Exhibit 16(a)(3)
Going Private Statement dated September __, 2004.
TRANSMITTAL LETTER
Gristede's Foods, Inc.
823 Eleventh Avenue
New York, New York 10019-3535
September __, 2004
Dear Stockholder:
As you may be aware, Gristede's Foods, Inc. ("Gristede's" or the "Company") has
been informed that Gristede's Acquisition Corp., a Delaware corporation
("Mergerco"), which will own in excess of ninety percent of the common stock,
par value $0.02 per share, of the Company (the "Common Stock") intends to merge
with and into the Company, with the Company surviving (the "Merger"). We expect
that the Merger will be completed during the Company's current fiscal year.
We have been informed that the Board of Directors of Mergerco will adopt an
agreement and plan of merger (the "Plan of Merger"), in the form attached as
Exhibit A to the Going Private Statement accompanying this letter, pursuant to
which you will be entitled to receive $0.87 in cash, without interest, for each
of your shares of Common Stock. Mergerco will be controlled by John A.
Catsimatidis, Chairman of the Board of Directors, Chief Executive Officer and
President of the Company.
The going private statement accompanying this letter explains the proposed
Merger. Please read these materials carefully.
Because this Merger will occur pursuant to Section 253 of the Delaware General
Corporation Law ("DGCL"), neither a recommendation of the Board of the Company
nor a vote of the stockholders of the Company will be required to effect the
Merger. Stockholders will be entitled to exercise appraisal rights pursuant to
Section 262 of the DGCL.
The Board of Directors reasonably believes that the terms and provisions of the
Plan of Merger and the proposed Merger are in the best interests of the Company
and fair to the Company's stockholders, other than Mergerco (the "Unaffiliated
Stockholders").
Sincerely,
Frederick Selby
Chairman, Special Committee
This transaction has not been approved or disapproved by the Securities and
Exchange Commission or any state securities regulator nor has the Commission or
any state securities regulator passed upon the fairness or merits of the
transaction or upon the accuracy or adequacy of the information contained in
this document. Any representation to the contrary is unlawful.
On ______ __, 2004, this Going Private Statement was mailed to the stockholders
of record of the Company as of such date.
GOING PRIVATE STATEMENT
MERGER OF
GRISTEDE'S ACQUISITION CORP.
WITH AND INTO
GRISTEDE'S FOODS, INC.
This Going Private Statement (the "Statement") is being furnished to all of the
stockholders (collectively, the "Stockholders") of common stock of Gristede's
Foods, Inc., a Delaware corporation ("Gristede's" or the "Company"), in
connection with the proposed Merger of Mergerco, a Delaware corporation
("Mergerco"), with and into the Company, with the Company as the surviving
entity, pursuant to that proposed plan of merger, attached as Exhibit A, and
incorporated herein by reference (the "Plan of Merger").
The Plan of Merger does not involve a tender offer or proxy solicitation within
the meaning of the federal securities laws; however, because of the possibility
that the Plan of Merger will result in the deregistration of the Common Stock
under the Securities Exchange Act of 1934, as amended, the Plan of Merger
constitutes a so-called "going private transaction" within the meaning of those
laws. This Statement is intended to comply with the going private rules of the
Securities and Exchange Commission.
NEITHER THE PLAN OF MERGER NOR THIS STATEMENT HAS BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION.
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE FAIRNESS OR MERITS OF THE PLAN OF MERGER OR THE
ACCURACY OR ADEQUACY OF THIS STATEMENT. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS
OTHER THAN THOSE CONTAINED IN THIS STATEMENT, AND, IF GIVEN OR MADE, SUCH
INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY.
TABLE OF CONTENTS
Page
SUMMARY TERM SHEET.............................................................1
Questions and Answers About the Merger......................................1
Summary.....................................................................2
Principals of the Catsimatidis Group........................................2
Special Factors.............................................................2
Reasons for Engaging in the Merger..........................................3
Determination of the Special Committee......................................3
Gristede's Position as to the Fairness of the Merger........................3
Interests of Directors and Executive Officers in the Merger.................3
Primary Benefits to and Impacts on the Unaffiliated Stockholders............3
The Plan of Merger..........................................................3
Fees and Expenses...........................................................4
Dissenters' Rights of Appraisal.............................................4
Accounting Treatment........................................................4
Tax Treatment...............................................................4
Selected Consolidated Financial Data of Gristede's..........................4
THE PARTIES....................................................................5
Gristede's Foods, Inc.......................................................5
Gristede's Acquisition Corp.................................................5
John A. Catsimatidis........................................................5
Red Apple Group, Inc........................................................6
United Acquisition Corp.....................................................6
SPECIAL FACTORS................................................................6
Background of the Merger....................................................6
Fairness of the Merger......................................................6
Fairness Opinion of Brooks, Houghton Securities, Inc........................8
Benefits and Other Impacts of the Merger...................................14
Catsimatidis Group Purpose and Reasons for the Merger......................14
Interests of Certain Persons in the Merger; Certain Relationships..........14
Retained Equity Interest...................................................14
Shares and Stock Options......................................................14
Certain Effects of the Merger..............................................15
Plans for Gristede's After the Merger......................................15
Conduct of the Business of the Company If the Merger is Not Consummated....16
Accounting Treatment.......................................................16
Financing of the Merger....................................................16
Regulatory Requirements; Third Party Consents..............................16
MATERIAL FEDERAL INCOME TAX CONSEQUENCES...................................16
Treatment as Sale for Holders of Common Stock..............................17
Treatment as Redemption for Dissenters and Other Stockholders..............17
Constructive Ownership of Stock and Other Issues...........................17
Section 302 Tests..........................................................18
Treatment of Holders of Stock Options......................................18
Backup Withholding.........................................................19
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Tax Treatment to Catsimatidis Group........................................19
Fees and Expenses..........................................................19
THE PLAN OF MERGER............................................................20
The Merger, Merger Consideration...........................................20
Treatment of Certain Shares Held by the Catsimatidis Group.................20
The Exchange Fund; Payment for Shares of Common Stock......................21
Transfers of Common Stock..................................................21
Treatment of Stock Options.................................................21
Conditions.................................................................21
DISSENTERS' RIGHTS OF APPRAISAL...............................................21
CERTAIN MARKET INFORMATION....................................................23
Common Stock Market Price Information; Dividend Information................23
Common Stock Purchase Information..........................................24
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT................24
DIRECTORS AND MANAGEMENT......................................................25
Gristede's.................................................................25
Mergerco...................................................................26
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FINANCIAL AND OTHER INFORMATION...............................................26
STOCKHOLDER MEETINGS AND PROPOSALS............................................27
AVAILABLE INFORMATION.........................................................27
WHERE YOU CAN FIND MORE INFORMATION...........................................27
EXHIBIT A AGREEMENT AND PLAN OF MERGER AMONG GRISTEDE'S FOODS, INC.
AND GRISTEDES ACQUISITION CORP...............................................A-1
EXHIBIT B DISSENTERS' RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW......B-1
EXHIBIT C NOTICE REGARDING APPRAISAL RIGHTS..................................C-1
EXHIBIT D LETTER OF TRANSMITTAL..............................................D-1
EXHIBIT E CERTIFICATE OF OWNERSHIP AND MERGER................................E-1
EXHIBIT F PROMISSORY NOTE WHICH HELPED FUND THE MERGER.......................F-1
EXHIBIT G OPINION OF BROOKS HOUGHTON SECURITIES, INC.........................G-1
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SUMMARY TERM SHEET
Questions and Answers About the Merger
Q: What is the proposed transaction?
A: Pursuant to the laws of Delaware governing the merger of a parent and a
subsidiary, Mergerco will be merged with and into Gristede's, with Gristede's
surviving (such transaction is referred to as the "Merger").
Q: Who is Mergerco?
A: Mergerco was formed in connection with the proposed Merger by John A.
Catsimatidis, Chairman of the Board of Directors and President of Gristede's,
Red Apple Group, Inc. ("RAG") and United Acquisition Corp. ("UAC"), entities
that are each controlled by John A. Catsimatidis, who will in the aggregate
contribute approximately 91.3% of the outstanding Common Stock to Mergerco in
exchange for all of the issued and outstanding shares of common stock of
Mergerco. The stockholders of Mergerco, Mr. Catsimatidis, RAG and UAC, are
sometimes referred to in this statement as the "Catsimatidis Group." Depending
on the context, John A. Catsimatidis is sometimes identified as the natural
person designated as representing the interests of the Catsimatidis Group.
Q: What will I receive in the Merger?
A: Stockholders of Gristede's, other than the Catsimatidis Group and
stockholders who dissent and seek appraisal of the fair value of their shares,
will be entitled to receive $0.87 in cash , without interest (the "Merger
Consideration"), for each share of Common Stock that they own as of the
effective date of the Merger. If you own stock options of Gristede's, because
all of the outstanding options of Gristede's have exercise prices that exceeds
the $0.87 Merger Consideration, no outstanding option to acquire Common Stock
will receive any payment under the Plan of Merger.
Q: What will executive officers, directors and affiliates of the Company receive
in connection with the Merger?
A: The members of the Catsimatidis Group will receive shares of Common Stock in
exchange for their shares of common stock of Mergerco. Executive officers,
directors and affiliates of the Company who are not members of the Catsimatidis
Group will receive the same consideration for their shares of Common Stock as
all other stockholders of the Company.
Q: When do you expect the Merger to be completed?
A: We are working to complete the Merger as quickly as possible. We expect to
complete the Merger during the Company's current fiscal year.
Q: What are the income tax consequences of the Merger to me?
A: The cash you receive for your shares generally will be taxable for federal
and state income tax purposes. To review a brief description of the federal
income tax consequences to stockholders, see "Material Federal Income Tax
Consequences".
Q: What conflicts of interest does the Board of Directors have in determining
the fairness of the Plan of Merger?
A: One of the members of the Board of Directors, John A. Catsimatidis, has a
conflict of interest in recommending approval of the Plan of Merger, because he
is a controlling person of Mergerco. Mr. Catsimatidis abstained from the
fairness determination of the Board of Directors. In addition, those directors
that are also employees of the Company may have a conflict of interest in
recommending approval of the Plan of Merger. To avoid such conflicts of
interest, the Board of Directors appointed a special committee (the "Special
Committee"), consisting of independent directors, to evaluate that Merger and
make recommendations regarding the approval of the Merger.
Q: What did the Board of Directors do to determine that the price per share I
will receive in connection with the proposed Merger is fair to me?
1
A: The Special Committee reviewed the material factors, both positive and
negative, of the proposed Merger. The Special Committee retained Brooks,
Houghton Securities, Inc. ("Brooks, Houghton" or the "Independent Investment
Bank") to assist it in determining if the price per share is fair to you. See
"Fairness of the Merger" for more details.
Q: What are the disadvantages to me of the Mergerco and Gristede's Merger?
A: Following the Merger, you will no longer benefit from any earnings,
expansion, diversification, or growth of Gristede's. See "Benefits and Other
Impacts of the Merger" for more details.
Q: What vote of Gristede's stockholders is required to approve the Plan of
Merger?
A: Because the Merger is a parent-subsidiary merger, where the parent owns more
than 90% of the outstanding stock of the subsidiary, under Delaware law, no vote
of the Gristede's stockholders is required to approve the Merger.
Q: What rights do I have if I oppose the Merger?
A: Stockholders who oppose the Merger may dissent and seek appraisal of the fair
value of their shares (which could be more or less than $0.87 per share), but
only if they comply with all of the procedures under Delaware law explained in
"Dissenters Rights of Appraisal" and in Exhibit B, and Exhibit C to this Going
Private Statement.
Q: Can I send in my stock certificates now?
A: You should not send in your stock certificates now. Promptly after the
effective date of the Merger, you will receive from the exchange agent a
transmittal form and written instructions in the form attached hereto as Exhibit
D for exchanging your share certificates for the Merger Consideration.
Q: Who can help answer my questions?
A: If you have more questions about the Merger or would like additional copies
of this Going Private Statement, you should contact Kishore Lall , Secretary, at
(212) 956-5803.
Summary
The following summarizes the material aspects of the proposed Merger and
highlights selected information contained elsewhere in this Going Private
Statement. This summary may not contain all of the information that is important
to you, and is qualified in its entirety by the more detailed information
contained elsewhere in this Going Private Statement, including the annexes to
it, and in the documents incorporated by reference. To understand the proposed
Merger fully and for a more complete description of the terms of the proposed
Merger, you should carefully read this entire Going Private Statement, including
the annexes to it, and the documents incorporated by reference.
Principals of the Catsimatidis Group (see page 5)
Mergerco is a corporation incorporated by the Catsimatidis Group. Mergerco was
created to acquire the ownership interests of the Company's Stockholders, other
than Mergerco (the "Unaffiliated Stockholders"). Mr. Catsimatidis proposed the
Merger transaction to the Company's Board of Directors and negotiated all
aspects of the transaction on his own behalf and on behalf of the Catsimatidis
Group. For more information, see "The Parties" and "Shares and Stock Options".
Special Factors (see page 6)
There are a number of factors to which you should give special consideration.
They include:
o the background of the Merger;
o the factors considered by the Special Committee;
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o the fairness determination by the Special Committee;
o the purpose and effect of the Merger;
o the interests of certain persons in the Merger; and
o the financing of the Merger.
These factors, in addition to several other factors to be considered in
connection with the Merger, are described in this Going Private Statement. For a
detailed discussion of each of these factors, see page 6.
Reasons for Engaging in the Merger (see page 7)
The Company suffers limitations as a public company. The Company has a market
capitalization under $20 million. Its Common Stock generally trades at under
$1.00 per share and faces the risk of delisting from the American Stock
Exchange. The Common Stock has limited trading volume, lacks institutional
sponsorship, has low public float, and, as such, receives negligible research
attention from analysts. These factors adversely affect the trading market for
and the value of the Common Stock. The Company is increasingly financially
dependent on the Catsimatidis Group for its solvency and would face share
dilution if the Catsimatidis Group were to require compensation at market rates
for its financing and services to the Company. By going private, the Company
will eliminate the significantly increased costs the Company is incurring and
would expect to continue to incur in order to comply with the Sarbanes-Oxley Act
of 2002.
Determination of the Special Committee (see page 7)
The Special Committee determined that the Merger Consideration of $0.87 per
share is fair to the Unaffiliated Stockholders.
Gristede's Position as to the Fairness of the Merger (see page 6)
Gristede's believes the Merger and the Merger Consideration to be fair to the
Unaffiliated Stockholders. In reaching this determination, the Special Committee
considered the factors enumerated above. The Special Committee also relied on
the report of Brooks, Houghton in determining the fairness of the Merger
Consideration to the Company's Unaffiliated Stockholders.
Interests of Directors and Executive Officers in the Merger (see pages 14 and
24)
In considering the determination of the Special Committee with respect to the
Plan of Merger and the transactions contemplated thereby, you should be aware
that, in addition to the matters discussed above, certain executive officers and
members of our Board of Directors have various interests in the Merger that are
in addition to or different from the interests of our stockholders in general
and that such interests create potential conflicts of interest. Specifically,
our Chairman and President, John A. Catsimatidis, is the controlling person of
Mergerco.
The Company's executive officers and directors have options to purchase Common
Stock. Because the per share price of the proposed Merger Consideration is less
than the per share exercise price for all of these options, these options will
have no value if the Merger is consummated and will be cancelled in the Merger.
See "Shares and Stock Options" for additional details.
Primary Benefits to and Impacts on the Unaffiliated Stockholders (see page 14)
The Unaffiliated Stockholders will receive a cash payment for their shares at a
premium above the market price of our shares prior to announcement of the Merger
proposal. After the Merger, the Unaffiliated Stockholders will no longer have an
interest in Gristede's or any of our future earnings growth or increase in
value.
The Plan of Merger (see page 20)
If the Merger is completed, each Unaffiliated Stockholder will be entitled to
receive $0.87 per share in cash, without interest, for each share of Common
Stock they own.
3
Fees and Expenses (see page 19)
Mergerco will pay the costs and expenses incurred in connection with the Merger.
Dissenters' Rights of Appraisal (see page 21)
Any stockholder who does not wish to accept the $0.87 per share cash
consideration in the Merger has the right under Delaware law to have his, her or
its shares appraised by the Delaware Court of Chancery. This "right of
appraisal" is subject to a number of restrictions and technical requirements.
Exhibit B to this Going Private Statement contains the Delaware statute relating
to your right of appraisal. Failure to follow all of the steps required by this
statute will result in the loss of your right of appraisal.
Exhibit C to this Going Private Statement contains a Notice Regarding Appraisal
Rights pursuant to Section 262(d) of the Delaware General Corporation Law.
Financing of the Merger (see page 16)
The Catsimatidis Group anticipates financing for the Merger will be provided by
UAC or another affiliate of Mr. Catsimatidis in the form of a loan to Mergerco.
The loan is not expected to exceed $2,000,000.
Accounting Treatment (see page 16)
Prior to the Merger, the members of the Catsimatidis Group, will contribute all
of their respective equity interests in Gristede's to Mergerco in exchange for
shares of common stock of Mergerco. The Catsimatidis Group collectively owns
17,922,158 shares of Common Stock, or approximately 91.3% of Gristede's
outstanding Common Stock. Since the controlling stockholders of Gristede's will
also be the controlling stockholders of Mergerco, the Merger will be accounted
for as a reverse acquisition of Mergerco by Gristede's and a recapitalization of
Gristede's. Assets and liabilities transferred in the Merger will be recognized
at their historical carrying amounts at the date of the Merger.
Tax Treatment (see page 16)
The cash you receive for your shares of Common Stock generally will be taxable
for federal and state income tax purposes. Any gain or loss will be measured by
the difference between $0.87 per share and your tax basis in the shares.
Selected Consolidated Financial Data of Gristede's
The following table sets forth selected consolidated financial data for
Gristede's and its subsidiaries as of and for each of the five years in the
period ended November 30, 2003 and the six months ended May 30, 2004. No pro
forma data giving effect to the proposed Merger is provided because Gristede's
does not believe such information is material to stockholders in evaluating the
proposed Merger since (1) the proposed Merger Consideration is all cash and (2)
if the proposed Merger is completed, the Common Stock would cease to be publicly
traded.
The financial information for Gristede's as of and for each of the five
years in the period ended November 30, 2003 has been derived from the
consolidated financial statements of Gristede's which have been audited by
Gristede's independent registered certified public accountants. Such information
as and for the six months ended May 30, 2004 has been derived from our unaudited
consolidated financial statements which include all adjustments, consisting of
normal recurring adjustments, which management considers necessary for a fair
presentation of the financial position and results of operations for such
period. Results for the interim period are not necessarily indicative of the
results for the full year. The operating information for all periods presented
has been derived from our accounting and financial records. The following
financial information should be read in conjunction with "Management's
Discussion and Analysis or Plan of Operation" and the Consolidated Financial
Statements of Gristede's and the notes thereto included in Gristede's Annual
Report on Form 10-K for the fiscal year ended November 30, 2003 and Gristede's
Quarterly Report for the quarter ended May 30, 2004, on Form 10-Q, each of which
is incorporated herein by reference. Also please refer to "Additional
Information."
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Six months ended Fiscal year Fiscal year Fiscal year
May 30, 2004 Fiscal year ended ended ended ended Fiscal year ended
November 30, December 1, December 2, December 3, November 28,
2003 2002 2001 2000 1999
(in thousands, except per share amounts)
Operating
Income (loss) ($297,609) ($8,152,098) $2,075,658 $3,729,050 $3,625,920 ($104,136)
Net Income (loss) ($1,591,866) ($11,593,471) ($926,407) $275,057 ($190,908) ($2,873,331)
Net Income (loss) ($0.08) ($0.59) ($0.05) $0.01 ($0.01) ($0.15)
per share (basic
and diluted)
Weighed average 19,636,574 19,636,574 19,636,574 19,636,574 19,636,574 19,636,574
number of shares
outstanding
THE PARTIES
Gristede's Foods, Inc.
The Company operates 45 supermarkets and three free standing pharmacies offering
health and beauty aids and general merchandise.
The business address of Gristede's is 823 Eleventh Avenue, New York, New York
10019-3535 and the business telephone number is (212) 956-5803.
For additional information concerning Gristede's, see "Financial and Other
Information" and "Where You Can Find More Information."
Gristede's Acquisition Corp.
Mergerco is a Delaware corporation organized by the Catsimatidis Group. Mergerco
was organized for the purpose of effecting the Merger and will be merged with
and into Gristede's.
Prior to the Merger, the members of the Catsimatidis Group, will contribute all
of their respective equity interests in Gristede's to Mergerco in exchange for
shares of common stock of Mergerco. The Catsimatidis Group collectively owns
17,922,158 shares of Common Stock, or approximately 91.3% of Gristede's
outstanding Common Stock.
Mergerco, as a single purpose entity, does not have any material assets, prior
to the contribution of Common Stock from the Catsimatidis Group, own any shares
of Gristede's, or conduct any activity except that is incident to its formation
and in connection with the Merger and the related transactions described above.
The business address of Mergerco is 823 Eleventh Avenue, New York, NY 10019-3535
and the business telephone number is (212) 956-5803.
John A. Catsimatidis
Prior to the Merger, Mr. Catsimatidis, the President and Chief Executive Officer
of Gristede's, will contribute all of his equity interests in Gristede's to
Mergerco in exchange for shares of common stock of Mergerco. The business
address of Mr. Catsimatidis is 823 Eleventh Avenue, New York, NY 10019-3535 and
the business telephone number is (212) 956-5803.
5
Red Apple Group, Inc.
Prior to the Merger, RAG will contribute all of its equity interests in
Gristede's to Mergerco in exchange for shares of common stock of Mergerco. RAG
is a Delaware corporation which is a holding company and the sole stockholder of
UAC. The business address of RAG is 823 Eleventh Avenue, New York, NY 10019-3535
and the business telephone number is (212) 956-5803.
United Acquisition Corp.
Prior to the Merger, UAC will contribute all of its equity interests in
Gristede's to Mergerco in exchange for shares of common stock of Mergerco. UAC
is a Delaware corporation which is a holding company. The business address of
UAC is 823 Eleventh Avenue, New York, NY 10019-3535 and the business telephone
number is (212) 956-5803.
SPECIAL FACTORS
Background of the Merger
Gristede's became a publicly-traded company in 1968. In the recent past, the
price of its Common Stock in the trading market, the volume of stock trading
activity and its institutional and research following have all been
unsatisfactory in the view of Gristede's management and Board of Directors. The
$0.87 per share proposed price in the Plan of Merger is a premium over the last
trade day prior to the April 13, 2004 announcement of the proposal.
On April 13, 2004, Mr. Catsimatidis presented a letter to the Board of
Directors, pursuant to which he offered to purchase all the Common Stock not
owned by him or his affiliates for $0.87 per share in cash, without interest
(the "Offer"). The Merger would be effected as a parent-subsidiary merger with
Mergerco merging with and into Gristede's, with Gristede's as the surviving
corporation. See "The Plan of Merger."
