pursuant to the offer. After successful
completion of the tender offer, remaining shares of Buttrey will be
acquired at the tender offer price through a merger. Buttrey's Board of
Directors has received the opinion of Morgan Stanley & Co., Incorporated
that the consideration payable in the tender offer and merger is fair, from
a financial point of view, to Buttrey stockholders.
In connection with the acquisition agreement, an affiliate of Freeman
Spogli & Co. Incorporated, Buttrey's largest stockholder, has agreed to
tender its 4,389,879 shares of common stock, which represent 50.8% of
Buttrey's current outstanding stock, and has also granted Albertson's an
option on such shares at $15.50 per share of common stock, which can be
exercised under certain circumstances. The definitive agreement provides
for payment to Albertson's under certain circumstances of a termination fee
and reimbursement of expenses if Buttrey's Board of Directors, in the
exercise of its fiduciary responsibilities, terminates the definitive
agreement or withdraws or modifies its recommendation that Buttrey
stockholders tender their shares pursuant to the offer.
The consummation of the offer is subject to certain customary
conditions, including expiration of the waiting period under the
Hart-Scott-Rodino Antitrust Improvements Act and antitrust approval.
Financing is not a condition to completion of the transaction.
"I am very proud of the efforts of our associates throughout Buttrey,"
said Joseph H. Fernandez, chairman, president and chief executive officer
of Buttrey. "Through their dedication and commitment to our customers, our
associates have made Buttrey an attractive acquisition opportunity for
Albertson's, one of the most successful food retailers in the world.
Buttrey's
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outstanding associates share a commitment to quality products, superior
service and great prices that fits well with the strengths of Albertson's.
Additionally, Buttrey's network of quality stores in excellent locations
compliments Albertson's impressive network in our trade areas, and offers
Albertson's an opportunity to bring their programs to many new customers."
Representatives of Buttrey and Albertson's have scheduled meetings
with Buttrey employees beginning on Tuesday, January 20, 1998 throughout
Montana and Wyoming to discuss the effects of the transaction and to begin
the process of transition to new ownership.
Buttrey Food and Drug Stores Company is a leading supermarket and
pharmacy retailer with 43 stores operating in Montana, North Dakota and
Wyoming, and two stores under construction. Thirty-five of the 45 stores
have pharmacies and the Company also runs the only mail-order pharmacy
business in the region. Buttrey operates distribution centers in Great
Falls, Montana, and in Salt Lake City, Utah, which provide its stores with
groceries and fresh products. The Company employs over 3,000 associates in
its various locations.
On January 26, 1998, Parent and Purchaser commenced the Offer and issued
the following press release:
Jan. 26, 1998 -- Albertson's, Inc. (NYSE:ABS) announced today that
Locomotive Acquisition Corp., a wholly owned subsidiary, has commenced its
tender offer to purchase all outstanding shares of Buttrey Food and Drug
Stores Company (NASDAQ:BTRY) for $15.50 net per share. The offer and
withdrawal rights are scheduled to expire at 12:00 midnight, New York City
time, on Monday, February 23, 1998, unless the offer is extended by
Albertson's, Inc.
The offer is being made in accordance with the previously announced
merger agreement among Albertson's, Inc., Locomotive Acquisition Corp. and
Buttrey Food and Drug Stores Company. The offer is subject to regulatory
approval and certain conditions, including the tender of a majority of the
outstanding Buttrey shares.
The offer is being made pursuant to a Tender Offer Statement on
Schedule 14D-1 to be filed today by Albertson's, Inc. with the Securities
and Exchange Commission and mailed to Buttrey shareholders. Copies of the
tender offer materials may be obtained from the Information Agent,
Georgeson & Company Inc., at 212-440-9800 or 800-223-2064.
Albertson's, Inc. is one of the largest retail food-drug chains in the
United States. The Boise, Idaho based company currently operates 869 retail
stores in 20 Western, Midwestern and Southern states.
Review of the Offer. In arriving at its decision to approve the
transactions contemplated by the Merger Agreement and to recommend acceptance of
the Offer, the Board considered, among other things, (i) the terms and
conditions of the Offer and the Merger Agreement, including the amount and form
of the consideration being offered to the Company's stockholders; (ii) the fact
that the $15.50 per share price in the Merger Agreement represents a premium of
approximately 44% over the closing sale price of $10.75 per share as reported on
the Nasdaq National Market System on January 16, 1998, the last trading date
prior to authorization and approval of the Merger Agreement by the Board; (iii)
the Board's knowledge of the business, operations, prospects, properties, assets
and historical and projected earnings of the Company, including consideration of
competitive factors and growth prospects in the Company's core markets and
resource limitations on the Company's ability to expand into markets or through
acquisitions; (iv) contacts with and circumstances pertaining to possible
alternative buyers in the supermarket industry, including the Board's view,
based in part on the advice of Morgan Stanley, that financial buyers would be
unable to pay a significant premium over the Company's recent stock price; (v)
prices, premiums and multiples of earnings and cash flow paid in recent
acquisitions of similar companies; (vi) the recent and historical market prices
and trading volume of the Shares; (vii) the degree of certainty that the
transaction will close, including certain provisions in the Merger Agreement
which, in light of the extended period of time which may be necessary to address
antitrust regulatory matters, increase
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the likelihood that the Offer will close and provide necessary operational
flexibility to the Company prior to closing; and (viii) the presentation of
Morgan Stanley, including the receipt at the meeting of the Board held on
January 19, 1998, of the Fairness Opinion to the effect that, as of such date,
and on the basis of the various factors described to the Board at the January
19, 1998 meeting, the $15.50 in cash per share to be received by the holders of
Shares pursuant to the Merger Agreement is fair from a financial point of view
to such stockholders. In its presentation, Morgan Stanley reviewed and analyzed,
among other things, (a) certain publicly available financial statements and
other information concerning the Company; (b) internal financial statements and
other financial and operating data concerning the Company prepared by management
of the Company; (c) certain financial projections prepared by the management of
the Company; (d) discussions with senior management concerning the past and
current operations and financial condition and prospects of the Company; (e)
reported price and trading activity for the Shares; (f) comparisons of certain
financial performance and stock price and trading information of the Company
with similar information for certain other comparable publicly traded companies
and their securities; (g) the terms of recent comparable business combinations
in comparison with the terms of the proposed transaction; and (h) the Merger
Agreement and certain documents related to the Offer and the Merger, including
the Tender Agreement.
Additionally, the Board considered Parent's requirement that the Tender
Agreement be entered into by the Major Stockholder as a condition of offering a
price of $15.50 per Share, the right of the Major Stockholder to enter into the
Tender Agreement, the background and circumstances pertaining to the Major
Stockholder's execution of the Tender Agreement, that under existing law the
Major Stockholder could have sold its Shares to Parent without the requirement
of any transaction for all outstanding shares and the requirement that the Board
approve the Tender Agreement in connection with the Offer and the Merger. The
Board considered and evaluated the impact of the Tender Agreement on offers or
proposals for a Third Party Transaction and reviewed the circumstances under
which Parent would be able to acquire ownership of a majority of the Shares upon
exercise of the option contained in the Tender Agreement. The Board also
reviewed the voting provisions of the Tender Agreement, and received advice and
analysis from legal counsel and its financial advisor, Morgan Stanley with
respect to the impact of the Tender Agreement on alternative proposals to
acquire the Company. The Board also considered its ability to provide
information to other interested parties and its right, in the exercise of its
fiduciary duties, to review other unsolicited acquisition proposals and to
terminate the Merger Agreement and accept such proposals if the Board determined
that any such proposal was financially superior to the Offer, but evaluated such
right in the context of the Tender Agreement. The Board also considered and
evaluated the possible impact of the Termination Fee on such proposals and
received advice and analysis from legal counsel with respect to the Termination
Fee.
In light of all of the factors set forth above, the Board approved the
Offer, the Merger, the Merger Agreement and the Tender Agreement and the
transactions set forth thereby and determined to recommend that stockholders of
the Company tender their Shares pursuant to the Offer. In view of the variety of
factors considered in connection with its evaluation of the Offer and the
Merger, the Board did not assign relative weights to the specific factors
considered in reaching its decision. Rather, the Board based its decision on the
totality of the information presented to and considered by the Board.
Financial Advisor; Fairness Opinion
Morgan Stanley was retained by the Company to act as its financial advisor
in connection with the Offer, the Merger and related matters based upon Morgan
Stanley's experience and expertise. At the January 19, 1998 meeting of the
Board, Morgan Stanley delivered to the Board an oral opinion, which it confirmed
in writing, to the effect that, as of such date and based upon and subject to
certain matters stated therein, the consideration to be received by the holders
of Shares pursuant to the Merger Agreement is fair from a financial point of
view to such holders.
