SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or Section 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 5, 1995
FAY'S INCORPORATED
________________________________________
(Exact name of registrant as specified in its charter)
New York
__________________________________________________________
(State or other jurisdiction of incorporation)
0-5179 16-0919350
_________________________ _______________________________
(Commission File Number) (IRS Employer Identification No.)
7245 Henry Clay Boulevard, Liverpool, N.Y. 13088
__________________________________________________________
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (315) 451-8000
ITEM 5. OTHER EVENTS
On August 5, 1996, Fay's Incorporated, a New York
corporation ("Fay's"), entered into an Agreement and Plan of
Merger (the "Merger Agreement") with J.C. Penney Company, Inc., a
Delaware Corporation ("J.C. Penney"), pursuant to which, among
other things, a wholly owned subsidiary of J.C. Penney will be
merged with and into Fay's and Fay's will become a wholly owned
subsidiary of J.C. Penney (the "Merger"). Under the terms of the
Merger Agreement, the stockholders of Fay's will receive a number
of shares of Common Stock, par value $.50 per share, of J.C.
Penney equal to the quotient obtained by dividing $12.75 by the
average of the per share price of J.C. Penney Common Stock during
the ten consecutive trading days preceding the date which is two
trading days prior to the Fay's stockholders meeting, subject to
adjustment as set forth in the Merger Agreement. For Federal
income tax purposes, the Merger has been structured as a
reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended. The Merger is subject
to, among other things, approval by the stockholders of Fay's and
the receipt of requisite regulatory approvals.
In connection with the Merger, Fay's largest
stockholders, Henry A. Panasci, Jr. and David H. Panasci entered
into a Stockholders Agreement with J.C. Penney pursuant to which,
among other things, each of the stockholders has agreed to vote
all shares beneficially owned by him in favor of the Merger.
The foregoing description of the transaction is
qualified in its entirety by reference to the Merger Agreement, a
copy of which is filed as Exhibit 2 to this Form 8-K, and the
Stockholders Agreement, a copy of which is filed as Exhibit A to
the Merger Agreement.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
2. Agreement and Plan of Merger, dated as of August 5,
1996, by and among J.C. Penney Company, Inc., Beta
Acquisition Corp. and Fay's Incorporated (including the
Stockholders Agreements dated as of August 5, 1996, by
and among J.C. Penney Company, Inc., Beta Acquisition
Corp., Henry A. Panasci, Jr. and David H. Panasci).
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this Report to be signed
on its behalf by the undersigned hereunto duly authorized.
Date: August 7, 1996
FAY'S INCORPORATED
By: /s/ Warren D.Wolfson
_________________________
Warren D. Wolfson
Senior Vice President and
General Counsel
EXHIBIT 2
AGREEMENT AND PLAN OF MERGER
among
J. C. PENNEY COMPANY, INC.,
BETA ACQUISITION CORP.
and
FAY'S INCORPORATED
DATED AS OF AUGUST 5, 1996
TABLE OF CONTENTS
Page
ARTICLE I - THE MERGER 1
1.1 The Merger; Effective Time of the Merger 1
1.2 Closing 2
1.3 Effects of the Merger 2
ARTICLE II - EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES 3
2.1 Effect on Capital Stock 3
(a) Capital Stock of Sub 3
(b) Cancellation of Treasury Stock 3
(c) Exchange Ratio for Company Common Stock 3
(d) Stock Options 4
(e) Shares of Dissenting Stockholders 4
(f) Changes in Purchaser Capital Stock 4
2.2 Exchange of Certificates 4
(a) Exchange Agent 4
(b) Exchange Procedures 5
(c) Distributions with Respect to Unexchanged
Shares 5
(d) No Further Ownership Rights in Company Common
Stock 6
(e) No Fractional Shares 6
(f) Termination of Exchange Fund 7
(g) No Liability 7
(h) Missing Certificates 7
ARTICLE III - REPRESENTATIONS AND WARRANTIES 7
3.1 Representations and Warranties of the Company 7
(a) Organization, Standing and Power 7
(b) Capital Structure 8
(c) Authority; No Violations; Consents and
Approvals 9
(d) SEC Documents 11
(e) Information Supplied 11
(f) Absence of Certain Changes or Events 12
(g) No Undisclosed Material Liabilities 12
(h) No Default 13
(i) Compliance with Applicable Laws 13
(j) Litigation 13
(k) Taxes 14
(l) Pension and Benefit Plans; ERISA 16
(m) Labor Matters 20
(n) Assets 20
(o) Intellectual Property 21
(p) Environmental Matters 22
(q) Product Liability 23
(r) Charter Takeover Provisions 23
(s) Opinion of Financial Advisor 23
(t) Vote Required 24
(u) Insurance 24
(v) Advisors 24
(w) Additional Tax Matters 24
(x) Contracts 24
(y) Sale of Division. 25
3.2 Representations and Warranties of Purchaser and
Sub 25
(a) Organization, Standing and Power 25
(b) Capital Structure 25
(c) Authority; No Violations, Consents and
Approvals 26
(d) SEC Documents 27
(e) Information Supplied 28
(f) Absence of Certain Changes or Events 29
(g) No Undisclosed Material Liabilities 29
(h) No Default 29
(i) Litigation 30
(j) No Vote Required 30
(k) Brokers 30
(l) Interim Operations of Sub 30
(m) Additional Tax Matters 30
(n) No Ownership of Company Capital Stock 30
ARTICLE IV - COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE
COMPANY 30
4.1 Conduct of Business by the Company Pending the
Merger 30
(a) Ordinary Course 31
(b) Dividends; Changes in Stock 31
(c) Issuance of Securities 31
(d) Governing Documents 32
(e) No Acquisitions 32
(f) No Dispositions 32
(g) No Dissolution, Etc. 32
(h) Certain Employee Matters 32
(i) Indebtedness; Leases; Capital Expenditures;
Accounting Changes 33
(j) 368(a) Reorganization 33
4.2 No Solicitation 33
ARTICLE V - ADDITIONAL AGREEMENTS 34
5.1 Preparation of S-4 and the Proxy Statement 34
5.2 Letter of the Company's Accountants 35
5.3 Letter of Purchaser's Accountants 35
5.4 Access to Information 35
5.5 The Company Stockholders Meeting 35
5.6 Legal Conditions to Merger 35
5.7 Response to Certain Actions 36
5.8 Agreements of Others 36
5.9 Authorization for Shares and Stock Exchange
Listing 36
5.10 Employee Matters 37
(a) Employees 37
(b) Participation in Plans Maintained by Purchaser 37
(c) Employment of Company Employees 38
(d) Employment Agreements 38
(e) Non-Employee Directors Retirement Plan 38
(f) Severance Policies 39
(g) Bonus Plans 39
(h) Stock Purchase Plan 39
(i) Stock Options Issued to Non-Employee Directors 39
(j) Stock Options Issued to Employees 40
(k) Communications to Employees 40
5.11 Indemnification; Directors' and Officers'
Insurance 41
5.12 Agreement to Defend 42
5.13 Public Announcements 42
5.14 Other Actions 43
5.15 Advice of Changes; SEC Filings 43
5.16 Reorganization 43
5.17 Conveyance Taxes 43
5.18 Company Operations and Name 43
5.19 Company Convertible Notes 43
ARTICLE VI - CONDITIONS PRECEDENT 44
6.1 Conditions to Each Party's Obligation to Effect
the Merger 44
(a) Company Stockholder Approval 44
(b) NYSE Listing 44
(c) Other Approvals 44
(d) S-4 44
(e) No Injunctions or Restraints 44
(f) Tax Opinion 44
6.2 Conditions of Obligations of Purchaser and Sub 45
(a) Representations and Warranties 45
(b) Performance of Obligations of the Company 45
(c) Agreements from the Company Affiliates 45
(d) Appraisal Rights 45
(e) Opinion of Company Counsel 45
(f) Consents Under Agreements 47
(g) Material Adverse Change 47
(h) Termination of Certain Plans 47
6.3 Conditions of Obligations of the Company 48
(a) Representations and Warranties 48
(b) Performance of Obligations of Purchaser and Sub 48
(c) Opinion of Purchaser Counsel 48
(d) Material Adverse Change 50
ARTICLE VII - TERMINATION AND AMENDMENT 50
7.1 Termination 50
7.2 Effect of Termination 51
7.3 Amendment 52
7.4 Extension; Waiver 52
ARTICLE VIII - GENERAL PROVISIONS 52
8.1 Payment of Expenses 52
8.2 Nonsurvival of Representations, Warranties and
Agreements 53
8.3 Notices 53
8.4 Interpretation 54
8.5 Counterparts 54
8.6 Entire Agreement; No Third Party Beneficiaries 54
8.7 Governing Law 55
8.8 No Remedy in Certain Circumstances 55
8.9 Specific Performance 55
8.10 Assignment 55
8.11 Schedules 55
FAY'S INCORPORATED
SCHEDULES TO THE AGREEMENT AND PLAN OF MERGER
Schedule No. Description
- ------------ ------------
3.1(a)(i) -- Subsidiaries
3.1(a)(ii) -- Other Ownership Interests
3.1(b) -- Capital Structure
3.1(c)(iii) -- Certain Filings
3.1(d) -- Certain Agreements with Affiliates
3.1(f) -- Certain Changes or Events
3.1(g) -- Certain Material Liabilities
3.1(h) -- Certain Defaults
3.1(i) -- Investigations and Reviews
3.1(j) -- Litigation and Orders
3.1(k)(i), (ii), (iii), (iv), (vi),
(vii) -- Tax Matters
3.1(l)(i), (ii), (iv), (viii), (ix),
(x), (xi), (xii), (xiii),
(xiv) -- Pension and Benefit Plans; ERISA
3.1(m)(i), (ii) -- Labor Matters
3.1(n)(i), (ii), (iii) -- Assets
3.1(o) -- Intellectual Property
3.1(p) -- Environmental Matters
3.1(u) -- Insurance
3.1(v) -- Advisors
3.1(w) -- Form of Tax Certificate
3.1(x)(i), (ii), (iii) -- Contracts
3.1(y) -- Paper Cutter Amendments
4.1(f) -- Certain Dispositions
4.1(h) -- Certain Employee Matters
4.1(i) -- Indebtedness; Leases; Capital
Expenditures; Accounting Changes
5.10(b), (d) -- Certain Employee Benefits
8.6 -- Knowledge
J. C. PENNEY COMPANY, INC.
BETA ACQUISITION CORP.
SCHEDULES TO THE AGREEMENT AND PLAN OF MERGER
Schedule No. Description
- ------------ ------------
3.2(b) -- Capital Structure
3.2(d) -- Certain Agreements with Affiliates
3.2(f) -- Certain Changes or Events
3.2(g) -- Certain Material Liabilities
3.2(h) -- Certain Defaults
3.2(i) -- Litigation and Orders
3.2(k) -- Brokers Fees
3.2(m) -- Form of Tax Certificate
GLOSSARY OF DEFINED TERMS
Defined Term Defined in Section
- ------------- ------------------
Acquisition Proposal 4.2
Acquisition Transaction 4.2
ADA 3.1(n)(i)
Adjusted Conversion Shares 2.1(c)
Affiliates 5.8
Agreement Preamble
Bonus Plans 5.10(g)
CERCLA 3.1(p)(i)
Certificate of Merger 1.1
Certificates 2.2(b)
Closing 1.1
Closing Date 1.2
Code Recitals
Company Preamble
Company Agreement 3.1(x)
Company Benefit Plans 5.10(b)(i)
Company Benefit Trusts 3.1(l)(ii)
Company Common Stock 2.1
Company Convertible Notes 3.1(b)
Company Employee Benefit Plans 3.1(l)(ii)
Company ERISA Affiliate 3.1(l)(i)
Company Intellectual Property 3.1(o)
Company Litigation 3.1(j)
Company Non-Employee Directors Plan 3.1(b)
Company Order 3.1(j)
Company Pension Plans 3.1(l)(i)
Company Pension Trusts 3.1(l)(i)
Company Permits 3.1(i)
Company Preferred Stock 3.1(b)
Company Representatives 4.2
Company Rights Plan 3.1(b)
Company SEC Documents 3.1(d)
Company Stock Option 5.10
Company Stock Plan 3.1(b)
Company Stock Purchase Plan 3.1(b)
Constituent Corporations 1.3(a)
Conversion Shares 2.1(c)
Daily Price 2.1(c)
Defined Benefit Plan 3.1(1)(xi)
Directors Option Plan 5.10(i)
Directors Stock Option 5.10(i)
Dissenting Stockholder 2.1(e)
Divestiture Threshold 5.7
Effective Time 1.1
Employees 5.10(a)
Employee Stock Option 5.10(j)
Employment Agreements 5.10(d)
Environmental Law 3.1(p)(i)
ERISA 3.1(l)(i)
Exchange Act 3.1(c)(iii)
Exchange Agent 2.2(a)
Exchange Fund 2.2(a)
GAAP 3.1(d)
Governmental Entity 3.1(c)(iii)
Hazardous Material 3.1(p)(ii)
HSR Act 3.1(c)(iii)
Indemnified Liabilities 5.11(a)
Indemnified Parties 5.11(a)
Injunction 6.1(e)
IRS 3.1(k)(ii)
knowledge of the Company 8.4
Material Adverse Change 3.1(a)
Material Adverse Effect 3.1(a)
Merger Recitals
NYBCL 1.1
NYSE 2.1(c)
OSHA 3.1(p)(i)
Proxy Statement 3.1(c)(iii)
Purchaser Preamble
Purchaser Benefit Plan 5.10(b)(i)
Purchaser Common Stock 2.1(c)
Purchaser Litigation 3.2(i)
Purchaser Option Plans 3.2(b)
Purchaser Order 3.2(i)
Purchaser Preferred Stock 3.2(b)
Purchaser's Rights Agreement 2.1(c)
Purchaser SEC Documents 3.2(d)
Release 3.1(p)(iii)
Returns 3.1(k)(i)
Rights 2.1(c)
S-4 3.1(e)
SEC 3.1(d)
Securities Act 3.1(d)
Service 3.1(1)(i)
Surviving Corporation 1.3(a)
Stockholders Agreement Recitals
Sub Preamble
Subsidiary 2.1(b)
Tax 3.1(k)(ix)
Taxable 3.1(k)(ix)
Taxes 3.1(k)(ix)
Tax Return 3.1(k)(ix)
Voting Debt 3.1(b)
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER, dated as of August 5,
1996 (this "Agreement"), among J. C. Penney Company, Inc., a
Delaware corporation ("Purchaser"), Beta Acquisition Corp., a New
York corporation and a direct wholly owned subsidiary of
Purchaser ("Sub"), and Fay's Incorporated, a New York corporation
(the "Company").
WHEREAS, the Boards of Directors of Purchaser, Sub and
the Company each have determined that it is in the best interests
of their respective stockholders for Sub to merge with and into
the Company (the "Merger") upon the terms and subject to the
conditions of this Agreement;
WHEREAS, the Board of Directors of the Company has
directed that this Agreement be submitted to the stockholders of
the Company for their approval;
WHEREAS, as a condition and inducement to Purchaser and
Sub entering into this Agreement and securing the obligations set
forth herein, concurrently with the execution and delivery of
this Agreement, Purchaser is entering into a Stockholders
Agreement with certain stockholders of the Company in the form of
Exhibit A attached hereto (the "Stockholders Agreement"),
pursuant to which, among other things, such stockholders have
agreed to vote the Company Common Stock (as hereinafter defined)
then owned by such stockholders in favor of the Merger provided
for herein;
WHEREAS, for federal income tax purposes, it is
intended that the Merger shall qualify as a reorganization within
the meaning of Section 368(a) of the Internal Revenue Code of
1986, as amended (the "Code"); and
WHEREAS, Purchaser, Sub and the Company desire to make
certain representations, warranties, covenants and agreements in
connection with the Merger and also to prescribe various
conditions to the Merger.
NOW, THEREFORE, in consideration of the foregoing and
the representations, warranties, covenants and agreements herein
contained, the parties agree as follows:
ARTICLE I
THE MERGER
1.1 THE MERGER; EFFECTIVE TIME OF THE MERGER. Upon
the terms and subject to the conditions of this Agreement and in
accordance with the New York Business Corporation Law (the
"NYBCL"), Sub shall be merged with and into the Company at the
Effective Time (as hereinafter defined). The Merger shall become
effective immediately when a certificate of merger (the
"Certificate of Merger") prepared and executed in accordance with
the relevant provisions of the NYBCL is filed with the Department
of State of the State of New York or, if agreed to by the
parties, at such time thereafter as is provided in the
Certificate of Merger, but not to exceed 30 days after such
filing (the "Effective Time"). The filing of the Certificate of
Merger shall be made as soon as practicable on or after the
closing of the Merger (the "Closing").
1.2 CLOSING. The Closing shall take place at 10:00
a.m. on a date to be specified by the parties, which shall be no
later than the second business day after satisfaction (or waiver
in accordance with this Agreement) of the latest to occur of the
conditions set forth in Article VI (the "Closing Date"), at the
offices of J. C. Penney Company, Inc., 6501 Legacy Drive, Plano,
Texas, unless another date or place is agreed to in writing by
the parties.