The Board determined that because Mr. Catsimatidis' offer appeared to be sincere
and credible, it was worth pursuing. It further determined that in view of the
possible conflicts of interest attendant to any buy-out proposal from an
affiliate, it was advisable to appoint a Special Committee of the Board of
Directors, comprised of independent directors, to discuss the offer. After
considering, among other things, the material positive and negative factors of
the offer, and after obtaining an opinion regarding the fairness of the Merger
from Brooks, Houghton (the "Opinion"), the Special Committee unanimously
determined the Merger of Mergerco with and into Gristede's, with Gristede's as
the surviving corporation, was in the best interests of Gristede's
Unaffiliated Stockholders and that the $0.87 per share Merger Consideration was
fair to Gristede's Unaffiliated Stockholders and unanimously recommended that
the Board of Directors approve the Merger. The Board of Directors, with Mr.
Catsimatidis abstaining, subsequently approved the Merger.
Gristede's issued a press release on April 13, 2004 announcing the Offer.
Fairness of the Merger
The Board of Directors believes that the Merger is fair to and in the best
interests of the Company and fair to its Unaffiliated Stockholders. The Board of
Directors also believes that the processes surrounding the Merger were
procedurally fair. John A. Catsimatidis abstained from the fairness
determination of the Board of Directors because, as a controlling person of
Mergerco, he had a conflict of interest in recommending approval of the Plan of
Merger.
Because the transaction is structured as a "short form" merger under Delaware
law, the vote of the stockholders of the Company is not required to consummate
the transaction.
On April 14, 2004, the Board of Directors appointed a committee of independent
directors (the "Special Committee") to evaluate the Offer and determine its
fairness from a financial point of view to the Unaffiliated Stockholders. The
designated members of the Special Committee were Frederick Selby, Martin
Steinberg and Edward Salzano. The Special Committee chose Mr. Selby as its
Chairman. None of the members of the Special Committee are officers or employees
of the Company and will not be owners or employees of Mergerco following the
Merger. The members of the Special Committee have no financial interest in the
Merger that is
6
different from the interests of the Unaffiliated Stockholders, other than the
receipt of fees for services as members of the Board of Directors and committees
of the Board of Directors of Gristede's.
In considering whether the Merger is fair and in the best interest of the
Company and its Stockholders, including the Unaffiliated Stockholders, who will
receive the Merger Consideration, the Special Committee considered a number of
factors in making that determination including the conclusions reached by
Brooks, Houghton in the Opinion. The material factors, both positive and
negative, are summarized below.
The material positive factors include:
Advantage of Liquidity Given Public Company Limitations. The Special Committee
considered the limitations the Company suffered and could likely continue to
suffer as a public company, including its limited trading volume, lack of
institutional sponsorship, low public float, small market capitalization, and
negligible research attention from analysts, all of which adversely affect the
trading market for and the value of Common Stock. The Merger offers stockholders
an opportunity to achieve liquidity in their stockholdings that is not otherwise
available due to the thin trading of Gristede's shares;
Financial Condition and Operating Prospects. The Company is very highly
leveraged and has a net worth at May 30, 2004 of only $1.4 million. The Company
has suffered net losses in four of the last five years and projects a loss for
fiscal 2004. In addition, the Company faces competition from competitors with
greater resources than the Company. The Special Committee considered its
knowledge of the Company's business, operations, assets, financial condition,
operating results and prospects, in light of the Merger Consideration provided
under the Plan of Merger;
Dependence on Principal Stockholder. The Company has been dependent, in recent
years, on advances from members of the Catsimatidis Group to meet the capital
requirements of the Company in excess of requirements satisfied from
institutional borrowings and cash flow generated from operations. The Merger
will allow stockholders to realize upon their investment and will eliminate the
risk stockholders of the Company could face if Mr. Catsimatidis and his
affiliates decide to either stop advancing funds to the Company or to charge the
Company for the fair market value of credit facilities and services extended to
the Company;
Market Price and Premium. The Special Committee considered the fact that the
Merger would provide the Company's Unaffiliated Stockholders with a premium for
their shares compared to the market price of the Common Stock because the $0.87
per share represented both a premium to the $0.80 per share closing sales price
of the shares of Common Stock on April 12, 2004, the last day the stock traded
prior to the Offer and a premium to the average closing price of the Common
Stock in calendar 2004 through April 12, 2004 of $0.86;
Limited Ability to Entertain Proposals From Other Potential Buyers. The Special
Committee considered the fact that the Catsimatidis Group's equity ownership
interest, coupled with their stated intention of not being willing to sell their
shares to a third party, would make it difficult to find a buyer who might
express an interest in presenting a competing offer;
Form of Merger Consideration. The Special Committee considered the fact that the
consideration to be received by the Company's stockholders in the Merger will
consist entirely of cash, providing stockholders with complete liquidity of
their investment;
Absence of a Financing Contingency. The Special Committee considered the fact
that the Catsimatidis Group have the necessary financing to complete the Merger,
and the Catsimatidis Group do not have the right to unilaterally terminate the
Plan of Merger; and
Costs of Complying with SEC Regulations. The Special Committee considered the
significantly increased costs the Company is incurring to remain a publicly
traded company and would continue to incur in order to comply the Sarbanes-Oxley
Act of 2002.
The material negative factors include:
Taxation of Merger Consideration. The Special Committee considered that the cash
consideration to be received by the Company's Unaffiliated Stockholders would be
taxable to those stockholders. Some Unaffiliated Stockholders may have a basis
in the stock below $0.87 per share and in such instance would incur a tax on
their gains; and
Loss of Equity Interest. The Special Committee considered the fact that if the
Merger is consummated, the Company's Unaffiliated Stockholders will not
participate in the future growth of the Company. Because of the risks and
uncertainties associated with the Company's future prospects, the Special
Committee concluded that the Merger was preferable to preserving for the holders
of such
7
stock a speculative potential future return. The Board also recognized that the
Catsimatidis Group would have an opportunity, subject to the risks of the
Company's business, to benefit from any increases in the value of the Company
following the Merger. The Special Committee recognized that this represented a
conflict between the interests of the Catsimatidis Group and the Company's
Unaffiliated Stockholders. The abstention of Mr. Catsimatidis from the fairness
determination and the formation of the Special Committee were undertaken in
light of the conflicting interests of the Catsimatidis Group.
The foregoing discussion of the information and factors discussed by the Special
Committee is not meant to be exhaustive, but includes all material factors, both
positive and negative, considered by the Special Committee to support its
decision to approve the Plan of Merger and to determine that the transactions
contemplated thereby are in the best interests of the Company and fair to the
Company's Unaffiliated Stockholders. The Special Committee did not assign
relative weights or other quantifiable values to the above factors; rather, the
Special Committee viewed its position as being based on the totality of the
information presented to and considered by the Special Committee members, and
that on balance, the positive factors discussed above outweighed the negative
factors discussed above.
After a review of these factors, the Special Committee determined the fairness
of the Merger.
The Special Committee reasonably believes that the Merger Consideration offered
to the Unaffiliated Stockholders under the Merger is fair. In reaching this
conclusion, the Special Committee relied on an evaluation of several price
methodologies, performed by Brooks, Houghton.
The Special Committee also believes the process it followed in approving the
Plan of Merger was procedurally fair because:
o the members of the Board of Directors who voted on the determination
consisted entirely of directors who are not Company officers or
controlling stockholders or their family members; and
o the members of the Board of Directors who voted on the determination
will not personally benefit from the consummation of the Merger
contemplated by the Plan of Merger, other than in their capacity as
holders of Common Stock and options, which were not considered to be
material.
The Merger does not require a vote of the stockholders of the Company.
The Catsimatidis Group believes that the Merger is fair to the Company and its
stockholders and considered the same factors as the Special Committee considered
in reaching that conclusion. All references to considerations and conclusions by
the Special Committee as to fairness and to factors considered by the Special
Committee apply as well to the Catsimatidis Group. None of the members of the
Catsimatidis Group considered the absence of a requirement that approval of a
majority of Gristede's Unaffiliated Stockholders be obtained in order to effect
the Merger as a factor detracting from the fairness of the Merger, because
Gristede's Board of Directors implemented the effective procedural fairness
measures discussed above.
Fairness Opinion of Brooks, Houghton Securities, Inc.
On April 28, 2004, the Special Committee retained Brooks, Houghton to evaluate
the fairness of the Merger Consideration being offered by the Catsimatidis Group
and to deliver an opinion to the Special Committee as to the fairness, from a
financial point of view, to Gristede's Unaffiliated Stockholders of the Merger
Consideration. Brooks, Houghton is a New York City based investment banking firm
with expertise in valuing businesses and securities and rendering fairness
opinions. Brooks, Houghton is often engaged in the valuation of businesses and
securities in connection with mergers and acquisitions, leveraged buyouts,
private placements of debt and equity, corporate reorganizations, employee stock
ownership plans, corporate and other purposes. The Special Committee interviewed
several investment banking firms and selected Brooks, Houghton because of its
independence, its experience and expertise in performing valuation and fairness
analysis, its favorable reputation of providing quality investment services to
the small cap market, and the competitive pricing of its services. Brooks,
Houghton has not previously been a client of Gristede's, nor does it
beneficially own any interest in Gristede's.
The engagement letter between Brooks, Houghton and the Special Committee
provides that, for its services, Brooks, Houghton is entitled to receive a fee
of $65,000, of which $30,000 was paid upon the commencement of Brooks,
Houghton's engagement, $20,000 upon completion of its study and issuance of a
draft of the form of their opinion, and $15,000 upon Brooks, Houghton providing
the signed Opinion. Brooks, Houghton will be reimbursed for certain of its
out-of-pocket expenses, including legal fees, and indemnified
8
for certain losses, claims, damages and liabilities relating to or arising out
of the services provided by Brooks, Houghton. Brooks, Houghton was not engaged
to determine or recommend the amount of the Merger Consideration.
At a meeting on June 17, 2004, Brooks, Houghton presented its analysis of the
fairness of the Merger Consideration. Brooks, Houghton presentation to the
Special Committee included a discussion of:
o the situation faced by the Company;
o industry factors that affect value;
o analysis of the Company's capitalization;
o historical, recent, and projected financial performance;
o the Merger Consideration in relation to recent Gristede's stock
prices;
o the Merger Consideration in relation to prices of comparable
publicly traded stocks;
o comparison of the Merger Consideration to comparable M&A offers and
completed transactions;
o the value of Gristede's implied by the net present value of future
cash flows based on Company projections; and
o liquidation and other tests of value.
A draft of the Opinion was delivered to the Special Committee on June 27, 2004.
Upon the Company's filing of its interim report on Form 10-Q for the quarter
ended May 30, 2004, Brooks, Houghton reviewed its fairness opinion analyses
in light of the Company's most recent performance and current market conditions.
Subsequently, on September 10, 2004, Brooks, Houghton delivered its signed
Opinion, that as of the date of the Opinion and based on and subject to the
matters described in the Opinion, including various assumptions the Special
Committee directed Brooks, Houghton to make, the Merger Consideration to be
received by the Unaffiliated Stockholders pursuant to the Merger is fair from a
financial point of view.
THE FULL TEXT OF BROOKS, HOUGHTON'S OPINION IS ATTACHED TO THIS GOING PRIVATE
STATEMENT AS EXHIBIT G AND IS INCORPORATED BY REFERENCE. THE SUMMARY OF THE
OPINION SET FORTH BELOW IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL
OPINION. YOU ARE URGED TO READ THE OPINION CAREFULLY IN ITS ENTIRETY FOR A
DESCRIPTION OF THE PROCEDURES FOLLOWED, THE FACTORS CONSIDERED AND THE
ASSUMPTIONS MADE BY BROOKS, HOUGHTON.
THE PREPARATION OF A FAIRNESS OPINION IS A COMPLEX PROCESS AND IS NOT
NECESSARILY SUSCEPTIBLE TO PARTIAL ANALYSIS OR SUMMARY DESCRIPTION. THE SUMMARY
SET FORTH BELOW DOES NOT PURPORT TO BE A COMPLETE DESCRIPTION OF THE ANALYSES
AND PROCEDURES APPLIED, THE JUDGMENTS MADE OR THE CONCLUSIONS REACHED BY BROOKS,
HOUGHTON OR A COMPLETE DESCRIPTION OF ITS PRESENTATION TO THE SPECIAL COMMITTEE.
BROOKS, HOUGHTON BELIEVES, AND ADVISED THE SPECIAL COMMITTEE AND THE COMPANY'S
BOARD OF DIRECTORS, THAT SELECTING PORTIONS OF ITS ANALYSIS AND SOME OF THE
FACTORS CONSIDERED BY IT, WITHOUT CONSIDERING THE COMPLETE ANALYSIS AND ALL
FACTORS, COULD CREATE AN INCOMPLETE OR MISLEADING VIEW OF THE PROCESS UNDERLYING
ITS ANALYSIS AND OPINION.
Certain Assumptions of Brooks, Houghton.
Brooks, Houghton's Opinion is based on the terms of the Plan of Merger in the
form attached as Exhibit A. If the material terms of the Plan of Merger change
or if the business performance of Gristede's materially changes between the date
of the Opinion and the closing of the Merger, the conclusions reached by Brooks,
Houghton may no longer be accurate. When rendering its opinion as to the
fairness to the Unaffiliated Stockholders of the Merger Consideration from a
financial point of view, Brooks, Houghton did not consider any potential events
or transactions that may take place subsequent to the date of its Opinion.
Brooks, Houghton relied on information and representations made or given by the
Company, and its officers, directors, auditors, counsel and other agents, and on
filings, releases and other information issued or provided to Brooks, Houghton
by the Company including financial statements, financial projections and stock
price data as well as certain information from recognized independent
9
sources. Brooks, Houghton did not independently verify the information
concerning the Company or other data which it considered in its review and, for
purposes of the Opinion, Brooks, Houghton assumed and relied upon the accuracy
and completeness of all such information and data. Brooks, Houghton did not
conduct a physical inspection of the properties or facilities of the Company
(all facilities are leased). Brooks, Houghton did not prepare or obtain any
independent evaluation or appraisal of the properties or facilities of the
Company. Though Brooks, Houghton considered the value of the Company in
liquidation, at the Special Committee's request, Brooks, Houghton's Opinion was
limited solely to its review of the consideration in relation to the value of
Gristede's as a going concern.
With regard to financial and other information relating to the general prospects
of the Company, Brooks, Houghton assumed that such information had been
reasonably prepared and reflected the best currently available estimates and
judgments of the management of Gristede's as to Gristede's most likely future
performance. Brooks, Houghton assumed, with the Special Committee's consent that
the Plan of Merger and related documents that Brooks, Houghton reviewed conform
in all material respects to their final form. Additionally, Brooks, Houghton
assumed that the Merger is in all respects lawful under applicable law.
Brooks, Houghton's Opinion was based upon information provided to it by the
management of Gristede's, as well as market, economic, industry, financial and
other conditions as they existed on the Opinion date and the Opinion speaks to
no other period. Brooks, Houghton's Opinion pertains only to the Merger
Consideration and was provided for the information and assistance of the Special
Committee. The Opinion does not constitute a recommendation to the Special
Committee.
Preparation of Opinion.
In connection with the preparation of its Opinion, Brooks, Houghton reviewed and
analyzed a variety of documents and made those inquiries that it deemed
necessary and appropriate under the circumstances. Among other things, Brooks,
Houghton took the following actions:
(i) reviewed certain publicly available financial and other information on the
Company, including the Company's annual reports on Form 10-K for its fiscal
years ended 2003 and 2002 and its quarterly reports for the periods ended May
30, 2004 and February 29, 2004, which our management identified as the most
recent financial information available,
(ii) reviewed the historical financial performance, current financial position
and general prospects of Gristede's, and reviewed certain internal financial
analyses and forecasts prepared by our management,
(iii) reviewed the Plan of Merger attached hereto as Exhibit A,
(iv) studied and analyzed the stock market trading history of Gristede's for the
past 3 years,
(v) compared certain financial and stock market information for Gristede's with
similar information for certain other operators of grocery/supermarket stores
whose securities are publicly traded and reviewed the financial terms of certain
recent business combinations involving grocery/supermarket stores,
(vi) visited Company headquarters offices and met and communicated with certain
members of Gristede's senior management to discuss Gristede's operations,
historical financial statements and future prospects, and
(vii) conducted such other financial analyses, studies and investigations as
Brooks, Houghton deemed appropriate.
The paragraphs that follow describe the financial and comparative analyses
performed by Brooks, Houghton in connection with its Opinion. The analyses were
prepared in the May-July 2004 time frame using the most current financial
information then available. At that time, the most recent financial results for
Gristede's were for the quarter ended February 29, 2004. Subsequently, Brooks,
Houghton reviewed its fairness opinion analyses in light of the more current
information contained in Gristede's interim report on Form 10-Q for the quarter
ended May 30, 2004 and determined that the conclusions it had reached in its
analyses were unchanged by the more current information and current market
conditions.
Context of the Merger Offer.
Brooks, Houghton noted, among other things, that:
o The Offer was for an approximate 8.7% minority stake in the Company
and hence was not for control. Mr. Catsimatidis was currently
offering substantial capital, personal financial guarantees, and
services to the Company and was not charging for the
10
capital and was charging below market for his services. As a result
the reported results of the Company were benefiting substantially
from the exclusion of such costs.
o Trading volumes in Gristede's stock offered limited liquidity for
the minority stockholders.
o Gristede's has a history of financial losses, projects a loss for
2004, and is currently financially fragile and very highly
leveraged.
o The cash nature of the Merger Consideration and the fact the buyer
had completed due diligence and his readiness to close were positive
factors in relation to the Offer.
o Management has represented that Gristede's had received no offers
from others to buy its business in at least the last five years.
o The Company in recent years faced significant competition from new
stores and entrants, including non-store based competitors
delivering groceries from phone and internet orders.
o The Offer valued Gristede's at an enterprise value to EBITDA ratio
(based on trailing 12 months earnings to February 29, 2004) of 10.0
times, and the Merger Consideration was 6.3 times the book value of
Gristede's February 29, 2004 equity. The definition of EBITDA
Brooks, Houghton used is earnings before taxes interest,
depreciation and amortization (exclusive of changes in deferred
rents) and before extraordinary or non-recurring income and expense.
Enterprise value was computed equal to the market value of owners'
equity plus borrowings including capitalized leases, minus cash and
marketable securities.
Merger Consideration in relation to recent Gristede's stock prices.
Gristede's common stock traded in a range of $0.75 to $1.00 in 2004 prior to
announcement of the Offer on April 13, 2004, and had an average closing price in
2004 prior to the date the Offer was announced of $0.86 per share. Brooks,
Houghton noted that due to the low trading volume in Gristede's stock that its
price was susceptible to large percentage price movements on little volume. As
an example, Gristede's stock closed at $0.82 per share on March 12, 2004, one
month prior to the date the Offer was announced, and the next trading date,
March 15, closed at $1.00 per share, a 22% increase. The total cumulative dollar
value of trading in Gristede's stock in January through March 2004 (3 months)
was under $90,000. As a basis of comparison, for the U.S. market as a whole
there were 314 reported public M&A transactions in U.S. listed stocks in 2004
(to June 2004), and the average offer represented a 25.7% premium to the stock
price four weeks prior to the date the Offer was announced. Most reported M&A
transactions were for control.
Brooks, Houghton concluded that because the Offer is not a control transaction
and the Merger Consideration is consistent with or a slight premium to the price
of Gristede's stock in the period leading up to the Offer, the fairness of the
Offer was generally supported in comparing it to the pre-Offer market price of
Gristede's stock. However, because of the thin trading and low price of
Gristede's stock, Brooks, Houghton did not place significant weight on market
price or a premiums-to-market analysis as a measure of fairness.
Merger Consideration in relation to prices of comparable publicly traded stocks.
The key measures Brooks, Houghton used in comparing Gristede's financially with
other similar publicly traded companies were revenues, EBITDA, enterprise value
and book value.
Brooks, Houghton identified and reviewed the universe of U.S. based publicly
traded companies which represented as closely as possible a pure play in the
grocery business. Brooks, Houghton eliminated the largest companies (with
markets caps over $5 billion) and those with market caps so low that market
prices might not reflect fair value. A group of eight companies was selected for
comparison purposes based on business description, size and markets served. The
eight companies selected were Fooderama Supermarkets, Inc., Ingles Markets,
Inc., Marsh Supermarkets, Inc., Pantry, Inc., Pathmark Stores, Inc., Village
Super Market, Inc., Whole Foods Market Inc., and Wild Oats Markets, Inc. All
eight companies are significantly larger in revenues, profit, market
capitalization, and enterprise value than Gristede's.
For the comparison group Brooks, Houghton calculated the ratio of enterprise
value to revenues, enterprise value to EBITDA, and market value of equity to
book value. In each instance, the higher the value for the Gristede's calculated
ratio under the Offer, the more favorable the Offer for Gristede's Unaffiliated
Stockholders. Because Gristede's is unprofitable, Brooks, Houghton was not able
to use profitability as a measure of value.
11
o The Offer compared favorably in each instance to the median value
provided by the comparison group despite the fact the comparison
group was composed of larger, more stable, less highly levered
companies, which would generally merit a valuation premium relative
to Gristede's.
o The median of the comparison group for enterprise value to revenues
was 0.26, versus 0.31 for the Gristede's Offer; for enterprise value
to EBITDA the median value was 6.1 compared to 10.0 for Gristede's;
and market value of equity to book value the median value of the
comparison group was 1.0 compared to 6.2 for Gristede's.
o Because Gristede's EBITDA is projected by the Company to increase
from $8.4 million in the 52 weeks ending February 2004 to $10.6
million for the 52 weeks ending November 2004, a 26% increase,
Brooks, Houghton performed a calculation of Gristede's enterprise
value / EBITDA ratio using the projected FYE November 2004 EBITDA.
Using the projected Gristede's EBITDA, the calculated enterprise
value /EBITDA ratio for Gristede's was 8.0, an amount still well
above the median of the comparison group of 6.1 whose ratios were
based on their trailing 12-months numbers.
Brooks, Houghton concluded the Offer in relation to prices of comparable
publicly traded stocks analysis was supportive of the Offer as being fair.
Comparison of the Merger Consideration to comparable M&A offers and completed
transactions.
Brooks, Houghton compared the Merger Consideration offered Gristede's
Unaffiliated Stockholders to the prices offered or paid in similar U.S. grocery
store chain transactions from 2000 to present. Eight comparable transactions in
the grocery store industry were identified for which there was publicly
available information that included an EBITDA amount. In addition Brooks,
Houghton used non-public information available for a ninth transaction,
Gristede's 2003 offer for Kings Supermarkets (terminated due to Gristede's
inability to obtain financing), a close comparable in that it is both recent and
involves the New York area supermarket industry.
Brooks, Houghton used the comparable M&A transactions to examine the Gristede's
Offer against the two parameters - enterprise value to revenues and enterprise
value to EBITDA. Brooks, Houghton used these measures because they allow
comparability irrespective of capital structure. Brooks, Houghton noted the
Offer is for a minority stake whereas all the comparables, except one, was for a
control stake and hence the comparison transactions theoretically include a
control premium.
o The Offer resulted in an enterprise value / revenues ratio of 0.31.
This compared favorably (higher is better for Gristede's
Stockholders) to both the average and median for the comparison
group of 0.28. Seven of the nine M&A transactions had a lower
enterprise value/revenues ratio than that of the Gristede's Offer.
o The Offer resulted in an enterprise value / EBITDA ratio of 10.0.