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THE FULL TEXT OF THE MORGAN STANLEY OPINION, DATED AS OF JANUARY 19, 1998,
WHICH SETS FORTH THE ASSUMPTIONS MADE, MATTERS CONSIDERED AND LIMITATIONS ON THE
REVIEW UNDERTAKEN, IS ATTACHED TO THIS STATEMENT AS ANNEX 1 AND IS INCORPORATED
HEREIN BY REFERENCE. HOLDERS OF SHARES ARE URGED TO, AND SHOULD, READ THE MORGAN
STANLEY OPINION CAREFULLY IN ITS ENTIRETY. THE MORGAN STANLEY OPINION IS
DIRECTED ONLY TO THE FAIRNESS OF THE CONSIDERATION TO BE RECEIVED BY THE HOLDERS
OF SHARES FROM A FINANCIAL POINT OF VIEW AND IT DOES NOT ADDRESS ANY OTHER
ASPECT OF THE MERGER AGREEMENT NOR DOES IT CONSTITUTE A RECOMMENDATION TO ANY
HOLDER OF SHARES AS TO WHETHER SUCH STOCKHOLDER SHOULD TENDER SHARES PURSUANT TO
THE OFFER OR HOW SUCH STOCKHOLDER SHOULD VOTE WITH RESPECT TO THE MERGER. THE
SUMMARY OF THE MORGAN STANLEY OPINION SET FORTH IN THIS STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In arriving at its opinion, Morgan Stanley, among other things, (i)
reviewed certain publicly available financial statements and other information
of the Company; (ii) reviewed certain internal financial statements and other
financial and operating data concerning the Company prepared by the management
of the Company; (iii) analyzed certain financial projections prepared by the
management of the Company; (iv) discussed the past and current operations and
financial condition and the prospects of the Company with senior executives of
the Company; (v) reviewed the reported prices and trading activity for the
Shares; (vi) compared the financial performance of the Company and the prices
and trading activity of the Shares with that of certain other comparable
publicly traded companies and their securities; (vii) reviewed the financial
terms, to the extent publicly available, of certain comparable acquisition
transactions; (viii) reviewed the Merger Agreement and certain documents related
to the Offer and the Merger including the Tender Agreement; and (ix) performed
such other analyses and considered such other factors as it deemed appropriate.
In rendering its opinion, Morgan Stanley assumed and relied upon without
independent verification the accuracy and completeness of the information
reviewed by Morgan Stanley for the purposes of its opinion. With respect to
financial projections, Morgan Stanley assumed that they had been reasonably
prepared on bases reflecting the best currently available estimates and
judgments of the future financial performance of the Company. Morgan Stanley did
not make an independent valuation or appraisal of the assets or liabilities of
the Company, nor was Morgan Stanley furnished with any such appraisals. Morgan
Stanley also assumed that the Offer and the Merger will be consummated in
accordance with the terms set forth in the Merger Agreement. Morgan Stanley's
opinion was necessarily based on economic, market and other conditions as in
effect on, and the information made available to Morgan Stanley as of, the date
of the opinion.
The Board retained Morgan Stanley based upon Morgan Stanley's experience
and expertise. Morgan Stanley is an internationally recognized investment
banking and financial advisory firm. Morgan Stanley, as part of its investment
banking business, is continuously engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, negotiated
underwritings, competitive biddings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporate and other
purposes. Morgan Stanley is a full-service securities firm engaged in securities
trading and brokerage activities, as well as providing investment banking,
financing and financial advisory services. In the ordinary course of its
trading, brokerage and financing activities, Morgan Stanley or its affiliates
may at any time hold long or short positions, and may trade or otherwise effect
transactions, for its own account or the accounts of customers, in securities or
senior loans of the Company or Parent. In the past, Morgan Stanley and its
affiliates have provided financial advisory and financing services to the
Company and FS&Co. and have received fees for the rendering of these services.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
By letter dated as of January 8, 1998 (the "Engagement Letter"), the
Company engaged Morgan Stanley to provide the Company with financial advice and
assistance with respect to the possible sale of the Company. Pursuant to the
Engagement Letter, the Company will pay Morgan
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Stanley a fee of $1,000,000 in the event that the Company is acquired pursuant
to the Offer or other negotiated purchase during the term of the Engagement
Letter or within one year of termination of the Engagement Letter. The Company
has also agreed to reimburse Morgan Stanley for its reasonable out-of-pocket
expenses incurred in connection with rendering financial advisory services,
including fees and disbursements of its legal counsel. The Company has agreed to
indemnify Morgan Stanley and its directors, officers, agents, employees and
controlling persons for certain costs, expenses and liabilities, including
liabilities under federal securities laws, to which it may be subjected arising
out of or related to its engagement as financial advisor.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) Except pursuant to the Stock Option Plans, the Buttrey Company
Retirement Estates Plan and for the transactions contemplated by the Offer, the
Merger, the Merger Agreement and the Tender Agreement, no transactions in the
Shares have been effected during the past sixty (60) days by the Company or, to
the best knowledge of the Company, by any executive officer, director, affiliate
or subsidiary of the Company. In connection with the Offer and the Merger, the
Board intends to accelerate the vesting of certain outstanding Options granted
to Mr. Fernandez under the 1990 Option Plan and to certain directors under the
1996 Option Plan. In addition, Options outstanding under the 1993 Option Plan
and under the 1995 Option Plan will, by their terms, vest fully upon
consummation of the Offer. See Item 3(b)(1) for a discussion of certain option
payment arrangements to be entered into by the Company.
(b) To the best of the Company's knowledge, all of the Company's executive
officers, directors and affiliates presently intend to tender all Shares which
are held of record or beneficially owned by such persons pursuant to the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described in Items 3(b) and 4(b) above, no negotiation is
being undertaken or is underway by the Company in response to the Offer, the
Merger, the Merger Agreement or the Tender Agreement that relates to or would
result in (i) an extraordinary transaction, such as a merger or reorganization,
involving the Company or any of its subsidiaries, (ii) a purchase, sale or
transfer of a material amount of assets by the Company or its subsidiaries,
(iii) a tender offer for or acquisition of securities by or of the Company or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described in Items 3(b), 4(a) and 4(b) above, no transaction,
board resolution, agreement in principle, or signed contract is being undertaken
or is underway by the Company in response to the Offer, the Merger, the Merger
Agreement or the Tender Agreement that relates to or would result in (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any of its subsidiaries, (ii) a purchase, sale or transfer of a
material amount of assets by the Company or its subsidiaries, (iii) a tender
offer for or acquisition of securities by or of the Company or (iv) any material
change in the present capitalization or dividend policy of the Company.
ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
(a) Section 203 of the DGCL. Section 203 of the DGCL, in general, prohibits
a Delaware corporation such as the Company, from engaging in a "Business
Combination" (defined as a variety of transactions, including mergers, as set
forth below) with an "Interested Stockholder" (defined generally as a person
that is the beneficial owner of 15% or more of a corporation's outstanding
voting stock) for a period of three years following the date that such person
became an Interested Stockholder unless (a) prior to the date such person became
an Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder, (b) upon consummation of the
transaction that resulted in the stockholder becoming an Interested Stockholder,
the Interested Stockholder owned at least 85% of the voting stock of the
corporation outstanding at the
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time the transaction commenced, excluding stock held by directors who are also
officers of the corporation and employee stock ownership plans that do not
provide employees with the right to determine confidentially whether shares held
subject to the plan will be tendered in a tender or exchange offer or (c) on or
subsequent to the date such person became an Interested Stockholder, the
Business Combination is approved by the board of directors of the corporation
and authorized at a meeting of stockholders, and not by written consent, by the
affirmative vote of the holders of a least 66 2/3% of the outstanding voting
stock of the corporation not owned by the Interested Stockholder.
Under Section 203, the restrictions described above do not apply if, among
other things (a) the corporation's original certificate of incorporation
contains a provision expressly electing not to be governed by Section 203; (b)
the corporation, by action of its stockholders, adopts an amendment to its
certificate of incorporation or by-laws expressly electing not to be governed by
Section 203, provided that, in addition to any other vote required by law, such
amendment of the certificate of incorporation or by-laws must be approved by the
affirmative vote of a majority of the shares entitled to vote, which amendment
would not be effective until 12 months after the adoption of such amendment and
would not apply to any Business Combination between the corporation and any
person who became an Interested Stockholder of the corporation on or prior to
the date of such adoption; (c) the corporation does not have a class of voting
stock that is (1) listed on a national securities exchange, (2) authorized for
quotation on an inter-dealer quotation system of a registered national
securities association or (3) held of record by more than 2,000 stockholders,
unless any of the foregoing results from action taken, directly or indirectly,
by an Interested Stockholder or from a transaction in which a person became an
Interested Stockholder; or (d) a stockholder become an Interested Stockholder
"inadvertently" and thereafter divests itself of a sufficient number of shares
so that such stockholder ceases to be an Interested Stockholder. Under Section
203, the restrictions described above also do not apply to certain Business
Combinations proposed by an Interested Stockholder following the announcement or
notification or one of certain extraordinary transactions involving the
corporation and a person who had not been an Interested Stockholder during the
previous three years or who became an Interested Stockholder with the approval
of a majority of the corporation's directors.
Section 203 provides that, during such three-year period, the corporation
may not merge or consolidate with an Interested Stockholder or any affiliate or
associate thereof, and also may not engage in certain other transactions with an
Interested Stockholder or any affiliate or associate thereof, including, without
limitation, (a) any sale, lease, exchange, mortgage, pledge, transfer or other
disposition of assets (except proportionately as a stockholder of the
corporation) having an aggregate market value equal to 10% or more of the
aggregate market value of all assets of the corporation determined on a
consolidated basis or the aggregate market value of all the outstanding stock of
a corporation; (b) any transaction which results in the issuance or transfer by
the corporation or by certain subsidiaries thereof of any stock of the
corporation or such subsidiaries to the Interested Stockholder, except pursuant
to a transaction which effects a pro rata distribution to all stockholders of
the corporation; (c) any transaction involving the corporation or certain
subsidiaries thereof which has the effect of increasing the proportionate share
of the stock of any class or series, or securities convertible into the stock of
any class or series, of the corporation or any such subsidiary which is owned
directly or indirectly by the Interested Stockholder (except as a result of
immaterial changes due to fractional share adjustments); or (d) any receipt of
the Interested Stockholder of the benefit (except proportionately as a
stockholder of such corporation) of any loans, advances, guarantees, pledges or
other financial benefits provided by or through the corporation.
The foregoing description of Section 203 of the DGCL is not necessarily
complete and is qualified in its entirety by reference to the DGCL.
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The provisions of Section 203 of the DGCL are not applicable to any of the
transactions contemplated by the Merger Agreement or the Tender Agreement, since
the Merger Agreement, the Tender Agreement and the transactions contemplated
thereby have been approved by the Board.