1.3 EFFECTS OF THE MERGER.
(a) At the Effective Time: (i) Sub shall be merged
with and into the Company, the separate existence of Sub
shall cease and the Company shall continue as the surviving
corporation (Sub and the Company are sometimes referred to
herein as the "Constituent Corporations" and the Company is
sometimes referred to herein as the "Surviving
Corporation"); (ii) the Certificate of Incorporation of Sub
as in effect immediately prior to the Effective Time shall
be the Certificate of Incorporation of the Surviving
Corporation; and (iii) the Bylaws of Sub as in effect
immediately prior to the Effective Time shall be the Bylaws
of the Surviving Corporation.
(b) The directors and officers of Sub at the Effective
Time shall, from and after the Effective Time, be the
initial directors and officers of the Surviving Corporation
and shall serve 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.
(c) At and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges,
immunities, powers and purposes of each of the Constituent
Corporations; and all property, real and personal, including
subscriptions to shares, causes of action and every other
asset of each of the Constituent Corporations, shall vest in
the Surviving Corporation without further act or deed; and
the Surviving Corporation shall assume and be liable for all
the liabilities, obligations and penalties of each of the
Constituent Corporations. No liability or obligation due or
to become due, claim or demand for any cause existing
against any such corporation, or any stockholder, officer or
director thereof, shall be released or impaired by such
merger or consolidation. No action or proceeding, whether
civil or criminal, then pending by or against any such
Constituent Corporation, or any stockholder, officer or
director thereof, shall abate or be discontinued by such
merger or consolidation, but may be enforced, prosecuted,
settled or compromised as if such merger or consolidation
had not occurred, or such Surviving Corporation may be
substituted in such action or special proceeding in place of
the Constituent Corporation.
ARTICLE II
EFFECT OF THE MERGER ON THE CAPITAL STOCK OF THE
CONSTITUENT CORPORATIONS; EXCHANGE OF CERTIFICATES
2.1 EFFECT ON CAPITAL STOCK. At the Effective Time,
by virtue of the Merger and without any action on the part of the
holder of any shares of common stock, par value $0.10 per share,
of the Company ("Company Common Stock") or capital stock of Sub:
(a) CAPITAL STOCK OF SUB. Each issued and outstanding
share of the capital stock of Sub shall be converted into
and become one fully paid and nonassessable share of common
stock, par value $1.00 per share, of the Surviving
Corporation.
(b) CANCELLATION OF TREASURY STOCK. Each share of the
Company Common Stock and all other shares of capital stock
of the Company that are owned by the Company as treasury
stock and any shares of Company Common Stock and all other
shares of capital stock of the Company owned by any wholly
owned Subsidiary (as hereinafter defined) of the Company
shall be canceled and retired and shall cease to exist and
no stock of Purchaser or other consideration shall be
delivered or deliverable in exchange therefor. As used in
this Agreement, the word "Subsidiary" means, with respect to
any party, any corporation or other organization, whether
incorporated or unincorporated, of which: (i) such party or
any other Subsidiary of such party is a general partner
(excluding partnerships, the general partnership interests
of which are held by such party or any Subsidiary of such
party that do not represent a majority of the voting
interest in such partnership); or (ii) at least a majority
of the securities or other interests having by their terms
ordinary voting power to elect a majority of the Board of
Directors or others performing similar functions with
respect to such corporation or other organization is,
directly or indirectly, owned or controlled by such party or
by any one or more of its Subsidiaries, or by such party and
any one or more of its Subsidiaries.
(c) EXCHANGE RATIO FOR COMPANY COMMON STOCK. Each
share of Company Common Stock issued and outstanding
immediately prior to the Effective Time (other than shares
to be canceled in accordance with Section 2.1(b)) shall be
converted into the number of shares of common stock, par
value of $0.50 per share, of Purchaser ("Purchaser Common
Stock"), together with the associated preferred stock
purchase rights (the "Rights") issued under the Rights
Agreement, dated as of February 14, 1990, between Purchaser
and First Chicago Trust Company of New York, as amended on
January 13, 1992 to reflect Manufacturers Hanover Trust
Company (now Chase Mellon Shareholder Services, L.L.C.) as
successor rights agent (the "Purchaser's Rights Agreement"),
equal to the quotient obtained by dividing (i) $12.75 by
(ii) the average of the per share Daily Price (as
hereinafter defined) on the New York Stock Exchange, Inc.
(the "NYSE") of the Purchaser Common Stock (as reported in
the New York Stock Exchange Composite Transactions) during
the ten consecutive trading days immediately preceding the
date which is two trading days prior to the date of the
Company's stockholders meeting referred to in Section 5.5
(the "Conversion Shares"); provided, however, in no event
will the Conversion Shares be less than .2253397 shares of
Purchaser Common Stock or greater than .2754151 shares of
Purchaser Common Stock. As used herein, the term "Daily
Price" shall mean the average of the high and low selling
prices on the day in question as reported in the Wall Street
Journal. All such shares of Company Common Stock, when so
converted, shall no longer be outstanding and shall
automatically be canceled and retired and shall cease to
exist, and each holder of a certificate representing any
such shares shall cease to have any rights with respect
thereto, except the right to receive the shares of Purchaser
Common Stock and cash in lieu of fractional shares of
Purchaser Common Stock as contemplated by Section 2.2(e), to
be issued or paid in consideration therefor upon the
surrender of such certificate in accordance with Section
2.2, without interest.
(d) STOCK OPTIONS. Each outstanding Directors Stock
Option and Employee Stock Option (as defined in Section
5.10) shall be treated in the manner set forth in Section
5.10.
(e) SHARES OF DISSENTING STOCKHOLDERS.
Notwithstanding anything in this Agreement to the contrary,
any issued and outstanding shares of Company Common Stock
held by a stockholder who has not voted such shares in favor
of the Merger and shall have delivered a written demand for
appraisal of such shares in the manner provided in the NYBCL
(a "Dissenting Stockholder") shall not be converted as
described in Section 2.1(c), but shall become the right to
receive the fair value of such shares as may be determined
to be due to such Dissenting Stockholder pursuant to the
NYBCL; provided, however, that the shares of the Company
Common Stock held by a Dissenting Stockholder who shall,
after the Effective Time, withdraw his demand for appraisal
or lose his or her right of appraisal, in either case
pursuant to the NYBCL, shall be deemed to have been
converted into and to have become exchangeable for, at the
Effective Time, the right to receive the consideration
provided for in Section 2.1(c). The Company shall give
Purchaser (i) prompt notice of any written objection to the
Merger from a Dissenting Stockholder, and (ii) the
opportunity to direct all negotiations and proceedings with
respect to any such Dissenting Stockholders. The Company
shall not, without the prior written consent of Purchaser,
voluntarily make any payment with respect to, or settle,
offer to settle or otherwise negotiate, any such demands.
(f) CHANGES IN PURCHASER CAPITAL STOCK. In the event
that, subsequent to the date of this Agreement but prior to
the Effective Time, Purchaser changes the number of shares
of Purchaser Common Stock issued and outstanding as a result
of a stock split, reverse stock split, stock dividend,
recapitalization or other similar transaction, the
Conversion Shares shall be appropriately adjusted (including
the minimum and maximum Conversion Shares).
2.2 EXCHANGE OF CERTIFICATES
(a) EXCHANGE AGENT. As of the Effective Time,
Purchaser shall deposit with Chase Mellon Shareholder
Services, L.L.C. or such other bank or trust company
designated by Purchaser and reasonably acceptable to the
Company (the "Exchange Agent"), for the benefit of the
holders of shares of Company Common Stock and for exchange
in accordance with this Article II through the Exchange
Agent, certificates representing the shares of Purchaser
Common Stock (such shares of Purchaser Common Stock,
together with any dividends or distributions with respect
thereto, and the associated Rights being hereinafter
referred to as the "Exchange Fund") issuable pursuant to
Section 2.1 in exchange for outstanding shares of Company
Common Stock. The Exchange Agent shall, pursuant to
irrevocable instructions, deliver the Purchaser Common Stock
contemplated to be issued pursuant to Section 2.1 out of the
Exchange Fund. The Exchange Fund shall not be used for any
other purpose.
(b) EXCHANGE PROCEDURES. As soon as reasonably
practicable after the Effective Time, the Exchange Agent
shall mail to each holder of record of a certificate or
certificates which, immediately prior to the Effective Time,
represented outstanding shares of Company Common Stock (the
"Certificates"), which holder's shares of Company Common
Stock were converted into the right to receive shares of
Purchaser Common Stock pursuant to Section 2.1: (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 delivery of the
Certificates to the Exchange Agent, and shall be in such
form and have such other provisions as Purchaser may
reasonably specify); and (ii) instructions for use in
effecting the surrender of the Certificates in exchange for
certificates representing shares of Purchaser Common Stock.
Upon surrender of a Certificate for cancellation to the
Exchange Agent or to such other agent or agents as may be
appointed by Purchaser, together with such letter of
transmittal, duly executed, and any other required
documents, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing
that number of whole shares of Purchaser Common Stock which
such holder has the right to receive pursuant to the
provisions of this Article II and cash in lieu of fractional
shares of Purchaser Common Stock as contemplated by Section
2.2(e), and the Certificate so surrendered shall forthwith
be canceled. In the event of a transfer of ownership of
Company Common Stock which is not registered in the transfer
records of the Company, a certificate representing the
appropriate number of shares of Purchaser Common Stock may
be issued to a transferee if the Certificate representing
such Company Common Stock is presented to the Exchange Agent
accompanied by all documents required to evidence and effect
such transfer and by evidence that any applicable stock
transfer taxes have been paid. Until surrendered as
contemplated by this Section 2.2, each Certificate shall be
deemed at any time after the Effective Time to represent
only the right to receive upon such surrender the
certificate representing shares of Purchaser Common Stock
and cash in lieu of any fractional shares of Purchaser
Common Stock as contemplated by this Section 2.2. The
Exchange Agent shall not be entitled to vote or exercise any
rights of ownership with respect to the Purchaser Common
Stock held by it from time to time hereunder, except that it
shall receive and hold all dividends or other distributions
paid or distributed with respect thereto for the account of
persons entitled thereto.
(c) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES.
No dividends or other distributions with respect to
Purchaser Common Stock declared or made after the Effective
Time with a record date after the Effective Time shall be
paid to the holder of any unsurrendered Certificate with
respect to the right to receive shares of Purchaser Common
Stock represented thereby and no cash payment in lieu of
fractional shares shall be paid to any such holder pursuant
to Section 2.2(e) until the holder of such Certificate shall
surrender such Certificate. Subject to the effect of
applicable laws, following surrender of any such
Certificate, there shall be paid to the holder thereof,
without interest: (i) at the time of such surrender, the
amount of any cash payable in lieu of a fractional share of
Purchaser Common Stock to which such holder is entitled
pursuant to Section 2.2(e) and the amount of dividends or
other distributions with a record date after the Effective
Time theretofore paid with respect to such whole shares of
Purchaser Common Stock; and (ii) at the appropriate payment
date, the amount of dividends or other distributions with a
record date after the Effective Time but prior to surrender
and a payment date subsequent to surrender payable with
respect to such whole shares of Purchaser Common Stock.
(d) NO FURTHER OWNERSHIP RIGHTS IN COMPANY COMMON
STOCK. All shares of Purchaser Common Stock and Rights
issued upon the surrender for exchange of shares of Company
Common Stock in accordance with the terms hereof (including
any cash paid pursuant to Section 2.2(c) or Section 2.2(e))
shall be deemed to have been issued in full satisfaction of
all rights pertaining to such shares of Company Common
Stock, subject, however, to the Surviving Corporation's
obligation to pay any dividends or make any other
distributions with a record date prior to the Effective Time
that, subject to Section 4.1(b), may have been declared or
made by the Company on such shares of Company Common Stock
in accordance with the terms of this Agreement or prior to
the date hereof and which remain unpaid at the Effective
Time, and after the Effective Time there shall be no further
registration of transfers on the stock transfer books of the
Surviving Corporation of the shares of Company Common Stock
that were outstanding immediately prior to the Effective
Time. If, after the Effective Time, Certificates are
presented to the Surviving Corporation for any reason, they
shall be canceled and exchanged as provided in this Article
II.
(e) NO FRACTIONAL SHARES. No certificates or scrip
representing fractional shares of Purchaser Common Stock
shall be issued upon the surrender for exchange of
Certificates pursuant to this Article II, and, except as
provided in this Section 2.2(e), no dividend or other
distribution, stock split or interest shall relate to any
such fractional security, and such fractional interests
shall not entitle the owner thereof to vote or to any rights
of a security holder of Purchaser. In lieu of any
fractional security, each holder of shares of Company Common
Stock who would otherwise have been entitled to a fraction
of a share of Purchaser Common Stock upon surrender of
Certificates for exchange pursuant to this Article II will
be paid an amount in cash (without interest) rounded to the
nearest whole cent, determined by multiplying (i) the Daily
Price on the date on which the Effective Time occurs, by
(ii) the fractional share to which such holder would
otherwise be entitled. All fractional shares to which a
single record holder would be entitled shall be aggregated.
Purchaser shall make available to the Exchange Agent the
cash necessary for this purpose. Calculations made pursuant
to this Section 2.2(e) shall be rounded to three decimal
places.
(f) TERMINATION OF EXCHANGE FUND. Any portion of the
Exchange Fund and any cash in lieu of fractional shares of
Purchaser Common Stock made available to the Exchange Agent
that remain undistributed to the former stockholders of the
Company for one year after the Effective Time shall be
delivered to Purchaser, upon demand, and any stockholders of
the Company who have not theretofore complied with this
Article II shall thereafter look only to Purchaser for
payment of their claim for Purchaser Common Stock, any cash
in lieu of fractional shares of Purchaser Common Stock and
any dividends or distributions with respect to Purchaser
Common Stock.
(g) NO LIABILITY. Neither Purchaser nor the Company
shall be liable to any holder of shares of Company Common
Stock or Purchaser Common Stock, as the case may be, for
such shares (or dividends or distributions with respect
thereto) or cash in lieu of fractional shares of Purchaser
Common Stock delivered to a public official pursuant to any
applicable abandoned property, escheat or similar law.
(h) MISSING CERTIFICATES. In the event any
Certificate shall have been lost, stolen or destroyed, upon
the making of an affidavit of that fact by the person
claiming such Certificate to be lost, stolen or destroyed
and, if required by the Surviving Corporation, the posting
by such person of a bond in such reasonable amount as the
Surviving Corporation may direct as indemnity against any
claim that may be made against it with respect to such
Certificate, the Exchange Agent will issue in exchange for
such lost, stolen or destroyed Certificate the shares of
Purchaser Common Stock and cash in lieu of fractional
shares, and unpaid dividends and distributions with respect
to shares of Purchaser Common Stock as provided in Section
2.2(c), deliverable in respect thereof pursuant to this
Agreement.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to Purchaser and Sub as
follows:
(a) ORGANIZATION, STANDING AND POWER. Each of the
Company and its Subsidiaries is a corporation or partnership
duly organized, validly existing and in good standing under
the laws of its state of incorporation or organization, has
all requisite power and authority to own, lease and operate
its properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than
in such jurisdictions where the failure so to qualify could
not reasonably be expected to have a Material Adverse Effect
(as hereinafter defined). The Company has heretofore
delivered to Purchaser complete and correct copies of its
Restated Certificate of Incorporation and Bylaws. All
Subsidiaries of the Company and their respective
jurisdictions of incorporation or organization are
identified on Schedule 3.1(a)(i). Except as set forth on
Schedules 3.1(a)(i) or 3.1(a)(ii), the Company does not
directly or indirectly have (or possess any options or other
rights to acquire) any direct or indirect ownership
interests in excess of 1% in any person, business,
corporation, partnership, association, joint venture, trust
or other entity. As used in this Agreement, a "Material
Adverse Effect" or "Material Adverse Change" shall mean, in
respect of the Company or Purchaser, as the case may be, any
material adverse effect or change to the business,
operations, assets, condition (financial or otherwise) or
results of operation of such party and its Subsidiaries
taken as a whole.
(b) CAPITAL STRUCTURE. As of the date hereof, the
authorized capital stock of the Company consists of
30,000,000 shares of Company Common Stock and 5,000,000
shares of preferred stock, par value $1.00 per share
("Company Preferred Stock"). At the close of business on
July 31, 1996: (i) 20,993,618 shares of Company Common Stock
were issued and outstanding; 300,000 shares of Series A
Junior Participating Preferred Stock, par value $1.00 per
share, of the Company were reserved for issuance pursuant to
the Company Rights Plan (as hereinafter defined); no more
than 2,469,000 shares of Company Common Stock were reserved
for issuance pursuant to outstanding grants under the
Company's 1982 Stock Option Plan (the "Company Stock Plan");
51,750 shares of Company Common Stock were reserved for
issuance pursuant to outstanding grants under the Company's
Stock Option Plan for Non-Employee Directors (the "Company
Non-Employee Directors Plan"); and 732,780 shares of Company
Common Stock were reserved for issuance pursuant to the 1971
Fay's Incorporated Employees' Stock Purchase Plan (the
"Company Stock Purchase Plan"); (ii) 13,303 shares of
Company Common Stock were held by the Company in its
treasury or by its wholly owned Subsidiaries; and (iii)
except for the $1,000,000 principal amount 10% convertible
notes of the Company due January 15, 1998 (the "Company
Convertible Notes"), which as of the date hereof are
convertible into 191,205 shares of Company Common Stock at a
conversion price of $5.23 per share, no bonds, debentures,
notes or other indebtedness having the right to vote (or
convertible into securities having the right to vote) on any
matters on which the Company stockholders may vote ("Voting
Debt") were issued or outstanding. All outstanding shares
of Company Common Stock are validly issued, fully paid and
nonassessable and are not subject to preemptive rights.