This compares to an average of 9.0 and a median value of 7.0 for the
comparison group. Six of the nine transactions had a lower
enterprise value / EBITDA than the Gristede's Offer. Brooks,
Houghton also computed the enterprise value / EBITDA ratio for the
Offer using Gristede's projected EBITDA for 2004. This resulted in a
ratio of 8.0, again higher than the median of the group of 7.0.
o Finally, Brooks, Houghton looked at the middle market M&A industry
as a whole. Out of 647 transactions announced in the last 12 months
with M&A valuations between $25 and $100 million the median EBITDA
multiple was 7.3x (The Deal, 6/14/04 issue).
Brooks, Houghton concluded the comparison to other comparable M&A offers and
completed transactions analysis was supportive of the Gristede's Offer as being
fair.
Value of Gristede's implied by the net present value of future cash flows based
on Company projections.
Gristede's provided Brooks, Houghton with their most recent projections dated
March 12, 2004, which were prepared for Gristede's lenders. The projections
cover the fiscal years 2004 to 2008 (5 years).
The projections assume that four unprofitable stores are closed in 2004, that no
new stores are opened and that there is no interest charged on Mr. Catsimatidis'
loans to the Company. Brooks, Houghton revised the Company's projections to
reflect Brooks, Houghton's estimates of the estimated market costs of capital
and services provided by Mr. Catsimatidis as follows: Administrative salaries
and fringes were increased by $600,000 per year to provide a market based
compensation to Mr. Catsimatidis for his services
12
as Chairman and CEO; interest at the rate of 15% was charged on his subordinated
loans to the Company plus a small equity kicker; excess cash from the business
was applied to repay the Catsimatidis' loans; and two stores currently owned by
Mr. Catsimatidis, but operated by Gristede's and whose results are included in
the projections, were contributed to capital in exchange for $5,778,000
(estimated fair market value of such stores) of Gristede's Common Stock
("Revised Projections"). The income statement and balance sheet studied by
Brooks, Houghton was otherwise materially unchanged from that supplied by the
Company.
The Revised Projections call for a significant turnaround in business
profitability. Store sales are projected to increase from $280 million in 2003
to $295 million in 2008 with 4 stores being closed in 2004. Gross margins are
projected to increase from 40.2% in 2003 to 42.5% in 2008. Company EBITDA is
projected to improve from 2.6% of sales in 2003, or $7,351,000 (after excluding
$6.2 million of nonrecurring expenses from EBITDA), to 5.5% of sales in 2008, or
$16,303,000. The Revised Projections show net losses in each of the 3 years 2004
to 2006.
Brooks, Houghton applied three different EBITDA multiples, 5.0, 5.5 and 6.1, to
Gristede's projected 2008 EBITDA to arrive at a range of year 2008 enterprise
values. The enterprise values were increased by cash and reduced by borrowings
to arrive at a 2008 range of market value for Gristede's equity. These future
values were discounted by a 12% annual rate to arrive at a FYE 2003 range of
value for Gristede's equity. The 5.0 and 5.5 EBITDA multiples are less than the
6.1 median EBITDA multiple of the Brooks, Houghton comparable publicly traded
companies. The lower multiples reflect Brooks, Houghton's judgment that
Gristede's would likely not command the median multiple because Gristede's is
smaller in size, and is far less profitable and financially weak in comparison
to the companies in the comparables study. The net present value for owners'
equity was then apportioned among the existing 19,636,574 shares outstanding and
those new shares issued in connection with the two stores and capital being
supplied by Mr. Catsimatidis.
The results of the discounted net present value study revealed a computed value
for Gristede's shares ranging from $0.65 per share (using the 5.0 EBITDA
multiple) to $0.93 per share (using the 6.1 multiple). Brooks, Houghton believes
the discounted net present value study is supportive of the fairness of the
$0.87 per share Offer, particularly in light of the aggressiveness of the margin
improvement in the projections that produced the values and the weak
capitalization of the Company.
Liquidation and other tests of value.
At the request of the Special Committee, Brooks, Houghton was asked to study the
fairness of the Offer solely on the basis of Gristede's as a going concern. The
Company leases much of its fixed assets under capitalized leases. The major
assets of the business are the inventory, furniture and fixtures, capitalized
equipment leases and capitalized leasehold interests.
Valuing the leaseholds is a difficult and subjective exercise as the Company has
over 48 leases and the ability to realize on any leasehold value is a function
of many factors, including: finding a counterparty who will find the lease
period and terms acceptable as a sublease and who is acceptable to the landlord;
finding a counterparty willing to pay an upfront premium to the Company;
obtaining landlord approvals for release from continued Company liability and
reclamation responsibilities; and agreeing with the landlord the profits
recapture provisions contained in many leases as well as other assignment
restrictions.
Brooks, Houghton considered the potential liquidation value of Gristede's
business by estimating the liquidation value required from the leaseholds in
order for the liquidation value to compare favorably to the Offer.
Brooks, Houghton concluded that it was highly unlikely that liquidation would
result in a value to the Unaffiliated Stockholders that would equal that of the
Offer.
Brooks, Houghton considered other tests of value. Brooks, Houghton concluded
there was no benefit to be derived from a financial sponsor analysis using a
leveraged buyout model because the business was not an attractive candidate for
such a transaction as compared to the Offer. Factors that led Brooks, Houghton
to this conclusion included: Gristede's history of losses; high current leverage
and lack of incremental debt capacity; the high multiple of the Offer price to
tangible assets; the relatively high enterprise value to EBITDA ratio being paid
(10.0 based on latest 12 months and 8.0 based on pro-forma 2004); and the lack
of a clear exit strategy for the financial buyer except through another
leveraged recapitalization..
Benefits and Other Impacts of the Merger
To Gristede's Unaffiliated Stockholders.
13
Gristede's Board of Directors and the Catsimatidis Group believe that the
primary benefit of the Merger to the Unaffiliated Stockholders is the ability to
realize the fair value of their investment in Gristede's in cash. There has
historically been limited liquidity in Gristede's Stock and this illiquidity has
been a significant risk factor in the ownership of Gristede's Stock.
As a result of the Merger, Gristede's Unaffiliated Stockholders will cease to
participate in any future earnings growth or decline and to participate in any
increase or decrease in Gristede's value. In addition, each of Gristede's
Unaffiliated Stockholders will recognize a taxable gain or loss on consummation
of the Merger if and to the extent that the Merger Consideration received
differs from each Unaffiliated Stockholder's tax basis in Gristede's Common
Stock.
To the Catsimatidis Group and Gristede's.
The primary benefit to the Catsimatidis Group of the Merger is that they will
participate in all of any possible future earnings growth of Gristede's and will
benefit from all of any increase in Gristede's value. The Catsimatidis Group
believe that Gristede's will benefit from the Merger by gaining more operating
flexibility, because it will no longer need to focus on the public trading
market's quarterly earnings expectations, and by reducing its operating and
administrative costs because of an elimination of the burden and expense of
operating as a publicly traded company.
The primary other impacts of the Merger to the Catsimatidis Group and Gristede's
are the cash outlay and associated debt burden required to pay the Merger
Consideration, diminution of Gristede's ability to use Common Stock as currency
for acquisitions, substantial capital-raising efforts and incentive option
purposes, and the risk to the Catsimatidis Group that the Company will continue
to incur losses.
Catsimatidis Group Purpose and Reasons for the Merger
The purpose of the Catsimatidis Group in undertaking the Merger is to obtain the
benefits to the Catsimatidis Group and Gristede's described under "Benefits and
Other Impacts of the Merger - To the Catsimatidis Group and Gristede's." In lieu
of a reverse stock split, a tender offer, and a more traditional "long-form"
merger, the Catsimatidis Group chose the Merger structure because it was the
most efficient means to acquire the entire equity interest in Gristede's and
provide cash to Gristede's Unaffiliated Stockholders.
Interests of Certain Persons in the Merger; Certain Relationships
In considering the recommendation of the Special Committee with respect to the
Merger, you should be aware that certain members of Gristede's management have
interests that may present actual or potential conflicts of interest in
connection with the Merger. The Special Committee was aware of these potential
or actual conflicts of interest and considered them along with other matters
described under "Fairness of the Merger."
Retained Equity Interest
The Catsimatidis Group collectively owns 17,922,158 shares of Common Stock, or
approximately 91.3% of Gristede's outstanding Common Stock. Upon consummation of
the Merger, the Catsimatidis Group will own directly or indirectly all of the
outstanding Common Stock and will therefore participate in all of its future
earnings growth and any increase in value, as well as bear the risk of any
future decrease in earnings and decrease in value.
SHARES AND STOCK OPTIONS
The value of Gristede's stock and options held directly or indirectly by members
of the Board which will or may be realized upon consummation of the Merger is as
follows:
Number of
Name Number of Shares Value Stock Options Net Option Value
---- ---------------- ----- ------------- ----------------
John Catsimatidis 18,150,150(1) n/a(2) 525,000 0
Martin Steinberg 112,642 $97,999 15,000 0
Kishore Lall 15,000 13,050 55,000 0
Martin Bring 0 0 26,000 0
Frederick Selby 2,110 1,836 11,000 0
Edward P. Salzano 3,000 2,610 0 0
Andrew J. Maloney 0 0 0 0
All officers and directors as a group 18,282,902(1) -- 632,000 0
(7 persons)
14
(1) Includes an aggregate of 12,573,974 shares held by corporations controlled
by Mr. Catsimatidis, 81,900 shares held by Mr. Catsimatidis as custodian,
2,057 shares held by a profit sharing plan of which Mr. Catsimatidis is a
trustee, 605 shares held by Mr. Catsimatidis as a trustee of individual
retirement accounts and currently exercisable options to purchase
aggregate of 525,000 shares of Common Stock.
(2) Mr. Catsimatidis will not realize any value upon consummation of the
Merger, except that shares held by certain corporations controlled by Mr.
Catsimatidis that are not part of the Catsimatidis Group and shares held
by Mr. Catsimatidis as custodian and as trustee will receive $198,354 in
the aggregate in Merger Consideration.
Certain Effects of the Merger
If the Merger is consummated, each Unaffiliated Stockholder will have the right
to receive, upon consummation of the Merger, $0.87 in cash for each share of
Common Stock held, without interest, and the Catsimatidis Group will hold the
entire equity interest in Gristede's. See "Special Factors--Benefits and Other
Impacts of the Merger" and "--Material Federal Income Tax Consequences of the
Merger."
As a result of the Merger, the Catsimatidis Group's interest in the net book
value and net earnings of Gristede's will become 100%.
Common Stock is currently registered under the Exchange Act, and is traded on
the American Stock Exchange under the symbol "GRI". As a result of the Merger,
the registration of the Common Stock under the Exchange Act will be terminated,
and the Common Stock will be delisted from the American Stock Exchange.
Gristede's will thereafter be relieved of its obligation to comply with the
proxy rules of Regulation 14A under Section 14 of the Exchange Act, and its
officers, directors and beneficial owners of more than 10% of the Common Stock
will be relieved of the reporting requirements and "short swing" trading
provisions under Section 16 of the Exchange Act. Further, Gristede's will no
longer be subject to periodic reporting requirements under Section 13 of the
Exchange Act and will cease filing information with the Securities and Exchange
Commission (the "SEC").
Plans for Gristede's After the Merger
The Catsimatidis Group expects that, except as described in this Going Private
Statement, the business and operations of Gristede's will be continued
substantially as they are currently being conducted by Gristede's and its
subsidiaries. However, the Catsimatidis Group expects that they may, from time
to time, evaluate and review Gristede's business, operations and properties and
make such changes as it considers appropriate. Gristede's recently entered into
an agreement with a national internet retailer to sell and fulfill grocery
orders through such retailer's web venue. This venture is presently slated to
launch in September 2004, but there is no assurance as to the level of sales or
profitability that this venture will generate.
Except as described in this Going Private Statement, neither the Catsimatidis
Group nor Gristede's has any present plans or proposals involving Gristede's or
its subsidiaries which relate to or would result in an extraordinary corporate
transaction such as a merger, reorganization, liquidation, sale or transfer of a
material amount of assets, or any material change in the present dividend
policy, indebtedness or capitalization, or any other material change in
Gristede's corporate structure or business. After the Merger, the Catsimatidis
Group will review proposals or may propose the acquisition or disposition of
assets or other changes in Gristede's business, corporate structure,
capitalization, management or dividend policy which they consider to be in the
best interests of Gristede's and its stockholders.
After the Merger, John Catsimatidis will be the sole member of the Board of
Directors of Gristede's. Mr. Catsimatidis will continue to serve as Chairman,
and President. See "Directors and Management" for additional information.
15
Conduct of the Business of the Company If the Merger is Not Consummated
If the Merger is not consummated, the Board of Directors expects to seek to
retain Gristede's current management team and continue business as usual. There
are no plans in such circumstances to operate Gristede's business in a manner
substantially different than the manner in which it is presently operated.
Accounting Treatment
Prior to the Merger, the members of the Catsimatidis Group, will contribute all
of their respective equity interests in Gristede's to Mergerco in exchange for
shares of Common stock of Mergerco. The Catsimatidis Group collectively owns
approximately 91.3% of Gristede's outstanding Common Stock. Since the
controlling stockholders of Gristede's will also be the controlling stockholders
of Mergerco, the Merger will be accounted for as a reverse acquisition of
Mergerco by Gristede's and a recapitalization of Gristede's. Assets and
liabilities transferred in the Merger will be recognized at their historical
carrying amounts at the date of the Merger.
Financing of the Merger
It is estimated that approximately $2,000,000 will be required to complete the
Merger and pay related fees and expenses. See "Fees and Expenses."
Financing for the Merger is expected to be provided by UAC or another affiliate
of Mr. Catsimatidis in the form of a loan to Mergerco. The loan is not expected
to exceed $2,000,000.
Regulatory Requirements; Third Party Consents
Gristede's does not believe that any material federal or state regulatory
approvals, filings or notices are required by Gristede's or Mergerco in
connection with the Merger. Gristede's does not believe any other material third
party consents will be required by Gristede's or Mergerco in connection with the
Merger.
MATERIAL FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material federal income tax
consequences expected to result to stockholders whose shares of Common Stock are
converted to cash in the Merger. This summary does not purport to be a complete
analysis of all potential tax effects of the Merger. For example, the summary
does not consider the effect of any applicable state, local or foreign tax laws.
In addition, the summary does not address all aspects of federal income taxation
that may affect particular stockholders in light of their particular
circumstances and is not intended for stockholders (including insurance
companies, tax-exempt organizations, financial institutions or broker-dealers,
stockholders who hold their Common Stock as part of a hedge, straddle or
conversion transaction, stockholders who acquired their Common Stock pursuant to
the exercise of an employee stock option or otherwise as compensation, and
stockholders who are not citizens or residents of the United States or that are
foreign corporations, foreign partnerships or foreign estates or trusts as to
the United States) that may be subject to special federal income tax rules not
discussed below. The following summary also does not address tax consequences to
the Catsimatidis Group. The following summary assumes that stockholders have
held their Common Stock as "capital assets" (generally, property held for
investment) under the Internal Revenue Code of 1986.
This summary is based on the current provisions of the Code, applicable Treasury
Regulations, judicial authority and administrative rulings and practice. No
ruling from the IRS has been or will be sought nor will an opinion of counsel be
obtained with respect to any aspect of the transactions described herein.
Accordingly, there can be no assurance that the IRS will not challenge the tax
consequences expressed in this discussion or that a court would not sustain this
type of challenge. Future legislative, judicial or administrative changes or
interpretations could alter or modify the statements and conclusions set forth
herein, and any such changes or interpretations could be retroactive and could
affect the tax consequences of the Merger to stockholders. We cannot predict at
this time whether any current proposed tax legislation will be enacted or, if
enacted, whether any tax law changes contained therein would affect the tax
consequences of the Merger to stockholders. It is therefore possible that the
federal income tax treatment may differ from that described below.
State and local tax laws may also impose income or other taxes upon stockholders
whose shares of Common Stock are converted to cash in the Merger. State and
local income tax laws vary from state to state and this discussion does not
address state or local tax issues.
16
Treatment as Sale for Holders of Common Stock
Except as provided below, the conversion of Common Stock in the Merger will be
fully taxable to stockholders as a sale or exchange of such stock. Accordingly,
a stockholder who, pursuant to the Merger, converts such holder's Common Stock
into cash will recognize a gain or loss equal to the difference between (1) the
amount of cash received in the Merger and (2) such stockholder's tax basis in
the Common Stock. Generally, a stockholder's tax basis in his Common Stock will
be equal to such stockholder's cost therefore. In the case of a stockholder who
is an individual, such capital gain will be taxable at a maximum capital gains
rate of 15% if the holder held the Common Stock for more than one year at the
time of consummation of the Merger. If the holder held the Common Stock for less
than one year at the time of consummation of the Merger, in general the capital
gain would be taxed at ordinary income tax rates. Certain limitations apply to
the deductibility of capital losses by stockholders. Gain or loss must be
determined separately for each block of Common Stock acquired at the same cost
in a single transaction.
Treatment as Redemption for Dissenters and Other Stockholders
For federal income tax purposes, Gristede's may be deemed to be the source of a
portion of the cash consideration issued in the Merger (particularly if debt
used to fund the Merger is assumed by Gristede's in the Merger) and Gristede's
will be deemed to be the source of cash consideration for payments in
satisfaction of dissenters' rights. Therefore, to the extent that cash received
by a stockholder is from Gristede's or deemed to be from Gristede's, the receipt
of cash in exchange for such stockholder's Common Stock in the Merger or in
satisfaction of dissenters' rights will be treated as a redemption of Common
Stock taxable for federal income tax purposes as determined under section 302 of
the Code.
Section 302(d) of the Code provides that if the receipt of redemption payments
has the effect of a distribution of property, then cash distributed will be
treated as a dividend taxable under section 301 of the Code as ordinary income
to a stockholder receiving such cash payments, generally to the extent of the
stockholder's share of undistributed accumulated or current earnings and profits
of Gristede's. In the case of a stockholder who is an individual, such dividend
will be taxable at a maximum rate of 15%. The remainder, if any, of the cash
distributed in excess of the undistributed accumulated or current earnings and
profits of the company will be treated first as a non-taxable recovery of basis
in a stockholder's Common Stock, and second as capital gain arising from the
sale or exchange of property subject to the tax treatment reflected above. The
determination of whether or not the receipt of cash payments has the effect of a
distribution of a dividend will depend on each stockholder's particular
circumstances and is made by applying the dividend equivalency tests of section
302 of the Code.
Under section 302 of the Code, a stockholder receiving a cash payment as a
redemption will not be treated as having received a dividend equivalent
distribution if the transaction:
o results in a "complete redemption" of the stockholder's equity
interest in the Company;
o results in a "substantially disproportionate" redemption with
respect to the stockholder; or
o is "not essentially equivalent to a dividend" with respect to the
stockholder.
Each of these section 302 tests is explained more fully below.
Constructive Ownership of Stock and Other Issues
In applying each of the section 302 tests, stockholders must take into account
not only shares that they actually own but also shares they are treated as
owning under the constructive ownership rules of section 318 of the Code.
Pursuant to the constructive ownership rules, a stockholder is treated as owning
any shares that are owned, actually and in some cases constructively, by certain
related individuals and entities as well as shares that the stockholder has the
right to acquire by exercise of an option or by conversion or exchange of a
security. Due to the factual nature of the section 302 tests described below,
stockholders should consult their tax advisors to determine whether the
conversion of their shares and receipt of a payment pursuant to the Merger will
be deemed dividend equivalent in their particular circumstances.
17
Section 302 Tests
One of the following tests must be satisfied in order for the distribution not
to be treated as the equivalent of a dividend for federal income tax purposes:
o Complete Termination Test. The distribution will result in a
"complete redemption" of the stockholder's equity interest in the
Company only if all of the Common Stock that is actually owned by
the stockholder is sold pursuant to the Merger and the shares that
are constructively owned by the stockholder are sold or, with
respect to shares owned by certain related individuals, the
stockholder effectively waives, in accordance with section 302(c) of
the Code, attribution of shares which otherwise would be considered
as constructively owned by the stockholder. Certain restrictions
apply to the waiver of attribution of shares. Stockholders wishing
to satisfy the "complete redemption" test through waiver of the
constructive ownership rules should consult their tax advisors.
o Substantially Disproportionate Test. The distribution will result in
a "substantially disproportionate" redemption with respect to the
stockholder if, among other things, the stockholder owns actually
and constructively less than 50% of the total combined voting power
of all classes of stock after the redemption, and the percentage of
the then outstanding voting Common Stock actually and constructively
owned by the stockholder immediately after the purchase is less than
80% of the percentage of the previously outstanding voting Common
Stock actually and constructively owned by the stockholder
immediately before the purchase.
o Not Essentially Equivalent to a Dividend Test. The distribution will
be treated as "not essentially equivalent to a dividend" if the
reduction in the stockholder's proportionate interest actually and
constructively owned constitutes a "meaningful reduction" given the
stockholder's particular circumstances. Whether the receipt of a
cash payment will be "not essentially equivalent to a dividend" will
depend upon the stockholder's particular facts and circumstances.
Stockholders should consult their tax advisors as to the application
of this test in their particular circumstances.
If a stockholder receives only cash payments and satisfies any of the section
302 tests described above, the stockholder will be treated as if it sold its
Common Stock and will recognize capital gain or loss as described above.
If a stockholder does not satisfy any of the section 302 tests described above,
the purchase of a stockholder's Common Stock will not be treated as a sale or
exchange under section 302 of the Code. Instead, the amount received by a
stockholder in the redemption will be treated as a dividend distribution under
section 301 of the Code, to the extent, first, of the stockholder's applicable
share of Gristede's current or accumulated earnings and profits, as defined for
U.S. federal income tax purposes. In the case of a stockholder who is an
individual, such dividend will be taxable at a maximum rate of 15%. To the
extent the amount exceeds the stockholder's applicable share of current or
accumulated earnings and profits, the excess first will be treated as a tax free
return of capital to the extent of the stockholder's basis in its Common Stock
and any remainder will be treated as capital gain, which may be long term
capital gain as described above. The determination of whether a corporation has
earnings and profits is complex and the legal standards to be applied are
subject to uncertainties and ambiguities. Additionally, the amount of current
earnings and profits can be determined only at the end of the taxable year.
Accordingly, it is unclear whether Gristede's will have sufficient current and
accumulated earnings and profits to cover the amount of any payment made to
stockholders. To the extent that a redemption is treated as the receipt by the
stockholder of a dividend, the stockholder's tax basis in the redeemed shares
will be added to any shares of Common Stock retained or sold by the stockholder,
and may be lost if the stockholder does not actually retain any stock ownership
in Gristede's.
Treatment of Holders of Stock Options
Because all of the outstanding options of Gristede's have exercise prices that
exceed the Merger Consideration, no outstanding option to acquire Common Stock
will receive any payment under the Plan of Merger.