(b) Information Statement. The Information Statement attached as Schedule I
hereto is being furnished in connection with the possible designation by Parent,
pursuant to the Merger Agreement, of certain persons to be appointed to the
Board other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
EXHIBIT
NO. DESCRIPTION
- ------- -------------------------------------------------------------------------------------
1. Agreement and Plan of Merger, dated as of January 19, 1998, by and among the Company,
Purchaser and Parent.*
2. Tender and Option Agreement, dated as of January 19, 1998, by and among Purchaser,
Parent, the Company and the Major Stockholder.*
3. Pages 2 through 16 of the Company's Proxy Statement, dated as of May 2, 1997.*
4. Press release issued by the Company on January 20, 1998.*
5. Fairness Opinion of Morgan Stanley, dated as of January 19, 1998.
6. Letter to Stockholders, dated as of January 26, 1998, from Joseph H. Fernandez,
Chairman of the Board, President and Chief Executive Officer of the Company.
7. Confidentiality Agreement, dated as of December 22, 1997, between FS&Co., on behalf
of the Company, and Parent.*
- ---------------
* Not included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
Dated: January 26, 1998 BUTTREY FOOD AND DRUG STORES
COMPANY
By: /s/ Wayne S. Peterson
--------------------------------------
Name: Wayne S. Peterson
Title: Senior Vice-President, Chief
Financial Officer, and Secretary
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SCHEDULE I
BUTTREY FOOD AND DRUG STORES COMPANY
601 6TH STREET, S.W.
GREAT FALLS, MONTANA 59404
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
This Information Statement is being mailed on or about January 26, 1998, as
a part of the Company's Solicitation/Recommendation Statement on Schedule 14D-9
(the "Schedule 14D-9") to the holders of record of the Shares at the close of
business on or about January 23, 1998. Capitalized terms used herein and not
otherwise defined shall have the meanings set forth in the Schedule 14D-9 and
the Merger Agreement. You are receiving this Information Statement in connection
with the possible election of persons designated by Parent to a majority of the
seats on the Board. As further set forth below, the Merger Agreement requires
the Company to take all actions necessary to cause Parent's Designees (as
defined below) to be elected to the Board under the circumstances described
therein. This Information Statement is required by Section 14(f) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14f-1
thereunder. You are urged to read this Information Statement carefully. You are
not, however, required to take any action in connection with this Information
Statement.
Pursuant to the Merger Agreement, Purchaser commenced the Offer on January
26, 1998. The Offer is scheduled to expire at 12:00 midnight, New York City
time, on February 23, 1998, unless the Offer is extended. Purchaser is obligated
to extend the Offer under the circumstances described in Item 3(b)(1) of the
Schedule 14D-9 and as provided in the Merger Agreement.
The information contained in this Information Statement concerning Parent's
Designees has been furnished to the Company by Parent, and the Company assumes
no responsibility for the accuracy or completeness of such information.
BOARD OF DIRECTORS
GENERAL
The common stock of the Company ("Common Stock") is the only class of
voting securities of the Company outstanding. Each Share of Common Stock has one
vote. As of January 19, 1998, there were 8,644,631 shares of Common Stock
outstanding. The Board currently consists of ten members. Each director holds
office until such director's successor is elected and qualified or until such
director's earlier resignation or removal.
RIGHT TO DESIGNATE DIRECTORS
Pursuant to the Merger Agreement, following the purchase by Purchaser of
the Minimum Shares pursuant to the Offer, and from time to time thereafter,
Parent shall be entitled to designate up to such number of directors ("Parent's
Designees"), rounded up to the next whole number, on the Board as shall give
Purchaser representation on the Board equal to the product of the total number
of directors on the Board (giving effect to the directors elected pursuant to
this sentence) multiplied by the percentage, expressed as a decimal, that the
aggregate number of Shares beneficially owned by Parent or any affiliate of
Parent following such purchase bears to the total number of Shares then
outstanding, and the Company shall, at such time and promptly take all actions
necessary to cause Parent's Designees to be elected as directors of the Company,
including increasing the size of the Board or securing the resignations of
incumbent directors, or both. The Company shall cause persons designated by
Parent to constitute the same percentage as persons
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designated by Parent shall constitute of the Board to be appointed to (i) each
committee of the Board, (ii) the board of directors of Buttrey Food and Drug
Company, a Delaware Corporation and a wholly owned subsidiary of the Company
(the "Subsidiary") and (iii) each committee of each board, in each case only to
the extent permitted by applicable law. Notwithstanding anything in this
paragraph to the contrary, until the earlier of the time Parent acquires a
majority of the then outstanding Shares and the Effective Time, the Company
shall use its best efforts to ensure that all the members of the Board and each
committee of the Board and such boards and committees of each subsidiary of the
Company as of the date of the Merger Agreement who are not employees of the
Company shall remain members of the Board and of such boards and committees.
Parent has informed the Company that each of Parent's Designees has
consented to act as a director. It is expected that Parent's Designees may
assume office as described above and that, upon assuming office, Parent's
Designees will thereafter constitute at least a majority of the Board of the
Company.
Biographical information concerning each of the Parent's Designees and the
directors and executive officers of the Company is presented below.
PARENT'S DESIGNEES
Parent will choose the Parent's Designees from among the directors and
officers of Parent and Purchaser listed in Schedule I of the Schedule 14D-1, a
copy of which is being mailed to stockholders of the Company together with this
Schedule 14D-9. Certain biographical information concerning such individuals is
as follows:
PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
Kathryn Albertson........ Director of Parent. Vice President and a director of the J.A. and
Kathryn Albertson Foundation, Inc., President and a director of
Alscott, Inc., from 1993 to 1997. Grandmother of J.B. Scott.
A. Gary Ames............. Director of Parent. President and Chief Executive Officer, U S WEST
International, a telecommunications company and a wholly-owned sub-
sidiary of U S WEST, Inc. since July 1995. President and Chief
Executive Officer, U S West Communications from 1990 to 1995. Mr.
Ames is a director of Fixtech, Tektronix, Inc. and Telewest.
Cecil D. Andrus.......... Director of Parent. Chairman of the Andrus Center for Public
Policy, a public policy forum located at Boise State University
dealing in natural resource issues, since January 1995 and of
counsel to the Gallatin Group, a consulting firm, since February
1995. Elected Governor of the State of Idaho in 1987 and served
until January 1995. Mr. Andrus serves as a director of Coeur
d'Alene Mines Corp., KeyCorp. and the J.A. and Kathryn Albertson
Foundation, Inc.
John B. Carley........... Director of Parent. Chairman of the Executive Committee of the
Board of Directors since February 1996 and formerly President and
Chief Operating Officer of Parent. Mr. Carley is a director of
Boise Cascade Office Products Corporation, Idaho Power Company and
AgriBeef Co.
Paul I. Corddry.......... Director of Parent. Served as Senior Vice President, Europe, of
H.J. Heinz Company, a worldwide provider of processed food products
and services until his retirement in 1992. Mr. Corddry has been
Chairman and a director of Bzircus Entertainment Corporation since
1994 and is a director of Ameristar Casinos, Inc.
John B. Fery............. Director of Parent. Served as Chairman of the Board of Boise
Cascade Corporation, a timber and paper products company until his
retirement in 1995 and as Chief Executive Officer from 1972 to
1994. Mr. Fery is a director of Hewlett-Packard Company, The Boeing
Company and U.S. Bancorp.
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PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
Clark A. Johnson......... Director of Parent. Chairman of the Board, Chief Executive Officer
and a director of Pier 1 Imports, Inc., a retailer of imported
goods. Mr. Johnson is also a director of Pier 1 Imports, Inc.,
Heritage Media Corporation, InterTan, Inc. and Metromedia
International Group.
Charles D. Lein.......... Director of Parent. President and Chief Operating Officer of
Stuller Settings, Inc., a jewelry manufacturing company since
January 1994. Formerly Chairman of the Board, President and Chief
Executive Officer of Black Hills Jewelry Manufacturing Co. from
1982 to 1993. Mr. Lein is a director of Stuller Settings, Inc. and
First National Bank of Lafayette.
Warren E. McCain......... Director of Parent. Served as Chairman of the Executive Committee
of the Board of Directors of Parent until his retirement in
February 1996 and as Chairman of the Board and Chief Executive
Officer of Parent from 1976 to 1991. Mr. McCain is a director of
Pope and Talbot.
Beatriz Rivera........... Director of Parent. Member of the Public Utilities Commission of
the State of New Mexico since 1995. Formerly owner of Infiniti of
Albuquerque, an automobile dealership, from 1990 to 1995.
J.B. Scott............... Director of Parent. Chairman of the Board and a director of
Alscott, Inc. Grandson of Kathryn Albertson. Mr. Scott is President
and a director of the J.A. and Kathryn Albertson Foundation, Inc.
Thomas L. Stevens, Jr.... Director of Parent. Served as President, Los Angeles
Trade-Technical College (LATTC) until his retirement in 1996. Mr.
Stevens was a member of the Board of Directors of the Federal
Reserve Bank of San Francisco, Los Angeles Branch, until his
retirement from LATTC.
Will M. Storey........... Director of Parent. Served as Executive Vice President and Chief
Financial Officer, American President Companies, a provider of
container transportation services until his retirement in 1995. Mr.
Storey is a director of Eagle-Pitcher Industries, Inc. and T.I.S.
Mortgage Investment Company.
Steven D. Symms.......... Director of Parent. President of Symms, Lehn & Associates, Inc., a
consulting firm since January 1993. Elected United States Senator
from the State of Idaho in 1980 and served until January 1993. Vice
President and Secretary of Boise Air Service, Inc. since 1983. Mr.
Symms is a director of Symms, Lehn & Associates, Inc., Boise Air
Service, Inc. and Symms Fruit Ranch, Inc.