Except as set forth on Schedule 3.1(b), all outstanding
shares of capital stock of the Subsidiaries of the Company
are owned by the Company, or a direct or indirect wholly
owned Subsidiary of the Company, free and clear of all
liens, charges, encumbrances, claims and options of any
nature. Except as set forth in this Section 3.1(b) or on
Schedule 3.1(b), and except for (i) securities that may be
issued under Rights Agreement, dated August 17, 1995,
between the Company and American Stock Transfer and Trust
Company (the "Company Rights Plan"); (ii) changes since
January 27, 1996 resulting from the exercise of employee
stock options granted pursuant to the Company Stock Plan or
the Company Non-Employee Directors Plan; and (iii) changes
since January 27, 1996 resulting from issuances or purchases
under (A) the Company Stock Purchase Plan, (B) the Company
Service Award Program or (C) as contemplated by this
Agreement, there are outstanding: (x) no shares of capital
stock, Voting Debt or other voting securities of the
Company; (y) no securities of the Company or any Subsidiary
of the Company convertible into or exchangeable for shares
of capital stock, Voting Debt or other voting securities of
the Company or any Subsidiary of the Company; and (z) no
options, warrants, calls, rights (including preemptive
rights), commitments or agreements to which the Company or
any Subsidiary of the Company is a party or by which it is
bound, in any case obligating the Company or any Subsidiary
of the Company to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or
any Voting Debt or other voting securities of the Company
or of any Subsidiary of the Company, or obligating the
Company or any Subsidiary of the Company to grant, extend or
enter into any such option, warrant, call, right, commitment
or agreement. Except for the Stockholders Agreement, there
are not as of the date hereof and there will not be at the
Effective Time any stockholder agreements, voting trusts or
other agreements or understandings to which the Company is a
party or by which it is bound relating to the voting of any
shares of the capital stock of the Company that will limit
in any way the solicitation of proxies by or on behalf of
the Company from, or the casting of votes by, the
stockholders of the Company with respect to the Merger.
There are no restrictions on the right of the Company to
vote the stock of any of its Subsidiaries.
(c) AUTHORITY; NO VIOLATIONS; CONSENTS AND APPROVALS.
(i) The Board of Directors of the Company has
(A) approved the Merger, this Agreement and the Stockholders
Agreement, in accordance with the requirements of the NYBCL
and, if applicable, the terms of Article Ninth of the
Company's Restated Certificate of Incorporation and by vote
of the directors with no negative vote, and declared the
Merger and this Agreement to be in the best interests of the
stockholders of the Company and (B) adopted an amendment to
the Company Rights Plan, a true and correct copy of which
has been delivered to Purchaser, pursuant to which Purchaser
is not deemed to be an Acquiring Person (as defined in the
Company Rights Plan) as a result of the execution or
performance of the Stockholders Agreement or the execution
or consummation of the transactions contemplated by this
Agreement. The directors have advised the Company that they
intend to vote or cause to be voted all of the shares
Beneficially Owned (as defined in the Stockholders
Agreement) by them in favor of approval of the Merger and
this Agreement. The Company has all requisite corporate
power and authority to enter into this Agreement and,
subject, with respect to consummation of the Merger, to
approval of this Agreement and the Merger by the
stockholders of the Company in accordance with the NYBCL, to
consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have
been duly authorized by all necessary corporate action on
the part of the Company, subject, with respect to
consummation of the Merger, to approval of this Agreement
and the Merger by the stockholders of the Company in
accordance with the NYBCL. This Agreement has been duly
executed and delivered by the Company and, subject, with
respect to consummation of the Merger, to approval of this
Agreement and the Merger by the stockholders of the Company
in accordance with the NYBCL, and assuming this Agreement
constitutes the valid and binding obligation of Purchaser
and Sub, constitutes a valid and binding obligation of the
Company enforceable in accordance with its terms, subject,
as to enforceability, to bankruptcy, insolvency,
reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general
principles of equity.
(ii) Except as set forth on Schedule 3.1(c)(ii),
the execution and delivery of this Agreement and the
Stockholders Agreement do not, and the consummation of the
transactions contemplated hereby and thereby and compliance
with the provisions hereof and thereof will not, conflict
with, or result in any violation of, or default (with or
without notice or lapse of time, or both) under, or give
rise to a right of termination, cancellation or acceleration
of any obligation or to the loss of a material benefit
under, or result in the creation of any lien, security
interest, charge or encumbrance upon any of the properties
or assets of the Company or any of its Subsidiaries under,
any provision of (A) the Restated Certificate of
Incorporation or Bylaws of the Company or any provision of
the comparable charter or organizational documents of any of
its Subsidiaries, (B) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license
applicable to the Company or any of its Subsidiaries or (C)
assuming the consents, approvals, authorizations or permits
and filings or notifications referred to in Section
3.1(c)(iii) are duly and timely obtained or made and the
approval of the Merger and this Agreement by the
stockholders of the Company has been obtained, any judgment,
order, decree, statute, law, ordinance, rule or regulation
applicable to the Company or any of its Subsidiaries or any
of their respective properties or assets, other than, in the
case of (B) and (C), any such conflicts, violations,
defaults, rights, liens, security interests, charges or
encumbrances that, individually or in the aggregate, could
not reasonably be expected to have a Material Adverse Effect
on the Company, materially impair the ability of the Company
to perform its obligations thereunder, or prevent the
consummation of any of the transactions contemplated hereby.
(iii) No consent, approval, order or
authorization of, or registration, declaration or filing
with, or permit from any court, administrative agency or
commission or other governmental authority or
instrumentality, domestic or foreign (a "Governmental
Entity"), is required by or with respect to the Company or
any of its Subsidiaries in connection with the execution and
delivery of this Agreement by the Company or the
consummation by the Company of the transactions contemplated
hereby, as to which the failure to obtain or make could
reasonably be expected to have a Material Adverse Effect,
except for: (A) filings with and approval of the Drug
Enforcement Agency, any Governmental Entity that regulates
pharmaceutical sales and any Governmental Entity that
regulates liquor sales, (B) the filing of a premerger
notification report by the Company under the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the
"HSR Act"), and the expiration or termination of the
applicable waiting period with respect thereto; (C) the
filing with the SEC of (x) a proxy statement in preliminary
and definitive form relating to the meeting of the Company's
stockholders to be held in connection with the Merger (the
"Proxy Statement") and (y) such reports under Section 13(a)
of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and such other compliance with the Exchange
Act and the rules and regulations thereunder, as may be
required in connection with this Agreement and the
transactions contemplated hereby; (D) the filing of the
Certificate of Merger with the Secretary of State of the
State of New York; (E) filings with, and approval of, the
NYSE; (F) such filings and approvals as may be required by
any applicable state securities, "blue sky" or takeover
laws; and (G) the filings and consents listed on Schedule
3.1(c)(iii).
(d) SEC DOCUMENTS. The Company has made available to
Purchaser a true and complete copy of each report, schedule,
registration statement and definitive proxy statement filed
by the Company with the Securities and Exchange Commission
(the "SEC") since January 26, 1994 and prior to the date of
this Agreement (the "Company SEC Documents") which are all
the documents (other than preliminary matters) that the
Company was required to file with the SEC since such date.
As of their respective dates, the Company SEC Documents
complied in all material respects with the requirements of
the Securities Act of 1933, as amended (the "Securities
Act"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to
such Company SEC Documents, and none of the Company SEC
Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of the Company
included in the Company SEC Documents complied as to form in
all material respects with the published rules and
regulations of the SEC with respect thereto, were prepared
in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP (subject,
in the case of the unaudited statements, to normal,
recurring adjustments, none of which are material) the
consolidated financial position of the Company and its
consolidated Subsidiaries as of their respective dates and
the consolidated results of operations and the consolidated
cash flows of the Company and its consolidated Subsidiaries
for the periods presented therein. Except as disclosed in
the Company SEC Documents or in Schedule 3.1(d), there are
no agreements, arrangements or understandings between the
Company and any party who is at the date of this Agreement
or was at any time prior to the date hereof but after
January 26, 1994, an Affiliate of the Company that are
required to be disclosed in the Company SEC Documents.
(e) INFORMATION SUPPLIED. None of the information
supplied or to be supplied by the Company for inclusion or
incorporation by reference in the Registration Statement on
Form S-4 to be filed with the SEC by Purchaser in connection
with the issuance of shares of Purchaser Common Stock in the
Merger (the "S-4") will, at the time the S-4 becomes
effective under the Securities Act or at the Effective Time,
contain any untrue statement of a material fact or omit to
state any material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading,
and none of the information supplied or to be supplied by
the Company and included or incorporated by reference in the
Proxy Statement will, at the date mailed to stockholders of
the Company or at the time of the meeting of such
stockholders to be held in connection with the Merger or at
the Effective Time, contain any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary in order to make the
statements therein, in light of the circumstances under
which they are made, not misleading. If at any time prior
to the Effective Time any event with respect to the Company
or any of its Subsidiaries, or with respect to other
information supplied by the Company for inclusion in the
Proxy Statement or S-4, shall occur which is required to be
described in an amendment of, or a supplement to, the Proxy
Statement or the S-4, the Company will immediately notify
Purchaser of such event, and the Company shall cooperate
with Purchaser in the prompt filing with the SEC of any
necessary amendment or supplement to the Proxy Statement and
the S-4 and, as required by law, in disseminating the
information contained in such amendment or supplement to the
stockholders of the Company. The Proxy Statement, insofar
as it relates to the Company or its Subsidiaries or other
information supplied by the Company for inclusion therein,
will comply as to form in all material respects with the
provisions of the Exchange Act and the rules and regulations
thereunder.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in, or reflected in the financial statements
included in, the Company SEC Documents or on Schedule
3.1(f), or except as contemplated by this Agreement, since
January 27, 1996, there has not been: (i) any declaration,
setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with
respect to any of the Company's capital stock, except for
regular quarterly cash dividends of $.05 per share on
Company Common Stock, with usual record and payment dates
for such dividends (but in the case of the regular quarterly
cash dividend for the third quarter of the Company's 1997
fiscal year only as permitted under Section 4.1(b)); (ii)
any amendment of any material term of any outstanding equity
security of the Company or any Subsidiary; (iii) any
repurchase, redemption or other acquisition by the Company
or any Subsidiary of any outstanding shares of capital stock
or other equity securities of, or other ownership interests
in, the Company or any Subsidiary; (iv) any material change
in any method of accounting or accounting practice by the
Company or any Subsidiary; or (v) any other transaction,
commitment, dispute or other event or condition (financial
or otherwise) of any character (whether or not in the
ordinary course of business) that could reasonably be
expected to have a Material Adverse Effect on the Company,
except for general economic changes and changes that may
affect the industries of the Company or any of its
Subsidiaries generally.
(g) NO UNDISCLOSED MATERIAL LIABILITIES. Except as
disclosed in the Company SEC Documents or on Schedule
3.1(g), as of the date hereof, there are no liabilities of
the Company or any of its Subsidiaries of any kind
whatsoever, whether accrued, contingent, absolute,
determined, determinable or otherwise, that would be
required under GAAP to be reflected on, or reserved against
in a consolidated balance sheet of the Company and its
consolidated Subsidiaries or in the notes thereto and that
could reasonably be expected to have a Material Adverse
Effect on the Company, other than: (i) liabilities
adequately provided for on the balance sheet of the Company
dated as of January 27, 1996 (including the notes thereto)
contained in the Company's Annual Report on Form 10-K for
the year ended January 27, 1996; (ii) liabilities under or
contemplated by this Agreement; and (iii) liabilities
arising since such date in the ordinary course of business
consistent with past practices.
(h) NO DEFAULT. Except as set forth on Schedule
3.1(h), neither the Company nor any of its Subsidiaries is,
or has received any notice that it is, in default or
violation (and no event has occurred which, with notice or
the lapse of time or both, would constitute a default or
violation) of any term, condition or provision of (i) their
respective charter and by-laws, (ii) any note, bond,
mortgage, indenture, license, leases, agreement or other
instrument or obligation to which the Company or any of its
Subsidiaries is now a party or by which the Company or any
of its Subsidiaries or any of their respective properties or
assets may be bound or (iii) any order, writ, injunction,
decree, statute, rule or regulation applicable to the
Company or any of its Subsidiaries, except in the case of
(ii) and (iii) for defaults or violations which in the
aggregate could not reasonably be expected to have a
Material Adverse Effect on the Company.
(i) COMPLIANCE WITH APPLICABLE LAWS. The Company and
its Subsidiaries hold all permits, licenses, variances,
exemptions, orders, franchises and approvals of all
Governmental Entities necessary for the lawful conduct of
their respective businesses (the "Company Permits"), except
where the failure so to hold could not reasonably be
expected to have a Material Adverse Effect on the Company.
The Company and its Subsidiaries are in compliance with the
terms of the Company Permits, except where the failure so to
comply could not reasonably be expected to have a Material
Adverse Effect on the Company. Except as disclosed in
Company SEC Documents, the businesses of the Company and its
Subsidiaries are not being conducted in violation of any
law, ordinance or regulation of any Governmental Entity
except where such failures could not reasonably be expected
to have a Material Adverse Effect. Except as set forth on
Schedule 3.1(i), as of the date of this Agreement, no
investigation or review by any Governmental Entity with
respect to the Company or any of its Subsidiaries is pending
or, to the knowledge of the Company (as defined in Section
8.4) as of the date hereof, threatened, other than those the
outcome of which could not reasonably be expected to have a
Material Adverse Effect on the Company. Schedule 3.1(i)
sets forth each such failure to hold or comply with the
terms of Company Permits, each such violation of law,
ordinance or regulation of any governmental entity and each
such pending or, to the knowledge of the Company, threatened
investigation or review by any Governmental Entity existing
on the date hereof that, individually or in the aggregate,
could reasonably be expected to have a Material Adverse
Effect on the Company. This Section 3.1(i) does not relate
to environmental matters, which are the subject of Section
3.1(p).
(j) LITIGATION. There are no suits, actions or
proceedings pending or, to the knowledge of the Company,
threatened against or affecting the Company or any
Subsidiary of the Company ("Company Litigation") which if
adversely determined, individually or in the aggregate,
could reasonably be expected to have a Material Adverse
Effect on the Company or affect its ability to consummate
the transactions contemplated by this Agreement, nor are
there any judgments, decrees, injunctions, rules or orders
of any Governmental Entity or arbitrator outstanding against
the Company or any Subsidiary of Company ("Company Order")
which, individually or in the aggregate, could reasonably be
expected to have a Material Adverse Effect on the Company or
affect its ability to consummate the transactions
contemplated by this Agreement. Schedule 3.1(j) lists any
Company Litigation or Company Order with respect to which
the uninsured exposure or losses exceed $150,000. This
Section 3.1(j) does not relate to environmental matters,
which are the subject of Section 3.1(p).
(k) TAXES.
(i) Except as set forth on Schedule 3.1(k)(i),
each of the Company, each of its Subsidiaries and any
affiliated, combined or unitary group of which any such
corporation is or was a member has (A) timely (taking into
account any extensions) filed all federal income and
material federal, state, local and foreign returns,
declarations, reports, estimates, information returns and
statements ("Returns") required to be filed or sent by or
with respect to it in respect of any Taxes (as hereinafter
defined), (B) timely paid all Taxes shown to be due and
payable on or with respect to such returns, and all material
Taxes that are otherwise due and payable (except for audit
adjustments not material in the aggregate or to the extent
that liability therefor is reserved for in the Company's
most recent audited financial statements) for which the
Company or any of its Subsidiaries may be liable, (C)
established all reserves required by, and in amounts in
accordance with, GAAP, and (D) complied in all material
respects with all applicable laws, rules and regulations
relating to the payment and withholding of Taxes and has in
all material respects timely withheld from employee wages
and paid over to the proper governmental authorities all
amounts required to be so withheld and paid over.
(ii) Schedule 3.1(k)(ii) sets forth the last
taxable period through which the federal income Tax Returns
of the Company and any of its Subsidiaries have been
examined by the Internal Revenue Service ("IRS") or
otherwise closed, and identifies all open periods for which
federal, state or local examinations are in progress or of
which the Company or any of its Subsidiaries has received
written notice of proposed examinations from a taxing
authority with respect to any material Tax. Except to the
extent being contested in good faith, all material
deficiencies asserted as a result of such examinations and
any examination by any applicable state or local taxing
authority have been paid, fully settled or adequately
provided for in the Company's most recent audited financial
statements. Except as set forth in Schedule 3.1(k)(ii), no
material Tax audits or other administrative proceedings or
court proceedings are presently pending, or to the knowledge
of the Company, threatened, with regard to any Taxes for
which the Company or any of its Subsidiaries would be
liable, and no material deficiency for any such Taxes has
been proposed, asserted or assessed, in writing (whether by
examination report or prior to completion of examination by
means of notices of proposed adjustment, or other similar
requests or notices) pursuant to such examination against
the Company or any of its Subsidiaries by any federal, state
or local taxing authority with respect to any period.