18
Backup Withholding
A stockholder whose Common Stock is converted to cash pursuant to the Merger may
be subject to backup withholding equal to 28% of the gross proceeds from the
conversion of such Common Stock unless such stockholder (1) is a corporation or
other exempt recipient and, when required, establishes this exemption or (2)
provides its correct taxpayer identification number, certifies that it is not
currently subject to backup withholding and otherwise complies with applicable
requirements of the backup withholding rules. A stockholder who does not provide
Gristede's with its correct taxpayer identification number may be subject to
penalties imposed by the IRS. Any amount withheld under these rules will be
credited against the stockholder's federal income tax liability.
Gristede's will report to stockholders and to the IRS the amount of any
reportable payments, including payments made to stockholders pursuant to the
Merger, and any amount withheld pursuant to the Merger.
Each stockholder or option holder should consult his, her or its own tax advisor
with respect to the particular tax consequences to it of the transactions
described herein, including the applicability and effect of state, local and
foreign tax law.
Tax Treatment to Catsimatidis Group
Prior to the Merger, the Catsimatidis Group will contribute all of their
respective equity interests in Gristede's to Mergerco in exchange for shares of
common stock of Mergerco. It is intended that such transfers will qualify as
transfers to a controlled corporation in which gain or loss is not recognized
under Section 351 of the Code. In addition, no gain or loss will be recognized
in the Merger by Mergerco, any of its affiliated entities, or Gristede's.
Fees and Expenses
Whether or not the Merger is consummated and except as otherwise described
herein, all fees and expenses incurred in connection with the Merger will be
paid by Mergerco.
Estimated fees and expenses (rounded to the nearest thousand) to be incurred by
Mergerco in connection with the Merger, the financing and related transactions
are as follows:
19
Mergerco
--------
Independent Investment Bank fees(1)......................... $ 65,000
Legal and accounting fees and expenses...................... $100,000
Printing and solicitation fees and expenses................. $ 10,000
Other expenses.............................................. $ 5,000
--------
Total................................................ $180,000
========
(1) See "Fairness Opinion of Brooks, Houghton Securities, Inc."
To the extent not paid by Mergerco prior to consummation of the Merger, all such
fees and expenses will be paid by Gristede's if the Merger is consummated. If
the Merger is not consummated, Mergerco will bear all fees and expenses.
THE PLAN OF MERGER
The following is a summary of the material provisions of the Plan of Merger, a
copy of which is attached as Exhibit A to this Going Private Statement. This
summary is qualified in its entirety by reference to the full text of the Plan
of Merger and the Certificate of Ownership and Merger, a copy of which is
attached hereto as Exhibit E.
The Merger, Merger Consideration
The Plan of Merger will become effective upon the filing of a certificate of
ownership and merger with the Secretary of State of the State of Delaware or at
such other time as the parties may agree and specify in the certificate of
ownership and merger (the "Effective Time"). It is currently anticipated that
the Merger will be consummated during the Company's current fiscal year;
however, there can be no assurance as to the timing of the consummation of the
Merger or that the Merger will be consummated.
At the Effective Time, Mergerco will be merged with and into Gristede's, the
separate corporate existence of Mergerco will cease and Gristede's will continue
as the surviving corporation. At the Effective Time:
o each share of Common Stock, issued and outstanding immediately prior
to the Effective Time (other than Common Stock held by Mergerco or
dissenting stockholders) will, by virtue of the Merger and without
any action on the part of the holder thereof, be converted into and
become the right to receive $0.87 per share in cash, without
interest (the "Merger Consideration") and each certificate
representing shares of Common Stock (other than Certificates held by
Mergerco or dissenting Stockholders) that have been converted to
cash under the terms of the Plan of Merger (a "Certificate") will,
after the Effective Time, evidence only the right to receive, upon
the surrender of such Certificate, an amount of cash per share equal
to $0.87, without interest;
o each share of Common Stock issued and outstanding immediately prior
to the Effective Time that is owned by Mergerco will automatically
be canceled, retired and cease to exist and no payment will be made
with respect thereto;
o each share of common stock of Mergerco issued and outstanding
immediately prior to the Effective Time will be converted into and
become one share of Common Stock of the surviving corporation and
will constitute the only outstanding share of Common Stock; and
o dissenting stockholders who strictly comply with the provisions of
the Delaware General Corporation Law (the "DCGL") regarding
statutory appraisal rights have the right to seek a determination of
the fair value of the shares of Common Stock and payment in cash
therefore in lieu of the Merger Consideration (see "Dissenters'
Rights of Appraisal").
Treatment of Certain Shares Held by the Catsimatidis Group
Prior to the Merger, the Catsimatidis Group will contribute all of their
respective equity interests in Gristede's to Mergerco in exchange for shares of
common stock of Mergerco. The shares of Common Stock held by Mergerco will,
pursuant to the Plan of Merger, be canceled in the Merger and no consideration
will be paid therefore.
20
The Exchange Fund; Payment for Shares of Common Stock
On or before the closing date of the Merger, Gristede's will enter into an
agreement with a bank, trust company or other exchange agent selected by
Gristede's (the "Exchange Agent"). As of the Effective Time, Gristede's will
deposit or cause to be deposited with the Exchange Agent cash in the amount
equal to the aggregate Merger Consideration (such amount being defined as the
number of shares of Common Stock to be purchased multiplied by $0.87, and
hereinafter referred to as the "Exchange Fund") for the benefit of holders of
shares of Common Stock (other than Common Stock held by dissenting stockholders
and shares to be canceled without consideration pursuant to the Plan of Merger).
Attached as Exhibit D is a letter of transmittal and instructions for use in
surrendering certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent, together with
a letter of transmittal, duly executed, and such other customary documents as
may be required pursuant to the instructions, the holder of such Certificate
will be entitled to receive in exchange therefore the Merger Consideration into
which the number of shares of Common Stock previously represented by such
Certificate shall have been converted pursuant to the Plan of Merger, without
any interest thereon, and the Certificates so surrendered will be canceled.
If payment of the Merger Consideration is to be made to a person other than the
person in whose name the Certificate surrendered is registered, it will be a
condition of payment that the Certificate so surrendered will be properly
endorsed (together with signature guarantees on such Certificate) or otherwise
be in proper form for transfer and that the person requesting such payment pay
to the Exchange Agent any transfer or other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
thereof or establish to the satisfaction of the Exchange Agent that such tax has
been paid or is not applicable.
In all cases, the Merger Consideration will be paid only in accordance with the
procedures set forth in this Going Private Statement and the letter of
transmittal.
Three hundred and sixty-five days after the Effective Time, the Exchange Agent
will deliver to Gristede's, or otherwise at the direction of Gristede's, any
portion of the Exchange Fund that remains undistributed to or unclaimed by the
holders of Certificates (including the proceeds of any investments thereof). Any
holders of Certificates who have not theretofore complied with the
above-described procedures to receive payment of the Merger Consideration may
then look only to Gristede's for payment of the Merger Consideration to which
they are entitled.
Transfers of Common Stock
After the Effective Time, Gristede's stock transfer books will be closed, and
there will be no further transfers of Certificates on the records of Gristede's
or its transfer agent. If, after the Effective Time, Certificates are presented
to the Exchange Agent or Gristede's, they will be canceled and exchanged for the
Merger Consideration as provided above and pursuant to the terms of the Plan of
Merger (subject to applicable law in the case of dissenting stockholders).
Treatment of Stock Options
Because all of the outstanding options of Gristede's have exercise prices that
exceed the Merger Consideration, no outstanding option to acquire Common Stock
will receive any payment under the Plan of Merger. The Company intends to review
its equity incentive compensation structure and may make changes after the
completion of the Merger as it deems necessary or appropriate.
Conditions
The Plan of Merger is subject to various conditions, including the filing of
Schedule 13E-3 and the expiration of the period between such filing and the
effective date of the Merger (the "Effective Date").
DISSENTERS' RIGHTS OF APPRAISAL
Under the DGCL, record holders of shares of Common Stock who follow the
procedures set forth in Section 262 will be entitled to have their shares
appraised by the Court of Chancery of the State of Delaware and to receive
payment of the fair value of such shares together with a fair rate of interest,
if any, as determined by such court. The fair value as determined by the
Delaware court is exclusive of any element of value arising from the
accomplishment or expectation of the Merger. The following is a summary of
21
certain of the provisions of Section 262 of the DGCL and is qualified in its
entirety by reference to the full text of Section 262, a copy of which is
attached hereto as Exhibit B. Notice of the Effective Date and the availability
of appraisal rights under Section 262 (the "Merger Notice") will be mailed to
record holders of the shares of Common Stock and should be reviewed. Any
stockholder entitled to appraisal rights will have the right, within 20 days
after the date of mailing of a notice as to the effectiveness of the Merger (the
"Merger Notice"), to demand in writing from the Company an appraisal of his or
her shares of Common Stock. Such demand will be sufficient if it reasonably
informs the Company of the identity of the stockholder and that the stockholder
intends to demand an appraisal of the fair value of his or her shares of Common
Stock. Failure to make such a timely demand would foreclose a stockholder's
right to appraisal.
Only a holder of record of shares of Common Stock is entitled to assert
appraisal rights for the shares of Common Stock registered in that holder's
name. A demand for appraisal should be executed by or on behalf of the holder of
record fully and correctly, as the holder's name appears on the stock
certificates. Holders of shares of Common Stock who hold their shares in
brokerage accounts or other nominee forms and wish to exercise appraisal rights
should consult with their brokers to determine the appropriate procedures for
the making of a demand for appraisal by such nominee. All written demands for
appraisal of shares of the Common Stock should be sent or delivered to Kishore
Lall, Secretary, 823 Eleventh Avenue, New York, New York 10019-3535.
If the shares of Common Stock are owned of record in a fiduciary capacity, such
as by a trustee, guardian or custodian, execution of the demand should be made
in that capacity, and if the shares of Common Stock are owned of record by more
than one person, as in a joint tenancy or tenancy in common, the demand should
be executed by or on behalf of all joint owners. An authorized agent, including
one or more joint owners, may execute a demand for appraisal on behalf of a
holder of record; however, the agent must identify the record owner or owners
and expressly disclose the fact that, in executing the demand, the agent is
agent for such owner or owners.
A record holder such as a broker holding shares of Common Stock as nominee for
several beneficial owners may exercise appraisal rights with respect to the
shares of Common Stock held for one or more beneficial owners while not
exercising such rights with respect to the shares of Common Stock held for other
beneficial owners; in such case, the written demand should set forth the number
of shares as to which appraisal is sought and where no number of shares is
expressly mentioned the demand will be presumed to cover all shares of Common
Stock held in the name of the record owner.
Within 10 calendar days after the Effective Date, the Company, as the surviving
corporation in the Merger, must send a Merger Notice as to the effectiveness of
the Merger. Within 120 calendar days after the Effective Date, the Company, or
any stockholder entitled to appraisal rights under Section 262 and who has
complied with the foregoing procedures, may file a petition in the Delaware
Court of Chancery demanding a determination of the fair value of the shares of
all such stockholders. The Company is not under any obligation, and has no
present intention, to file a petition with respect to the appraisal of the fair
value of the shares of Common Stock. Accordingly, it is the obligation of the
stockholders to initiate all necessary action to perfect their appraisal rights
within the time prescribed in Section 262.
Within 120 calendar days after the Effective Date, any stockholder of record who
has complied with the requirements for exercise of appraisal rights will be
entitled, upon written request, to receive from the Company a statement setting
forth the aggregate number of shares with respect to which demands for appraisal
have been received and the aggregate numbers of holders of such shares. Such
statement must be mailed within 10 calendar days after a written request
therefore has been received by the Company or within 10 calendar days after the
expiration of the period for the delivery of demands for appraisal, whichever is
later.
If a petition for an appraisal is timely filed, after a hearing on such
petition, the Delaware Court of Chancery will determine the stockholders
entitled to appraisal rights and will appraise the fair value of the shares,
exclusive of any element of value arising from the accomplishment or expectation
of the Merger, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. Holders considering seeking
appraisal should be aware that the fair value of their shares as determined
under Section 262 could be more than, the same as or less than the amount per
share that they would otherwise receive if they did not seek appraisal of their
shares. The Delaware Supreme Court has stated that "proof of value by any
techniques or methods that are generally considered acceptable in the financial
community and otherwise admissible in court" should be considered in the
appraisal proceedings. In addition, Delaware courts have decided that the
statutory appraisal remedy, depending on factual circumstances, may or may not
be a dissenter's exclusive remedy. The Chancery Court will also determine the
amount of interest, if any, to be paid upon the amounts to be received by
persons whose shares have been appraised. Upon application of a stockholder, the
costs of the action may be determined by the Chancery Court and taxed upon the
parties as the Chancery Court deems equitable. The Chancery Court may also order
that all or a portion of the expenses incurred by any holder of shares in
connection with an appraisal, including,
22
without limitation, reasonable attorneys' fees and the fees and expenses of
experts used in the appraisal proceeding, be charged pro rata against the value
of all the shares entitled to appraisal.
The Chancery Court may require stockholders who have demanded an appraisal and
who hold shares represented by certificates to submit their certificates to the
Chancery Court for notation thereon of the pendency of the appraisal
proceedings. If any stockholder fails to comply with such direction, the
Chancery Court may dismiss the proceedings as to such stockholder. Any
stockholder who has duly demanded an appraisal in compliance with Section 262
will not, after the Effective Date, be entitled to vote the shares subject to
such demand for any purpose or be entitled to the payment of dividends or other
distributions on those shares (except dividends or other distributions payable
to holders of record of shares as of a date prior to the Effective Date).
If any stockholder who demands appraisal of shares under Section 262 fails to
perfect, or effectively withdraws or loses, the right to appraisal, as provided
in the DGCL, the shares of such holder will be converted into the right to
receive the Merger Consideration, without interest. A stockholder will fail to
perfect, or effectively lose, the right to appraisal if no petition is filed
within 120 calendar days after the Effective Date. A stockholder may withdraw a
demand for appraisal by delivering to the Company a written withdrawal of the
demand for appraisal and acceptance of the Merger Consideration, except that any
such attempt to withdraw made more than 60 calendar days after the Effective
Date will require the written approval of the Company. Once a petition for
appraisal has been filed, such appraisal proceeding may not be dismissed as to
any stockholder without the approval of the Court of Chancery.
For federal income tax purposes, stockholders who receive cash for their shares
upon exercise of their statutory right of dissent will realize taxable gain or
loss. See "Certain Federal Income Tax Consequences of the Merger."
The foregoing summary does not purport to be a complete statement of the
procedures to be followed by stockholders desiring to exercise their appraisal
rights and is qualified in its entirety by express reference to the Section 262
of the DGCL, the full text of which is attached hereto as Exhibit B.
STOCKHOLDERS ARE URGED TO READ EXHIBIT B IN ITS ENTIRETY BECAUSE FAILURE TO
COMPLY WITH THE PROCEDURES SET FORTH THEREIN WILL RESULT IN LOSS OF APPRAISAL
RIGHTS.
CERTAIN MARKET INFORMATION
Common Stock Market Price Information; Dividend Information
The Common Stock is traded on the American Stock Exchange under the symbol
"GRI." The following table shows, for the calendar quarters indicated, the per
share high and low closing sales prices of the Common Stock on the American
Stock Exchange based on published financial sources. Gristede's has not paid any
dividends on the Common Stock during the past two years.
Fiscal year to end
November 28 , 2004 High Low
------------------ ---- ---
First Quarter 1.04 0.70
Second Quarter 1.25 0.75
Third Quarter 0.90 0.81
Fiscal year ended November 30, 2003 High Low
----------------------------------- ---- ---
First Quarter $0.86 $0.57
Second Quarter $0.86 $0.52
Third Quarter $1.40 $0.50
Fourth Quarter $1.43 $0.90
Fiscal year ended December 1, 2002 High Low
---------------------------------- ---- ---
First Quarter $1.92 $0.45
Second Quarter $1.33 $0.90
Third Quarter $1.65 $0.90
Fourth Quarter $1.00 $0.65
23
On April 12, 2004, the last day the Common Stock traded prior to the public
announcement of the Merger transaction described in this Going Private
Statement, the closing sales price of the Common Stock on the American Stock
Exchange was $0.80. The market price for the Common Stock is subject to
fluctuation and stockholders are urged to obtain current market quotations.
Common Stock Purchase Information
Except in connection with the contribution of the Common Stock into Mergerco in
connection with the Merger, neither Gristede's nor any of its executive officers
or directors, or the Catsimatidis Group or any of their affiliates, has engaged
in any transaction with respect to the Common Stock within the past 60 days.
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 August 31, 2004, for: (a) each of its
directors and executive officers, (b) all of the directors and executive
officers as a group, and (c) each person known by Gristede's to be a beneficial
owner of more than 5% of the Common Stock. All information with respect to
beneficial ownership by our directors, executive officers or beneficial owners
has been furnished by the respective director, officer or beneficial owner, as
the case may be. Unless indicated otherwise, each of the stockholders has sole
voting and investment power with respect to the shares of Common Stock
beneficially owned.
24
Title of Class Name and Address Shares Beneficially Owned Percent of Class
- -------------- ---------------- ------------------------- ----------------
Common Stock John Catsimatidis 18,150,150(1) 92.4%
Common Stock Martin Steinberg 126,142(2) 0.6%
Common Stock Kishore Lall 15,000(3) 0.07%
Common Stock Martin Bring 0(4) 0.00
Common Stock Frederick Selby 2,110(5) 0.01%
Common Stock Edward P. Salzano 3,000 0.01%
Common Stock Andrew J. Maloney 0 0.0
All officers and directors as a 18,282,902(1) 93.1%
group (7 persons) (6)
(1) Includes an aggregate of 12,573,974 shares held by corporations controlled
by Mr. Catsimatidis, 81,900 shares held by Mr. Catsimatidis as custodian,
2,057 shares held by a profit sharing plan of which Mr. Catsimatidis is a
trustee, 605 shares held by Mr. Catsimatidis as a trustee of individual
retirement accounts and does not include currently exercisable options to
purchase aggregate of 525,000 shares of Common Stock.
(2) Does not include an aggregate of 15,000 shares of Common Stock which may
be purchased upon the exercise of currently exercisable stock options.
(3) Does not include an aggregate of 55,000 shares of Common Stock which may
be purchased upon the exercise of currently exercisable stock options.
(4) Does not include an aggregate of 26,000 shares of Common Stock which may
be purchased upon the exercise of currently exercisable stock options.
(5) Does not include an aggregate of 11,000 shares of Common Stock which may
be purchased upon the exercise of currently exercisable stock options.
(6) Does not include an aggregate of 632,000 shares of Common Stock which may
be purchased upon the exercisable stock options.
DIRECTORS AND MANAGEMENT
Gristede's
Set forth below are the name and business address of each director and executive
officer of Gristede's and his position with Gristede's. Also set forth below are
the material occupations, positions, offices and employment of each such person
and the name of any corporation or other organization in which any material
occupation, position, office or employment of each such person was held during
the last five years. All directors and officers are citizens of the United
States.
The following table sets forth certain information regarding each director of
the Company. There are no arrangements or understandings between any of the
officers listed below, or any other persons, pursuant to which any of the
officers have been selected as such:
25
Position with the Company or other
Name and Age Director Since Principal occupation for the past five years
- ------------ -------------- --------------------------------------------
John A. Catsimatidis (55) 1988(5) Chairman of the Board, President and Chief Executive
Officer of the Company since July 28, 1988; Treasurer of
the Company from July 28, 1988 to March 17, 1998 and
since November 15, 1999; President and Chief Executive
Officer of RAG and Chairman of the Board and Chief
Executive Officer and Director of United Refining
Company (a refiner and retailer of petroleum products)
for more than five years; Director of News
Communications Inc., a public company whose stock is
traded over-the-counter, since December 4, 1991.
Kishore Lall (56) 1997 Chief Financial Officer since August, 2003, and
Executive Vice President - Finance and Administration
and Secretary of the Company since May 2002; Director of
the Company since October, 1997; consultant to RAG from
January 1997 to October 1997; Director of United
Refining Company since 1997; private investor from June
1994 to December 1996; Senior Vice President and Head of
Commercial Banking of ABN AMRO Bank, New York branch
from January 1991 until May 1994.
Martin R. Bring (61) 1988 Stockholder in the law firm of Anderson Kill & Olick,
PC., since February 1, 2002; Partner in the law firm of
Wolf, Block, Schorr and Solis-Cohen LLP and predecessor
firm for more than five years prior thereto; Director of
United Refining Company since 1988.
Edward P. Salzano (56) 1999 Executive Vice President and Director of Cantisano
Foods, Inc., a privately held sauce and salsa
manufacturing company, for more than 15 years.
Andrew Maloney (71) 2002 Counsel to DeFeiss O'Connell & Rose since January 2003;
Counsel to Kramer Levin Naftalis & Frankel LLP from
April 1998 to December 2002, and a partner of Brown &
Wood, LLP from December 1992 until April 1998; United
States Attorney for the Eastern District of New York
from June 1986 until December 1992; Director of United
Refining Company since 1997.
Frederick Selby (65) 1978 Chairman of Selby Capital Partners (acquisition and sale
of privately owned firms and divisions of public
companies) for more than five years; Managing Director
and senior officer of mergers and acquisitions division
of Bankers Trust Company; Senior Vice President of
Corporate Finance of B.A.I.I. Banking (Paris) and
Director of Corporate Finance of Legg Mason Wood Walker
prior thereto.
Martin Steinberg (70) 1998 Independent consultant. Mr. Steinberg also served as a
director of the Company from May 1974 to January 1991.
Mergerco
John A. Catsimatidis is the sole Director of Mergerco and serves as President
and Chief Executive Officer of Mergerco.
FINANCIAL AND OTHER INFORMATION
See the audited financial statements for Gristede's included in its Annual
Report on Form 10-K for the year ended November 30, 2003, and the unaudited
financial statement for Gristede's included in its Quarterly Report on Form 10-Q
for the quarter ended May 30, 2004 each of which is attached as an exhibit to
this Going Private Statement and incorporated herein by reference.
The firm of BDO Seidman, LLP serves as Gristede's independent auditors. The
consolidated financial statements of Gristede's for each of the years in the two
year period ended November 30, 2003 included in Gristede's Annual Report on Form
10-K for the year
26
ended November 30, 2003 enclosed with this Going Private Statement, have been
audited by BDO Seidman, LLP as stated in their report appearing in such Annual
Report.
STOCKHOLDER MEETINGS AND PROPOSALS
Gristede's has decided not to hold its 2003 annual meeting of stockholders
because of the merger proposal described in this Going Private Statement. If the
Merger is consummated, there will no longer be any Unaffiliated Stockholders of
Gristede's and no public participation in any future meetings of stockholders.
AVAILABLE INFORMATION
No person is authorized to give any information or to make any representations,
other than as contained in this Going Private Statement, in connection with the
Plan of Merger or the Merger, and, if given or made, such information or
representations may not be relied upon as having been authorized by Gristede's
or Mergerco. The delivery of this Going Private Statement shall not, under any
circumstances, create any implication that there has been no change in the
information set forth in this statement or in the affairs of Gristede's since
the date of this statement.
Gristede's is currently subject to the information requirements of the Exchange
Act and in accordance therewith files periodic reports, proxy statements and
other information with the SEC relating to its business, financial and other
matters. Copies of such reports, proxy statements and other information, as well
as the Schedule 13E-3 and the exhibits thereto, may be copied (at prescribed
rates) at the public reference facilities maintained by the SEC at:
o Room 1024, 450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C.