Gary G. Michael.......... Chairman of the Board and Chief Executive Officer of Parent since
1991. Mr. Michael is Chairman of the Board of Directors of the
Federal Reserve Bank of San Francisco and a director of Boise
Cascade Corporation and Questar Corporation.
Richard L. King.......... President and Chief Operating Officer of Parent since February
1996. Previously served as Senior Vice President and Regional
Manager of Parent from November 1994; Group Vice President,
Merchandising of Parent from January 1994; and Vice President,
Rocky Mountain Division of Parent from 1992.
Carl W. Pennington....... Executive Vice President, Corporate Merchandising of Parent since
February 1996. Previously served as Senior Vice President,
Corporate Merchandising of Parent from 1994 and Senior Vice
President and Regional Manager of Parent from 1988.
Michael F. Reuling....... Executive Vice President, Store Development of Parent since 1986.
Thomas R. Saldin......... Executive Vice President, Administration and General Counsel of
Parent since 1991.
Ronald D. Walk........... Executive Vice President, Retail Operations of Parent since
February 1996. Previously served as Senior Vice President and
Regional Manager of Parent from 1984.
Thomas E. Brother........ Senior Vice President, Distribution of Parent since 1991.
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PRESENT PRINCIPLE OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------- -------------------------------------------------------------------
William H. Emmons........ Senior Vice President and Regional Manager of Parent since Febru-
ary 1996. Previously served as Vice President, North Texas Division
of Parent from 1993 and Vice President, Texas Division of Parent
from 1988.
Dennis C. Lucas.......... Senior Vice President and Regional Manager of Parent since February
1996. Previously served as Vice President, Oregon Division of
Parent from 1995 and Vice President, Midwest Division of Parent
from 1993 and Division Manager, Midwest Division of Parent from
1992.
A. Craig Olson........... Senior Vice President, Finance and Chief Financial Officer of
Parent since 1991.
David G. Simonson........ Senior Vice President and Regional Manager of Parent from February
1996. Previously served as Vice President, Southern California
Division of Parent from 1991.
Patrick S. Steele........ Senior Vice President, Information Systems and Technology of Parent
since 1993 and Group Vice President, Management Information Systems
of Parent from 1990.
Steven D. Young.......... Senior Vice President, Human Resources of Parent since 1993 and
Group Vice President, Human Resources of Parent from 1991.
Robert K. Banks.......... Group Vice President, Real Estate of Parent since December 1996.
Previously served as Vice President, Real Estate of Parent from
1990.
David G. Dean............ Group Vice President, Procurement of Parent since 1991.
Peggy Jo Jones........... Group Vice President, Employee Development and Communications of
Parent since November 1993. Previously served as Vice President,
Employee Development and Communications of Parent from September
1993; and Vice President, Retail Accounting of Parent from 1992.
Richard J. Navarro....... Group Vice President and Controller of Parent since 1993 and Vice
President and Controller of Parent from 1989.
Kaye L. O'Riordan........ Vice President and Corporate Secretary of Parent since May 1997.
Corporate Secretary and Senior Attorney of Parent from January
1990.
Carol L. Wood............ Assistant Corporate Secretary of Parent since September 1981 and
Coordinator of Stockholder Communications of Parent since 1982.
MEMBERS OF THE BOARD OF DIRECTORS OF THE COMPANY
The following sets forth certain information concerning the members of the
Board as of January 19, 1998:
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ------------------------ --- --------------------------------------- --------
Joseph H. Fernandez 45 Chairman of the Board, President and 1993
Chief Executive Officer
Matt L. Figel+ 37 Director 1990
Robert P. Gannon* 53 Director 1992
Michael P. Malone+ 57 Director 1992
J. Frederick Simmons* 43 Director 1990
Peter J. Sodini* 56 Director 1990
Ronald P. Spogli* 49 Director 1990
William M. Wardlaw 51 Director 1990
Thomas C. Young+ 48 Director 1992
Wayne S. Peterson 39 Senior Vice President, Chief Financial 1995
Officer and Director
- ---------------
* Member of the Compensation Committee.
+ Member of the Audit Committee.
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Mr. Fernandez became the President, Chief Operating Officer and a Director
of the Company in March 1993, became the Chief Executive Officer in September
1993, and was elected as Chairman of the Board in August 1996. From April 1991
to February 1993, Mr. Fernandez served as Executive Vice President and Chief
Operating Officer for Kings Super Markets, Inc.
Mr. Figel founded Doramar Capital, a private investment firm, in January
1997. From October 1986 to December 1996, Mr. Figel was employed by FS&Co. (or
its affiliates). FS&Co. is a private investment company that was founded in
1983. Mr. Figel became a Director of the Company in October 1990. Mr. Figel is
also a member of the Board of Directors of Calmar Inc.
Mr. Gannon became a Director of the Company in May 1992. Mr. Gannon was
appointed the President of Montana Power Company in January 1990, Vice Chairman
in January 1996, Chief Executive Officer in July 1997 and Chairman of the Board
in January 1998.
Mr. Malone became a Director of the Company in August 1992. Since January
1991, Mr. Malone has served as the President of Montana State University.
Mr. Simmons joined FS&Co. in 1986 and became a general partner in January
1991. Mr. Simmons became a Director of the Company in October 1990. Mr. Simmons
is also a member of the Board of Directors of EnviroSource, Inc.
Mr. Sodini became a Director of the Company in October 1990 and, from
October 1990 until March 1993, served as the Company's Chairman of the Board.
Since March 1996, Mr. Sodini has served as the Chief Executive Officer and
Chairman of the Board of The Pantry, Inc. From November 1995 to February 1996,
Mr. Sodini worked as an independent consultant. From December 1991 to October
1995, Mr. Sodini served as Chief Executive Officer and a Director of Purity
Supreme, Inc. ("Purity") and, from March 1993 to October 1995, also served as
the Chairman of the Board of Purity. Mr. Sodini also served as President of
Purity from December 1991 until August 1994. Mr. Sodini is also a member of the
Boards of Directors of The Pantry, Inc. and Pamida Holding Corporation.
Mr. Spogli is a founding partner of FS&Co. Mr. Spogli became a Director of
the Company in October 1990. Mr. Spogli is the Chairman of the Board and a
Director of EnviroSource, Inc. and also serves on the Boards of Directors of
Calmar Inc. and Brylane Inc.
Mr. Wardlaw joined FS&Co. in March 1988 and became a general partner in
January 1991. Mr. Wardlaw became a Director of the Company in October 1990. Mr.
Wardlaw is also a member of the Board of Directors of Calmar Inc.
Mr. Young became a Director of the Company in August 1992. Since December
1994, Mr. Young has served as a Director of the Portland branch of the Federal
Reserve Bank of San Francisco. Since October 1984, he has served as President,
Chief Executive Officer and Chairman of the Board of Northwest National Bank and
Chairman of the Board of Northwest Bancshares, Inc. Mr. Young has also served as
President of Admiralty Leasing, Inc. since October 1984.
Mr. Peterson became a Director of the Company in May 1995, Senior Vice
President of the Company in April 1995, Vice President and Chief Financial
Officer in June 1991, and Secretary in November 1991. From October 1990 until
June 1991, Mr. Peterson served as Vice President and Controller of the Company.
THE BOARD OF DIRECTORS
COMMITTEES
The standing committees of the Board of Directors are the Audit Committee
and the Compensation Committee. The Audit Committee, which presently consists of
Messrs. Malone, Young and Figel, met once during the fiscal year ended February
1, 1997 ("1996"). The Compensation
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37
Committee, which presently consists of Messrs. Gannon, Simmons, Sodini and
Spogli, met once during 1996, and took various actions by unanimous written
consent.
The Audit Committee recommends to the Board of Directors the engagement or
discharge of the Company's independent auditors; reviews with the independent
auditors the scope, timing and plan for the annual audit, any non-audit services
and the fees for audit and other services; reviews outstanding accounting and
auditing issues with the independent auditors; and supervises or conducts such
additional projects as may be relevant to its duties. The Audit Committee is
also responsible for reviewing and making recommendations with respect to the
Company's financial condition, its financial controls and accounting practices
and procedures.
The Compensation Committee recommends to the Board of Directors
compensation policies and guidelines for the Company's executives and oversees
the granting of incentive compensation, if any, to such persons. The
Compensation Committee also administers the Company's bonus and stock option
plans.
MEETINGS AND REMUNERATION
During 1996, the Board of Directors held five meetings and took various
actions by unanimous written consent. Each incumbent director other than Messrs.
Wardlaw and Sodini attended at least 75% of the aggregate of (i) the total
number of meetings held by the Board of Directors during 1996 and (ii) the total
number of meetings held by all committees of the Board of Directors on which he
served during that period.
Each director is elected to hold office until the next annual meeting of
stockholders and until his respective successor is elected and qualified. Except
for non-employee directors of the Company who are not affiliated with FS&Co.
(each, an "Outside Director"), directors do not receive compensation for
services on the Board of Directors or on any committees of the Board of
Directors. All directors are reimbursed for their out-of-pocket expenses in
serving on the Board of Directors and on any committees. In 1996, Messrs.
Gannon, Malone and Young (who at the time were the only Outside Directors of the
Company) each received compensation for their services of $1,500 for each Board
meeting attended. In addition, in 1996, Mr. Malone received an annual retainer
of $5,000 and, at their election and in lieu of such annual retainer, Messrs.
Gannon and Young each received an option to purchase 3,125 Shares at an exercise
price of $6.40 per share pursuant to the Company's 1996 Option Plan. In 1997,
Outside Directors of the Company, other than Mr. Malone, (currently Messrs.