(iii) Except as disclosed on Schedule
3.1(k)(iii), neither the Company nor any of its Subsidiaries
has executed or entered into (or prior to the close of
business on the Closing Date will execute or enter into)
with the IRS or any taxing authority (A) any agreement or
other document extending or having the effect of extending
the period for assessments or collection of any federal,
state or local income or franchise Taxes for which the
Company or any of its Subsidiaries would be liable or (B) a
closing agreement pursuant to section 7121 of the Code, or
any predecessor provision thereof or any similar provision
of state or local income tax law that relates to the assets
or operations of the Company or any of its Subsidiaries.
(iv) Except as disclosed in Company SEC Documents
or as set forth on Schedule 3.1(k)(iv), neither the Company
nor any of its Subsidiaries is a party to an agreement that
provides for the payment of any amount that would constitute
a "parachute payment" within the meaning of section 280G of
the Code.
(v) Neither the Company nor any of its
Subsidiaries has made an election under section 341(f) of
the Code or agreed to have section 341(f)(2) of the Code
apply to any disposition of a subsection (f) asset (as such
term is defined in section 341(f)(4) of the Code) owned by
the Company or any of its Subsidiaries.
(vi) Except as set forth in Company SEC Documents
or as disclosed on Schedule 3.1(k)(vi), neither the Company
nor any of its Subsidiaries is a party to, is bound by or
has any obligation under any tax sharing agreement or
similar agreement or arrangement.
(vii) Except as set forth in Schedule
3.1(k)(vii), there are no requests for rulings, outstanding
subpoenas or unsatisfied written requests from any taxing
authority for information with respect to Taxes of the
Company or any of its Subsidiaries and, to the knowledge of
the Company, no material reassessments (for property or ad
valorem Tax purposes) of any assets or any property owned
(or leased in the case of leased property or assets with
respect to which the Company or any of its Subsidiaries is
responsible for the payment of property Taxes) by the
Company or any of its Subsidiaries have been proposed in
written form.
(viii) Neither the Company nor any of its
Subsidiaries has agreed to make any adjustment pursuant to
section 481(a) of the Code (or any predecessor provision) by
reason of any change in any accounting method of the Company
or any of its Subsidiaries, and neither the Company nor any
of its Subsidiaries has any application pending with any
taxing authority requesting permission for any changes in
any accounting method of the Company or any of its
Subsidiaries. To the knowledge of the Company, neither the
IRS nor any other taxing authority has proposed in writing,
and neither the Company nor any of its Subsidiaries is
otherwise required to make, any such adjustment or change in
accounting method.
(ix) Neither the Company nor any of its
Subsidiaries has any net operating losses or other tax
attributes presently subject to limitation under sections
382, 383, or 384 of the Code, or under the regulations under
section 1502 of the Code.
For purposes of this Agreement, "Tax" (and, with
correlative meaning, "Taxes" and "Taxable") means (i) any
net income, alternative or add-on minimum tax, gross income,
gross receipts, sales, use, ad valorem, value added,
transfer, franchise, profits, license, withholding on
amounts paid by the Company, payroll, employment, excise,
severance, stamp, occupation, premium, property,
environmental or windfall profit tax, custom, duty or other
tax, governmental fee or other like assessment or charge of
any kind whatsoever, together with any interest and/or any
penalty, addition to tax or additional amount imposed by any
taxing authority, (ii) any liability of the Company or any
of its Subsidiaries for the payment of any amounts of the
type described in (i) as a result of being a member of an
affiliated or consolidated group, or arrangement whereby
liability of the Company or any of its Subsidiaries for
payment of such amounts was determined or taken into account
with reference to the liability of any other person for any
period and (iii) liability of the Company or any of its
Subsidiaries with respect to the payment of any amounts of
the type described in (i) or (ii) as a result of any express
or implied obligation to indemnify any other person or
entity.
"Tax Return" means all returns, declarations,
reports, estimates, information returns and statements
required to be filed by or with respect to the Company or
any of its Subsidiaries in respect of any Taxes, including,
without limitation, (i) any consolidated federal income tax
return in which the Company or any of its Subsidiaries is
included or (ii) any state, local or foreign income tax
returns filed on a consolidated, combined or unitary basis
(for purposes of determining Tax liability) in which the
Company or any of its Subsidiaries is included.
(l) PENSION AND BENEFIT PLANS; ERISA.
(i) All "employee pension benefit plans," as
defined in section 3(2) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA"),
maintained by the Company or any of its Subsidiaries or any
trade or business (whether or not incorporated) which is
under common control, or which is treated as a single
employer, with the Company under section 414(b), (c), (m) or
(o) of the Code ("Company ERISA Affiliate") or to which the
Company or any of its Subsidiaries or any Company ERISA
Affiliate contributed or is obligated to contribute
thereunder (the "Company Pension Plans"), other than
unwritten plans that are not material (as hereinafter
defined in paragraph (xv)) are listed on Schedule 3.1(1)(i).
All such plans that are intended to qualify under section
401 et seq. of the Code do so qualify, the trusts maintained
pursuant thereto (the "Company Pension Trusts") that are
intended to be exempt from federal income taxation under
section 501 of the Code are so exempt, and the Company has
received a determination letter from the Internal Revenue
Service (the "Service") with respect to each such Company
Pension Plan and each such Company Pension Trust to the
effect that such Company Pension Plan is qualified and such
Company Pension Trust is exempt. No such determination
letter has been revoked, no revocation has been threatened
and nothing has occurred with respect to the operation of
any Company Pension Plan that could reasonably be expected
to cause such revocation. Except as described on Schedule
3.1(l)(i), none of the Company Pension Plans or Company
Pension Trusts have been amended since the effective date of
each respective determination letter.
(ii) All "employee welfare benefit plans," as
defined in section 3(1) of ERISA, all other employee benefit
arrangements or payroll practices, including, without
limitation, all severance pay, sick leave, vacation pay,
salary continuation for disability, retirement, deferred
compensation, bonus, long-term incentive, stock option,
stock purchase, hospitalization, medical insurance, life
insurance, and scholarship plans or programs maintained by
the Company or any of its Subsidiaries or to which the
Company or any of its Subsidiaries contributed or is
obligated to contribute thereunder (all such plans being
hereinafter referred to as the "Company Employee Benefit
Plans") and all trusts maintained pursuant to a Company
Employee Benefit Plan (the "Company Benefit Trusts"), other
than unwritten plans that are not material, are listed on
Schedule 3.1(1)(ii). The Company has received a
determination letter from the Service with respect to each
Company Employee Benefit Trust that is intended to be exempt
from federal taxation under section 501 of the Code. No
such determination letter has been revoked, no revocation
has been threatened, and nothing has occurred with respect
to the operation of any Company Employee Benefit Trust that
could reasonably be expected to cause such revocation.
Except as described on Schedule 3.1(1)(ii), none of the
Company Employee Benefit Trusts have been amended since the
effective date of each respective determination letter.
(iii) With respect to each such plan, other
than unwritten plans that are not material, the Company has
delivered to Purchaser (A) a true, correct, and complete
copy of each Company Pension Plan, including copies of all
amendments made since the most recent favorable
determination letter, or Company Employee Benefit Plan or,
in the case of any unwritten Company Employee Benefit Plan,
descriptions thereof; (B) copies of the most recent Form
5500 filed with the IRS with respect to each Company Pension
Plan or Company Employee Benefit Plan for which such report
is required by applicable law; (C) the most recent summary
plan description for each Company Pension Plan or Company
Employee Benefit Plan for which such a summary plan
description is required by applicable law; and (D) each
trust agreement and insurance or annuity contract relating
to any Company Pension Plan or Company Employee Benefit
Plan.
(iv) Except as described on Schedule 3.1(l)(iv),
neither the Company nor any Company ERISA Affiliate has ever
contributed to any plan subject to section 413 of the Code
or multiple employer welfare arrangement, as defined in
section 3(40) of ERISA.
(v) There is no violation in any material respect
of ERISA, the Code or other applicable law with respect to
the filing of reports, returns, and other similar documents
required to be filed with any governmental agency with
respect to any Company Pension Plan or Company Employee
Benefit Plan. All reports, returns or similar documents
required to be distributed to any Company Pension Plan or
Company Employee Benefit Plan participant have been timely
distributed.
(vi) The Company Pension Plans and Company
Employee Benefit Plans have been maintained and
administered, in all material respects, in accordance with
their terms and with all provisions of ERISA (including
rules and regulations thereunder), the Code, and other
applicable Federal and state law, and neither the Company
nor any of its Subsidiaries or any "party-in-interest" or
"disqualified person" with respect to the Company Pension
Plans and the Company Employee Benefit Plans has engaged in
a "prohibited transaction" within the meaning of section
4975 of the Code or section 406 of ERISA. No event has
occurred that could subject the Company, any Company ERISA
Affiliate or any Company Pension Trust or Company Employee
Benefit Trust, as applicable, to any material tax liability
arising under section 511 of the Code that has not been
timely paid. The Company and all Company ERISA Affiliates
have complied with all obligations imposed by section 4980B
of the Code.
(vii) None of the Company, any trustee,
administrator or other fiduciary has engaged in any
transaction or acted in a manner that could, or failed to
act so as to, subject the Company or any fiduciary to any
material liability for breach of fiduciary duty under ERISA
or other applicable law.
(viii) Except as disclosed in Schedule
3.1(l)(viii), there has been no "reportable event" as that
term is defined in section 4043 of ERISA and the regulations
thereunder with respect to the Company Pension Plans subject
to Title IV of ERISA that would require the giving of notice
or any event requiring disclosure under section
4041(c)(3)(C) or 4063(a) of ERISA.
(ix) Except as disclosed on Schedule 3.1(1)(ix),
neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will
(A) result in any payment becoming due to any employee or
group of employees of the Company or any of its
Subsidiaries; (B) increase any benefits otherwise payable
under any Company Employee Benefit Plan or Company Pension
Plan or (C) result in the acceleration of the time of
payment or vesting of any such benefits. Except as
disclosed on Schedule 3.1(l)(ix) or in Company SEC
Documents, there are no severance agreements, employment
agreements, or consulting agreements between the Company or
any of its Subsidiaries and any employee of the Company or
such Subsidiary or any individual which provide for total
payments with a present value in excess of $25,000 or which
when aggregated with all such agreements or arrangements
provides for total payments with a present value in excess
of $75,000. True, correct and complete copies of all such
severance agreements, employment agreements and consulting
agreements have been provided to Purchaser.
(x) Except as disclosed on Schedule 3.1(l)(x)
hereto, no stock or other security issued by the Company or
any of its Subsidiaries forms or has formed a part of the
assets of any Company Pension Plan or Company Employee
Benefit Plan within the last five years.
(xi) Except as disclosed on Schedule 3.1(l)(xi),
(A) all contributions to, and payments from, each Company
Pension Plan and Company Employee Benefit Plan that have
been required to be made in accordance with the terms of
such plans and, when applicable, section 302 of ERISA or
section 412 of the Code, have been timely made, (B) there
has been no application for or waiver of the minimum funding
standards of section 412 of the Code with respect to the
Company Pension Plan, and (C) none of the Company Pension
Plans has an "accumulated funding deficiency" within the
meaning of section 412(a) of the Code as of the end of the
most recently completed plan year. As of the most recent
valuation date for each Company Pension Plan that is a
"defined benefit pension plan," as defined in section 3(35)
of ERISA (hereinafter a "Defined Benefit Plan"), there was
not any amount of "unfunded benefit liability," other than
that shown in the William M. Mercer, Incorporated actuarial
valuation report as of January 1, 1996 with respect to the
Fay's Incorporated Pension Plan, a copy of which has been
previously provided to Purchaser. The information provided
to William M. Mercer, Incorporated by the Company on which
such report is based was, when given, correct in all
material respects. The Company is not aware of any facts or
circumstances that could change the funded status of such
Defined Benefit Plan. The Company has furnished Purchaser
with the most recent actuarial report or valuation with
respect to each Defined Benefit Plan.
(xii) Except as disclosed on Schedule
3.1(l)(xii), all premium payments due to the Pension Benefit
Guaranty Corporation pursuant to section 4007 of ERISA prior
to the date hereof have been timely paid.
(xiii) Except as disclosed on Schedule
3.1(l)(xiii), to the knowledge of the Company, there are no
investigations by any governmental agency, other claims,
suits or proceedings against or involving any Company
Pension Plan or Company Employee Benefit Plan, and no events
of default that could give rise to material liability to the
Company or any Company ERISA Affiliate.
(xiv) Except as disclosed on Schedule
3.1(l)(xiv), no employee or former employee of the Company
or any Company ERISA Affiliate is, by reason of such
employee's or former employee's employment, entitled to
receive any benefits, including without limitation, death or
medical benefits (whether or not insured) beyond retirement
or other termination of employment, other than (A) death or
retirement benefits under a Company Pension Plan or (B)
continuation coverage pursuant to section 4980B of the Code.
(xv) Solely for purposes of Section 3.1(l)(i),
(ii) and (iii), "material" shall mean with respect to any
unwritten plan, any such plan which involves costs and other
liabilities, the present value (using a 7.5% discount rate)
of which exceeds $75,000.00, and, with respect to all
unwritten plans, such plans which involve costs and other
liabilities, the present value (using a 7.5% discount rate)
of which exceeds $250,000.00 in the aggregate.
(m) LABOR MATTERS.
(i) Except as set forth in Schedule 3.1(m)(i)
hereto, as of the date of this Agreement, (A) no employees
of the Company or any of its Subsidiaries are represented by
any labor organization; (B) no labor organization or group
of employees of the Company or any of its Subsidiaries has
made a pending demand for recognition or certification, and
there are no representation or certification proceedings or
petitions seeking a representation proceeding presently
pending or threatened in writing to be brought or filed with
the National Labor Relations Board or any other labor
relations tribunal or authority; and (C) to the knowledge of
the Company, there are no organizing activities involving
the Company or any of its Subsidiaries pending with any
labor organization or group of employees of the Company or
any of its Subsidiaries.
(ii) Except as set forth on Schedule 3.1(m)(ii)
hereto, the Company and each of its Subsidiaries is in
compliance with all laws and orders relating to the
employment of labor, including all such laws and orders
relating to wages, hours, collective bargaining,
discrimination, civil rights, safety and health workers'
compensation and the collection and payment of withholding
and or social security taxes and similar Taxes, except where
the failure to comply could not reasonably be expected to
have a Material Adverse Effect on the Company.
(n) ASSETS.
(i) Except as set forth on Schedule 3.1(n)(i)
hereto, the Company and each of its Subsidiaries has good
and marketable title to all of their respective assets owned
by them, and valid leasehold interests in all assets leased
by them, in each case free and clear of all liens,
mortgages, charges, encumbrances, or title defects, except
for such liens, mortgages, charges, encumbrances, or title
defects that could not reasonably be expected to have a
material adverse effect on the value or use of such assets
or could not reasonably be expected to have a Material
Adverse Effect on the Company. The assets owned or leased
by the Company or its Subsidiaries comply and conform with
all applicable laws relating to their use and operation,
including, but not limited to, the provisions of the
Americans with Disabilities Act of 1990, Public Law 101-336,
42 U.S.C. Section 12191 et seq. (the "ADA"), except to the
extent that such non-compliance or non-conformity would not
have a Material Adverse Effect on the Company. To the
knowledge of the Company, assets owned or leased by the
Company or its Subsidiaries comply and conform in all
material respects with the ADA.
(ii) Except as set forth on Schedule 3.1(n)(ii),
there are no leases, subleases, surface or subsurface use
agreements, tenancy arrangements or other instruments or
encumbrances that will be in force or effect as of the
Closing Date that grant to any person any right relating to
the ownership, use or operation of all or any part of the
assets owned or leased by the Company or any of its
Subsidiaries. No person has any rights in, or right or
option to acquire, fee title (or any portion thereof) to the
assets owned by the Company or any of its Subsidiaries in
fee. The Company and its Subsidiaries enjoy peaceful
possession of all assets respectively leased by the Company
or such Subsidiaries, and the Company has delivered to
Purchaser copies of all such leases, which copies contain
all of the material terms and conditions of such leases.
(iii) The assets, properties, rights and
contracts, including, without limitation (as applicable),
title or leaseholds thereto, of the Company and its
Subsidiaries, taken as a whole, are sufficient to permit the
Company and its Subsidiaries to conduct their business as
currently being conducted with only such exceptions that in
the aggregate could not reasonably be expected to have a
Material Adverse Effect on the Company. Except as set forth
on Schedule 3.1(n)(iii) hereto, the Company has no
continuing material obligations relating to the assets of
any operations that have been disposed.