20549; and
o 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
For further information concerning the SEC's public reference rooms, you may
call the SEC at 1-800-SEC-0330. Some of this information may also be accessed on
the World Wide Web through the SEC's Internet address at "http://www.sec.gov."
The Common Stock is listed on the American Stock Exchange (ticker symbol: GRI),
and materials may also be inspected at the American Stock Exchange's offices,
American Stock Exchange, Inc., 86 Trinity Place, New York, NY 10006.
WHERE YOU CAN FIND MORE INFORMATION
The SEC allows Gristede's to "incorporate by reference" information into this
Going Private Statement, which means that Gristede's can disclose important
information by referring you to another document filed separately with the SEC.
The following documents previously filed by Gristede's with the SEC are
incorporated by reference in this Going Private Statement and are deemed to be a
part of this statement:
o Gristede's Annual Report on Form 10-K for the year ended November
30, 2003.
o Gristede's Quarterly Report on Form 10-Q for the period ended May
30, 2004.
Any statement contained in a document incorporated by reference shall be deemed
to be modified or superseded for all purposes to the extent that a statement
contained in this Going Private Statement modifies or replaces such statement.
Gristede's undertakes to provide by first class mail, without charge and within
one business day of receipt of any written or oral request, to any person to
whom a copy of this Going Private Statement has been delivered, a copy of any or
all of the documents referred to above which have been incorporated by reference
in this Going Private Statement, other than exhibits to such documents (unless
such exhibits are specifically incorporated by reference in this Going Private
Statement), including the opinion of Brooks Houghton. Requests for such copies
should be directed to Kishore Lall, Secretary, 823 Eleventh Avenue, New York,
New York 10019-3535; telephone number (212) 956-5803.
27
EXHIBIT A
AGREEMENT AND PLAN OF MERGER
AMONG GRISTEDE'S FOODS, INC. AND GRISTEDES ACQUISITION CORP.
A-1
Exhibit A
------------------
AGREEMENT AND PLAN OF MERGER
AMONG
GRISTEDE'S FOODS, INC.
AND
GRISTEDE'S ACQUISITION CORP.
DATED AS OF September 10, 2004
------------------
TABLE OF CONTENTS
GLOSSARY.....................................................................iii
AGREEMENT AND PLAN OF MERGER...................................................1
ARTICLE I COMPANY ACTIONS......................................................1
Section 1.1 Company Actions...............................................1
ARTICLE II THE MERGER..........................................................2
Section 2.1 The Merger....................................................2
Section 2.2 Effective Time................................................2
Section 2.3 Effects of the Merger.........................................3
Section 2.4 Certificate of Incorporation and Bylaws.......................3
Section 2.5 Conversion of Securities......................................3
Section 2.6 Payment of Certificates.......................................4
Section 2.7 Dissenting Shares.............................................5
Section 2.8 Merger Without Meeting of Stockholders........................5
Section 2.9 No Further Ownership Rights in Common Stock...................5
Section 2.10 Closing of Company Transfer Books.............................6
ARTICLE III REPRESENTATIONS AND WARRANTIES OF GAC..............................6
Section 3.1 Organization and Qualification................................6
Section 3.2 Authority Relative to this Agreement..........................6
Section 3.3 No Conflict; Required Filings and Consents....................6
Section 3.4 No Prior Activities...........................................7
Section 3.5 Financing.....................................................7
Section 3.6 Full Disclosure...............................................7
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF THE COMPANY.......................8
Section 4.1 Organization and Qualification; Subsidiaries..................8
Section 4.2 Certificate of Incorporation and Bylaws.......................8
Section 4.3 Capitalization................................................8
Section 4.4 Authority Relative to this Agreement..........................9
Section 4.5 No Conflict; Required Filings and Consents....................9
Section 4.6 Opinion of Financial Advisor.................................10
Section 4.7 Full Disclosure..............................................10
ARTICLE V COVENANTS RELATING TO CONDUCT OF BUSINESS...........................10
Section 5.1 Acquisition Proposals........................................10
Section 5.2 Conduct of Business by the Company Pending the Merger........11
ARTICLE VI ADDITIONAL AGREEMENTS..............................................13
Section 6.1 Access to Information; Confidentiality.......................13
Section 6.2 Fees and Expenses............................................14
Section 6.3 Stock Plans and Warrants.....................................14
Section 6.4 Reasonable Best Efforts......................................14
Section 6.5 Public Announcements.........................................15
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Section 6.6 Indemnification; Directors and Officers Insurance............15
Section 6.7 Notification of Certain Matters..............................16
ARTICLE VII CONDITIONS PRECEDENT..............................................16
Section 7.1 Conditions to Each Party's Obligation to Effect the Merger...16
Section 7.2 Conditions to GAC's Obligation to Effect The Merger..........16
Section 7.3 Conditions to the Company's Obligation to Close The Merger...16
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER................................17
Section 8.1 Termination..................................................17
Section 8.2 Effect of Termination........................................18
Section 8.3 Amendment....................................................18
Section 8.4 Waiver.......................................................18
ARTICLE IX GENERAL PROVISIONS.................................................18
Section 9.1 Non-Survival of Representations and Warranties...............18
Section 9.2 Notices......................................................18
Section 9.3 Interpretation...............................................19
Section 9.4 Counterparts.................................................19
Section 9.5 Entire Agreement; No Third-Party Beneficiaries...............19
Section 9.6 Governing Law................................................20
Section 9.7 Assignment...................................................20
Section 9.8 Severability.................................................20
Section 9.9 Enforcement of this Agreement; Attorneys Fees................20
-ii-
GLOSSARY
"Agreement" shall have the meaning set forth in the recitals.
"Acquisition Proposal" shall have the meaning set forth in Section 5.1.
"Certificate" shall have the meaning set forth in Section 2.6(b).
"Certificate of Merger" shall have the meaning set forth in Section 2.2.
"Common Stock" shall have the meaning set forth in Section 4.3.
"Company" shall have the meaning set forth in the recitals.
"Company Material Adverse Effect" shall have the meaning set forth in Section
4.1.
"D&O Insurance" shall have the meaning set forth in Section 6.6(b).
"DGCL" shall have the meaning set forth in the recitals and Section 2.1
"Dissenting Shares" shall have the meaning set forth in Section 2.7.
"Effective Time" shall have the meaning set forth in Section 2.2.
"Exchange Act" shall have the meaning set forth in Section 3.3(b).
"Exchange Agent" shall have the meaning set forth in Section 2.6(a).
"Financial Advisor" shall have the meaning set forth in Section 1.1(a).
"GAC" shall have the meaning set forth in the recitals.
"GAC Material Adverse Effect" shall have the meaning set forth in Section 3.3.
"GAAP" shall mean generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statement and pronouncements of
the Financial Accounting Standards Board, or in such other statement by such
other entity as may be in general use by significant segments of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
"Governmental Entity" shall have the meaning set forth in Section 6.4.
"Indemnified Parties" shall have the meaning set forth in Section 6.6(a).
"Merger" shall have the meaning set forth in the recitals.
"Merger Consideration" shall have the meaning set forth in Section 2.5(b).
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"Preferred Stock" shall have the meaning set forth in Section 4.3.
"Schedule 13E-3" shall have the meaning set forth in Section 1.1(a).
"SEC" shall have the meaning set forth in Section 1.1(b).
"Stock Option" shall have the meaning set forth in Section 2.5(c).
"Stock Options" shall have the meaning set forth in Section 2.5(c).
"Subsidiary Documents" shall have the meaning set forth in Section 4.2.
"Surviving Corporation" shall have the meaning set forth in Section 2.1.
-iv-
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of September 10, 2004 (this
"Agreement"), among Gristede's Foods, Inc., a Delaware corporation (the
"Company"), and Gristede's Acquisition Corp., a Delaware corporation ("GAC").
W I T N E S S E T H:
WHEREAS, the Company operates a number of supermarkets and several
drug stores in the New York City metropolitan area;
WHEREAS, GAC was formed on August 3, 2004 for the purpose of merging
GAC with and into the Company (the "Merger") and vesting the stockholders of GAC
with control of one hundred percent of the capital stock of the Company;
WHEREAS, the Company and GAC believe it is in the best interests of
the Company and the Company's stockholders that (i) the Merger occur, (ii) the
Company's stockholders receive the consideration for the Merger stated herein
and (iii) the Company become a privately held company, no longer listed on the
American Stock Exchange and no longer subject to the reporting requirements
under United States federal securities laws;
WHEREAS, GAC holds over ninety (90%) percent of the Common Stock of
the Company and wishes to accomplish the Merger as a short form merger pursuant
to Section 253 of the Delaware General Corporation Law of the State of Delaware,
as amended (the "DGCL");
WHEREAS, the respective Boards of Directors of the Company and GAC
each have approved the Merger of GAC with and into the Company, all upon the
terms and subject to the conditions set forth herein; and
WHEREAS, pursuant to the Merger, each issued and outstanding share
of Common Stock not owned directly or indirectly by GAC, except shares of Common
Stock held by holders who comply with the provisions of Delaware law regarding
the right of stockholders to dissent from the Merger and require appraisal of
their shares of Common Stock, will be converted into the right to receive the
Merger Consideration (as that term is hereinafter defined).
NOW, THEREFORE, in consideration of the foregoing and the
representations, warranties, covenants and agreements herein contained, GAC and
the Company hereby agree as follows:
ARTICLE I
COMPANY ACTIONS
Section 1.1 Company Actions. The Company hereby approves of and
consents to the Merger and represents that the Board of Directors of the Company
at a meeting duly called and held has duly adopted resolutions (i) approving
this Agreement and the Merger, and (ii) determining that the terms of the Merger
are fair to, and in the best interests of, the Company and its stockholders. The
Company represents that its Board of Directors has received the written opinion
(the "Fairness Opinion") of Brooks, Houghton Securities, Inc. (the "Financial
Advisor") that the proposed consideration to be received by the holders of
shares of Common Stock pursuant to the Merger is fair to such holders from a
financial point of view. The Company has been authorized by the Financial
Advisor to permit, subject to the prior review and consent by the Financial
Advisor (such consent not to be unreasonably withheld), the inclusion of the
Fairness Opinion (or a reference thereto) in the Schedule 13E-3 statement as
required under the Exchange Act (as defined in Section 3.3(b)) ("Schedule
13E-3") and within any documents sent to stockholders of the Company.
(b) The Company and GAC will promptly file an information
statement on Schedule 13E-3. The Company agrees to provide to GAC and its
respective counsel, in writing, any comments the Company or its counsel may
receive from the Securities and Exchange Commission ("SEC") or its staff with
respect to the Schedule 13E-3 promptly after the receipt of such comments.
(c) In connection with the Merger, the Company shall cause its
transfer agent to promptly furnish Exchange Agent, as hereinafter defined, with
a list, as of a recent date, of the holders of Common Stock and mailing labels
containing the names and addresses of the record holders of Common Stock and of
those persons becoming record holders subsequent to such date, together with
copies of all lists of stockholders, security position listings (including
shares of Common Stock held by depositories) and computer files and all other
information in the Company's possession or control regarding the beneficial
owners of Common Stock.
ARTICLE II
THE MERGER
Section 2.1 The Merger. Upon the terms and subject to the conditions
hereof, and in accordance with the General Corporation Law of the State of
Delaware, as amended (the "DGCL"), GAC shall be merged with and into the Company
at the Effective Time (as hereinafter defined). Following the Merger, the
separate corporate existence of GAC shall cease and the Company shall continue
as the surviving corporation (the "Surviving Corporation") and shall succeed to
and assume all the rights and obligations of GAC in accordance with the DGCL.
Section 2.2 Effective Time. The Merger shall become effective when
the Certificate of Merger or, if applicable, the Certificate of Ownership and
Merger (each, the "Certificate of Merger"), executed in accordance with the
relevant provisions of the DGCL, are accepted for record by the Secretary of
State of the State of Delaware. When used in this Agreement, the term "Effective
Time" shall mean the later of the date and time at which the Certificate of
Merger is accepted for record or such later time established by the Certificate
of Merger. The filing of the Certificate of Merger shall be
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made as soon as reasonably practicable (but not later than the third business
day) after the satisfaction or waiver of the conditions to the Merger set forth
herein.
Section 2.3 Effects of the Merger. The Merger shall have the effects
set forth in the DGCL.
Section 2.4 Certificate of Incorporation and Bylaws. The Certificate
of Incorporation of the Company, as in effect immediately prior to the Effective
Time, shall be the Certificate of Incorporation of the Surviving Corporation
until thereafter changed or amended as provided therein or by applicable law.
The Bylaws of the Company, as in effect immediately prior to the Effective Time,
shall be the Bylaws of the Surviving Corporation until thereafter changed or
amended as provided therein or by applicable law.
(a) The directors of the Company at the Effective Time shall,
from and after the Effective Time, be the directors of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal, in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
(b) The officers of the Company at the Effective Time shall,
from and after the Effective Time, be the officers of the Surviving Corporation
until their successors have been duly elected or appointed and qualified or
until their earlier death, resignation or removal, in accordance with the
Surviving Corporation's Certificate of Incorporation and Bylaws.
Section 2.5 Conversion of Securities. As of the Effective Time, by
virtue of the Merger and without any action on the part of any stockholder of
the Company:
(a) All shares of Common Stock that are held in the treasury
of the Company or by any wholly owned subsidiary of the Company and any shares
of Common Stock owned by GAC shall be canceled and no consideration shall be
delivered in exchange therefor.
(b) All shares of Common Stock outstanding at the Effective
Time, other than (i) those shares held in the treasury of the Company or by any
wholly owned subsidiary of the Company, (ii) those shares owned by GAC and (iii)
Dissenting Shares (as defined in Section 2.7 below) shall, by virtue of the
Merger and without any action on the part of the holder thereof, be converted
into and become the right to receive cash, without interest, in the amount of
$0.87 (Eighty Seven Cents) per share of Common Stock (the "Merger
Consideration"). A stockholder holding fractional shares shall also receive for
the fractional share interest an amount determined by multiplying such
fractional share interest by the Merger Consideration. Each certificate (a
"Certificate") representing shares of Common Stock (other than Certificates held
by GAC and holders of Dissenting Shares) will, after the Effective Time,
evidence only the right to receive, upon surrender of such Certificate, the
Merger Consideration.
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(c) Each option outstanding at the Effective Time to purchase
shares of common stock granted under any stock plan or agreement of the company,
including, but not limited to, those options granted under the 1994 Stock Option
Plan, the 1998 Stock Option Plan, and the Director Stock Option Plan (each stock
option individually a "Stock Option", and collectively the "Stock Options"),
whether vested or unvested, shall be deemed cancelled and of no further force
and effect.
(d) Each issued and outstanding share of the capital stock of
GAC shall be converted into and become one fully paid and nonassessable share of
Common Stock of the Surviving Corporation.
Section 2.6 Payment of Certificates(a). Exchange Agent. Prior to the
Effective Time, the Company shall appoint Wachovia Bank, N.A. or such other
commercial bank or trust company designated by the Company to act as Exchange
Agent hereunder (the "Exchange Agent") for the payment of the Merger
Consideration upon surrender of Certificates. All of the fees and expenses of
the Exchange Agent shall be borne by the Company or the Surviving Company, as
applicable.
(b) Payment Procedures. As soon as reasonably practicable
after the Effective Time, the Exchange Agent shall mail to each holder of record
of a certificate ("Certificate"), other than GAC, the Company, and any wholly
owned subsidiary of the Company, (i) a letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon actual delivery of the Certificates to the
Exchange Agent and shall be in a form and have such other provisions as GAC may
reasonably specify) and (ii) instructions for the use thereof in effecting the
surrender of the Certificates in exchange for the Merger Consideration. Upon
surrender of a Certificate for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by the Surviving Corporation, together
with such letter of transmittal, duly executed and completed in accordance with
the instructions thereto, and such other documents as may reasonably be required
by the Exchange Agent, the holder of such Certificate shall be entitled to
receive in exchange therefor the amount of cash into which the shares of Common
Stock theretofore represented by such Certificate shall have been converted
pursuant to Section 2.5, and the Certificates so surrendered shall forthwith be
canceled.
No interest will be paid or will accrue on the cash
payable upon the surrender of any Certificate. If payment is to be made to a
person other than the person in whose name the Certificate so surrendered is
registered, it shall be a condition of payment that such Certificate shall be
properly endorsed or otherwise in proper form for transfer and that the person
requesting such payment shall pay any transfer or other taxes required by reason
of the transfer of such Certificate or establish to the satisfaction of the
Surviving Corporation that such tax has been paid or is not applicable. Until
surrendered as contemplated by this Section 2.6, each Certificate (other than
Certificates representing Dissenting Shares (as defined in Section 2.7) and
Certificates representing any shares of Common Stock owned by GAC or held in the
treasury of the Company or by any wholly owned subsidiary of the Company) shall
be deemed at any time after the Effective Time to represent only the right to
receive upon
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such surrender the amount of cash, without interest, into which the shares of
Common Stock theretofore represented by such Certificate shall have been
converted pursuant to Section 2.5. Notwithstanding the foregoing, neither the
Exchange Agent, the Surviving Corporation nor any party hereto shall be liable
to a former stockholder of the Company for any cash or interest delivered to a
public official pursuant to applicable abandoned property, escheat or similar
laws. In the event any Certificate shall have been lost, stolen or destroyed,
Surviving Company may, in its discretion and as a condition precedent to the
payment of the Merger Consideration in respect of the shares represented by such
Certificate, require the owner of such lost, stolen or destroyed Certificate to
deliver a bond in such sum as it may reasonably direct as indemnity against any
claim that may be made against Surviving Company or the Exchange Agent.
Section 2.7 Dissenting Shares. Notwithstanding any provision of this
Agreement to the contrary, if required by the DGCL (but only to the extent
required thereby), shares of Common Stock which are issued and outstanding
immediately prior to the Effective Time and which are held by holders of such
shares of Common Stock who have properly exercised appraisal rights with respect
thereto in accordance with Section 262 of the DGCL (the "Dissenting Shares")
will not be exchangeable for the right to receive the Merger Consideration, and
holders of such shares of Common Stock will be entitled to receive payment of
the appraised value of such shares of Common Stock in accordance with the
provisions of such Section 262 unless and until such holders fail to perfect or
effectively withdraw or lose their rights to appraisal and payment under the
DGCL. If, after the Effective Time, any such holder fails to perfect or
effectively withdraws or loses such right, such shares of Common Stock will
thereupon be treated as if they had been converted into and have become
exchangeable for, at the Effective Time, the right to receive the Merger
Consideration, without any interest thereon.
Section 2.8 Merger Without Meeting of Stockholders. The parties
acknowledge that GAC owns more than 90% of the outstanding shares of Common
Stock of the Company. The parties hereto agree to take all necessary and
appropriate action to cause the Merger to become effective without a meeting of
stockholders of the Company, in accordance with Section 253 of the DGCL, as soon
as practicable, after the twentieth (20th) day following the filing of a
Schedule 13E-3 with the SEC, and any notice period required pursuant to DGCL or
any other Delaware state law applicable state law of any other jurisdiction.
Section 2.9 No Further Ownership Rights in Common Stock. From and
after the Effective Time, the holders of shares of Common Stock which were
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such shares of Common Stock, except as otherwise provided
in this Agreement or by applicable law. All cash paid upon the surrender of
Certificates in accordance with the terms hereof shall be deemed to have been
issued in full satisfaction of all rights pertaining to the shares of Common
Stock so surrendered.
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Section 2.10 Closing of Company Transfer Books. At the Effective
Time, the stock transfer books of the Company shall be closed and no transfer of
shares of Common Stock shall thereafter be made. If, after the Effective Time,
Certificates are presented to the Surviving Corporation, they shall be canceled
and exchanged as provided in this Article II.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF GAC
GAC hereby represents and warrants to the Company as follows:
Section 3.1 Organization and Qualification. GAC is a corporation
duly organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation and has the requisite corporate power and
authority necessary to carry on its business as it is now being conducted,
except as would not reasonably be expected to prevent or delay consummation of
the Merger, or otherwise materially and adversely affect the ability of GAC to
perform its respective obligations under this Agreement.
Section 3.2 Authority Relative to this Agreement. GAC has all
necessary corporate power and authority to execute and deliver this Agreement
and to perform its obligations hereunder and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement by GAC and the
consummation by GAC of the transactions contemplated hereby have been duly and
validly authorized by all necessary corporate action on the part of GAC, and no
other corporate proceedings on the part of GAC are necessary to authorize this
Agreement or to consummate the transactions contemplated hereby. The Board of
Directors of GAC has determined that it is advisable and in the best interest of
GAC's stockholders for GAC to enter into this Agreement and to consummate, upon
the terms and subject to the conditions of this Agreement, the transactions
contemplated hereby. This Agreement has been duly and validly executed and
delivered by GAC and, assuming the due authorization, execution and delivery by
the Company, constitutes a legal, valid and binding obligation of GAC,
enforceable against GAC in accordance with its terms, except as such
enforceability may be limited by applicable bankruptcy, reorganization,
insolvency, moratorium and similar laws affecting the enforcement of creditors'
rights generally and subject to general equitable principles limiting the right
to obtain specific performance or other equitable relief.
Section 3.3 No Conflict; Required Filings and Consents. (a) The
execution and delivery of this Agreement by GAC does not, and the performance of
this Agreement by GAC will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of GAC, (ii) conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to GAC or by which its
properties are bound or affected, or (iii) result in any breach of or constitute
a default (or an event which with notice or lapse of time or both would become a
default) under, or impair GAC's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
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encumbrance on any of the properties or assets of GAC pursuant to, any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which GAC is a party or by which
GAC or its properties are bound or affected, except in any such case for any
such conflicts, violations, breaches, defaults or other occurrences that would
not reasonably be expected to have a material adverse effect on the business,
assets (including intangible assets), financial condition, prospects or results
of operations of GAC or on the ability of GAC to perform its obligations under
this Agreement (a "GAC Material Adverse Effect") or prevent or delay
consummation of the Merger.
(b) The execution and delivery of this Agreement by GAC does not,
and the performance of this Agreement by GAC will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), and the filing and recordation of appropriate
merger or other documents as required by the DGCL, and (ii) where the failure to
obtain such consents, approvals, authorizations or permits, or to make such
filings or notifications, would not reasonably be expected to have a GAC
Material Adverse Effect or to prevent or delay consummation of the Merger.
Section 3.4 No Prior Activities. (a) GAC was formed solely for the
purpose of engaging in the transactions contemplated by this Agreement.
(b) As of the date hereof and the Effective Time, except for
obligations or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated by this Agreement and except for
this Agreement and any other agreements or arrangements contemplated by this
Agreement, GAC has not and will not have incurred, directly or indirectly,
through any subsidiary or affiliate, any obligations or liabilities or engaged
in any business activities of any type or kind whatsoever or entered into any
agreements or arrangements with any person.
(c) GAC has no subsidiaries.
Section 3.5 Financing. GAC has sufficient funds available to enable
it to purchase all outstanding shares of Common Stock, on a fully diluted basis,
and to pay all fees and expenses related to the transactions contemplated by
this Agreement.