Figel, Gannon, Sodini and Young) each received (i) $1,500 for each regular Board
meeting attended, plus (ii) either (x) an annual retainer of $5,000, or (y) at
such director's election in lieu of such annual retainer, an option to purchase
Shares in an amount and at an exercise price calculated pursuant to the terms of
the 1996 Option Plan. See "Stock Options -- 1996 Option Plan." In 1997, Mr.
Malone waived his right to any compensation for his services as an Outside
Director.
STOCK OPTIONS
1996 Option Plan. The Company has adopted its 1996 Option Plan which
provides for the granting of non-qualified stock options to Outside Directors of
the Company. The 1996 Option Plan permits each Outside Director to elect, on the
date of each annual meeting at which he or she is elected or reelected, to
receive an option to purchase Shares in lieu of being paid that part of the
director's fee that is not dependent upon attendance at meetings or services as
a chairperson for the ensuing year (the "Retainer Fee"). If the Outside Director
makes such an election, on the six-month anniversary of the date of the election
(the "Date of Grant"), such Outside Director will be granted an option
exercisable for a number of Shares equal to the amount of the Outside Director's
Retainer Fee divided by 20% of the fair market value of a Share at the close of
business on the Date of Grant. The exercise price for any such option will be
80% of the fair market value of Common Stock on the Date of Grant. These options
vest and are exercisable on the date of the annual
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38
meeting of stockholders following the Date of Grant. All options granted under
the 1996 Option Plan expire on the earlier of the tenth anniversary of the Date
of Grant or six months after the recipient of the option ceases to be a
director. As of February 1, 1997, an aggregate of 75,000 Shares have been
reserved for issuance under the 1996 Option Plan. As of January 19, 1998,
options covering 15,774 Shares were granted under the 1996 Option Plan, none of
which had been exercised. The Company has accelerated options granted in
November 1997 under the 1996 Option Plan covering 9,524 Shares so that such
options will be exercisable upon consummation of the Offer. The Company intends
to enter into Payment Agreements with respect to options granted under the 1996
Option Plan. See "Item 3(b)(1) of Schedule 14D-9 -- Option Payment Agreements."
EXECUTIVE OFFICERS
Set forth in the table below are the names, ages and current offices held
by all executive officers of the Company.
EXECUTIVE OFFICER
NAME AGE POSITION WITH THE COMPANY SINCE
------------------------- ---- ----------------------------------- -----------------
Joseph H. Fernandez...... 45 Chairman of the Board, President 1993
and Chief Executive Officer
Joseph M. Livorsi........ 51 Senior Vice President -- Sales and 1996
Merchandising
Wayne S. Peterson........ 39 Senior Vice President, Chief 1990
Financial Officer and Secretary
Louis J. Rizzo........... 52 Senior Vice President -- Retail 1994
Operations and Store Development
John E. Sullivan......... 44 Vice President -- Human Resources 1990
Craig A. Wright.......... 34 Vice President -- Non-Perishables 1995
Merchandising
Executive officers of the Company are elected by and serve at the
discretion of the Board of Directors. No arrangement exists between any
executive officer and any other person or persons pursuant to which any
executive officer was or is to be selected as an executive officer, other than
as provided for Mr. Fernandez in his employment agreement with the Company. See
"-- Compensation -- Employment and Severance Agreements." None of the executive
officers has any family relationship to any nominee for director or to any other
executive officer of the Company. Set forth below is a brief description of the
business experience for the previous five years of all executive officers of the
Company except Messrs. Fernandez and Peterson. For information concerning the
business experience of Messrs. Fernandez and Peterson, see "Board of Directors."
Mr. Livorsi became Senior Vice President, Sales and Merchandising of the
Company in October 1996. From July 1995 until July 1996, Mr. Livorsi was Senior
Vice President, Sales and Merchandising for Price Chopper Supermarkets in
Schenectady, New York. From July 1986 to July 1995, Mr. Livorsi held senior
marketing and merchandising positions with Randall's Food Markets in Houston,
Texas.
Mr. Rizzo became Senior Vice President -- Merchandising and Store
Operations of the Company in April 1995, and Senior Vice President -- Retail
Operations and Store Development in October 1996. From February 1994 until April
1995, Mr. Rizzo served as Vice President -- Sales and Merchandising of the
Company. From June 1991 until October 1993, Mr. Rizzo served as Vice President
and Director of Marketing for the eastern division of Safeway Stores, Inc.
Mr. Sullivan has served as Vice President -- Human Resources of the Company
since October 1990.
Mr. Wright became Vice President -- Support Services of the Company in
April 1995, and Vice President -- Non-Perishables Merchandising in October 1996.
From January 1995 to April 1995,
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Mr. Wright served as Director -- Support Services. From June 1993 to January
1995, Mr. Wright served as Director -- Information Technology, and from October
1990 to June 1993 he served as Manager -- Store Systems/Front-End Operations.
COMPENSATION
The following table sets forth information concerning the annual and
long-term compensation for services in all capacities to the Company paid or
accrued by the Company for each of the fiscal years ended January 28, 1995
("1994"), February 3, 1996 ("1995") and February 1, 1997 ("1996"), for (i) the
Company's Chief Executive Officer, and (ii) each of the other four most highly
compensated executive officers of the Company who were serving as executive
officers at February 1, 1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
LONG TERM
COMPENSATION
ANNUAL COMPENSATION ------------
-------------------------------------------------- SECURITIES
NAME AND PRINCIPAL OTHER ANNUAL UNDERLYING ALL OTHER
POSITION YEAR SALARY($) BONUS(1)($) COMPENSATION(2)($) OPTIONS(#) COMPENSATION($)
- ---------------------- ---- --------- ----------- ------------------ ------------ ---------------
Joseph H. Fernandez 1996 300,417 0 0 130,000(3) 11,658(4)
Chairman of the 1995 247,500 200,561 0 30,000(5) 8,923
Board, President and 1994 225,000 25,000 0 15,000(6) 47,248
Chief Executive
Officer
Louis J. Rizzo 1996 145,000 0 0 12,000(3) 11,585(7)
Senior Vice 1995 140,000 40,518 0 12,000(5) 9,338
President -- 1994 127,679 0 0 0 31,783
Retail Operations
and Store
Development
Wayne S. Peterson 1996 125,100 0 0 12,000(3) 11,388(8)
Senior Vice 1995 117,500 69,006 0 12,000(5) 11,285
President, Chief 1994 105,600 0 0 0 6,798
Financial Officer
and Secretary
John E. Sullivan 1996 104,500 0 0 8,000(3) 9,873(9)
Vice President -- 1995 100,000 28,942 0 8,000(5) 7,737
Human Resources 1994 95,000 0 0 0 3,562
Craig A. Wright(11) 1996 90,000 0 0 8,000(3) 7,627(10)
Vice President-- 1995 80,000 23,153 0 8,000(5) 6,178
Non-Perishables 1994 51,437 0 0 0 3,134
Merchandising
- ---------------
(1) Other than for Mr. Fernandez and Mr. Peterson, represent payments made to
executive officers in March of each year for the prior fiscal year pursuant
to the Buttrey Key Management Incentive Plan. See "Bonus Plan" below.
Amounts paid to Mr. Fernandez in each of 1994 and 1995 include $25,000
payments made pursuant to the terms of his employment agreement. See
"Employment and Severance Agreements" below. In addition, amounts paid to
Mr. Fernandez and Mr. Peterson in 1995 include cash bonuses of $70,000 and
$35,000, respectively, as consideration for additional contributions made
by them on behalf of the Company.
(2) Other than the limited special rights attached to certain of the shares
covered by options as described in "Stock Option Plans" below, during each
of 1994, 1995 and 1996, no executive officer named above received
perquisites and other personal benefits, securities or property in an
aggregate amount in excess of the lesser of $50,000 or 10% of the total of
such officer's salary and bonus, nor did any such officer receive any
restricted stock award, stock appreciation right or payment under any long
term incentive plan.
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40
(3) Consists of options to purchase Shares granted in 1996 pursuant to the 1995
Option Plan. See "Stock Option Plans."
(4) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE (as defined under "-- Retirement
Plan" below) for the account of Mr. Fernandez; (ii) $845 represents the
amount of insurance premiums paid by the Company with respect to life
insurance; (iii) $666 represents the imputed amount of insurance premiums
set aside by the Company for the benefit of Mr. Fernandez towards the
Company's own long-term disability program; and (iv) $2,687 represents the
imputed amount of insurance premiums set aside by the Company for the
benefit of Mr. Fernandez towards the Company's own medical plan.
(5) Consists of options to purchase Shares granted in May 1995 pursuant to the
1995 Option Plan. See "Stock Option Plans."
(6) Consists of options to purchase 15,000 Shares granted in February 1994
pursuant to the 1993 Option Plan. See "Stock Option Plans."
(7) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Rizzo, (ii)
$838 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $593 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Rizzo
towards the Company's own long-term disability program; and (iv) $2,695
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Rizzo towards the Company's own medical
plan.
(8) Of this amount, (i) $7,459 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Peterson;
(ii) $721 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $510 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Peterson
towards the Company's own long-term disability program; and (iv) $2,698
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Peterson towards the Company's own medical
plan.
(9) Of this amount, (i) $6,152 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Sullivan;
(ii) $600 represents the amount of insurance premiums paid by the Company
with respect to life insurance; (iii) $423 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Sullivan
towards the Company's own long-term disability program; and (iv) $2,698
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Sullivan towards the Company's own medical
plan.
(10) Of this amount, (i) $4,045 represents the estimated amount of cash to be
contributed by the Company to the BCRE for the account of Mr. Wright; (ii)
$519 represents the amount of insurance premiums paid by the Company with
respect to life insurance; (iii) $385 represents the imputed amount of
insurance premiums set aside by the Company for the benefit of Mr. Wright
towards the Company's own long-term disability program; and (iv) $2,677
represents the imputed amount of insurance premiums set aside by the
Company for the benefit of Mr. Wright towards the Company's own medical
plan.