(o) INTELLECTUAL PROPERTY. The Company and its
Subsidiaries possess or have adequate rights to use all
material trademarks, trade names, patents, service marks,
marks, brand names, computer programs, database, industrial
designs and copyrights necessary for the operation of the
businesses of each of Company and its Subsidiaries
(collectively, the "Company Intellectual Property"). Except
as set forth on Schedule 3.1(o), all of the Company
Intellectual Property that is material to the conduct of the
Company's business taken as a whole is owned by the Company
or its Subsidiaries free and clear of any and all liens,
claims or encumbrances that could reasonably be expected to
have a material adverse effect on the value of, or ability
of Purchaser to utilize, the item of Company Intellectual
Property to which such lien relates, and neither the Company
nor any such Subsidiary has forfeited or otherwise
relinquished any Company Intellectual Property which
forfeiture could reasonably be expected to have a Material
Adverse Effect on the Company. To the knowledge of the
Company, the use of the Company Intellectual Property by the
Company or its Subsidiaries does not conflict with, infringe
upon, violate or interfere with or constitute an
appropriation of any right, title, interest or goodwill,
including, without limitation, any intellectual property
right, trademark, trade name, patent, service mark, brand
mark, brand name, computer program, database, industrial
design, copyright or any pending application therefor of any
other person. Except as set forth on Schedule 3.1(o), the
Company has received no written notice that the use of any
trade dress by the Company or its Subsidiaries conflicts
with, infringes upon, violates or interferes with any trade
dress rights of any other person. To the knowledge of the
Company, there are no pending claims that any of the Company
Intellectual Property is invalid or conflicts with the
asserted rights of any other person or has not been used or
enforced or has been failed to be used or enforced in a
manner that would result in the abandonment, cancellation or
unenforceability of any of the Company Intellectual Property
that is material to the conduct of the Company's business.
(p) ENVIRONMENTAL MATTERS.
For purposes of this Agreement:
(i) "Environmental Law" means any applicable law
regulating or prohibiting Releases into any part of the
natural environment, or pertaining to the protection of
natural resources, the environment and public and employee
health and safety including, without limitation, the
Comprehensive Environmental Response, Compensation, and
Liability Act ("CERCLA") (42 U.S.C. Section 9601 et seq.),
the Hazardous Materials Transportation Act (49 U.S.C.
Section 1801 et seq.), the Resource Conservation and
Recovery Act (42 U.S.C. Section 6901 et seq.), the Clean
Water Act (33 U.S.C. Section 1251 et seq.), the Clean Air
Act (42 U.S.C. Section 7401 et seq.), the Toxic Substances
Control Act (15 U.S.C. Section 7401 et seq.), the Federal
Insecticide, Fungicide, and Rodenticide Act (7 U.S.C.
Section 136 et seq.), and the Occupational Safety and Health
Act (29 U.S.C. Section 651 et seq.) ("OSHA") and the
regulations promulgated pursuant thereto, and any such
applicable state or local statutes, and the regulations
promulgated pursuant thereto, as such laws have been and may
be amended or supplemented through the Closing Date;
(ii) "Hazardous Material" means any substance,
material or waste which is regulated pursuant to any
Environmental Law by any public or governmental authority in
the jurisdictions in which the applicable party or its
Subsidiaries conducts business, or the United States,
including, without limitation, any material or substance
which is defined as a "hazardous waste," "hazardous
material," "hazardous substance," "extremely hazardous
waste" or "restricted hazardous waste," "contaminant,"
"toxic waste" or "toxic substance" under any provision of
Environmental Law; and
(iii) "Release" means any release, spill,
effluent, emission, leaking, pumping, injection, deposit,
disposal, discharge, dispersal, leaching or migration into
the indoor or outdoor environment, or into or out of any
property owned, operated or leased by the applicable party
or its Subsidiaries.
Except as set forth on Schedule 3.1(p) or as could
not reasonably be expected, individually or in the
aggregate, to have a Material Adverse Effect:
(A) The owned or leased properties and operations
of the Company and its Subsidiaries, including without
limitation any generation, transportation, treatment,
storage or disposal of hazardous waste, as defined and
regulated under 40 C.F.R. Parts 260-270 (in effect as of
the date of this Agreement) or any state equivalent, have
been for the last five years, and currently are, in
compliance with all Environmental Laws;
(B) The Company and its Subsidiaries currently
maintain in full force and effect all permits, licenses,
variances, exceptions and approvals required under
applicable Environmental Laws for the continued operations
of their respective businesses;
(C) As of the date hereof the Company and its
Subsidiaries are not subject to any outstanding written
orders or contracts with any Governmental Entity or other
person respecting (1) Environmental Laws, (2) remediation of
any Hazardous Materials or (3) any Release or threatened
Release of a Hazardous Material;
(D) The Company and its Subsidiaries have not
received within the last five years any written
communication alleging any, and as of the date hereof there
is no, investigation of any such party with respect to, the
violation of or liability under any Environmental Law
arising from the owned or leased properties and the
operations of the Company and its Subsidiaries;
(E) There is no suit, action or proceeding
pending or threatened against the Company or any of its
Subsidiaries arising under Environmental Laws or asserting a
damage claim attributable to a Release of or exposure to
Hazardous Materials;
(F) There has been no Release of any Hazardous
Material into the indoor or outdoor environment (whether
on-site or off-site) arising from the operations of, or
attributable to the owned or leased properties of, the
Company or its Subsidiaries in violation of or that would
require remediation or other response action under any
Environmental Laws; and
(G) There is not now on or in any owned or leased
property of the Company or its Subsidiaries any of the
following: (1) any underground storage tanks or surface
impoundments, (2) any asbestos-containing materials, (3) any
friable asbestos-containing materials or (4) any
polychlorinated biphenyls.
(q) PRODUCT LIABILITY. There are no claims, and to
the knowledge of the Company there is no basis for any
claims, against the Company or any Subsidiary for injury to
person or property of any person suffered as a result of the
sale of any product or performance of any service by the
Company or any Subsidiary, including claims arising out of
the defective or unsafe nature of such products or services,
which could reasonably be expected to have a Material
Adverse Effect on the Company.
(r) CHARTER TAKEOVER PROVISIONS. The transactions
contemplated by this Agreement and the Stockholders
Agreement of even date herewith, among Purchaser, Sub, the
Company and certain stockholders of the Company, have been
approved by the affirmative vote of a majority of the
Continuing Directors (as such term is defined in the
Company's Restated Certificate of Incorporation) pursuant to
Article Ninth of the Company's Restated Certificate of
Incorporation. No state takeover laws are applicable to
Purchaser or Sub as a result of the Merger, this Agreement
or the transactions contemplated hereby.
(s) OPINION OF FINANCIAL ADVISOR. The Company has
received the opinion of Bear, Stearns & Co. Inc. (a copy of
which has been delivered to Purchaser) to the effect that,
as of the date hereof, the consideration to be received by
the holders of Company Common Stock pursuant to this
Agreement is fair from a financial point of view to such
holders.
(t) VOTE REQUIRED. The affirmative vote of the
holders of at least two-thirds of the outstanding shares of
Company Common Stock is the only vote of the holders of any
class or series of Company capital stock necessary to
approve the Merger, this Agreement and the transactions
contemplated hereby.
(u) INSURANCE. Schedule 3.1(u) hereto contains a true
and complete listing of the Company's and each of its
Subsidiaries' directors' and officers' liability insurance,
primary and excess casualty insurance policies, providing
coverage for bodily injury and property damage to third
parties (including products liability and completed
operations coverage) and worker's compensation, in effect as
of the date hereof.
(v) ADVISORS. Except as disclosed on Schedule 3.1(v),
no broker, advisor, attorney, accountant, actuary,
investment banker, proxy solicitor or other person is
entitled to any broker's, finder's or other fee,
reimbursement of expenses or commission in connection with
the transactions contemplated by this Agreement based upon
arrangements made by or on behalf of the Company.
(w) ADDITIONAL TAX MATTERS. As of the date hereof, to
the knowledge of the Company, the representations set forth
in the numbered paragraphs of the form of Certificate of the
Company included as Schedule 3.1(w) are true and correct in
all material respects, assuming for purposes of this
representation and warranty that the Merger referred to in
such form had been consummated on the date hereof.
(x) CONTRACTS. Schedule 3.1(x)(i) lists each lease,
license, contract, agreement or other instrument or
obligation to which the Company or any of its Subsidiaries
is a party (whether oral or written) or by which any of them
or any of their properties or assets may be bound and which
involves the payment of money in excess of $500,000 or the
receipt of money in excess of $500,000 in any 12 month
period (a "Company Agreement"); it being understood that the
term "Company Agreement" does not include purchase orders
entered into in the ordinary course of business consistent
with past practice; provided, however, that Schedule
3.1(x)(i), as attached, shall not be required to set forth
any Company Agreement involving the receipt of money in
excess of $500,000 in any 12 month period, but from and
after the tenth business day after the date of this
Agreement, Schedule 3.1(x)(i) shall be deemed to include, as
of the date hereof, the list of Company Agreements provided
to Purchaser by the Company in accordance with Section
4.1(i). Each Company Agreement is valid, binding and
enforceable and in full force and effect, except where
failure to be valid, binding and enforceable and in full
force and effect could not reasonably be expected to have a
Material Adverse Effect on the Company and its Subsidiaries,
and there are no defaults thereunder by the Company and its
Subsidiaries or, to the knowledge of the Company, by any
other party thereto, except where such defaults could not
reasonably be expected to have a Material Adverse Effect on
the Company. Except as disclosed in Schedule 3.1(x)(ii),
neither the Company nor any of its Subsidiaries is a party
to any agreement that expressly limits the ability of the
Company or any of its Subsidiaries or affiliate to compete
in or conduct any line of business or compete with any
person or in any geographic area or during any period of
time. Schedule 3.1(x)(iii) sets forth all claims received
by the Company for indemnification made by third parties
pursuant to the terms of agreements relating to the
disposition by the Company of lines of business since
January 28, 1995.
(y) SALE OF DIVISION. Except as set forth on Schedule
3.1(y), the sale of the Paper Cutter division of the Company
has been completed on the terms set forth in that certain
Asset Purchase Agreement, dated as of June 7, 1996 (the
"Paper Cutter Agreement"), by and among the Company, The
Party Experience Inc., a Delaware corporation, and Party
Stores Holdings, Inc., a Delaware corporation. The Company
has delivered to Purchaser true and correct copies of all
closing documents entered into and delivered by the Company
with respect to the consummation of the transactions
contemplated in the Paper Cutter Agreement.
3.2 REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
SUB. Purchaser and Sub jointly and severally represent and
warrant to the Company as follows:
(a) ORGANIZATION, STANDING AND POWER. Each of
Purchaser and Sub is a corporation or partnership duly
organized, validly existing and in good standing under the
laws of its state of incorporation or organization, has all
requisite power and authority to own, lease and operate its
properties and to carry on its business as now being
conducted, and is duly qualified and in good standing to do
business in each jurisdiction in which the business it is
conducting, or the operation, ownership or leasing of its
properties, makes such qualification necessary, other than
in such jurisdictions where the failure so to qualify could
not reasonably be expected to have a Material Adverse Effect
on Purchaser. Purchaser and Sub have heretofore delivered
to the Company complete and correct copies of their
respective Certificates of Incorporation and Bylaws.
(b) CAPITAL STRUCTURE. As of the date hereof, the
authorized capital stock of Purchaser consists of
1,250,000,000 shares of Purchaser Common Stock and
25,000,000 shares of preferred stock, without par value, of
Purchaser (the "Purchaser Preferred Stock"). At the close
of business on July 10, 1996: (i) 225,397,372 shares of
Purchaser Common Stock were issued and outstanding and
16,777,567 shares of Purchaser Common Stock were reserved
for issuance pursuant to Purchaser's:
1984 Equity Compensation Plan 548,624
1989 Equity Compensation Plan 5,263,034
1993 Equity Compensation Plan 10,875,909
1993 Non-Associate Directors'
Equity Plan 90,000
(collectively, the "Purchaser Option Plans"); (ii) 14,700
shares of Purchaser Common Stock were held by Purchaser in
its treasury or by its wholly owned Subsidiaries; (iii)
1,400,000 shares of Purchaser Preferred Stock, designated as
Series B ESOP Convertible Preferred Stock, were authorized
and reserved for issuance to Purchaser's Savings, Profit
Sharing and Stock Ownership Plan, of which 1,176,666 shares
have been issued and 970,116.7 shares are presently issued
and outstanding; (iv) 1,600,000 shares of Purchaser
Preferred Stock, designated as Series A Junior Participating
Preferred Stock, were reserved for issuance pursuant to
Purchaser's Rights Agreement; and (v) no Voting Debt was
outstanding. All outstanding shares of Purchaser Common
Stock are, and the shares of Purchaser Common Stock when
issued in accordance with this Agreement will be, validly
issued, fully paid and nonassessable and not subject to
preemptive rights. All outstanding shares of capital stock
of Sub are owned by Purchaser, free and clear of all liens,
charges, encumbrances, claims and options of any nature.
Except as set forth in this Section 3.2(b) or on Schedule
3.2(b), and except for changes since January 27, 1996
resulting from the exercise of employee stock options
granted pursuant to, or from issuances or purchases under,
Purchaser Option Plans, or as contemplated or permitted by
this Agreement, there are outstanding: (i) no shares of
capital stock, Voting Debt or other voting securities of
Purchaser; (ii) no securities of Purchaser or any Subsidiary
of Purchaser convertible into or exchangeable for shares of
capital stock, Voting Debt or other voting securities of
Purchaser or any Subsidiary of Purchaser; and (iii) no
options, warrants, calls, rights (including preemptive
rights), commitments or agreements to which Purchaser or any
Subsidiary of Purchaser is a party or by which it is bound
in any case obligating Purchaser or any Subsidiary of
Purchaser to issue, deliver, sell, purchase, redeem or
acquire, or cause to be issued, delivered, sold, purchased,
redeemed or acquired, additional shares of capital stock or
any Voting Debt or other voting securities of Purchaser or
of any Subsidiary of Purchaser or obligating Purchaser or
any Subsidiary of Purchaser to grant, extend or enter into
any such option, warrant, call, right, commitment or
agreement. There are not as of the date hereof and there
will not be at the Effective Time any stockholder
agreements, voting trusts or other agreements or
understandings to which Purchaser is a party or by which it
is bound relating to the voting of any shares of the capital
stock of Purchaser. As of the date hereof, the authorized
capital stock of Sub consists of 1,000 shares of common
stock, par value $1.00 per share, 10 shares of which are
validly issued, fully paid and nonassessable and are owned
by Purchaser and the balance of which are not issued or
outstanding. Notwithstanding anything to the contrary
herein, the representations and warranties set forth in this
Section 3.2 will not be deemed to have been breached by
Purchaser's repurchase of Purchaser Common Stock pursuant to
Purchaser's stock repurchase program; provided, however,
that any repurchase of Purchaser Common Stock effected by
Purchaser complies with Rule 10b-6 of the Exchange Act.
(c) AUTHORITY; NO VIOLATIONS, CONSENTS AND APPROVALS.
(i) Each of Purchaser and Sub have all requisite
corporate power and authority to enter into this Agreement
and to consummate the transactions contemplated hereby. The
execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby,
including but not limited to the issuance of the Purchaser
Common Stock pursuant to the Merger, have been duly
authorized by all necessary corporate action on the part of
Purchaser and Sub. This Agreement has been duly executed
and delivered by Purchaser and Sub and, assuming this
Agreement constitutes the valid and binding obligation of
the Company, constitutes a valid and binding obligation of
each of Purchaser and Sub enforceable in accordance with its
terms, subject as to enforceability, to bankruptcy,
insolvency, reorganization and other laws of general
applicability relating to or affecting creditors' rights and
to general principles of equity.
(ii) The execution and delivery of this Agreement
does not, and the consummation of the transactions
contemplated hereby and compliance with the provisions
hereof will not, conflict with, or result in any violation
of, or default (with or without notice or lapse of time, or
both) under, or give rise to a right of termination,
cancellation or acceleration of any obligation or to the
loss of a material benefit under, or result in the creation
of any lien, security interest, charge or encumbrance upon
any of the properties or assets of Purchaser under any
provision of (A) the Certificate of Incorporation or Bylaws
of Purchaser or Sub, (B) any loan or credit agreement, note,
bond, mortgage, indenture, lease or other agreement,
instrument, permit, concession, franchise or license
applicable to Purchaser or (C) assuming the consents,
approvals, authorizations or permits and filings or
notifications referred to in Section 3.2(c)(iii) are duly
and timely obtained or made, any judgment, order, decree,
statute, law, ordinance, rule or regulation applicable to
Purchaser or any of its Subsidiaries or any of their
respective properties or assets, other than, in the case of
clause (B) or (C), any such conflicts, violations, defaults,
rights, liens, security interests, charges or encumbrances
that, individually or in the aggregate, could not reasonably
be expected to have a Material Adverse Effect on Purchaser,
materially impair the ability of Purchaser to perform its
obligations hereunder or prevent the consummation of any of
the transactions contemplated hereby or thereby.