Section 3.6 Full Disclosure. No statement contained in any
certificate or schedule furnished or to be furnished by GAC to the Company in,
or pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to GAC as follows:
Section 4.1 Organization and Qualification; Subsidiaries. The
Company and each of its subsidiaries is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority necessary to
own, lease and operate the properties it purports to own, operate or lease and
to carry on its business as it is now being conducted, except where the failure
to be so organized, existing and in good standing or to have such power and
authority would not reasonably be expected to have a material adverse effect on
the business, assets (including intangible assets), financial condition,
prospects or results of operations of the Company and its subsidiaries taken as
a whole or on the ability of the Company to perform its obligations under this
Agreement (a "Company Material Adverse Effect"). The Company and each of its
subsidiaries is duly qualified or licensed as a foreign corporation to do
business, and is in good standing, in each jurisdiction where the character of
its properties owned, leased or operated by it or the nature of its activities
makes such qualification or licensing necessary, except for such failures to be
so duly qualified or licensed and in good standing that would not reasonably be
expected to have a Company Material Adverse Effect or to prevent or delay
consummation of the Merger.
Section 4.2 Certificate of Incorporation and Bylaws. The Company has
heretofore furnished to GAC a complete and correct copy of its Certificate of
Incorporation and Bylaws as most recently restated and subsequently amended to
date, and has furnished or made available to GAC the Certificate of
Incorporation and Bylaws (or equivalent organizational documents) of each of its
subsidiaries (the "Subsidiary Documents"). Such Certificate of Incorporation,
Bylaws and Subsidiary Documents are in full force and effect.
Section 4.3 Capitalization. The authorized capital stock of the
Company consists of 25,000,000 shares of Common Stock, par value $.02 per share
(the "Common Stock") and 500,000 shares of preferred stock, par vale $50 per
share (the "Preferred Stock"). As of November 30, 2003, (i) 19,636,574 shares of
Common Stock were issued and outstanding, all of which are validly issued, fully
paid and nonassessable, (ii) no shares of Preferred Stock were outstanding or
held in treasury (iii) no shares of Common Stock or Preferred Stock were held by
subsidiaries of the Company, (iv) 1,253,000 shares of Common Stock were reserved
for future issuance pursuant to outstanding stock options granted under the
Stock Option Plans and 247,000 shares were reserved for future grants under such
plans. No material change in such capitalization has occurred between November
30, 2003, and the date hereof. Except as set forth in this Section 4.3 or the
Schedule 13E-3, there are no options, warrants or other rights, agreements,
arrangements or commitments of any character relating to the issued or unissued
capital stock of the Company or any of its subsidiaries or obligating the
Company or any of its subsidiaries to issue or sell any shares of capital
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stock of, or other equity interests in, the Company or any of its subsidiaries.
All shares of Common Stock subject to issuance as aforesaid, upon issuance on
the terms and conditions specified in the instruments pursuant to which they are
issuable, shall be duly authorized, validly issued, fully paid and
nonassessable. Except as disclosed in the SEC Reports, there are no obligations,
contingent or otherwise, of the Company or any of its subsidiaries to
repurchase, redeem or otherwise acquire any shares of Common Stock or the
capital stock of any subsidiary or to provide funds to or make any investment
(in the form of a loan, capital contribution or otherwise) in any such
subsidiary or any other entity other than guarantees of bank obligations of
subsidiaries entered into in the ordinary course of business. Except as set
forth in Schedule 4.3, all of the outstanding shares of capital stock of each of
the Company's subsidiaries is duly authorized, validly issued, fully paid and
nonassessable, and all such shares are owned by the Company or another
subsidiary free and clear of all security interests, liens, claims, pledges,
agreements, limitations in the Company's voting rights, charges or other
encumbrances of any nature whatsoever, other than shares of Gristede's Foods NY,
Inc., which are pledged to a lending institution.
Section 4.4 Authority Relative to this Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution and delivery of this Agreement
by the Company and the consummation by the Company of the transactions
contemplated hereby have been duly and validly authorized by all necessary
corporate action, and no other corporate proceedings on the part of the Company
are necessary to authorize this Agreement or to consummate the transactions so
contemplated. The Board of Directors of the Company has determined that it is
advisable and in the best interest of the Company's stockholders for the Company
to enter into this Agreement and to consummate, upon the terms and subject to
the conditions of this Agreement, the transaction contemplated hereby. This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by GAC, as applicable,
constitutes a legal, valid and binding obligation of the Company, enforceable
against the Company in accordance with its terms, except as such enforceability
may be limited by applicable bankruptcy, reorganization, insolvency, moratorium,
and similar laws affecting the enforcement of creditors' rights generally and
subject to general equitable principles limiting the right to obtain specific
performance or other equitable relief.
Section 4.5 No Conflict; Required Filings and Consents.(a) (a) The
execution and delivery of this Agreement by the Company does not, and the
performance of this Agreement by the Company will not, (i) conflict with or
violate the Certificate of Incorporation or Bylaws of the Company, (ii) conflict
with or violate any law, rule, regulation, order, judgment or decree applicable
to the Company or any of its subsidiaries or by which its or any of their
respective properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default), or impair the Company's or any of its subsidiaries'
rights or alter the rights or obligations of any third party under, or give to
others any rights of termination, amendment, acceleration or cancellation of, or
result in
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the creation of a lien or encumbrance on any of the properties or assets of the
Company or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any of its subsidiaries is a
party or by which the Company or any of its subsidiaries or its or any of their
respective properties is bound or affected, except for any such conflicts,
violations, breaches, defaults or other occurrences that would not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect or prevent or delay the consummation of the Merger.
(b) The execution and delivery of this Agreement by the
Company does not, and the performance of this Agreement by the Company will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, domestic or foreign,
except (i) for applicable requirements, if any, of the Exchange Act, and the
filing and recordation of appropriate merger or other documents as required by
the DGCL, and (ii) where the failure to obtain such consents, approvals,
authorizations or permits, or to make such filings or notifications, would not
reasonably be expected to prevent or delay consummation of the Merger, or
otherwise prevent or delay the Company from performing its obligations under
this Agreement, or would not otherwise reasonably be expected to have a Company
Material Adverse Effect or prevent or delay the consummation of the Merger.
Section 4.6 Opinion of Financial Advisor. The Company has been
advised by its financial advisor, Brooks, Houghton Securities, Inc., that in its
opinion, as of the date hereof, the Merger Consideration is fair to the holders
of the Common Stock.
Section 4.7 Full Disclosure. No statement contained in any
certificate or schedule furnished or to be furnished by the Company to GAC in,
or pursuant to the provisions of, this Agreement contains or shall contain any
untrue statement of a material fact or omits or will omit to state any material
fact necessary, in the light of the circumstances under which it was made, in
order to make the statements herein or therein not misleading.
ARTICLE V
COVENANTS RELATING TO CONDUCT OF BUSINESS
Section 5.1 Acquisition Proposals. From and after the date of this
Agreement and prior to the Effective Time, except as provided below, the Company
agrees (i) that neither the Company nor its subsidiaries shall, and the Company
shall direct and use its reasonable best efforts to cause its officers,
directors, employees and authorized agents and representatives (including any
investment banker, attorney or accountant retained by it or any of its
subsidiaries) not to, initiate, solicit or encourage, directly or indirectly,
any inquiries or the making or implementation of any proposal or offer
(including any proposal or offer to its stockholders) with respect to a merger,
acquisition, consolidation or similar transaction involving, or any purchase of,
any equity securities or all or any significant portion of the assets of, the
Company or its subsidiaries (any such proposal or offer being hereinafter
referred to as an "Acquisition
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Proposal"; provided, however, that for purposes of Section 6.2 only, the term
"Acquisition Proposal" shall not include a proposal to acquire equity securities
of the Company in an amount, when added to all other equity securities of the
Company then held by the person or group of persons making such Acquisition
Proposal, less than 20% of the equity securities of the Company then
outstanding) or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any person or
entity relating to an Acquisition Proposal, or otherwise facilitate any effort
or attempt to make or implement an Acquisition Proposal; (ii) that it will
immediately cease and cause to be terminated any existing activities,
discussions or negotiations with any person or entity conducted heretofore with
respect to any of the foregoing and will take the necessary steps to inform the
person or entity referred to above of the obligations undertaken in this Section
5.1; and (iii) that it will notify GAC immediately if any such inquiries or
proposals are received by, any such information is requested from, or any such
negotiations or discussions are sought to be initiated or continued with, it
(but the Company shall not be required to disclose the names of any party making
or the terms of any such proposal); provided, however, that nothing contained in
this Section 5.1 shall prohibit the Board of Directors of the Company from (x)
furnishing information to, or entering into discussions or negotiations with,
any person or entity that makes an unsolicited bona fide proposal in writing to
engage in an Acquisition Proposal transaction which the Board of Directors of
the Company in good faith determines represents a financially superior
transaction for the stockholders of the Company as compared to the Merger if,
and only to the extent that, (A) the Board of Directors determines, after
consultation with reputable outside counsel with expertise in corporate and
securities law matters as the Company shall select ("Company Counsel"), that
failure to take such action would be inconsistent with the compliance by the
Board of Directors with its fiduciary duties to stockholders imposed by law, (B)
prior to or concurrently with furnishing such information to, or entering into
discussions or negotiations with, such a person or entity, the Company provides
written notice to GAC to the effect that it is furnishing information to, or
entering into discussions or negotiations with, such a person or entity, and (C)
the Company keeps GAC informed of the status (excluding, however, the identity
of such person or entity and the terms of any proposal) of any such discussions
or negotiations; and (y) to the extent applicable, complying with Rule 14e-2
promulgated under the Exchange Act with regard to an Acquisition Proposal.
Nothing in this Section 5.1 shall (t) permit the Company to terminate this
Agreement (except as contemplated by Section 8.1(b)(ii)), (u) permit the Company
to enter into any agreement with respect to an Acquisition Proposal during the
term of this Agreement, or (v) affect any other obligation of any party under
this Agreement.
Section 5.2 Conduct of Business by the Company Pending the Merger.
Except as otherwise expressly contemplated by this Agreement or consented to in
advance by GAC (which consent is subsequently confirmed in writing), which
consent shall not be unreasonably withheld, during the period form the date of
this Agreement through the Effective Time, the Company shall and shall cause its
subsidiaries to, in all material respects carry on their respective businesses
in, and not enter into any material transaction other than in accordance with,
the regular and ordinary course of business and, to the extent consistent
therewith, use its reasonable best efforts to preserve intact
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the Company's and its subsidiaries' current business organizations, keep
available the services of their current officers and employees and preserve
their relationships with customers, suppliers and others having business
dealings with the Company and its subsidiaries. Without limiting the generality
of the foregoing, and except as otherwise expressly contemplated by this
Agreement (including the time period specified above), the Company shall not,
and shall not permit any of its subsidiaries to, without the prior consent of
GAC (which consent is subsequently confirmed in writing), which consent shall
not be unreasonably withheld:
(a) (i) declare, set aside or pay any dividends on, or make
any other actual, constructive or deemed distributions in respect of, any of its
capital stock, or otherwise make any payments to stockholders of the Company in
their capacity as such, other than dividends payable to the Company declared by
any of the Company's subsidiaries; (ii) split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock; or
(iii) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares or other securities;
(b) issue, deliver, sell, pledge, dispose or otherwise
encumber any shares of its capital stock, any other voting securities or equity
equivalent or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
or equity equivalent (other than, in the case of the Company, the issuance of
Common Stock during the period from the date of this Agreement through the
Effective Time upon the exercise of Stock Options outstanding on the date of
this Agreement in accordance with their current terms);
(c) amend or change its Certificate of Incorporation or
Bylaws;
(d) acquire or agree to acquire by merging or consolidating
with, or by purchasing a substantial portion of the assets of or equity in, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof or otherwise acquire or agree
to acquire any assets, in each case that are material, individually or in the
aggregate, to the Company and its subsidiaries taken as a whole;
(e) sell, lease or otherwise dispose of, or agree to sell,
lease or otherwise dispose of, any of its assets that are material, individually
or in the aggregate, to the Company and its subsidiaries taken as a whole;
(f) make any commitment or enter into any contract or
agreement except in the ordinary course of business consistent with past
practice;
(g) incur any indebtedness for borrowed money or guarantee any
such indebtedness or issue or sell any debt securities or guarantee any debt
securities or others, except for borrowings or guarantees incurred in the
ordinary course of business consistent with the past practice under financing
arrangements in existence
-12-
on the date hereof, or make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any wholly owned
subsidiary of the Company and other than the ordinary course of business
consistent with past practice;
(h) alter through merger, liquidation, reorganization,
restructuring or in any other fashion the corporate structure or ownership of
any subsidiary of the Company;
(i) except as may be required as a result of a change in law
or pursuant to GAAP, change any of the accounting principles or practices used
by it;
(j) make any tax election or settle or compromise any material
income tax liability;
(k) pay, discharge, or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction in the ordinary
course of business and consistent with past practice of liabilities reflected or
reserved against in, or contemplated by, the financial statements (or the notes
thereto) of the Company or incurred in the ordinary course of business
consistent with past practice;
(l) increase in any manner the compensation or fringe benefits
of any of its directors, officers and other key employees or pay any pension or
retirement allowance not required by any existing plan or agreement to any such
employees, or become a party to, amend or commit itself to any pension,
retirement, profit-sharing or welfare benefit plan or agreement or employment
agreement with or for the benefit of any employee, other than increases in the
compensation of employees who are not officers or directors of the Company made
in the ordinary course of business consistent with past practice, or (except
pursuant to the terms of preexisting plans or agreements) accelerate to which
the Company or any subsidiary is a party;
(m) except in connection with the exercise of its fiduciary
duties by the Board of Directors of the Company as set forth in Section 5.1,
waive, amend or allow to lapse any term or condition or any confidentiality or
"standstill" agreement to which the Company or any subsidiary is a party; or
(n) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of the representations
incorrect at or prior to the Effective Time.
ARTICLE VI
ADDITIONAL AGREEMENTS
Section 6.1 Access to Information; Confidentiality. The Company
shall, and shall cause each of its subsidiaries to, afford to GAC, and to GAC's
accountants, counsel, financial advisers and other representatives, reasonable
access and permit
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them to make such inspections as they may reasonably require during normal
business hours during the period from the date of this Agreement through the
Effective Time to all their respective properties, books, contracts, commitments
and records and, during such period, the Company shall, and shall cause each of
its subsidiaries to, furnish promptly to GAC (i) a copy of each report,
schedule, registration statement and other document filed by it during such
period pursuant to the requirements of federal or state securities laws and (ii)
all other information concerning its business, properties and personnel as GAC
may reasonably request.
Section 6.2 Fees and Expenses. (a) Except as provided in subsection
(b) below, whether or not the Merger is consummated, all costs and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by GAC.
(b) The Company agrees that if this Agreement is terminated
pursuant to Section 8.1(b)(i); then the Company shall pay to GAC the sum of (i)
$150,000, plus (ii) the amount of all documented out-of-pocket costs and
expenses incurred by GAC or its affiliates in an aggregate amount not to exceed
$200,000 in connection with this Agreement or the transactions contemplated
hereby. Such payment shall be made as promptly as practicable but in no event
later than two business days following termination of this Agreement.
Section 6.3 Stock Plans and Warrants. Prior to the Effective Time,
the Company shall adopt any such amendments to its plans under which any Stock
Options have been granted, shall use its reasonable best efforts to obtain any
such consents of the holders of such Stock Options and shall cause the
committees of the Board of Directors that are responsible for the administration
of such plans to take such action as shall be necessary to effectuate the
provisions of Section 2.5(c). The Company shall terminate all Stock Option
Plans, with respect to any further grants, as of the Effective Time. The Company
shall give written notice of the Merger to each registered holder of Stock
Options at least twenty (20) days prior to the Effective Time.
Section 6.4 Reasonable Best Efforts. Upon the terms and subject to
the conditions set forth in this Agreement, each of the parties agrees to use
its reasonable best efforts to take, or cause to be taken, all actions
(including entering into transactions), and to do, or cause to be done, and to
assist and cooperate with the other parties in doing, all things necessary,
proper or advisable to consummate and make effective, in the most expeditious
manner practicable, the Merger, and the other transactions contemplated by this
Agreement, including (a) the prompt making of their respective filings and
thereafter the making of any other required submission with respect to the
Merger, (b) the obtaining of all additional necessary actions or non-actions,
waivers, consents and approvals from any applicable federal, state, foreign or
supranational court, commission, governmental body, regulatory or administrative
agency, authority or tribunal of competent jurisdiction (a "Governmental
Entity") and the making of all necessary registrations and filings (including
filings with Governmental Entities) and the taking of all reasonable steps as
may be necessary to obtain an approval or waiver from any Governmental Entity,
(c) the obtaining of all necessary
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consents, approvals or waivers from third parties, (d) the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of the transactions contemplated
hereby, including seeking to have any stay or temporary restraining order
entered by any court or other Governmental Entity vacated or reversed, and (e)
the execution and delivery of any additional instruments necessary to consummate
the transactions contemplated by this Agreement.
Section 6.5 Public Announcements. GAC and the Company will consult
with each other before issuing any press release or otherwise making any public
statements with respect to the transactions contemplated by this Agreement, and
shall not issue any such press release or make any such public statement prior
to such consultation, except as may be required by applicable law or by
obligations pursuant to any listing agreement with any national securities
exchange.
Section 6.6 Indemnification; Directors and Officers Insurance. From
and after the Effective Time, the Surviving Corporation shall indemnify and hold
harmless all past and present officers and directors (the "Indemnified Parties")
of the Company and of its subsidiaries to the full extent such persons may be
indemnified by the Company pursuant to Delaware law, the Company's Certificate
of Incorporation and Bylaws as in effect from time to time for acts and
omissions occurring at or prior to the Effective Time and shall advance
reasonable litigation expenses incurred by such persons in connection with
defending any action arising out of such acts or omissions, provided that such
persons provide the requisite affirmations and undertaking, as set forth in
Section 145(e) of the DGCL.
(b) In addition, the Surviving Corporation will provide, for a
period of not less than six years after the Effective Time, the Company's
current directors and officers with an insurance and indemnification policy that
provides coverage for events occurring at or prior to the Effective Time (the
"D&O Insurance") that is no less favorable than the existing policy or, if
substantially equivalent insurance coverage is unavailable, the best available
coverage as determined by the Surviving Corporation; provided, however, that the
Surviving Corporation shall not be required to pay an annual premium for the D&O
Insurance in excess of 200% of the annual premium currently paid by the Company
for such insurance, but in such case shall purchase as much such coverage as
possible for such amount.
(c) This Section 6.6 is intended to benefit the Indemnified
Parties and shall be binding on all successors and assigns of GAC, the Company
and the Surviving Corporation. GAC hereby guarantees the performance by the
Surviving Corporation of the indemnified obligations pursuant to this Section
6.6, which guaranty is absolute and unconditional and shall not be affected by
any circumstance whatsoever, including the bankruptcy or insolvency of the
Surviving Corporation or any other person. The Indemnified Parties shall be
intended third-party beneficiaries of this Section 6.6.
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Section 6.7 Notification of Certain Matters. The Company shall give
prompt notice to GAC, and GAC shall give prompt notice to the Company of (i) the
occurrence or nonoccurrence of any event the occurrence or nonoccurrence of
which would be likely to cause any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at or prior to the
Effective Time, or (ii) any material failure of the Company, or GAC, as the case
may be, to comply with or satisfy any covenant, condition or agreement to be
complied with or satisfied by it hereunder; provided, however, that the delivery
of any notice pursuant to this Section 6.7shall not cure such breach or
non-compliance or limit or otherwise affect the remedies available hereunder to
the party receiving such notice.
ARTICLE VII
CONDITIONS PRECEDENT
Section 7.1 Conditions to Each Party's Obligation to Effect the
Merger. The respective obligations of each party to effect the Merger shall be
subject to the fulfillment at or prior to the Effective Time of the following
conditions:
(a) SEC Approval. The filing of Schedule 13E-3 and the
expiration of the twenty-day period required between the making of such filing
and the purchase (as defined in Section (f)(1) of Rule 13e-3 of the Exchange
Act) of the Common Stock of stockholders shall have occurred.
(b) No Order. No court or other Governmental Entity shall have
enacted, issued, promulgated, enforced or entered any law, rule, regulation,
executive order, decree or injunction which prohibits or has the effect of
prohibiting the consummation of the Merger; provided, however, that, prior to
invoking this provision, the Company and GAC shall use their reasonable best
efforts (subject to the other terms and conditions of this Agreement) to have
any such order, decree or injunction vacated.
Section 7.2 Conditions to GAC's Obligation to Effect The Merger. The
representations and warranties of the Company shall be true and correct as of
the date hereof and at the Effective Time, and the Company shall have complied
with all covenants made by the Company contained in this Agreement.
Section 7.3 Conditions to the Company's Obligation to Close The
Merger. The representations and warranties of GAC shall be true and correct as
of the date hereof and at the effective time, and GAC shall have complied with
all covenants made by GAC contained in this Agreement.
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ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
Section 8.1 Termination. This Agreement may be terminated at any
time prior to the Effective Time, whether before or after any approval by the
stockholders of the Company:
(a) by mutual written consent of GAC and the Company;
(b) by the Company if:
(i) there is an Acquisition Proposal which the Board of
Directors of the Company in good faith determines represents a financially
superior transaction for the stockholders of the Company as compared to the
Merger, and the Board of Directors of the Company determines, after consultation
with Company Counsel, that failure to terminate this Agreement would be
inconsistent with the compliance by the Board of Directors with its fiduciary
duties to stockholders imposed by law; provided, however, that the right to
terminate this Agreement pursuant to this clause shall not be available (x) if
the Company has breached in any material respect its obligations under Section
5.2, or (y) if, prior to or concurrently with any purported termination pursuant
to this clause, the Company shall not have paid the fees and expenses
contemplated by Section 6.2(b); or
(ii) any representation or warranty of GAC shall not
have been true and correct in all material respects when made or shall have
ceased at any later date to be true and correct in all material respects as if
made at such later date; or
(iii) GAC fails to comply in any material respect with
any of its material obligations or covenants contained herein;
(c) by GAC if:
(i) any representation or warranty of the Company shall
not have been true and correct in all material respects when made or shall have
ceased at any later date to be true and correct in all material respects as if
made at such later date; or
(ii) the Company shall have failed to comply in any
material respect with any of its material obligations or covenants contained
herein;
(d) by either GAC or the Company if:
(i) the Merger has not been effected on or prior to the
close of business on the date which is sixty (60) days from the date of this
Agreement; provided, however, that the right to terminate this Agreement
pursuant to this clause shall not be available to any party whose failure to
fulfill any obligation of this Agreement
-17-
has been the cause of, or resulted in, the failure of the Merger to have
occurred on or prior to the aforesaid date; or
(ii) any court of competent jurisdiction or any
governmental, administrative or regulatory authority, agency or body shall have
issued an order, decree or ruling or taken any other action permanently
enjoining, restraining or otherwise prohibiting the transactions contemplated by
this Agreement and such order, decree, ruling or other action shall have become
final and nonappealable.