(11) Mr. Wright was a Named Executive Officer in 1996, but not a Named Executive
Officer for the fiscal year ended January 31, 1998 ("1997"). For 1997, the
Named Executive Officers are Messrs. Fernandez, Peterson, Sullivan and
Livorsi.
Bonus Plan. The Company has adopted the Buttrey Key Management Incentive
Plan (as amended, the "Bonus Plan") pursuant to which the Compensation Committee
annually establishes guidelines for incentive compensation to be paid to the
Company's officers and key employees. The amount of an individual's bonus award
is based on the attainment of specified Company perform-
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41
ance objectives, such as the achievement of target sales and cash flow
objectives, and is determined as a percentage of the recipient's base salary.
Retirement Plan. The Company maintains the Buttrey Company Retirement
Estates (the "BCRE"), a retirement plan that is intended to qualify under
Section 401(a) of the Internal Revenue Code of 1986, as amended (the "Code").
Employees become eligible to participate in the BCRE upon the later of the
attainment of age 21 or the completion of one year of service. The BCRE provides
for contributions by participants and by the Company. Participants can make
pretax contributions up to the maximum amount permitted under Section 401(k) of
the Code. The Company also makes annual contributions (in the form of cash or
Common Stock) to the BCRE, the amount of which is determined by the Board of
Directors in its discretion each year. Seventy-five percent of the Company's
contribution is allocated to participants as a percentage of their compensation
("Profit Sharing Contributions"), and the remaining 25% is allocated in
proportion to the amount of contributions made by each participant ("Matching
Contributions"). In March 1997, the Board of Directors of the Company authorized
the Company to contribute a total of $1.0 million in cash to the BCRE as the
Company's contribution for 1996.
Stock Option Plans
1990 Option Plan. The Company has adopted the 1990 Option Plan, which
provides for the granting of non-qualified stock options to officers, key
employees and consultants of the Company, including Directors who are also
employees. As of February 1, 1997, an aggregate of 451,500 shares of Common
Stock have been reserved for issuance under the 1990 Option Plan.
The 1990 Option Plan is administered by the Compensation Committee. Options
terminate at the earlier of (i) 90 days after the participant's termination of
employment by the Company (unless such termination results from the
participant's death or disability, or the participant dies within 90 days after
such termination of employment, in which case the option terminates 180 days
after the date of the participant's termination of employment), (ii) ten years
from the date of grant, or (iii) on the effective date of certain dissolutions,
liquidations or sales of all of the business, properties and assets of the
Company or upon certain reorganizations, mergers or consolidations.
All options granted under the 1990 Option Plan currently will vest and
become exercisable in full upon a determination by the Compensation Committee
that the Company, on a consolidated basis, has achieved 100% of the amount of a
specified operating cash flow and total net cash flow from operations for any
one of the four fiscal years of the Company beginning with the fiscal year ended
January 1997 and ending with the fiscal year ended January 2000. Upon a
determination by the Compensation Committee that the Company has not achieved
the required levels of operating cash flow and total net cash flow from
operations by January 29, 2000, the options which remain unvested shall
nevertheless vest and become exercisable as of October 5, 2000. The Compensation
Committee periodically reviews the 1990 Option Plan and may, in good faith,
adjust the specified cash flow levels to reflect unanticipated major events such
as catastrophic occurrences and mergers and acquisitions. The Compensation
Committee may, in its sole discretion, elect to accelerate the vesting of all or
any portion of any option.
The holders of options granted under the 1990 Option Plan (other than Mr.
Fernandez) have been granted limited special rights (the "Limited Rights") with
respect to all of the shares of Common Stock covered by such options (the
"Related Options"). The Limited Rights become exercisable in circumstances where
the Company, in its sole discretion, has accelerated the Related Options in
connection with a business combination or sale of all or substantially all of
the assets or capital stock of the Company, in each case in which the holders of
the Company's Common Stock receive all cash consideration (an "Extraordinary
Corporate Event"). Upon the exercise of a Limited Right, the Related Option
ceases to be exercisable to the extent of the shares with respect to which the
Limited Right is exercised, and an optionee would receive, for each share of
underlying
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42
Common Stock, a cash payment equal to the excess of (i) the cash per share of
Common Stock received by the holders of Common Stock in connection with the
Extraordinary Corporate Event, over (ii) the option price per share of Common
Stock underlying the Related Option.
1995 Option Plan. The Company has adopted the 1995 Option Plan which
provides for the granting of either non-qualified or incentive stock options to
officers and key employees of the Company, including directors who are also
employees. Notwithstanding the foregoing, only officers and key employees who do
not own capital stock possessing more than 10% of the total combined voting
power or value of all classes of capital stock of the Company or the Subsidiary
shall be eligible to receive grants of options. As of February 1, 1997, an
aggregate of 500,000 shares of Common Stock have been reserved for issuance
under the 1995 Option Plan.
The 1995 Option Plan is administered by the Compensation Committee. Options
terminate as determined by the Compensation Committee and specified in each
Option Agreement; provided, that such termination date shall be not later than
ten years from the date such option is granted, subject to earlier termination
upon an optionee's termination of employment, in connection with certain
extraordinary corporate transactions, or as otherwise set forth in each
particular Option Agreement.
The purchase price per share of the shares of Common Stock underlying each
option and the vesting schedule for each option will be determined by the
Compensation Committee; provided, that the option price of any incentive stock
option shall not be less than the fair market value of the underlying shares at
the time the incentive stock option is granted, as determined by the
Compensation Committee in accordance with the formula specified in the 1995
Option Plan.
Option Payment Agreements. In connection with the Offer, the Company
intends to enter into the Payment Agreements with holders of Options under the
Stock Option Plans, and intends to enter into an option payment agreement with
Joseph H. Fernandez, the Company's Chairman of the Board, President and Chief
Executive Officer, with respect to 56,140 shares subject to the Performance
Option under the 1990 Option Plan. The Payment Agreements will describe, as
applicable, the various termination and acceleration provisions of the Stock
Option Plans that are triggered by the Offer and the Merger and will provide for
the surrender to the Company of all options, following consummation of the
Offer, for an amount in cash equal to the excess of the Offer Price over the
applicable exercise price per share of such options and less all taxes required
to be withheld from such payment (the "Option Consideration"). The Payment
Agreement with Mr. Fernandez will describe the Board's decision to accelerate
the vesting of the Performance Option with respect to 28,070 of the Shares
covered thereby to the time of acceptance of Shares for payment and purchase
pursuant to the Offer and provide for payment of the Option Consideration with
respect to such Shares following consummation of the Offer. The Payment
Agreements for Outside Directors will also describe the Board's decision to
accelerate to the time of acceptance of Shares for payment and purchase pursuant
to the Offer the vesting of options to purchase an aggregate of 9,524 Shares
granted under the 1996 Option Plan. The Payment Agreements will further provide
that payment of the Option Consideration is subject to and contingent upon both
the acceptance of the Shares for payment and purchase pursuant to the Offer and
the surrender by the optionholder of the options.
Employment and Severance Agreements.
In March 1993, the Company entered into a three-year employment agreement
with Mr. Fernandez which has been amended to continue through March 1, 2001. As
amended, the employment agreement currently provides for a base salary of
$350,000 and for an incentive bonus to be paid pursuant to the terms of the
Company's Bonus Plan. See "Bonus Plan." The employment agreement provides for
Mr. Fernandez to be employed by the Company as Chairman of the Board, President
and Chief Executive Officer until the earlier of March 1, 2001 or the date that
such employment shall have been terminated as provided therein. In addition, the
employment agreement provides that, so long as Mr. Fernandez remains an employee
of the Company, the Company will
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43
include Mr. Fernandez in the Company's slate of nominees for directors at each
such election of directors. Pursuant to the terms of the employment agreement,
in the event Mr. Fernandez is terminated without cause or resigns for good
reason (as such terms are defined in the employment agreement), or in the event
that Mr. Fernandez should die or become permanently disabled, the Company is
required to pay Mr. Fernandez's base salary for a period of twenty-four
consecutive months from the date of such event. Mr. Fernandez' employment
agreement provides that, in the event that Mr. Fernandez is terminated by the
Company for cause or Mr. Fernandez otherwise terminates his employment under
certain circumstances, then, subject to certain exceptions, Mr. Fernandez will
not compete with the Company for a period of 12 months after such termination.
In March 1993, the Company also entered into a separate agreement with Mr.
Fernandez pursuant to which he will be entitled to receive severance payments of
up to six months' salary upon an involuntary termination of his employment,
other than for cause (as defined therein), upon a resignation for good reason
(as defined therein), or in the event that Mr. Fernandez should die or become
permanently disabled, in each case at any time after the expiration of his term
of employment as specified in his employment agreement (or any subsequent
employment agreement with the Company).
The Company has entered into agreements with Messrs. Peterson, Rizzo and
Sullivan pursuant to which these individuals will be entitled to receive
severance payments of up to six months' salary either upon an involuntary
termination of employment, other than for cause (as defined therein), or upon a
resignation for good reason (as defined therein).
Pursuant to the Letter Agreement, Parent has agreed to provide certain
severance and retention benefits Parent would provide to certain employees of
the Company, including the Company's officers, upon consummation of the Offer
and the Merger. Under the severance program, an employee, including any officer,
who is terminated, other than for cause, within six months of the closing of the
purchase of the Company will receive a cash severance payment of 1 1/2 weeks of
pay for each full year of service with the Company, with a minimum payment of
$3,000 for employees with at least one full year of service and $1,500 for
employees with less than one full year of service. Executive officers with
current employment or severance agreements may elect to receive the payment
specified above or the payment provided for in such agreement, but not both. In
addition, the COBRA premiums for medical benefits will be paid for three months
following the last day of employment.