(iii) No consent, approval, order or
authorization of, or registration, declaration or filing
with, or permit from any Governmental Entity is required by
or with respect to Purchaser or Sub in connection with the
execution and delivery of this Agreement by Purchaser and
Sub or the consummation by Purchaser and Sub of the
transactions contemplated hereby, as to which the failure to
obtain or make could reasonably be expected to have a
Material Adverse Effect on Purchaser, except for: (A) the
filing of a premerger notification report by Purchaser under
the HSR Act and the expiration or termination of the
applicable waiting period with respect thereto; (B) the
filing with the SEC of the S-4, such reports under Section
13(a) of the Exchange Act and such other compliance with the
Securities Act and the Exchange Act and the rules and
regulations thereunder as may be required in connection with
this Agreement and the transactions contemplated hereby; (C)
the filing of the Certificate of Merger with the Secretary
of State of the State of New York; (D) filings with, and
approval of, the NYSE; and (E) such filings and approvals as
may be required by any applicable state securities, "blue
sky" or takeover laws.
(d) SEC DOCUMENTS. Purchaser has made available to
the Company a true and complete copy of each report,
schedule, registration statement and definitive proxy
statement filed by Purchaser with the SEC since January 26,
1994 and prior to the date of this Agreement (the "Purchaser
SEC Documents"), which are all the documents (other than
preliminary material) that Purchaser was required to file
with the SEC since such date. As of their respective dates,
the Purchaser SEC Documents complied in all material
respects with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such
Purchaser SEC Documents, and none of the Purchaser SEC
Documents contained any untrue statement of a material fact
or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading. The financial statements of Purchaser included
in the Purchaser SEC Documents complied as to form in all
material respects with the published rules and regulations
of the SEC with respect thereto, were prepared in accordance
with GAAP applied on a consistent basis during the periods
involved (except as may be indicated in the notes thereto
or, in the case of the unaudited statements, as permitted by
Rule 10-01 of Regulation S-X of the SEC) and fairly present
in accordance with applicable requirements of GAAP (subject,
in the case of the unaudited statements, to normal,
recurring adjustments, none of which will be material) the
consolidated financial position of Purchaser and its
consolidated Subsidiaries as of their respective dates and
the consolidated results of operations and the consolidated
cash flows of Purchaser and its consolidated Subsidiaries
for the periods presented therein. Except as disclosed in
the Purchaser SEC Documents or on Schedule 3.2(d), there are
no agreements, arrangements or understandings between
Purchaser and any party who is at the date of this Agreement
or was at any time prior to the date hereof but after
January 26, 1994, an affiliate of Purchaser that are
required to be disclosed in the Purchaser SEC Documents.
(e) INFORMATION SUPPLIED. None of the information
supplied or to be supplied by Purchaser or Sub for inclusion
or incorporation by reference in the S-4 will, at the time
the S-4 becomes effective under the Securities Act or at the
Effective Time, contain any untrue statement of a material
fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein,
in light of the circumstances under which they were made,
not misleading, and none of the information supplied or to
be supplied by Purchaser or Sub and included or incorporated
by reference in the Proxy Statement will, at the date mailed
to stockholders of the Company or at the time of the meeting
of such stockholders to be held in connection with the
Merger or at the Effective Time, contain any untrue
statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to
make the statements therein, in light of the circumstances
under which they are made, not misleading. If at any time
prior to the Effective Time any event with respect to
Purchaser or any of its Subsidiaries, or with respect to
other information supplied by Purchaser or Sub for inclusion
in the Proxy Statement or S-4, shall occur that is required
to be described in an amendment of, or a supplement to, the
Proxy Statement or the S-4, Purchaser shall immediately
notify the Company of such event, and Purchaser shall
cooperate with the Company in the prompt filing with the SEC
of any necessary amendment or supplement to the Proxy
Statement and the S-4 and, as required by law, disseminating
the information contained in such amendment or supplement to
the stockholders of the Company. The information relating
to Purchaser, Sub or other Subsidiaries of Purchaser
supplied by Purchaser or Sub for inclusion in the Proxy
Statement and the S-4 will comply as to form in all material
respects with the provisions of the Exchange Act or the
Securities Act, as the case may be, and the rules and
regulations thereunder.
(f) ABSENCE OF CERTAIN CHANGES OR EVENTS. Except as
disclosed in, or reflected in the financial statements
included in, the Purchaser SEC Documents or on Schedule
3.2(f), or except as contemplated by this Agreement, since
January 27, 1996, there has not been: (i) any declaration,
setting aside or payment of any dividend or other
distribution (whether in cash, stock or property) with
respect to any of Purchaser's capital stock, except for
regular quarterly cash dividends on Purchaser Common Stock
with usual record and payment dates for such dividends; (ii)
any amendment of any material term of any outstanding equity
security of Purchaser or Sub; (iii) any repurchase,
redemption or other acquisition by Purchaser or any of its
Subsidiaries of any outstanding shares of capital stock or
other equity securities of, or other ownership interests in,
Purchaser or any of its Subsidiaries, except for repurchases
made in the ordinary course, repurchases contemplated by
Purchaser benefit plans and repurchases pursuant to
Purchaser's stock repurchase program; (iv) any material
change in any method of accounting or accounting practice by
Purchaser or any of its Subsidiaries; or (v) any other
transaction, commitment, dispute or other event or condition
(financial or otherwise) of any character (whether or not in
the ordinary course of business) that could reasonably be
expected to have a Material Adverse Effect on Purchaser,
except for general economic changes and changes that may
affect the industries of Purchaser or any of its
Subsidiaries generally.
(g) NO UNDISCLOSED MATERIAL LIABILITIES. Except as
specifically and individually set forth on Schedule 3.2(g),
as of the date hereof, there are no liabilities of Purchaser
of any kind whatsoever, whether accrued, contingent,
absolute, determined, determinable or otherwise, that could
reasonably be expected to have a Material Adverse Effect on
Purchaser, other than: (i) liabilities adequately provided
for on the balance sheet of Purchaser dated as of January
27, 1996 (including the notes thereto) contained in
Purchaser's Annual Report on Form 10-K; (ii) liabilities
under this Agreement and (iii) liabilities arising since
such date in the ordinary course of business consistent with
past practices.
(h) NO DEFAULT. Neither Purchaser nor Sub is in
default or violation (and no event has occurred which, with
notice or the lapse of time or both, would constitute a
default or violation) of any term, condition or provision of
(i) their respective charter and bylaws, (ii) except as
disclosed in Schedule 3.2(h) and except for the requirement
under certain of such instruments to file supplemental
indentures as a result of the transactions contemplated
hereby, any note, bond, mortgage, indenture, license,
agreement or other instrument or obligation to which
Purchaser or Sub is now a party or by which Purchaser or Sub
or any of their respective properties or assets may be bound
or (iii) any order, writ, injunction, decree, statute, rule
or regulation applicable to Purchaser or Sub, except in the
case of (ii) and (iii) for defaults or violations which in
the aggregate could not reasonably be expected to have a
Material Adverse Effect on Purchaser.
(i) LITIGATION. Except as disclosed in the Purchaser
SEC Documents or on Schedule 3.2(i) hereto, there is no
suit, action or proceeding pending or, to the knowledge of
Purchaser, threatened against or affecting Purchaser
("Purchaser Litigation"), and Purchaser has no knowledge of
any facts that are likely to give rise to any Purchaser
Litigation, that (in any case) could reasonably be expected
to have a Material Adverse Effect on Purchaser, nor is there
any judgment, decree, injunction, rule or order of any
Governmental Entity or arbitrator outstanding against
Purchaser or Sub ("Purchaser Order") that could reasonably
be expected to have a Material Adverse Effect on Purchaser
or its ability to consummate the transactions contemplated
by this Agreement.
(j) NO VOTE REQUIRED. No vote of the holders of any
class or series of Purchaser capital stock is necessary to
approve the issuance of Purchaser Common Stock pursuant to
this Agreement and the transactions contemplated hereby.
(k) BROKERS. Except as disclosed on Schedule 3.2(k),
no broker, investment banker or other person is entitled to
any broker's, finder's or other similar fee or commission in
connection with the transactions contemplated by this
Agreement based upon arrangements made by or on behalf of
Purchaser.
(l) INTERIM OPERATIONS OF SUB. Sub was formed by
Purchaser solely for the purpose of engaging in the
transactions contemplated hereby, has engaged in no other
business or activities, has incurred no other obligations or
liabilities, has no other assets and has conducted its
operations only as contemplated hereby. All of the
outstanding capital stock of Sub is owned directly by
Purchaser.
(m) ADDITIONAL TAX MATTERS. As of the date hereof, to
the knowledge of Purchaser, the representations set forth in
the numbered paragraphs of the form of Certificate of
Purchaser included as Schedule 3.2(m) are true and correct
in all material respects, assuming for purposes of this
representation and warranty that the Merger referred to in
such form had been consummated on the date hereof.
(n) NO OWNERSHIP OF COMPANY CAPITAL STOCK. Neither
Purchaser nor Sub own, directly or indirectly, any Company
Common Stock, other than shares of Company Common Stock
purchased in the ordinary course of business for investment
purposes by Purchaser's retirement plans, savings plans and
insurance company subsidiaries.
ARTICLE IV
COVENANTS RELATING TO CONDUCT OF BUSINESS OF THE COMPANY
4.1 CONDUCT OF BUSINESS BY THE COMPANY PENDING THE
MERGER. During the period from the date of this Agreement and
continuing until the Effective Time, the Company agrees as to
itself and its Subsidiaries that (except as expressly
contemplated or permitted by this Agreement, disclosed on
Schedule 4.1(f), 4.1(h), or 4.1(i) or to the extent that
Purchaser shall otherwise consent in writing):
(a) ORDINARY COURSE. Each of the Company and its
Subsidiaries shall carry on its businesses in the usual,
regular and ordinary course in substantially the same manner
as heretofore conducted and shall use all reasonable efforts
to preserve intact its present business organizations, keep
available the services of its current officers and
employees, and endeavor to preserve its relationships with
customers, suppliers and others having business dealings
with it to the end that its goodwill and ongoing business
shall not be impaired in any material respect at the
Effective Time; provided, however, that the Company and its
Subsidiaries shall not be required to take any action
hereunder that will be inconsistent with any of the
provisions set forth in this Agreement. Purchaser
acknowledges that officers and employees of the Company may
voluntarily terminate employment with the Company and the
Company has no control over such voluntary terminations.
(b) DIVIDENDS; CHANGES IN STOCK. The Company shall
not and it shall not permit any of its Subsidiaries to: (i)
declare or pay any dividends on or make other distributions
in respect of any of its capital stock or partnership
interests, except for dividends from a Subsidiary of the
Company to the Company or another Subsidiary of the Company;
(ii) split, combine or reclassify any of its capital stock
or issue or authorize or propose the issuance of any other
securities in respect of, in lieu of or in substitution for
shares of the Company capital stock; or (iii) repurchase,
redeem or otherwise acquire, or permit any of its
Subsidiaries to purchase, redeem or otherwise acquire, any
shares of its capital stock, except as required by the terms
of its securities outstanding on the date hereof or as
contemplated by any existing employee benefit plan.
Notwithstanding the foregoing, if the record date for
Purchaser's regular fiscal 1996 third quarter dividend is
fixed or to be fixed as of a date on or before the last
business day prior to the Effective Time (in respect of
which dividend, Purchaser agrees to give the Company written
notice of the record date as soon as reasonably practicable,
but in any event at least 15 days prior to the Effective
Time), the Company may declare and pay its regular third
quarter dividend of $.05 per share of Company Common Stock
prior to the Effective Time.
(c) ISSUANCE OF SECURITIES. The Company shall not and
it shall not permit any of its Subsidiaries to issue,
deliver or sell, or authorize or propose to issue, deliver
or sell, any shares of its capital stock of any class, any
Voting Debt or any securities convertible into, or any
rights, warrants or options to acquire, any such shares,
Voting Debt or convertible securities, other than: (i) the
issuance of Company Common Stock upon the exercise of stock
options granted, or purchase rights provided for, under the
Company Stock Purchase Plan, the Company Non-Employee
Directors Plan, or the Company Stock Plan, in each case that
are outstanding on the date hereof, or in satisfaction of
stock grants, stock purchase rights or stock based awards
made prior to the date hereof pursuant to such plans or upon
conversion of the Company Convertible Notes; (ii) issuances
by a wholly owned Subsidiary of its capital stock to its
parent; (iii) the issuance of up to 20,000 shares of Company
Common Stock under the Company's Service Award Program; and
(iv) the issuance of Company Preferred Stock under the
Company's Rights Plan in accordance with its terms.
(d) GOVERNING DOCUMENTS. Except as contemplated
hereby or in connection herewith, the Company shall not
amend or propose to amend its Restated Certificate of
Incorporation or Bylaws.
(e) NO ACQUISITIONS. The Company shall not and it
shall not permit any of its Subsidiaries to acquire or agree
to acquire by merging or consolidating with, or by
purchasing an equity interest in or assets of, or by any
other manner, any business or any corporation, partnership,
association or other business organization or division
thereof.
(f) NO DISPOSITIONS. Other than: (i) dispositions or
proposed dispositions listed on Schedule 4.1(f); (ii) as may
be necessary or required by law to consummate the
transactions contemplated hereby; (iii) dispositions in the
ordinary course of business consistent with past practice
that are not material, individually or in the aggregate, to
the Company and its Subsidiaries taken as a whole; or (iv)
the sale of inventory in the ordinary course of business
consistent with past practices, the Company shall not and it
shall not permit any of its Subsidiaries to sell, lease,
encumber or otherwise dispose of, or agree to sell, lease
(whether such lease is an operating or capital lease),
encumber or otherwise dispose of, any of its assets.
(g) NO DISSOLUTION, ETC. Except as otherwise
permitted or contemplated by this Agreement, the Company
shall not authorize, recommend, propose or announce an
intention to adopt a plan of complete or partial liquidation
or dissolution of the Company or any of its Subsidiaries.
(h) CERTAIN EMPLOYEE MATTERS. Except as set forth on
Schedule 4.1(h), the Company shall not and it shall not
permit any of its Subsidiaries to: (i) except to the extent
required by applicable law, grant any increases in the
compensation of any of its directors, officers or employees,
except increases in the ordinary course of business and in
accordance with past practice for persons other than
directors and executive officers; (ii) except to the extent
required by applicable law, pay or agree to pay any pension,
retirement allowance or other employee benefit not required
or contemplated by any of the existing Company Employee
Benefit Plans or Company Pension Plans as in effect on the
date hereof to any such director, officer or employee,
whether past or present; (iii) enter into any new, or amend
any existing, employment or severance or termination
agreement with any such director, officer or key employee;
or (iv) become obligated under any new Company Employee
Benefit Plan or Company Pension Plan, which was not in
existence or approved by the Board of Directors of the
Company prior to or on the date hereof, or amend any such
plan or arrangement in existence on the date hereof if such
amendment would have the effect of materially enhancing any
benefits thereunder.
(i) INDEBTEDNESS; LEASES; CAPITAL EXPENDITURES;
ACCOUNTING CHANGES. Except as set forth on Schedule 4.1(i),
the Company shall not and it shall not permit any of its
Subsidiaries to, (i) incur any indebtedness for borrowed
money (except for working capital under the Company's
existing credit facilities and refinancings of existing debt
that permit prepayment of such debt without penalty (other
than LIBOR breakage costs)) or guarantee any such
indebtedness or issue or sell any debt securities or
warrants or rights to acquire any debt securities of such
party or any of its Subsidiaries or guarantee any debt
securities of others, (ii) enter into any lease (whether
such lease is an operating or capital lease) or create any
mortgages, liens, security interests or other encumbrances
on the property of the Company or any of its Subsidiaries in
connection with any indebtedness thereof, except for those
securing purchase money indebtedness, (iii) commit to
capital expenditures other than aggregate capital
expenditures set forth in the fiscal 1997 capital budget, a
true and correct copy of which has been previously delivered
to Purchaser, which, when aggregated with all other fiscal
1997 capital expenditures, do not exceed $19,300,000, (iv)
enter into or terminate any of the Company Agreements, (v)
amend, renew, or extend any Company Agreement that involves
the payment or receipt of money in excess of $500,000 in a
12 month period (other than any Company Agreement, excluding
leases, entered into in the ordinary course of business
consistent with past practice), or (vi) implement any
accounting policy changes. The Company shall promptly
provide Purchaser with true, correct and complete copies of
any and all leases which are amended, renewed, replaced or
extended as provided in Schedule 4.1(i) or permitted under
this Section 4.1(i). Any consent of Purchaser required
pursuant to this Section 4.1(i) may be obtained from Robert
W. Hannan, Edward C. Metting, or their respective
successors, and such consent shall not be unreasonably
withheld or delayed. No later than the tenth business day
following the date hereof, the Company shall provide
Purchaser with a true, correct and complete list of all
Company Agreements involving the receipt of money in excess
of $500,000 in a 12 month period.
(j) 368(A) REORGANIZATION. From the date hereof
through the Closing Date neither the Company nor any
stockholder of the Company owning 5% or more of the Company
Common Stock shall take any action, or cause any action to
be taken, which would prevent the transactions contemplated
hereby from qualifying as a reorganization pursuant to
section 368(a) of the Code.