Section 8.2 Effect of Termination. In the event of termination of
this Agreement by either GAC or the Company, as provided in Section 8.1, this
Agreement shall forthwith become void and there shall be no liability hereunder
on the part of the Company or GAC or their respective officers or directors
(except for Section 6.2, which shall survive the termination); provided,
however, that nothing contained in this Section 8.2 shall relieve any party
hereto from any liability for any willful and material breach of this Agreement.
Section 8.3 Amendment. This Agreement may be amended by the parties
hereto, by or pursuant to action taken by their respective Boards of Directors,
at any time before or after any approval of the Merger by the stockholders of
the Company. This Agreement may not be amended except by an instrument in
writing signed on behalf of each of the parties hereto.
Section 8.4 Waiver. At any time prior to the Effective Time, the
parties hereto may (i) extend the time for the performance of any of the
obligations or other acts of the other parties hereto, (ii) waive any
inaccuracies in the representations and warranties contained herein or in any
document delivered pursuant hereto, or (iii) waive compliance with any of the
agreements or conditions contained herein which may legally be waived. Any
agreement on the part of a party hereto to any such extension or waiver shall be
valid only if set forth in an instrument in writing signed on behalf of such
party.
ARTICLE IX
GENERAL PROVISIONS
Section 9.1 Non-Survival of Representations and Warranties. None of
the representations and warranties in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the termination of this
Agreement in accordance with Article VIII or the Effective Time; provided,
however, that termination of this Agreement shall not relieve any party hereto
from any liability for any willful and material breach by such party of any such
representations or warranties.
Section 9.2 Notices. All notices and other communications hereunder
shall be in writing and shall be deemed given if delivered personally, sent by
overnight courier or telecopied (with a confirmatory copy sent by overnight
courier) to the parties
-18-
at the following addresses (or at such other address for a party as shall be
specified by like notice):
(a) if to GAC, to:
Gristede's Acquisition Corp.
c/o John A. Catsimatidis
823 Eleventh Avenue
New York, New York 10019
Fax: (212) 247-4509
Telephone: (2120 956-5803
(b) if to the Company to:
Gristede's Foods, Inc.
823 Eleventh Avenue
New York, New York 10019
Fax: (212) 247-4509
Telephone: (212) 956-5803
Section 9.3 Interpretation. When a reference is made in this
Agreement to a Section, such reference shall be to a Section of this Agreement
unless otherwise indicated. The table of contents and headings contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement. Whenever the words "include,"
"includes" or "including" are used in this Agreement, they shall be deemed to be
followed by the words "without limitation." As used in this Agreement, (i)
"business day" shall have the meaning ascribed thereto in Rule 14d-1(c)(6) under
the Exchange Act, and (ii) "subsidiary" shall have the meaning ascribed thereto
in Rule 12b-2 under the Exchange Act.
Section 9.4 Counterparts. This Agreement may be executed in
counterparts, each such counterpart being deemed to be an original instrument
and all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.
Section 9.5 Entire Agreement; No Third-Party Beneficiaries. This
Agreement, including the documents and instruments referred to herein, (a)
constitutes the entire agreement and supersedes all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, and (b) except for the provisions of Section 6.6 is not
intended to confer upon any person other than the parties any rights or remedies
hereunder.
-19-
Section 9.6 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
Section 9.7 Assignment. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by any of the
parties without the prior written consent of the other parties. This Agreement
shall be binding upon, inure to the benefit of, and be enforceable by, the
parties and their respective successors and assigns.
Section 9.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of law,
or public policy, all other conditions and provisions of this Agreement shall
nevertheless remain in full force and effect so long as the economic or legal
substance of the transactions contemplated hereby are not affected in any manner
materially adverse to any party.
Section 9.9 Enforcement of this Agreement; Attorneys Fees. (a) The
parties agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
(b) The prevailing party in any judicial action shall be
entitled to receive from the other party reimbursement for the prevailing
party's reasonable attorneys' fees and disbursements, and court costs. The
provisions of this Section 9.9(b)shall survive the termination of this Agreement
in accordance with Article VIII.
-20-
IN WITNESS WHEREOF, GAC and the Company have caused this Agreement
to be signed by their respective officers thereunto duly authorized all as of
the date first written above.
GRISTEDE'S FOODS, INC.
By
-------------------------------
Name:
Title:
GRISTEDE'S ACQUISITION CORP.
By
-------------------------------
Name:
Title:
-21-
EXHIBIT B
DISSENTERS' RIGHTS UNDER THE DELAWARE GENERAL CORPORATION LAW
262 APPRAISAL RIGHTS. (a) Any stockholder of a corporation of this State who
holds shares of stock on the date of the making of a demand pursuant to
subsection (d) of this section with respect to such shares, who continuously
holds such shares through the effective date of the merger or consolidation, who
has otherwise complied with subsection (d) of this section and who has neither
voted in favor of the merger or consolidation nor consented thereto in writing
pursuant to ss.228 of this title shall be entitled to an appraisal by the Court
of Chancery of the fair value of the stockholder's shares of stock under the
circumstances described in subsections (b) and (c) of this section. As used in
this section, the word "stockholder" means a holder of record of stock in a
stock corporation and also a member of record of a nonstock corporation; the
words "stock" and "share" mean and include what is ordinarily meant by those
words and also membership or membership interest of a member of a nonstock
corporation; and the words "depository receipt" mean a receipt or other
instrument issued by a depository representing an interest in one or more
shares, or fractions thereof, solely of stock of a corporation, which stock is
deposited with the depository.
(b) Appraisal rights shall be available for the shares of any class or series of
stock of a constituent corporation in a merger or consolidation to be effected
pursuant to ss.251 (other than a merger effected pursuant to ss.251(g) of this
title), ss.252, ss.254, ss.257, ss.258, ss.263 or ss.264 of this title:
(1) Provided, however, that no appraisal rights under this section shall be
available for the shares of any class or series of stock, which stock, or
depository receipts in respect thereof, at the record date fixed to determine
the stockholders entitled to receive notice of and to vote at the meeting of
stockholders to act upon the agreement of merger or consolidation, were either
(i) listed on a national securities exchange or designated as a national market
system security on an interdealer quotations system by the National Association
of Securities Dealers, Inc. or (ii) held of record by more than 2,000 holders;
and further provided that no appraisal rights shall be available for any shares
of stock of the constituent corporation surviving a merger if the merger did not
require for its approval the vote of the stockholders of the surviving
corporation as provided in subsection (f) of ss.251 of this title.
(2) Notwithstanding paragraph (1) of this subsection, appraisal rights under
this section shall be available for the shares of any class or series of stock
of a constituent corporation if the holders thereof are required by the terms of
an agreement of merger or consolidation pursuant to ss.ss.251, 252, 254, 257,
258, 263 and 264 of this title to accept for such stock anything except:
(a) Shares of stock of the corporation surviving or resulting from such merger
or consolidation, or depository receipts in respect thereof;
(b) Shares of stock of any other corporation, or depository receipts in respect
thereof, which shares of stock (or depository receipts in respect thereof) or
depository receipts at the effective date of the merger or consolidation will be
either listed on a national securities exchange or designated as a national
market system security on an interdealer quotation systems by the National
Association of Securities Dealers, Inc. or held of record by more than 2,000
holders;
(c) Cash in lieu of fractional shares or fractional depository receipts
described in the foregoing subparagraphs a. and b. or this paragraph; or
(d) Any combination of the shares of stock, depository receipts described and
cash in lieu of fractional shares or fractional depository receipts described in
the foregoing subparagraphs a., b. and c. of this paragraph.
(3) In the event all of the stock of a subsidiary Delaware corporation party to
a merger effected under ss.253 of this title is not owned by the parent
corporation immediately prior to the merger, appraisal rights shall be available
for the shares of the subsidiary Delaware corporation.
(c) Any corporation may provide in its certificate of incorporation that
appraisal rights under this section shall be available for the shares of any
class or series of its stock as a result of an amendment to its certificate of
incorporation, any merger or consolidation in which the corporation is a
constituent corporation or the sale of all or substantially all of the assets of
the corporation. If the certificate of incorporation contains such a provision,
the procedures of this section, including those set forth in subsections (d) and
(e) of this section, shall apply as nearly as is practicable.
B-1
(d) Appraisal rights shall be perfected as follows:
(1) If a proposed merger or consolidation for which appraisal rights are
provided under this section is to be submitted for approval at a meeting of
stockholders, the corporation, not less than 20 days prior to the meeting, shall
notify each of its stockholders who was such on the record date for such meeting
with respect to shares for which appraisal rights are available pursuant to
subsection (b) or (c) hereof that appraisal rights are available for any or all
of the shares of the constituent corporations, and shall include in such notice
a copy of this section. Each stockholder electing to demand the appraisal of
such stockholder's shares shall deliver to the corporation, before the taking of
the vote on the merger or consolidation, a written demand for appraisal of such
stockholder's shares. Such demand will be sufficient if it reasonably informs
the corporation of the identity of the stockholder and that the stockholder
intends thereby to demand the appraisal of such stockholder's shares. A proxy or
vote against the merger or consolidation shall not constitute such a demand. A
stockholder electing to take such action must do so by a separate written demand
as herein provided. Within 10 days after the effective date of such merger or
consolidation, the surviving or resulting corporation shall notify each
stockholder of each constituent corporation who has complied with this
subsection and has not voted in favor of or consented to the merger or
consolidation of the date that the merger or consolidation has become effective;
or
(2) If the merger or consolidation was approved pursuant to ss.228 or ss.253 of
this title, then, either a constituent corporation before the effective date of
the merger or consolidation, or the surviving or resulting corporation within
ten days thereafter, shall notify each of the holders of any class or series of
stock of such constituent corporation who are entitled to appraisal rights of
the approval of the merger or consolidation and that appraisal rights are
available for any or all shares of such class or series of stock of such
constituent corporation, and shall include in such notice a copy of this
section. Such notice may, and, if given on or after the effective date of the
merger or consolidation, shall, also notify such stockholders of the effective
date of the merger or consolidation. Any stockholder entitled to appraisal
rights may, within 20 days after the date of mailing of such notice, demand in
writing from the surviving or resulting corporation the appraisal of such
holder's shares. Such demand will be sufficient if it reasonably informs the
corporation of the identity of the stockholder and that the stockholder intends
thereby to demand the appraisal of such holder's shares. If such notice did not
notify stockholders of the effective date of the merger or consolidation, either
(i) each such constituent corporation shall send a second notice before the
effective date of the merger or consolidation notifying each of the holders of
any class or series of stock of such constituent corporation that are entitled
to appraisal rights of the effective date of the merger or consolidation or (ii)
the surviving or resulting corporation shall send such a second notice to all
such holders on or within 10 days after such effective date; provided, however,
that if such second notice is sent more than 20 days following the sending of
the first notice, such second notice need only be sent to each stockholder who
is entitled to appraisal rights and who has demanded appraisal of such holder's
shares in accordance with this subsection. An affidavit of the secretary or
assistant secretary or of the transfer agent of the corporation that is required
to give either notice that such notice has been given shall, in the absence of
fraud, be prima facie evidence of the facts stated therein. For purposes of
determining the stockholders entitled to receive either notice, each constituent
corporation may fix, in advance, a record date shall be not more than 10 days
prior to the date the notice is given, provided, that if the notice is given on
or after the effective date of the merger or consolidation, the record date
shall be such effective date. If not record date is fixed and the notice is
given prior to the effective date, the record date shall be the close of
business on the day next preceding the day on which the notice is given.
(e) Within 120 days after the effective date of the merger of consolidation, the
surviving or resulting corporation or any stockholder who has complied with
subsections (a) and (d) hereof and who is otherwise entitled to appraisal
rights, may file a petition in the Court of Chancery demanding a determination
of the value of the stock of all such stockholders. Notwithstanding the
foregoing, at any time within 60 days after the effective date of the merger or
consolidation, any stockholder shall have the right to withdraw such
stockholder's demand for appraisal and to accept the terms offered upon the
merger or consolidation. Within 120 days after the effective date of the merger
or consolidation, any stockholder who has complied with the requirements of
subsections (a) and (d) hereof, upon written request, shall be entitled to
receive from the corporation surviving the merger or resulting from the
consolidation a statement setting forth the aggregate number of shares not voted
in favor of the merger or consolidation and with respect to which demands for
appraisal have been received and the aggregate number of holders of such shares.
Such written statement shall be mailed to the stockholder within 10 days after
such stockholder's written request for such a statement is received by the
surviving or resulting corporations or within 10 days after expiration of the
period for delivery of demands for appraisal under subsection (d) hereof,
whichever is later.
(f) Upon the filing of any such petition by a stockholder, service of a copy
thereof shall be made upon the surviving or resulting corporation, which shall
within 20 days after such service file in the office of the Register in Chancery
in which the petition was filed a duly verified list containing the names and
addresses of all stockholders who have demanded payment for their shares and
with whom agreements as to the value of their shares have not been reached by
the surviving or resulting corporation. If the petition shall be filed by the
surviving or resulting corporation, the petition shall be accompanied by such a
duly verified list. The Register in
B-2
Chancery, if so ordered by the Court, shall give notice of the time and place
fixed for the hearing of such petition by registered or certified mail to the
surviving or resulting corporation and to the stockholders shown on the list at
the addresses therein stated. Such notice shall also be given by 1 or more
publications at least 1 week before the day of the hearing, in a newspaper of
general circulation published in the City of Wilmington, Delaware or such
publication as the Court deems advisable. The forms of the notices by mail and
by publication shall be approved by the Court, and the costs thereof shall be
borne by the surviving or resulting corporation.
(g) At the hearing on such petition, the Court shall determine the stockholders
who have complied with this section and who have become entitled to appraisal
rights. The Court may require the stockholders who have demanded an appraisal
for their shares and who hold stock represented by certificates to submit their
certificates of stock to the Register in Chancery for notation thereon of the
pendency of the appraisal proceedings; and if any stockholder fails to comply
with such direction, the Court may dismiss the proceedings as to such
stockholder.
(h) After determining the stockholders entitled to an appraisal, the Court shall
appraise the shares, determining their fair value exclusive of any element of
value arising from the accomplishment or expectation of the merger or
consolidation, together with a fair rate of interest, if any, to be paid upon
the amount determined to be the fair value. In determining such fair value, the
Court shall take into account all relevant factors. In determining the fair rate
of interest, the Court may consider all relevant factors, including the rate of
interest which the surviving or resulting corporation would have had to pay to
borrow money during the pendency of the proceeding. Upon application by the
surviving or resulting corporation or by any stockholder entitled to participate
in the appraisal proceeding, the Court may, in its discretion, permit discovery
or other pretrial proceedings and may proceed to trial upon the appraisal prior
to the final determination of the stockholder entitled to an appraisal. Any
stockholder whose name appears on the list filed by the surviving or resulting
corporation pursuant to subsection (f) of this section and who has submitted
such stockholder's certificates of stock to the Register in Chancery, if such is
required, may participate fully in all proceedings until it is finally
determined that such stockholder is not entitled to appraisal rights under this
section.
(i) The Court shall direct the payment of the fair value of the shares, together
with interest, if any, by the surviving or resulting corporation to the
stockholders entitled thereto. Interest may be simple or compound, as the Court
may direct. Payment shall be so made to each such stockholder, in the case of
holders of uncertificated stock forthwith, and the case of holders of shares
represented by certificates upon the surrender to the corporation of the
certificates representing such stock. The Court's decree may be enforced as
other decrees in the Court of Chancery may be enforced, whether such surviving
or resulting corporate be a corporation of this State or of any state.
(j) The costs of the proceeding may be determined by the Court and taxed upon
the parties as the Court deems equitable in the circumstances. Upon application
of a stockholder, the Court may order all or a portion of the expenses incurred
by any stockholder in connection with the appraisal proceeding, including,
without limitation, reasonable attorney's fees and the fees and expenses of
experts, to be charged pro rata against the value of all the shares entitled to
an appraisal.
(k) From and after the effective date of the merger or consolidation, no
stockholder who has demanded appraisal rights as provided in subsection (d) of
this section shall be entitled to vote such stock for any purpose or to receive
payment of dividends or other distributions on the stock (except dividends or
other distributions payable to stockholders of record at a date which is prior
to the effective date of the merger or consolidation); provided, however, that
if no petition for an appraisal shall be filed within the time provided in
subsection (e) of this section, or if such stockholder shall deliver to the
surviving or resulting corporation a written withdrawal of such stockholder's
demand for an appraisal and an acceptance of the merger or consolidation, either
within 60 days after the effective date of the merger or consolidation as
provided in subsection (e) of this section or thereafter with the written
approval of the corporation, then the right of such stockholder to an appraisal
shall cease. Notwithstanding the foregoing, no appraisal proceeding in the Court
of Chancery shall be dismissed as to any stockholder without the approval of the
Court, and such approval may be conditioned upon such terms as the Court deems
just.
(l) The shares of the surviving or resulting corporation to which the shares of
such objecting stockholders would have been converted had they assented to the
merger or consolidation shall have the status of authorized and unissued shares
of the surviving or resulting corporation.
B-3
EXHIBIT C
NOTICE REGARDING APPRAISAL RIGHTS
Under Section 262 of the Delaware General Corporation Law (the "DGCL")
stockholders of Gristede's Foods, Inc. (the "Company") are entitled to dissent
and obtain payment of the fair value of their shares of common stock of the
Company in connection with the Merger of Mergerco, a Delaware corporation
("Mergerco"), with and into the Company (the "Merger"). The proposed effective
date for the Merger is ________ __, 2004, on which date the Company plans to
file a Certificate of Ownership and Merger with the Delaware Secretary of State.
Attached to the Going Private Statement (of which this Notice is a part) as
Exhibit B is a copy of Section 262 of the DGCL, which describes the rights of
stockholders who dissent from the Merger to require the Company to purchase
their "dissenting shares" for cash at a price equal to the fair value of the
shares. Such right to receive the fair value of the dissenting shares is
referred to in this Notice as the "Dissenters' Rights." The procedure that you
must follow if you desire to exercise any Dissenters' Rights you may have with
respect to the Merger is set forth in full in Exhibit B, which should be
reviewed carefully to ensure protection of your Dissenters' Rights. This notice
itself does not purport to be a complete statement of the law and is qualified
in its entirety by reference to Exhibit B.
In order to exercise your Dissenters' Rights with respect to the Merger:
1. You must complete and deliver a formal payment demand in the form as required
by the State of Delaware and a copy of your stock certificate(s) to the Company
at 823 Eleventh Avenue, New York, New York 10019-3535 Attn: Kishore Lall,
Secretary.
2. The Company must receive the Notice of Demand for Appraisal and stock
certificate(s) no later than [a date that is at least thirty days from the
authorization date of the Merger].
3. Holders of uncertificated shares may not transfer such shares, if any, after
the date of receipt by the Company of the Notice of Demand for Appraisal.
C-1
EXHIBIT D
LETTER OF TRANSMITTAL
To Accompany Certificates of Shares of Common Stock of
Gristede's Foods, Inc.
Pursuant to the Merger with Gristede's Acquisition Corp. Effective September __,
2004.
This Letter of Transmittal, including the Substitute Form W-9 on page 6
(or for non-U.S. persons, a Form W-8), should be completed, signed and
submitted, together with your certificate(s) evidencing shares of Common Stock
of Gristede's Foods, Inc. to:
WACHOVIA BANK, N.A.
Corporate Actions - NC1153
1525 West W.T. Harris Blvd., 3C3
Charlotte, North Carolina 28288-1153 (for first class mail)
or
Charlotte, North Carolina 28262-1153 (for delivery by courier)
(800) 829-8432
Ladies and Gentlemen:
The undersigned has been advised that on September __, 2004 (the
"Effective Date"), Gristede's Acquisition Corp. has merged with and into
Gristede's Foods, Inc. (the "Company") with the Company as the surviving
corporation (the "Merger") pursuant to which each share of the Company's common
stock, $.02 par value per share ("Common Stock"), outstanding on the Effective
Date was converted into the right to receive $0.87 per share in cash, without
interest (the "Merger Consideration"), except for shares held by the Company, or
Gristede's Acquisition Corp., or by dissenting stockholders who have perfected
their dissenter's rights under Delaware law.
The undersigned has been advised further that the undersigned is entitled
to receive a check equal to $0.87 per share of Common Stock owned as of the
Effective Date by the undersigned. The undersigned herewith surrenders the
certificate(s) listed below (the "Certificates"), which represent shares of
Common Stock.
- ------------------------------------------------------------------------------------------------
Box A TO BE COMPLETED BY EACH HOLDER OF COMMON STOCK
- ------------------------------------------------------------------------------------------------
Name and Address of Registered Holder Certificate Number of Shares
(As It Appears on Certificates)* Number(s)** of Common Stock
- ------------------------------------------------------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
-------------------------------------------------
Total Number of
Shares of Common
Stock
- ------------------------------------------------------------------------------------------------
* Attach Schedule if needed
** Please check the following box if you have lost or destroyed your
certificates |_|.
D-1
PLEASE CAREFULLY READ THE ACCOMPANYING INSTRUCTIONS.
Unless otherwise requested in special instructions in Boxes B or C, the
undersigned requests that the check for the Merger Consideration be issued in
the name(s) and mailed to the address(es) set forth on the preceding page.
The undersigned hereby irrevocably constitutes and appoints Wachovia Bank,
N.A. as exchange agent (the "Exchange Agent") the true and lawful
attorney-in-fact of the undersigned with respect to the Certificates with full
power of substitution (such power of attorney being deemed to be an irrevocable
power coupled with an interest) to deliver such Certificates on the account
books maintained by the Exchange Agent and to deliver as the undersigned's agent
the Merger Consideration to which the undersigned is entitled upon surrender of
the Certificates.
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, estates,
successors and assigns of the undersigned. The undersigned hereby represents and
warrants that the undersigned has full power and authority to submit the
Certificates submitted hereby, free and clear of all liens and encumbrances and
not subject to any adverse claim, unless otherwise noted hereon. The undersigned
will, upon request, execute and deliver any additional documents necessary or
desirable to complete the exchange of such Certificates for the Merger
Consideration.
_______________________________________________ _______________________________________________
Box B SPECIAL ISSUANCE Box C SPECIAL DELIVERY
INSTRUCTIONS INSTRUCTIONS
(See Instructions 1, 4, 5 and 6 (See Instruction 6
on pages 4 and 5) on page 5)
To be completed ONLY if the check for the To be completed ONLY if the check for the
Merger Consideration should be issued in the Merger Consideration should be sent to someone
name of someone other than as set forth in Box other than as set forth in Box A or to an
A. address other than as set forth in Box A.
Issue to:
Mail or deliver to:
Name:__________________________________________
(Please Print) Name:__________________________________________
(Please Print)
Address: ______________________________________ Address: ______________________________________
_______________________________________________ _______________________________________________
_______________________________________________ _______________________________________________
(Including Zip Code) (Including Zip Code)
_______________________________________________
(Tax ID or Social Security Number) |_| Check here if this is a permanent address
(See accompanying Substitute Form W-9) change
_________________________________________________________________________________________________
D-2
________________________________________________________________________________
Box D
SIGN HERE
(See Instructions 1 and 4 on Page 4)
(Complete Accompanying Substitute Form W-9 on Page 6)
________________________________________________________________________________
________________________________________________________________________________
(Signature of Shareholder)
Date: _________________________, 2003
(Must be signed by the registered holder(s) exactly as name(s) appear(s)
on Certificates or by persons authorized to become registered holder(s) by
Certificates and documents transmitted herewith. If signature is by trustees,
executors, administrators, guardians, attorneys-in-fact, officers or
corporations or others acting in a fiduciary or representative capacity, please
provide the following information. See Instruction 4.)