As authorized by the Board at its January 19, 1998 meeting and approved by
Albertson's in the Letter Agreement, the Company will enter into certain
retention agreements (the "Retention Agreements") with, among others, all
executive officers other than Mr. Fernandez and with certain employees of the
Company. These Retention Agreements will provide that each of these officers and
employees will receive a specified retention incentive bonus ranging from
$20,000 to $120,000 if such officer or employee remains employed with the
Company until 60 days after consummation of the Offer. Further, such bonuses
will be paid if employment is involuntarily terminated prior to the expiration
of such 60 day period, unless such termination is "for cause," and shall also be
paid if employment is terminated by such employee with "good reason," prior to
the expiration of such 60 day period, with "for cause" and "good reason"
customarily defined. The retention incentive bonuses will also be paid in the
event that such officer or employee dies or is permanently disabled prior to the
expiration of such 60 day period.
The Major Stockholder will also enter into agreements with each of Wayne S.
Peterson, Senior Vice President, Chief Financial Officer and Secretary and Louis
J. Rizzo, Senior Vice President -- Retail Operations and Store Development,
providing, that, each of these executive officers will receive a closing bonus
of $40,000 and $20,000, respectively, from the Major Stockholder if such officer
remains employed with the Company until the consummation of the Offer. These
bonuses will also be paid if employment is involuntarily terminated prior to the
consummation of the Offer, unless such termination is "for cause" and shall also
be paid if employment is terminated by the officer for
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"good reason," with "for cause" and "good reason" customarily defined. The
closing bonus will also be paid upon the death or permanent disability of such
officer. Notwithstanding the foregoing, neither officer shall be entitled to
receive the closing bonus if the Offer is not consummated for any reason.
STOCK OPTIONS.
The following table sets forth information concerning options granted to
the Named Executive Officers during 1996.
OPTION GRANTS IN LAST FISCAL YEAR
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
------------------------------------------------------ VALUE
NUMBER OF AT ASSUMED ANNUAL RATES
SECURITIES % OF TOTAL OF STOCK PRICE
UNDERLYING OPTIONS APPRECIATION
OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM
GRANTED EMPLOYEES IN BASE PRICE EXPIRA- -----------------------
NAME (#) FISCAL YEAR ($/SH) TION DATE 5%($) 10%($)
- ---------------------- ---------- ------------ ----------- --------- ------- ---------
Joseph H. Fernandez... 30,000(1) 55.2% 7.125 2/28/06 134,662 339,862
100,000(2) 7.375(3) 8/29/06 464,625 1,172,625
Louis J. Rizzo........ 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
Wayne S. Peterson..... 12,000(1) 5.1 7.125 2/28/06 53,865 135,945
John E. Sullivan...... 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
Craig A. Wright....... 8,000(1) 3.4 7.125 2/28/06 35,910 90,630
- ---------------
(1) These options vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(2) 20% of these options were vested and exercisable on their date of grant. The
remaining 80% vest and become exercisable in four equal annual installments
beginning on the first anniversary of their date of grant.
(3) $7.375 is initial exercise price. Beginning in 1997, the option exercise
price will increase 5% on March 1 and September 1 of each year over then
existing exercise price.
The following table sets forth information concerning the aggregate number
of options exercised during 1996 by each of the Named Executive Officers, and
outstanding options held by each such officer at February 1, 1997.
OPTION EXERCISES AND YEAR-END VALUE TABLE
VALUE OF UNEXERCISED
IN-THE-MONEY
SECURITIES UNDERLYING OPTIONS AT
UNEXERCISED OPTIONS AT FEBRUARY 1, 1997($)
SHARES ACQUIRED VALUE REALIZED FEBRUARY 1, 1997(#) EXERCISABLE/
NAME ON EXERCISE(#) ($) EXERCISABLE/UNEXERCISABLE UNEXERCISABLE(1)
- -------------------- --------------- -------------- ------------------------- ----------------------
Joseph H.
Fernandez......... -- -- 72,456/181,140 73,138/174,408
Louis J. Rizzo...... -- -- 6,000/ 18,000 3,000/ 16,500
Wayne S. Peterson... -- -- 6,000/ 26,334 3,000/ 29,668
John E. Sullivan.... -- -- 4,000/ 31,666 2,000/ 42,072
Craig A. Wright..... -- -- 4,000/ 8,000 2,000/ 11,000
- ---------------
(1) The closing price for the Company's Common Stock as reported by the Nasdaq
National Market as of January 31, 1997 was $8.25 per share.
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As of February 1, 1997, options for the purchase of 134,438 shares of
Common Stock, at a purchase price of $6.67 per share, and options for the
purchase of 56,140 shares of Common Stock, at a purchase price of $7.125 per
share, were outstanding under the 1990 Option Plan, and options for the purchase
of 260,922 shares remained available for issuance. Also as of February 1, 1997,
options for the purchase of 2,000 shares of Common Stock, at a purchase price of
$7.50 per share, options for the purchase of 111,000 shares of Common Stock, at
a purchase price of $7.75 per share, options for the purchase of 135,400 shares
of Common Stock, at a purchase price of $7.125 per share, options for the
purchase of 100,000 shares of Common Stock, at a purchase price of $7.375 per
share, and options for the purchase of 2,000 shares of Common Stock, at a
purchase price of $8.125 per share, were outstanding under the 1995 Option Plan,
and options for the purchase of 160,300 shares remained available for issuance.
In addition, as of February 1, 1997, options for the purchase of 6,250 shares of
Common Stock, at a purchase price of $6.40 per share, were outstanding under the
1996 Option Plan. As of February 1, 1997, options for the purchase of 22,456
shares of Common Stock, at a purchase price of $7.125 per share, and options for
the purchase of 15,000 shares of Common Stock, at a purchase price of $6.725 per
share, were outstanding under the 1993 Option Plan. On March 21, 1997, the Board
of Directors of the Company granted options to purchase an aggregate of 17,100
shares of Common Stock, at a purchase price of $9.375 per share, to a total of
57 employees of the Company (excluding executive officers and directors)
pursuant to the 1995 Option Plan. As of March 21, 1997, none of the options
described in this paragraph had been exercised.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In March 1993, Mr. Fernandez purchased 112,280 shares of Common Stock at a
price of $7.125 pursuant to a Stock Subscription Agreement. Of the purchase
price for these shares, $400,000 was paid using a full recourse promissory note,
bearing interest at 7% per annum, payable quarterly, and secured by a pledge to
the Company of the 112,280 shares of Common Stock. In February 1994, Mr.
Fernandez executed a full recourse unsecured promissory note in the amount of
$40,000 in favor of the Company, bearing interest at 7% per annum, and payable
quarterly. As amended, these two promissory notes are due and payable in full on
March 1, 1998.
In April 1997, Mr. Fernandez executed two additional full recourse
promissory notes in favor of the Company, one in the amount of $125,000 which is
secured by a pledge to the Company of the 112,280 shares of Common Stock
purchased by Mr. Fernandez in March 1993, and one in the amount of $75,000 which
is unsecured. Each of these promissory notes bears interest at 9.25% per annum,
payable quarterly, and becomes due and payable in full on March 1, 2001.
COMPENSATION COMMITTEE INTERLOCKS
AND INSIDER PARTICIPATION
During 1996, the Compensation Committee was comprised of Messrs. Gannon,
Simmons, Sodini and Spogli, each an independent non-employee director of the
Company. During 1996, none of the members of the Company's Compensation
Committee had any interlocking relationships as defined by the Commission. For
the fiscal year ending February 1, 1998, the Compensation Committee is comprised
of Messrs. Gannon, Simmons, Sodini and Spogli.
In July 1991, the Company entered into a one-year renewable consulting
agreement with Mr. Sodini which in 1996 provided for a fee of $75,000 and
certain medical benefits through December 1996. This arrangement terminated on
December 31, 1996.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of January 19, 1998 by (i) each person who is
known by the Company to be the beneficial owner of more than 5% of the Common
Stock, (ii) each director and certain executive officers of the Company,
individually, and (iii) all current directors and executive officers as a group:
AMOUNT AND NATURE OF PERCENT OF
NAME OF BENEFICIAL OWNERSHIP OUTSTANDING
BENEFICIAL OWNER(1) OF COMMON STOCK COMMON STOCK
----------------------------------------------- -------------------- ------------
Freeman Spogli & Co.(2)........................ 4,389,879 50.8%
J. Frederick Simmons.........................
Ronald P. Spogli.............................
William M. Wardlaw...........................
Merrill Lynch & Co., Inc.(3)................... 516,900 6.0
Franklin Resources, Inc.(4).................... 656,000 7.6
Pioneering Management Corporation(5)........... 546,500 6.3
Joseph H. Fernandez(6)......................... 345,292 4.0
Robert P. Gannon(7)............................ 6,206 *
Michael P. Malone.............................. 1,100 *
Peter J. Sodini(8)............................. 47,381 *
Matt L. Figel(8)............................... 2,381 *
Thomas C. Young(7)............................. 6,506 *
Joseph M. Livorsi(9)........................... 15,000 *
Wayne S. Peterson(10).......................... 29,084 *
Louis J. Rizzo(11)............................. 35,000 *
John E. Sullivan(12)........................... 50,127 *
Craig A. Wright(13)............................ 10,310 *
All directors and executive officers as a group
(14 persons)................................. 4,938,266(14) 55.0%
- ---------------
* Less than 1%.