4.2 NO SOLICITATION. From and after the date hereof,
the Company will not, and will not authorize or permit any of its
officers, directors, employees, agents and other representatives
or those of any of its Subsidiaries (collectively, "Company
Representatives") to, directly or indirectly, solicit or initiate
any prospective buyer or the making of any proposal that
constitutes, or may reasonably be expected to lead to, an
Acquisition Proposal (as hereinafter defined) from any person;
provided, however, that if the Company immediately notifies
Purchaser of the existence of such negotiations and the status,
terms and conditions thereof, then (a) the Company's Board of
Directors may authorize the Company to engage in discussions or
negotiations with a third party who (without any solicitation or
initiation, directly or indirectly, by or with the Company or any
Company Representatives after the date of this Agreement) seeks
to initiate such discussions or negotiations and may furnish such
third party information concerning the Company and its business,
properties and assets; provided the disclosure of such
information is consistent with the fiduciary obligations of the
Company's Board of Directors, (b) the Company's Board of
Directors may take and disclose to the Company's stockholders a
position contemplated by Rule 14e-2(a) promulgated under the
Exchange Act and (c) following receipt of an Acquisition Proposal
that is financially superior to the Merger (as determined in each
case in good faith by the Company's Board of Directors after
consultation with the Company's financial advisors), the Board of
Directors of the Company may withdraw, modify or not make its
recommendation referred to in Section 5.5 or terminate this
Agreement in accordance with Section 7.1(b), but in each case
referred to in the foregoing clauses (a) through (c) only to the
extent that the Company's Board of Directors shall conclude in
good faith that such action is necessary in order for the
Company's Board of Directors to act in a manner that is
consistent with its fiduciary obligations under applicable law.
The Company shall immediately cease and cause to be terminated
any existing solicitation, initiation, encouragement, activity,
discussion or negotiation with any parties conducted heretofore
by the Company or any the Company Representatives with respect to
any Acquisition Proposal existing on the date hereof. The
Company will promptly notify Purchaser in writing of any such
requests for such information or the receipt of any Acquisition
Proposal, including the identity of the person or group engaging
in such discussions or negotiations, requesting such information
or making such Acquisition Proposal, and the material terms and
conditions of any Acquisition Proposal. As used in this
Agreement, "Acquisition Proposal" shall mean any proposal or
offer, other than a proposal or offer by Purchaser or any of its
affiliates, with respect to an Acquisition Transaction. As used
in this Agreement, "Acquisition Transaction" means a tender or
exchange offer, a merger, consolidation or other business
combination involving the Company or any Subsidiary of the
Company or the acquisition in any manner of a substantial equity
interest in, or substantially all of the assets of, the Company
or any of its Subsidiaries by any person other than Purchaser or
Sub.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 PREPARATION OF S-4 AND THE PROXY STATEMENT. The
Company shall promptly prepare and file with the SEC the Proxy
Statement and Purchaser shall prepare and file with the SEC the
S-4, in which the Proxy Statement will be included as a
prospectus. The Company and Purchaser shall give the other party
an opportunity to review, comment on, and make reasonable changes
to the Proxy Statement and the S-4, respectively. Each of Purchaser
and the Company shall use its reasonable efforts to have the S-4
declared effective under the Securities Act as promptly as
practicable after such filing. Each of the Company and Purchaser
shall use its reasonable efforts to cause the Proxy Statement to
be mailed to stockholders of the Company at the earliest
practicable date. Purchaser shall use its reasonable efforts to
obtain all necessary state securities laws or "blue sky" permits,
approvals and registrations in connection with the issuance of
Purchaser Common Stock in connection with the Merger and the
Company shall furnish all information concerning the Company and
the holders of Company Common Stock as may be reasonably
requested in connection with obtaining such permits, approvals
and registrations.
5.2 LETTER OF THE COMPANY'S ACCOUNTANTS. The Company
shall cause to be delivered to Purchaser a letter of Deloitte &
Touche, L.L.P., the Company's independent public accountants,
dated a date within two business days before the date on which
the S-4 shall become effective and addressed to Purchaser and the
Company, in form and substance reasonably satisfactory to
Purchaser and customary in scope and substance for letters
delivered by independent public accountants in connection with
registration statements similar to the S-4.
5.3 LETTER OF PURCHASER'S ACCOUNTANTS. Purchaser
shall cause to be delivered to the Company a letter of KPMG Peat
Marwick, LLP, Purchaser's independent public accountants, dated a
date within two business days before the date on which the S-4
shall become effective and addressed to the Company and
Purchaser, in form and substance reasonably satisfactory to the
Company and customary in scope and substance for letters
delivered by independent public accountants in connection with
registration statements similar to the S-4.
5.4 ACCESS TO INFORMATION. Upon reasonable notice,
the Company shall (and shall cause its Subsidiaries to) afford to
the officers, employees, accountants, actuaries, counsel and
other representatives of Purchaser, access, during normal
business hours during the period prior to the Effective Time, to
all officers, legal and financial representatives, properties,
books, contracts, commitments, records and all other information
concerning its business, properties and personnel as Purchaser
may reasonably request; provided that such access shall not
unreasonably interfere with the business or operations of the
Company. Upon reasonable notice, Purchaser shall make available
such additional information which is reasonably requested by the
Company, and needed, solely for use, in connection with the
Company's preparation of the Proxy Statement. During such
period, each of the Company and Purchaser shall (and shall cause
each of their respective Subsidiaries to) furnish promptly to the
other a copy of each report, schedule, registration statement and
other document filed or received by it during such period
pursuant to SEC requirements.
5.5 THE COMPANY STOCKHOLDERS MEETING. The Company
shall call a meeting of its stockholders as soon as practicable
after the date upon which the S-4 becomes effective. The Company
shall consult with Purchaser in determining a date for such
meeting that is reasonably agreeable to Purchaser and the
Company. Subject only to the proviso of the first sentence of
Section 4.2 and any other action taken by, or upon authority of,
the Board of Directors in the exercise of its good faith judgment
as to its fiduciary duties to its stockholders imposed by law,
the Company will, through its Board of Directors, recommend to
its stockholders approval of such matters and not rescind such
recommendation and shall use its reasonable efforts to obtain
approval and adoption of this Agreement and the Merger by its
stockholders.
5.6 LEGAL CONDITIONS TO MERGER. Each of the Company,
Purchaser and Sub will take all reasonable actions necessary to
comply promptly with all legal requirements that may be imposed
on such party with respect to the Merger (including, without
limitation, furnishing all information required under the HSR Act
and in connection with approvals of or filings with any other
Governmental Entity) and will promptly cooperate with and furnish
information to each other in connection with any such
requirements imposed upon any of them or any of their
Subsidiaries in connection with the Merger. Each of the Company,
Purchaser and Sub will, and will cause its Subsidiaries to, take
all reasonable actions necessary to obtain (and will cooperate
with each other in obtaining) any consent, acquiescence,
authorization, order or approval of, or any exemption or
nonopposition by, any Governmental Entity or court required to be
obtained or made by the Company, Purchaser or any of their
Subsidiaries in connection with the Merger or the taking of any
reasonable action contemplated thereby or by this Agreement.
5.7 RESPONSE TO CERTAIN ACTIONS. Each of the Company,
Purchaser and Sub agree to cooperate and use their reasonable
efforts to contest and resist any action, including
administrative or judicial action, and make reasonable attempts
to have vacated, lifted, reversed or overturned any decree,
judgment, injunction or other order, whether temporary,
preliminary or permanent, that is in effect and that restricts,
prevents or prohibits the consummation of the Merger or any other
transactions contemplated by this Agreement. Each of the Company
(before the Effective Time), Purchaser and Sub agree to dispose
of drug stores in the State of Pennsylvania, on commercially
reasonable terms, to the extent required by the U.S. Federal
Trade Commission, the U.S. Department of Justice or the attorney
general of the State of Pennsylvania as a condition to the
granting of any approvals required in order to permit the
consummation of the Merger; provided, however, that in no event
shall Purchaser be required to take any action that would result
in the disposition or closure of drug stores which had aggregate
revenues in excess of $25,000,000 for the fiscal year ended
January 27, 1996 (the "Divestiture Threshold"). In each instance
that Purchaser may be required to take action resulting in the
disposition or closure of alternative stores to be selected by
Purchaser, those stores satisfying the requirement that have the
lowest revenues shall be used for purposes of calculating the
Divestiture Threshold.
5.8 AGREEMENTS OF OTHERS. Prior to the Effective
Time, the Company shall cause to be prepared and delivered to
Purchaser a list identifying all persons who, at the time of the
Stockholder Meeting, may be deemed to be "affiliates" of the
Company as that term is used in paragraphs (c) and (d) of Rule
145 under the Securities Act (the "Affiliates"). The Company
shall use its reasonable efforts to cause each person who is
identified as an Affiliate in such list to deliver to Purchaser,
at or prior to the Effective Time, a written agreement, in the
form to be approved by the parties hereto, that such Affiliate
will not sell, pledge, transfer or otherwise dispose of any
shares of Purchaser Common Stock issued to such Affiliate
pursuant to the Merger, except pursuant to an effective
registration statement or in compliance with Rule 145 or an
exemption from the registration requirements of the Securities
Act.
5.9 AUTHORIZATION FOR SHARES AND STOCK EXCHANGE
LISTING. Prior to the Effective Time, Purchaser shall have taken
all action necessary to permit it to issue the number of shares
of Purchaser Common Stock required to be issued pursuant to
Section 2.1. Purchaser shall use all reasonable efforts to cause
the shares of Purchaser Common Stock to be issued in the Merger
and shares of Purchaser Common Stock to be reserved for issuance
upon conversion of the Company Convertible Notes, to be approved
for listing on the NYSE, subject to official notice of issuance,
prior to the Closing Date.
5.10 EMPLOYEE MATTERS.
(a) EMPLOYEES. For purposes of this Section 5.10, the
term "Employees" shall mean all employees of the Company and
its Subsidiaries (including those on disability or leave of
absence, paid or unpaid) immediately prior to the Effective
Time.
(b) PARTICIPATION IN PLANS MAINTAINED BY PURCHASER.
(i) Purchaser and its Subsidiaries will honor, in
accordance with their terms, the Company Pension Benefit
Plans and Company Employee Benefit Plans (collectively, the
"Company Benefit Plans"), as in effect immediately prior to
the date hereof, listed on Schedule 5.10(b) for a period of
not less than 12 months after the Effective Time; provided,
however, that Purchaser or any of its Subsidiaries may
substitute any plan (a "Purchaser Benefit Plan") that it
maintains for any Company Benefit Plan listed on Schedule
5.10(b) if Purchaser in good faith determines, in its sole
discretion, that the Purchaser Benefit Plan, when aggregated
with other plans under which Employees are eligible,
provides substantially similar benefits, determined at the
time of the substitution, to those that the Employees had
immediately prior to the Effective Time. Notwithstanding
the foregoing, (i) Purchaser's obligations with respect to
the Company's Tuition Assistance Plan and the Company's
Pharmacy Tuition Assistance Program shall be limited to
persons enrolled in such plan or program as of the Effective
Time, (ii) the Company's Tuition Assistance Plan shall be
continued, without substitution, throughout the 1996-1997
academic year, and (iii) the Company's Pharmacy Tuition
Assistance Program shall be continued, without substitution,
for a period of not less than 12 months after the Effective
Time. Notwithstanding the foregoing, nothing herein shall
preclude Purchaser from making any amendments to or
terminating any Company Benefit Plan to the extent required
by law (provided that Purchaser uses its reasonable efforts
to minimize the reduction of benefits needed to comply with
applicable law). Purchaser shall have the right, at any
time thereafter following the 12 month period described
above, to make any amendments to or terminate any Company
Benefit Plan as Purchaser deems appropriate.
(ii) With respect to each Purchaser Benefit Plan
for which an Employee becomes eligible, Purchaser and its
Subsidiaries shall grant such Employee credit, for purposes
of eligibility and vesting only, for all past service
credited for such purposes by the Company under similar
plans, other than new Purchaser Benefit Plans which cover a
substantial number of Purchaser's employees or employees of
one or more of Purchaser's Subsidiaries, including without
limitation Thrift Drug, Inc., (in addition to Employees)
which do not grant past service credit to Purchaser's or
such Subsidiaries' employees generally. Notwithstanding the
foregoing, for any vacation plan, service will be calculated
and credited in accordance with the Company's standard
vacation plan, a true and correct copy of which has been
provided to Purchaser.
(iii) Any pre-existing condition exclusion
under any Purchaser Benefit Plan providing medical benefits
(other than dental benefits) shall be waived for any
Employee who, immediately prior to commencing participation
in such Purchaser Benefit Plan, was participating in a
Company Benefit Plan providing medical benefits (other than
dental benefits) and had satisfied any pre-existing
condition provision under such Company Benefit Plan. Any
pre-existing condition exclusion under any Purchaser Benefit
Plan providing dental benefits shall be waived for any
Employee of the Company who, immediately prior to commencing
participation in such Purchaser Benefit Plan, was
participating in a Company Benefit Plan providing dental
benefits and had satisfied any pre-existing condition
provision under such Company Benefit Plan. Any expenses
that were taken into account under a Company Benefit Plan
providing medical or dental benefits in which the Employee
participated immediately prior to commencing participation
in a Purchaser Benefit Plan providing medical or dental
benefits shall be taken into account to the same extent
under such Purchaser Benefit Plan, in accordance with the
terms of such Purchaser Benefit Plan, for purposes of
satisfying applicable deductible, coinsurance and maximum
out-of-pocket provisions and life-time benefit limits.
(c) EMPLOYMENT OF COMPANY EMPLOYEES. Purchaser agrees
to cause the Company at the Effective Time to continue to
employ all Employees (other than any of the persons listed
in Schedule 5.10(d)) who are employed immediately prior to
the Effective Time at substantially comparable levels of
cash compensation. Purchaser shall be under no obligation
to cause the Company to continue to employ any such
individuals after the Effective Time.
(d) EMPLOYMENT AGREEMENTS. Purchaser agrees to be,
and agrees to cause the Company to continue to be, bound by
and honor the written employment agreements, as amended
through the date hereof (the "Employment Agreements"),
between the Company and those persons listed in Schedule
5.10(d), true, complete and correct copies of which have
been provided to Purchaser. The Company hereby agrees that
it shall not exercise its authority under any such agreement
to set up an irrevocable trust, establish an irrevocable
letter of credit, or otherwise establish an irrevocable
funding commitment with respect to such Employment
Agreements. Purchaser agrees that Henry Panasci, David
Panasci, James Poole and Warren Wolfson will be terminated
without cause immediately after the Effective Time for
purposes of the Employment Agreements. Purchaser
acknowledges that the consummation of the Merger is a Change
in Control (as such term is defined in the Employment
Agreements).
(e) NON-EMPLOYEE DIRECTORS RETIREMENT PLAN. Purchaser
agrees that each non-Employee director of the Company
immediately preceding the Effective Time shall be entitled
to receive the retirement benefits he would have received
had he retired immediately prior to the Effective Time (as
if such director were at least 65 years old at the Effective
Time and served on the Board for more than ten years). Such
benefits shall be paid to the director upon his attainment
of age 65; provided, however, that the Purchaser may, in
its sole discretion, at any time and from time to time
within six months after the Effective Time, pay any or all
of such directors the actuarial equivalent of such benefits
in a lump sum. Lump sum amounts shall be calculated using a
6.75% interest rate and the GAM 83 sex distinct mortality
table.
(f) SEVERANCE POLICIES. Purchaser shall, and shall
cause the Company, from and after the Effective Time, to
honor and be bound by the Company's corporate officers' and
non-officer employees' severance policies dated as of August
5, 1996, true, correct and complete copies of which have
been provided to Purchaser.
(g) BONUS PLANS. Purchaser shall, and shall cause the
Company, from and after the Effective Date, to perform the
Company's obligations under the Management Incentive Plan
and the Key Management Incentive Plan of the Company and its
Subsidiaries in effect for fiscal year ending February 1,
1997 (the "Bonus Plans"), true, complete and correct copies
of which have been provided to Purchaser. Notwithstanding
the terms of the Bonus Plans, Purchaser shall make payments
to all Employees who were employed immediately prior to the
Effective Time, in an amount equal to the product of:
(i) such Employee's entitlement under the Bonus
Plans as if all targets are met at 100%; times
(ii) a percentage equal to (A) the number of days
such Employee was employed by the Company (including days
employed by the Surviving Corporation) during the fiscal
year ending February 1, 1997, divided by (B) 366.
Such payments to terminated Employees shall be made at such
time that such payment would have been made if such
employee's employment had not been so terminated.
Notwithstanding the foregoing, no benefits will be paid to
Employees who are terminated for Summary Dismissal (as
defined in the severance policies referenced in Section
5.10(f)).
(h) STOCK PURCHASE PLAN. Concurrently with the
execution of this Agreement, the Company Stock Purchase Plan
will be amended to provide that (a) no Company employee not
already participating in such plan shall be eligible to
enter such Plan; (b) no employee currently participating in
such Plan shall be able to increase his payroll deduction
under such Plan; and (c) all account balances of such Plan
will be used to purchase shares of Company Common Stock at a
date determined by the Committee (as defined in the Company
Stock Purchase Plan) prior to the Effective Time as if such
date was the Annual Purchase Date.
(i) STOCK OPTIONS ISSUED TO NON-EMPLOYEE DIRECTORS.