Name(s)_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(Please Print)
Capacity (full title) __________________________________________________________
Address ________________________________________________________________________
________________________________________________________________________________
(Include Zip Code)
Area Code and Telephone No. (_______) _______________ _________________________
Tax Identification or Social Security No. ______________________________________
________________________________________________________________________________
Place signature Medallion Guarantee on this page.
D-3
INSTRUCTIONS
A shareholder of the Company will not receive the Merger Consideration in
exchange for such holder's Certificates until the Certificates owned by such
holder are received by the Exchange Agent at the address set forth on page 1,
together with such documents as the Exchange Agent may require, and until the
same are processed by the Exchange Agent. No interest will accrue on any amounts
due.
1. Guarantee of Signatures. No signature guarantee on this Letter of
Transmittal is required (a) if this Letter of Transmittal is signed by the
registered holder of the Certificates surrendered herewith, unless such holder
has completed the box entitled "Special Issuance Instructions" on this Letter of
Transmittal, or (b) if such Certificates are surrendered for the account of a
member firm of a registered national securities exchange, a member of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States, or any other
"eligible guarantor institution" as such term is defined in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended (collectively, "Eligible
Institutions"). In all other cases, all signatures on this Letter of Transmittal
must be guaranteed by an Eligible Institution that is a member of the Medallion
Signature Guarantee Program.
2. Delivery of Letter of Transmittal and Certificates. Please do not send
the Certificates directly to the Company. The Certificates, together with a
properly completed and duly executed copy of this Letter of Transmittal , and
any other documents required by this Letter of Transmittal, should be delivered
to the Exchange Agent at the address set forth on page 1 of this Letter of
Transmittal.
The method of delivery of all documents is at the option and risk of the
owner. However, if Certificates are sent by mail, it is recommended that they be
sent by registered mail, properly insured, with return receipt requested. Risk
of loss and title to the Certificates shall pass upon delivery of the
Certificates to the Exchange Agent.
All questions as to validity, form and eligibility of any surrender of any
certificate hereunder will be determined by the Company (which may delegate
power in whole or in part to the Exchange Agent) and such determination shall be
final and binding. The Company reserves the right to waive any irregularities or
defects in the surrender of any Certificates. A surrender will not be deemed to
have been made until all irregularities have been cured or waived.
3. Inadequate Space. If the space provided in this Letter of Transmittal
is inadequate, the certificate numbers and the number of shares of Common Stock
represented thereby should be listed on a separate schedule attached hereto.
4. Signatures on Letter of Transmittal, Stock Powers and Endorsements. If
the registered holder of the Certificates surrendered hereby signs this Letter
of Transmittal, the signature must correspond with the name that is written on
the face of the Certificates without alteration, enlargement or any change
whatsoever.
If the Certificates surrendered are owned of record by two or more joint
owners, all such owners must sign this Letter of Transmittal.
If any shares of Common Stock are registered in different names on several
Certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of Certificates.
When this Letter of Transmittal is signed by the registered owner(s) of
the Certificates listed and surrendered herewith, no endorsements of the
Certificates or separate stock powers are required.
If this Letter of Transmittal is signed by a person other than the
registered owner of the Certificates listed, such Certificates must be endorsed
or accompanied by appropriate stock power(s), in either case signed by the
registered owner or owners or a person with full authority to sign on behalf of
the registered owner. Signatures on such Certificates or stock power(s) must be
guaranteed by an Eligible Institution that is a member of a Medallion Signature
Guarantee Program. See Instruction 1.
If this Letter of Transmittal or any Certificates or stock power(s) is
signed by an executor, administrator, trustee, guardian, attorney, officer of a
corporation or others acting in a fiduciary or representative capacity, such
persons must so indicate when signing, must give his or her full title in such
capacity, and evidence satisfactory to the Exchange Agent of his or her
authority to so act must be submitted. The Exchange Agent will not exchange any
Certificates until all instructions herein are complied with.
D-4
5. Stock Transfer Taxes. In the event that any transfer or other taxes
become payable by reason of the issuance of the check for the Merger
Consideration in any name other than that of the record holder, such transferee
or assignee must pay such tax to the Exchange Agent or must establish to the
satisfaction of the Exchange Agent that such tax has been paid or is not
applicable.
6. Special Payment and Delivery Instructions. If the Merger Consideration
to be received by the undersigned is to be issued in the name of a person other
than the signer of this Letter of Transmittal or if such Merger Consideration is
to be sent to someone other than the Company's holder of record, then Box B
and/or Box C, as appropriate, should be completed.
7. Substitute Form W-9. Each shareholder surrendering Certificates is
required to supply the Exchange Agent with such holder's correct Taxpayer
Identification Number ("TIN") on the Substitute Form W-9 on page 6, and to
certify whether such holder is subject to backup withholding. Failure to provide
such information on the form may subject the holder to federal income tax
withholding at a rate of 28% on payments made to such surrendering holder with
respect to the Common Stock represented by the Certificates. If such holder is
an individual, the TIN is the individual's social security number. If the
surrendering holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future, then the box in Part II of the
form should be checked. If the box in Part II is checked, the surrendering
holder must also complete the Certificate of Awaiting Taxpayer Identification
Number at the bottom of page 6 in order to avoid backup withholding. If you have
checked the box in Part II and do not provide the Exchange Agent with a properly
certified TIN within 60 days, the Exchange Agent will withhold 28% of the Merger
Consideration. If the holder is subject to backup withholding, then such holder
must cross out item (2) in Part III of the Substitute Form W-9. See also
"Important Tax Information" on page 7.
8. Lost, Stolen or Destroyed Certificates. If any Common Stock certificate
has been lost, stolen or destroyed, notify the Exchange Agent in writing
immediately for instruction. Your letter should be forwarded along with your
properly completed Letter of Transmittal and any other certificates you may have
in your possession. The Exchange Agent may require you to execute an affidavit
and indemnity agreement in connection with such lost or destroyed certificates
and such other documents as it may request to effect and exchange. The Exchange
Agent may require you to reimburse it for certain fees and expenses in
connections with the exchange of Common Stock represented by lost, stolen or
destroyed share certificates. Please contact 1 (800) 829-8432 with questions.
9. Information and Additional Copies. Information and additional copies of
this Letter of Transmittal may be obtained from the Exchange Agent by writing to
the address or calling the number listed on page 1 of this Letter of
Transmittal.
D-5
TO BE COMPLETED BY ALL HOLDERS OF GRISTEDE'S FOODS, INC.
COMMON STOCK
(See "Important Tax Information" on next page)
PAYER'S NAME: [________]
______________________________________________________________________________________________________________________
SUBSTITUTE Part 1 - PLEASE PROVIDE YOUR TIN IN THE BOX AT ________________________________
RIGHT AND CERTIFY BY SIGNING AND DATING BELOW Social Security Number
Form W-9 or
________________________________
Department of Employer Identification Number
the Treasury _____________________________________________________________________________________________________
Internal Name (Please Print)__________________________________________________________________________________
Revenue
Service Address______________________________________________________________________________________________
Payer's City_______________________________________________ State______________________ ZIP Code___________
Request for _____________________________________________________________________________________________________
Taxpayer Part II - Awaiting TIN |_|
Identification _____________________________________________________________________________________________________
Number Part III - Certification - Under penalties of perjury, I certify that:
("TIN") and
Certificate (1) The number on this form is my correct TIN (or a TIN has not been issued to me but I have mailed
or delivered an application to receive a TIN or intend to do so in the near future);
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding (e.g.
corporation or non-U.S. person; (b) I have not been notified by the Internal Revenue Service ("IRS")
that I am subject to backup withholding as a result of a failure to report all interest or dividends;
or (c) the IRS has notified me that I am no longer subject to backup withholding; and
(3) All other information provided on this form is true, correct and complete.
You must cross out item (2) above if you have been notified by the IRS that you are subject to backup
withholding because of underreporting interest or dividends on your tax return and you have not been
advised by the IRS that such backup withholding has been terminated.
______________________________________________________________________________________________________________________
FAILURE TO COMPLETE AND RETURN THIS SUBSTITUTE FORM W-9 MAY RESULT IN BACKUP
WITHHOLDING.
________________________________________________________________________________
Sign
Here: Signature:_____________________________________ Date:____________________
________________________________________________________________________________
YOU MUST COMPLETE TE FOLLOWING CERTIFICATE IF YOU CHECKED THE BOX IN PART II OF
THE SUBSTITUTE FORM W-9.
________________________________________________________________________________
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under the penalties of perjury that a TIN has not been issued to
me, and either (1) I have mailed or delivered an application to receive a TIN to
the appropriate IRS Center or Social Security Administration Office or (2) I
intend to mail or deliver an application in the near future. I understand that
if I do not provide a TIN within 60 days, 28% of all reportable payments made to
me thereafter will be withheld until I provide a number.
Signature: _______________________________________________ Date:________________
Name (please print):____________________________________________________________
________________________________________________________________________________
D-6
IMPORTANT TAX INFORMATION
Under federal income tax law, a person who holds Certificates surrendered
for exchange is required to provide the Exchange Agent with such holder's
properly certified TIN on Substitute Form W-9. If such holder is an individual,
the TIN is such holder's social security number. If the Exchange Agent is not
provided with the correct TIN, the holder may be subject to a penalty imposed by
the Internal Revenue Service (the "IRS"). In addition, delivery to such holder
of the check for the Merger Consideration may be subject to backup withholding.
Certain holders of Certificates (including, among others, all corporations
and certain foreign individuals) are not subject to these backup withholding and
reporting requirements. Exempt holders of Certificates should indicate their
exempt status on Substitute Form W-9 by writing the word "EXEMPT" on the line
for the Social Security Number in Part I. A foreign individual may qualify as an
exempt recipient by submitting to the Exchange Agent a properly completed IRS
Form W-8 (which the Exchange Agent will supply upon request), signed under
penalties of perjury, attesting to the exemption status of the holder of
Certificates. See the enclosed Substitute Form W-9 for additional instructions.
If (i) the holder does not furnish the Exchange Agent with a TIN in the
required manner, (ii) the IRS notifies the Exchange Agent that the TIN provided
is incorrect, or (iii) the holder is required but fails to certify that it is
not subject to backup withholding, backup withholding will apply. If backup
withholding applies, the Exchange Agent is required to withhold 28% of any
payment made to the holder of the Certificates or other payee. Backup
withholding is not an additional tax. Rather, the tax liability of persons
subject to backup withholding will be reduced by the amount of tax withheld. If
backup withholding results in an overpayment of taxes, a refund may be obtained
from the IRS.
Purpose of Substitute Form W-9
To prevent backup withholding on payments that are made to a holder in
respect to Certificates, the holder is required to notify the Exchange Agent of
his or her correct TIN by completing the form certifying that the TIN provided
on the Substitute Form W-9 is correct (or that the holder is waiting for a TIN),
that the holder is not subject to backup withholding for reasons stated therein
and that any other information provided in the Substitute Form W-9 is correct.
What Number to Give the Exchange Agent
The holder is required to give the Exchange Agent the TIN (e.g., the
social security number or employer identification number) of the registered
holder of the Certificates. If the Certificates are held in more than one name
or are not in the name of the actual owner, consult the IRS Publication titled
"Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9" for additional guidelines on which number to report.
D-7
EXHIBIT E
CERTIFICATE OF OWNERSHIP AND MERGER
OF
GRISTEDE'S ACQUISITION CORP. (A DELAWARE CORPORATION)
WITH AND INTO
GRISTEDE'S FOODS, INC., A DELAWARE CORPORATION
----------
Pursuant to Section 253 of the General
Corporation Law of the State of Delaware
----------
Gristede's Acquisition Corp. ("GAC"), a Delaware corporation, desiring to merge
with and into Gristede's Foods, Inc. ("Gristede's"), a Delaware corporation
pursuant to the provisions of Section 253 of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY as follows:
FIRST: That GAC is a corporation formed under the laws of the State of Delaware,
and its Certificate of Incorporation was filed in the office of the Secretary of
the State of Delaware on the 3rd day of August, 2004.
SECOND: That GAC owns approximately 91.3% of the outstanding shares of common
stock, par value $0.02 per share ("Common Stock") of Gristede's
THIRD: That the Board of Directors of GAC, by resolutions duly adopted on the
10th day of September 2004, determined to merge with and into Gristede's with
Gristede's continuing as the surviving corporation; said resolutions being as
follows:
"RESOLVED, that GAC merge itself with and into Gristede's, with
Gristede's continuing as the surviving corporation (the "Merger");
FURTHER RESOLVED, that the Merger has been approved by a majority of
the outstanding stockholders of GAC;
FURTHER RESOLVED, that all Gristede's stockholders other than GAC.
will receive $0.87, without interest, for each share of Common
Stock;
FURTHER RESOLVED, that shares of Common Stock held by GAC
immediately prior to the Merger will be cancelled;
FURTHER RESOLVED, that the Merger shall become effective upon the
filing of a Certificate of Ownership and Merger with the Secretary
of State of the State of Delaware;
FURTHER RESOLVED, that following the Merger of GAC and Gristede's,
that each share of common stock of GAC shall be exchanged for one
share of Common Stock;
FURTHER RESOLVED, that the proper officers of GAC be, and they
hereby are, authorized and directed to make and execute, in its name
and under its corporate seal, and to file in the proper public
offices, a certificate of such ownership, setting forth a copy of
these resolutions; and
FURTHER RESOLVED, that the name of the surviving corporation shall
be "Gristede's Foods, Inc. "
E-1
IN WITNESS WHEREOF, the undersigned, being an officer of GAC, has signed this
Certificate on this ___ day of ___________, 2004 and does hereby acknowledge
that this Certificate is the act and deed of the Corporation and that the facts
stated herein are true.
Gristede's Acquisition Corp.
By: _______________________
John A. Catsimatidis
President
E-2
Exhibit F
REVOLVING CREDIT GRID NOTE
(the "Note")
$2,000,000.00 New York, New York
September 10, 2004
FOR VALUE RECEIVED, on demand, GRISTEDE'S ACQUISITION CORP., a
Delaware corporation, having its principal place of business at 823 Eleventh
Avenue, New York, New York 10019 ("Borrower"), promises to pay to the order of
UNITED ACQUISITION CORP. ("UAC"), at its office located at 802 West Street,
Wilmington, Delaware, the principal sum of the lesser of: (a) TWO MILLION
($2,000,000.00) DOLLARS or (b) the aggregate unpaid principal balance of all
loans made by UAC to Borrower from time to time from and after the date hereof
(all loans that are outstanding under this Note shall herein be referred to as
individually as a "Loan", or collectively, as the "Loans"). UAC may not demand
payment of the Loan(s) for so long as the provisions of any agreement to which
Borrower or any successor by merger or operation of law shall be a party,
including without limitation, any credit agreement with any financial
institution(s) (a "Credit Agreement"), shall prohibit or limit the payment of
the unpaid principal balance of the Loans or any portion thereof.
Borrower shall pay interest on the unpaid principal balance of the
Loans at UAC's place of business, set forth above, at a rate of interest, equal
to the "applicable federal rate" in effect on the date hereof for short-term
loans of less than three (3) years, as determined by Section 1274(d) of the
Internal Revenue Code of 1986, as amended, plus five (5%) percent. Interest
payments shall be made annually in arrears, commencing on August 31, 2005 and
annually thereafter. Notwithstanding the foregoing, interest shall not be
payable to the extent that the provisions of any Credit Agreement shall prohibit
or limit the payment of interest on the Loans or any portion thereof.
All payments, including prepayments on this Note, shall be made in
lawful money of the United States of America in immediately available funds.
Except as otherwise provided in the Agreement, if a payment becomes due and
payable on a day other than a business day, the maturity thereof shall be
extended to the next succeeding Business Day, and interest shall be payable
thereon at the rate herein specified during such extension. This Note may be
prepaid in whole or in part without premium or penalty.
Borrower hereby authorizes UAC to enter from time to time the amount
of each Loan to Borrower and the amount of each payment on a Loan on the
schedule annexed hereto and made a part hereof. Such entries shall, in the
absence of manifest error, be conclusive as to the principal amount of all
Loans. Failure of UAC to record such information on such schedule shall not in
any way effect the obligation of Borrower to pay any amount due under this Note.
If any action or proceeding be commenced to collect this Note or
enforce any of its provisions, Borrower further agrees to pay all costs and
expenses of such action or proceeding and reasonable attorneys' fees and
expenses and further expressly waives any and every right to interpose any
counterclaim in any such action or proceeding. Borrower hereby submits to the
jurisdiction of the Supreme Court of the State of New York and agrees with UAC
that personal jurisdiction over Borrower shall rest with the Supreme Court of
the State of New York for purposes of any action on or related to this Note, the
liabilities, or the enforcement of either or all of the same. Borrower hereby
waives personal service by manual delivery and agrees that service of process
may be made by post-paid certified mail directed to the Borrower at the
Borrower's address set forth above or at such other address as may be designated
in writing by the Borrower to UAC, and that upon mailing of such process such
service be effective with the same effect as though personally served. Borrower
hereby expressly waives any and every right to a trial by jury in any action on
or related to this Note, the liabilities or the enforcement of either or all of
the same. The failure of any holder of this Note to insist upon strict
performance of each and/or all of the terms and conditions hereof shall not be
construed or deemed to be a waiver of any such term or condition.
Borrower and all endorsers and guarantors hereof waive presentment
and demand for payment, notice of non-payment, protest, and notice of protest.
This Note shall be construed in accordance with and governed by the
laws of the State of New York.
GRISTEDE'S ACQUISITION CORP.
By:
--------------------------------
John Catsimatidis
Chief Executive Officer
Schedule of Revolving Credit Loans
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Amount of Unpaid
Principal Paid Principal Name of Person
Making Date Amount of Loan or Prepaid Balance Making Notation
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EXHIBIT G
OPINION OF BROOKS HOUGHTON SECURITIES, INC.
[LOGO]
BROOKS, HOUGHTON SECURITIES, INC.
444 Madison Avenue o 25th Floor o New York, NY 10022 o Telephone: 212-329-1660
- --------------------------------------------------------------------------------
September 10, 2004
Special Committee of the Board of Directors of Gristede's Foods, Inc.
823 Eleventh Avenue
New York, NY 10019-3535
Dear Sirs:
We understand that Gristede's Foods, Inc. ("Gristede's" or the "Company") and
Gristede's Acquisition Corp. ("Mergerco"), a company controlled by John A.
Catsimatidis and his affiliates, have entered into an agreement and plan of
merger dated September 10, 2004 (the "Plan of Merger") pursuant to which, upon
the terms and subject to the conditions contained in the Plan of Merger,
Mergerco shall be merged with and into Gristede's (the "Merger") and all of the
issued and outstanding shares of common stock of Gristede's, par value $0.02 per
share (the "Shares"), other than Gristede's shares held by the stockholders of
Mergerco, shall be converted into the right to receive $0.87 per share in cash
(the "Merger Consideration").
You have asked us whether, in our opinion, the Merger Consideration to be
received by holders of the Shares (the "Unaffiliated Stockholders") pursuant to
the Plan of Merger is fair from a financial point of view to such holders
("Opinion").
Brooks, Houghton Securities, Inc. ("BHS"), as part of its investment banking
business, regularly is engaged in the valuation of assets, securities and
companies in connection with various types of asset and securities transactions,
including mergers, acquisitions, going-private transactions, private placements
and valuations for various other purposes, and in the determination of the
adequacy of consideration in such transactions. We have been retained by the
Special Committee of the Board of Directors of Gristede's (the "Special
Committee") for the purpose of providing this Opinion. We have not been
authorized by Gristede's, the Special Committee or the Board of Directors to
solicit, nor have we solicited, third-party indications of interest for
acquisition of all or any part of the Company. BHS has not participated in the
negotiation of the terms of the Merger and does not hold or trade Gristede's
Shares or purchase securities from, or sell securities to, Gristede's.
In arriving at our Opinion, we have, among other things: (i) reviewed certain
publicly available financial and other information on Gristede's, including the
Company's annual reports on Form 10-K for its fiscal years ended 2003 and 2002
and its quarterly report for the periods ended May 30, 2004 and February 29,
2004, (ii) reviewed the historical financial performance, current financial
position and general prospects of the Company, and reviewed certain internal
financial analyses and forecasts prepared by the management of the Company,
(iii) reviewed the Plan of Merger, (iv) studied and analyzed the stock market
trading history of the Company for the past three years, (v) compared certain
financial and stock market information for the Company with similar information
for certain other operators of grocery/supermarket stores whose securities are
publicly traded and reviewed the financial terms of certain recent business
combinations involving grocery/supermarket stores, (vi) met and/or communicated
with certain members of the Company's senior management to discuss its
operations, historical financial statements and future prospects, and (vii)
conducted such other financial analyses, studies and investigations as we deemed
appropriate.
G-1
BROOKS, HOUGHTON SECURITIES, INC.
Special Committee of the Board of Gristede's Foods, Inc., September 10, 2004
Confidential Page 2
- --------------------------------------------------------------------------------
Our Opinion is given in reliance on information and representations made or
given by the Company, and its officers, directors, auditors, counsel and other
agents, and on filings, releases and other information issued or provided to us
by the Company including financial statements, financial projections and stock
price data as well as certain information from recognized independent sources.
We have not independently verified the information concerning the Company or
other data which we have considered in our review and, for purposes of the
Opinion set forth below, we have assumed and relied upon the accuracy and
completeness of all such information and data. We have not conducted a physical
inspection of Gristede's properties or facilities (all facilities are leased),
and we have not made or obtained any independent evaluation or appraisal of its
properties or facilities. Though we considered the value of the Company in
liquidation, with the Special Committee's consent, our Opinion is limited solely
to our review of the Merger Consideration in relation to the value of Gristede's
as a going concern.
With regard to financial and other information relating to the general prospects
of Gristede's, we have assumed that such information has been reasonably
prepared and reflects the best currently available estimates and judgments of
Gristede's management as to the Company's most likely future performance. We
have also assumed, with the Special Committee's consent, that the Plan of Merger
and related documents that we reviewed conform in all material respects to their
final form. Additionally, we assume that the Merger is in all respects lawful
under applicable law.
Our Opinion is based upon information provided to us by the Gristede's
management, as well as market, economic, industry, financial and other
conditions as they exist and can be evaluated only as of the date hereof and
speaks to no other period. Our Opinion pertains only to the financial value of
the Merger Consideration and is provided for the information and assistance of
the Special Committee. Our Opinion does not constitute a recommendation to the
Special Committee and does not constitute a recommendation to Gristede's
stockholders as to how such holders should vote on the Merger.
On the basis of, and subject to the foregoing, we are of the opinion that, as of
the date hereof, the Merger Consideration to be received by Gristede's
Unaffiliated Stockholders pursuant to the Plan of Merger is fair from a
financial point of view to such holders.
Sincerely,
/s/ BROOKS, HOUGHTON SECURITIES, INC.
G-2