(1) Except as otherwise indicated in this table and the notes thereto, the
persons named have sole voting power and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
(2) All shares indicated are owned of record by the Major Stockholder, of which
FS&Co. is the general partner. As general partner, FS&Co. has the sole
power to vote and dispose of such shares. Messrs. Simmons, Spogli and
Wardlaw (all of whom are directors of the Company), Mr. Bradford M. Freeman
and Mr. John M. Roth are general partners of FS&Co., and as such may be
deemed to be the beneficial owners of the shares of Common Stock indicated
as beneficially owned by FS&Co. The business address of FS&Co., its general
partners and the Major Stockholder is 11100 Santa Monica Boulevard, Suite
1900, Los Angeles, California 90025.
(3) As reported in a Schedule 13G dated February 14, 1997 filed jointly with
the Securities and Exchange Commission (the "Commission") by Merrill Lynch
& Co., Inc. ("Merrill Lynch"), Merrill Lynch Group, Inc. ("ML Group"),
Princeton Services, Inc. ("PSI"), Merrill Lynch Asset Management, L.P.
("MLAM") and Merrill Lynch Global Allocation Fund, Inc. ("Merrill Fund"),
Merrill Lynch, ML Group, PSI, MLAM and Merrill Fund have claimed shared
voting and dispositive power with respect to all such shares. Merrill
Lynch, ML Group and PSI are parent holding companies and have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G; MLAM is an investment adviser registered under
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Section 203 of the Investment Advisers Act of 1940 (the "Advisers Act");
and Merrill Fund is an investment company registered under Section 8 of the
Investment Company Act of 1940. The business address of Merrill Lynch and
ML Group is World Financial Center, North Tower, 250 Vesey Street, New
York, New York 10281. The business address for PSI, MLAM and Merrill Fund
is 800 Scudders Mill Road, Plainsboro, New Jersey 08536.
(4) As reported in a Schedule 13G dated February 12, 1997 filed jointly with
the Commission by Franklin Resources, Inc. ("FRI"), Charles B. Johnson,
Rupert H. Johnson, Jr. and Franklin Advisory Services, Inc. ("FAS"), FAS
has claimed sole voting and dispositive power with respect to all such
shares. The securities of the Company reported in the Schedule 13G are
beneficially owned by one or more open or closed-end investment companies
or other managed accounts which are advised by direct and indirect
investment advisory subsidiaries (the "Advisor Subsidiaries") of FRI, the
principal shareholders of which are Messrs. Johnson and Johnson
(collectively, the "Principal Shareholders"). FRI, the Principal
Shareholders and each of the Advisor Subsidiaries have disclaimed
beneficial ownership of the securities of the Company reported in the
Schedule 13G. The business address of FRI, Charles B. Johnson and Rupert H.
Johnson, Jr. is 777 Mariners Island Boulevard, San Mateo, California 94404.
The business address for FAS is One Parker Plaza, Sixteenth Floor, Ft. Lee,
New Jersey 07024.
(5) As reported in a Schedule 13G dated January 5, 1998 filed with the
Commission by Pioneering Management Corporation ("Pioneering"), Pioneering
has claimed sole voting and dispositive power with respect to all such
shares. Pioneering is an investment adviser registered under Section 203 of
the Advisers Act. The business address of Pioneering is 60 State Street,
Boston, Massachusetts 02109.
(6) Amount includes 134,956 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 90,570 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 7,486 shares held by the Buttrey Company Retirement Estates,
the Company's retirement plan (the "BCRE") for the account of Mr.
Fernandez, based on a plan statement of the BCRE dated December 31, 1997.
(7) Amount includes 5,506 shares issuable upon exercise of options which will
become fully exercisable as of, or will become exercisable within 60 days
of, January 19, 1998.
(8) Amount includes 2,381 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998.
(9) Amount includes 9,000 shares issuable upon exercise of options which will
become fully exercisable as of, or become exercisable within 60 days of,
January 19, 1998, and an additional 6,000 shares issuable upon exercise of
options which will become fully exercisable if the Offer is consummated.
(10) Amount includes 15,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 9,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 818 shares held by the BCRE for the account of Mr. Peterson,
based on a plan statement of the BCRE dated December 31, 1997.
(11) Amount includes 15,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 9,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated.
(12) Amount includes 10,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 6,000 shares
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issuable upon exercise of options which will become fully exercisable if
the Offer is consummated. Amount also includes 794 shares held by the BCRE
for the account of Mr. Sullivan, based on a plan statement of the BCRE
dated December 31, 1997.
(13) Amount includes 10,000 shares issuable upon exercise of options which are
exercisable as of, or will become exercisable within 60 days of, January
19, 1998, and an additional 6,000 shares issuable upon exercise of options
which will become fully exercisable if the Offer is consummated. Amount
also includes 310 shares held by the BCRE for the account of Mr. Wright,
based on a plan statement of the BCRE dated December 31, 1997.
(14) Amount includes an aggregate of 209,730 shares issuable upon exercise of
options which are exercisable as of, or will become exercisable within 60
days of, January 19, 1998, and an additional 126,570 shares issuable upon
exercise of options which will become fully exercisable if the Offer is
consummated. Amount also includes an aggregate of 9,408 shares held by the
BCRE for the accounts of Messrs. Fernandez, Peterson, Rizzo, Sullivan and
Wright, based on a plan statement of the BCRE dated December 31, 1997.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Exchange Act ("Section 16") requires the Company's
directors and certain of its officers, and persons who own more than 10 percent
of a registered class of the Company's equity securities (collectively,
"Insiders") to file reports of ownership and changes in ownership with the
Commission. Insiders are required by Commission regulations to furnish the
Company with copies of all Section 16 forms they file.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5s were
required for those persons, the Company believes that its Insiders complied with
all applicable Section 16 filing requirements for 1996, with the exception of
Mr. Wright, who filed a late Form 5 in April 1997 to report his sale of 700
shares of Company Common Stock in July 1995.
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[MORGAN STANLEY & CO. LETTERHEAD]
January 19, 1998
Board of Directors
Buttrey Food and Drug Stores Company
601 6th Street, S.W.
Great Falls, MT 59404
Gentlemen:
We understand that Buttrey Food and Drug Stores Company ("Buttrey" or the
"Company"), Albertson's Inc. ("Albertson's") and a wholly owned subsidiary of
Albertson's ("Acquisition Sub") propose to enter into an Agreement and Plan of
Merger (the "Merger Agreement") which provides, among other things, for (i) the
commencement by Acquisition Sub of a tender offer (the "Tender Offer") for all
outstanding shares of common stock par value of $.01 per share (the "Common
Stock") of Buttrey for $15.50 per share in cash, and (ii) the subsequent merger
(the "Merger") of Acquisition Sub with and into Buttrey. Pursuant to the Merger,
Buttrey will become a wholly owned subsidiary of Albertson's and each
outstanding share of Common Stock, other than shares held in treasury or held by
Albertson's or any affiliate of Albertson's or as to which dissenters' rights
have been perfected, will be converted into the right to receive $15.50 per
share in cash. The terms and conditions of the Tender Offer and the Merger are
more fully set forth in the Merger Agreement. We further understand that
approximately 51% of the outstanding shares of Common Stock are owned by FS
Equity Partners II, L.P. ("Freeman Spogli") and that, concurrently with the
execution of the Merger Agreement, Freeman Spogli will enter into a Tender and
Option Agreement (the "Tender Agreement") pursuant to which Freeman Spogli will
agree, among other things, to tender the shares of Common Stock held by it in
the Tender Offer and to grant to Albertson's proxy with respect to the voting of
such shares. The terms and conditions of the Tender Agreement are more fully set
forth therein.
You have asked for our opinion as to whether the consideration to be
received by the holders of shares of Common Stock pursuant to the Merger
Agreement is fair from a financial point of view to such holders.
For purposes of the opinion set forth herein, we have:
(i) reviewed certain publicly available financial statements and other
information of the Company;
(ii) reviewed certain internal financial statements and other financial
and operating data concerning the Company prepared by the management
of the Company;
(iii) analyzed certain financial projections prepared by the management of
the Company;
(iv) discussed the past and current operations and financial condition and
the prospects of the Company with senior executives of the Company;
(v) reviewed the reported prices and trading activity for the Common
Stock;
(vi) compared the financial performance of the Company and the prices and
trading activity of the Common Stock with that of certain other
comparable publicly traded companies and their securities;
(vii) reviewed the financial terms, to the extent publicly available, of
certain comparable acquisition transactions;
(viii) reviewed the Merger Agreement, the Tender Agreement and certain
related documents; and
(ix) performed such other analyses and considered such other factors as we
have deemed appropriate.
We have assumed and relied upon without independent verification the
accuracy and completeness of the information reviewed by us for the purposes of
this opinion. With respect to the financial projections, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of the
Company. We have not made any independent valuation
50
or appraisal of the assets or liabilities of the Company, nor have we been
furnished with any such appraisals. In addition, we have assumed the Tender
Offer and the Merger will be consummated in accordance with the terms set forth
in the Merger Agreement. Our opinion is necessarily based on economic, market
and other conditions as in effect on, and the information made available to us
as of, the date hereof.
In arriving at our opinion, we were not authorized to solicit; and did not
solicit, interest from any party with respect to the acquisition of the Company
or any of its assets.
We have acted as financial advisor to the Board of Directors of the Company
in connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for the Company and Freeman Spogli and
have received fees for the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of the Company and may not be used for any other purpose without our
prior written consent, except that this opinion may be included in its entirety
in any filing with the Securities and Exchange Commission in connection with the
Tender Offer and the Merger. In addition, we express no opinion or
recommendation as to whether the holders of Common Stock should tender their
shares in connection with the Tender Offer.
Based on and subject to the foregoing, we are of the opinion on the date
hereof that the consideration to be received by the holders of shares of Common
Stock pursuant to the Merger Agreement is fair from a financial point of view to
such holders.
Very truly yours,
MORGAN STANLEY & CO. INCORPORATED
By: /s/ NEIL B. MORGANBESSER
------------------------------------
Neil B. Morganbesser
Principal