Concurrent with the Effective Time, outstanding non-employee
director stock options to purchase shares of Company Common
Stock (a "Directors Stock Option") heretofore granted under
the Company Non-Employee Directors Plan, and exercisable but
not exercised shall, upon their surrender to the Company by
the holders thereof, be canceled by the Company, and the
holders thereof shall receive a cash payment from the
Company in an amount (if any) equal to the number of shares
of Company Common Stock subject to each surrendered option
multiplied by the difference (if positive) between the
exercise price per share of such Directors Stock Options and
the average of the per share Daily Price on the NYSE (as
reported in the New York Stock Exchange Composite
Transactions) during the ten consecutive trading days
immediately preceding the date which is two trading days
prior to the date of the stockholders meeting referred to in
Section 5.5 of the shares of Purchaser Common Stock which
such non-employee director would have received if such non-
employee director had exercised such option prior to the
Effective Time; provided, however, that with respect to both
(i) options not yet exercisable and (ii) options for which
such payment cannot be made at the Effective Time because of
the requirements of Section 16(b) of the Securities Exchange
Act of 1934, as amended, Purchaser will cause such options
to be assumed by Purchaser and become exercisable for the
same number of whole shares of Purchaser Common Stock which
would have been received if such option had been exercised
immediately prior to the Effective Time and the Company
Common Stock received in connection therewith was exchanged
for Purchaser Common Stock pursuant to the terms of the
Merger; provided, however, that cash will be paid in lieu of
the issuance of fractional shares of Purchaser Common Stock.
Purchaser will provide continuing optionees with
documentation regarding such assumed options.
(j) STOCK OPTIONS ISSUED TO EMPLOYEES. Concurrent
with the Effective Time, the Company shall offer a cash
payment to all holders of outstanding options (an "Employee
Stock Option") to purchase Company Common Stock heretofore
granted under the Company Stock Option Plan. Upon the
surrender to the Company by holders thereof, such Employee
Stock Options shall be canceled by the Company and the
holders thereof shall receive a cash payment from the
Company in an amount equal to the number of shares of
Company Common Stock subject to each surrendered Employee
Stock Option multiplied by the difference (if positive)
between the exercise price per share of such Employee Stock
Options and the average of the per share Daily Price on the
NYSE (as reported in the New York Stock Exchange Composite
Transactions) during the ten consecutive trading days
immediately preceding the date which is two trading days
prior to the date of the stockholders meeting referred to in
Section 5.5 of the shares of Purchaser Common Stock which
such employee would have received if such employee had
exercised such Employee Stock Option prior to the Effective
Time. Employee Stock Options not surrendered by their
holders shall be assumed by Purchaser and exercisable for
the same number of whole shares of Purchaser Common Stock
which would have been received if such Employee Stock Option
had been exercised immediately prior to the Effective Time
and the Company Common Stock received in connection
therewith was exchanged pursuant to the terms of the Merger;
provided, however, that cash will be paid in lieu of the
issuance of fractional shares of Purchaser Common Stock.
Purchaser will provide continuing optionees with
documentation regarding such assumed options.
(k) COMMUNICATIONS TO EMPLOYEES. Purchaser and the
Company shall cooperate with each other with respect to, and
endeavor in good faith to agree in advance upon the method
and content of, all written communications to Employees, and
all oral communications to groups of Employees, regarding
the matters that are subject of this Section 5.10.
5.11 INDEMNIFICATION; DIRECTORS' AND OFFICERS'
INSURANCE.
(a) From and after the Effective Time, Purchaser and
the Surviving Corporation shall indemnify, defend and hold
harmless each person who is now, or has been at any time
prior to the date hereof or who becomes prior to the
Effective Time, an officer or director of the Company or any
of its Subsidiaries or an employee of the Company or any of
its Subsidiaries who acts as a fiduciary under any Company
Employee Benefit Plans or Company Pension Plans (the
"Indemnified Parties") against all losses, claims, damages,
costs, expenses (including attorneys' fees), liabilities,
fines, penalties or judgments or amounts that are paid in
settlement with the approval of the indemnifying party
(which approval shall not be unreasonably withheld) of or in
connection with any threatened or actual claim, action,
suit, proceeding or investigation based in whole or in part
on or arising in whole or in part out of the fact that such
person is or was a director, officer, or such employee of
the Company or any Subsidiary whether pertaining to any
matter of fact existing or occurring at or prior to the
Effective Time ("Indemnified Liabilities"), including all
Indemnified Liabilities based in whole or in part on, or
arising in whole or in part out of, or pertaining to this
Agreement or the transactions contemplated hereby, in each
case to the full extent permitted under applicable law (and
Purchaser and the Surviving Corporation will pay expenses in
advance of the final disposition of any such action or
proceeding to each Indemnified Party to the full extent
permitted by law). Without limiting the foregoing, in the
event any such claim, action, suit, proceeding or
investigation is brought against any Indemnified Parties
(whether arising before or after the Effective Time), (i)
the Indemnified Parties may retain counsel (which shall be
reasonably acceptable to Purchaser) and Purchaser and the
Surviving Corporation shall pay all reasonable fees and
expenses of such counsel for the Indemnified Parties
promptly as statements therefor are received; and (ii)
Purchaser and the Surviving Corporation will use all
reasonable efforts to assist in the vigorous defense of any
such matter, provided that neither Purchaser nor the
Surviving Corporation shall be liable for any settlement
effected without its written consent, which consent,
however, shall not be unreasonably withheld. Any
Indemnified Party wishing to claim indemnification under
this Section 5.11(a), upon learning of any such claim,
action, suit, proceeding or investigation, shall notify
Purchaser and the Surviving Corporation, but the failure so
to notify shall not relieve a party from any liability that
it may have under this Section 5.11(a), except to the extent
such failure materially prejudices such party. The
Indemnified Parties as a group may retain only one law firm
to represent them with respect to each such matter in each
applicable jurisdiction unless there is, under applicable
standards of professional conduct, a conflict on any
significant issue between the positions of any two or more
Indemnified Parties. Purchaser and Sub agree that all
rights to indemnification, including provisions relating to
advances of expenses incurred in defense of any action or
suit, existing in favor of the Indemnified Parties
(including in the Restated Certificate of Incorporation or
Bylaws of the Company or in the indemnification agreements
previously provided to Purchaser) with respect to matters
occurring through the Effective Time, shall survive the
Merger and shall continue in full force and effect for a
period of six years from the Effective Time; provided,
however, that all rights to indemnification in respect of
any Indemnified Liabilities asserted or made within such
period shall continue until the disposition of such
Indemnified Liabilities. Purchaser shall cause the
provisions providing for the exculpation of directors and
officers liability and indemnification contained in the
Certificate of Incorporation of the Surviving Corporation to
be substantively the same as the provisions providing for
the exculpation of directors and officers liabilities and
indemnifications contained in the Restated Certificate of
Incorporation of the Company in effect immediately prior to
the Effective Time. The rights of each Indemnified Party
hereunder shall be in addition to any other rights such
Indemnified Party may have under the Restated Certificate of
Incorporation or Bylaws of the Company, under the NYBCL or
otherwise. The provisions of this Section shall survive the
consummation of the Merger and expressly are intended to
benefit each of the Indemnified Parties.
(b) For a period of six years after the Effective
Time, Purchaser shall cause to be maintained in effect the
current policies of directors' and officers' liability
insurance maintained by the Company and its Subsidiaries
(provided that Purchaser may substitute therefor policies of
at least the same coverage and amounts containing terms and
conditions that are no less advantageous in any material
respect to the Indemnified Parties) with respect to matters
arising before the Effective Time; provided, however, that
Purchaser shall not be required to pay an annual premium for
such insurance in excess of (i) 250% of the last annual
premium paid by the Company prior to the date hereof, for
each of the first three annual premiums and (ii) 200% of the
last annual premium paid by the Company prior to the date
hereof, thereafter; provided, further, that in the event
such maximum amounts are applicable, Purchaser shall
purchase as much coverage as possible for such amount.
(c) Purchaser shall reimburse an Indemnified Party for
reasonable legal expenses actually incurred by such
Indemnified Party in enforcing the provisions of this
Section 5.11 if such Indemnified Party is ultimately
determined to be the prevailing party in a final
adjudication by a court from which there is no further right
of appeal (or any such right of appeal has expired).
5.12 AGREEMENT TO DEFEND. In the event any claim,
action, suit, investigation or other proceeding by any
governmental body or other person or other legal or
administrative proceeding is commenced that questions the
validity or legality of the transactions contemplated hereby or
seeks damages in connection therewith, the parties hereto agree
to cooperate and use their reasonable efforts to defend against
and respond thereto.
5.13 PUBLIC ANNOUNCEMENTS. Purchaser and Sub, on the
one hand, and the Company, on the other hand, 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 based upon opinion of
counsel by applicable law or by obligations pursuant to any
listing agreement with any national securities exchange or
transaction reporting system.
5.14 OTHER ACTIONS. Except as contemplated by this
Agreement, neither Purchaser nor the Company shall, and shall not
permit any of its Subsidiaries to, take or agree or commit to
take any action that is reasonably likely to result in any of its
respective representations or warranties hereunder being untrue
in any material respect or in any of the conditions to the Merger
set forth in Article VI not being satisfied.
5.15 ADVICE OF CHANGES; SEC FILINGS. The Company shall
confer on a regular basis with Purchaser and report on
operational matters. Purchaser and the Company shall promptly
advise each other orally and in writing of any change or event
that has, or could reasonably be expected to have, a Material
Adverse Effect on Purchaser or the Company, as the case may be.
The Company and Purchaser shall promptly provide each other (or
their respective counsel) copies of all filings made by such
party with the SEC or any other state or federal Governmental
Entity in connection with this Agreement and the transactions
contemplated hereby.
5.16 REORGANIZATION. It is the intention of Purchaser
and the Company that the Merger will qualify as a reorganization
described in section 368(a) of the Code (and any comparable
provisions of applicable state law). Neither Purchaser nor the
Company (nor any of their respective Subsidiaries) will take or
omit to take any action (whether before, on or after the Closing
Date) that would cause the Merger not to be so treated. The
parties will characterize the Merger as such a reorganization for
purposes of all Returns and other filings.
5.17 CONVEYANCE TAXES. The Company and Purchaser will
cooperate in the preparation, execution and filing of all
returns, questionnaires, applications or other documents
regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any
transfer, recording, registration and other fees and any similar
taxes which become payable in connection with the transactions
contemplated by this Agreement that are required or permitted to
be filed on or before the Effective Time and each party will pay
any such tax or fee which becomes payable by it on or before the
Effective Time.
5.18 COMPANY OPERATIONS AND NAME. It is Purchaser's
present intention to (i) continue to operate the Company's
existing distribution center in Liverpool, New York and establish
a regional office in the location presently used by the Company
as its corporate headquarters; (ii) operate substantially all of
the existing stores of the Company, provided that Purchaser may,
from time to time in the ordinary course of business, discontinue
the operation of any of the stores of the Company; (iii) continue
to use Fay's name for the Company's stores located in the State
of New York; and (iv) operate, directly or through any of its
Subsidiaries, any new drug stores in currently existing trade
areas of the Company in the State of New York under the Fay's
name. Nothing in this Section 5.18 shall be deemed a contractual
or other obligation of Purchaser.
5.19 COMPANY CONVERTIBLE NOTES. The Company shall use
all reasonable efforts to cause the conversion of the Company
Convertible Notes on or prior to the Closing Date.
ARTICLE VI
CONDITIONS PRECEDENT
6.1 CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT
THE MERGER. The respective obligation of each party to effect
the Merger shall be subject to the satisfaction prior to the
Closing Date of the following conditions:
(a) COMPANY STOCKHOLDER APPROVAL. This Agreement and
the Merger shall have been approved and adopted by the
affirmative vote of the holders of at least two-thirds of
the outstanding shares of Company Common Stock entitled to
vote thereon.
(b) NYSE LISTING. The shares of Purchaser Common
Stock issuable to the Company stockholders pursuant to this
Agreement and such other shares of Purchaser Common Stock
required to be reserved for issuance in connection with the
Merger shall have been authorized for listing on the NYSE
upon official notice of issuance.
(c) OTHER APPROVALS. The waiting period applicable to
the consummation of the Merger under the HSR Act shall have
expired or been terminated and all filings required to be
made prior to the Effective Time with, and all consents,
approvals, permits and authorizations required to be
obtained prior to the Effective Time from any Governmental
Entity in connection with the execution and delivery of this
Agreement and the consummation of the transactions
contemplated hereby by the Company, Purchaser and Sub shall
have been made or obtained (as the case may be), except
where the failure to obtain such consents, approvals,
permits, and authorizations could not reasonably be expected
to result in a Material Adverse Effect on Purchaser
(assuming the Merger has taken place) or to materially
adversely affect the consummation of the transactions
contemplated by this Agreement.
(d) S-4. The S-4 shall have become effective under
the Securities Act and shall not be the subject of any stop
order or proceedings seeking a stop order.
(e) NO INJUNCTIONS OR RESTRAINTS. No temporary
restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction or
other legal restraint or prohibition (an "Injunction")
preventing the consummation of the Merger shall be in
effect; provided, however, that prior to invoking this
condition, each party shall have complied fully with its
obligations under Section 5.7 hereof and, in addition, shall
use all reasonable efforts to have any such decree, ruling,
injunction or order vacated, except as otherwise
contemplated by this Agreement.
(f) TAX OPINION. The Company shall have received (i)
an opinion, dated on or about the date that is two days
prior to the date the Proxy Statement is first mailed to
stockholders of the Company, of Baker & Botts, L.L.P.,
counsel to Purchaser, to the effect that, if consummated in
accordance with the terms of this Agreement, the Merger will
be treated for federal income tax purposes as a
reorganization within the meaning of section 368(a) of the
Code; Purchaser, Sub and the Company will each be a party to
that reorganization within the meaning of section 368(b) of
the Code; and no gain or loss will be recognized by a
stockholder of the Company as a result of the Merger upon
the conversion of shares of Company Common Stock into shares
of Purchaser Common Stock, and (ii) an opinion, dated as of
the Closing Date, to the same effect; provided, however,
that in the event Baker & Botts, L.L.P. is unprepared or
unwilling to render either or both such opinions, this
condition shall have been satisfied if Bryan Cave L.L.P.,
outside general counsel of the Company, or Fried, Frank,
Harris, Shriver & Jacobson, outside special counsel to the
Company, is able to render an opinion to the same effect as
substantially above. In rendering such opinion, such
counsel may receive and rely upon representations of fact
contained in certificates of Purchaser and Sub (in the form
of the Certificate at Schedule 3.2(m)) and the Company (in
the form of the Certificate at Schedule 3.1(w)).
6.2 CONDITIONS OF OBLIGATIONS OF PURCHASER AND SUB.
The obligations of Purchaser and Sub to effect the Merger are
subject to the satisfaction of the following conditions, any or
all of which may be waived in whole or in part by Purchaser and
Sub.
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of the Company set forth in
this Agreement shall be true and correct in all material
respects as of the date of this Agreement and (except to the
extent such representations and warranties speak as of an
earlier date) as of the Closing Date as though made on and
as of the Closing Date, except where the failure to be so
true and correct (without giving effect to the individual
materiality thresholds otherwise contained in Section 3.1
hereof) could not reasonably be expected to have a Material
Adverse Effect on the Company or as otherwise contemplated
by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF THE COMPANY. The
Company shall have performed in all material respects all
obligations required to be performed by it under this
Agreement at or prior to the Closing Date.
(c) AGREEMENTS FROM THE COMPANY AFFILIATES. Purchaser
shall have received from each person named in the list
referred to in Section 5.8 an executed copy of an agreement
as provided in Section 5.8.
(d) APPRAISAL RIGHTS. Holders of not more than 10% of
the outstanding shares of Company Common Stock shall have
properly demanded appraisal rights for their shares under
the NYBCL.
(e) OPINION OF COMPANY COUNSEL. Purchaser shall have
received opinions of counsel from Bryan Cave LLP, counsel to
the Company, and Fried, Frank, Harris, Shriver & Jacobson,
counsel to the Company, dated the Effective Time, covering,
collectively and substantially, the opinions expressed
below:
(i) The incorporation, good standing and
capitalization of the Company and its Subsidiaries are as
stated in this Agreement; the authorized shares of Company
Common Stock are as stated in this Agreement; all
outstanding shares of Company Common Stock are duly and
validly authorized and issued, fully paid and non-assessable
and have not been issued in violation of any preemptive
right of stockholders; and, to the knowledge of such
counsel, there is no existing option, warrant, right, call,
subscription or other agreement or commitment obligating the
Company to issue or sell, or to purchase or redeem, any
shares of its capital stock other than as stated in this
Agreement.
(ii) The Company has corporate power and authority
to execute, deliver and perform this Agreement and this
Agreement has been duly authorized, executed and delivered
by the Company, and (assuming the due and valid
authorization, execution and delivery by Purchaser and Sub)
constitutes the legal, valid and binding agreement of the
Company enforceable against the Company in accordance with
its terms, except to the extent enforceability may be
limited by bankruptcy, insolvency, reorganization,
moratorium, fraudulent transfer or other similar laws of
general applicability relating to or affecting the
enforcement of creditors' rights and by the effect of
general principles of equity (regardless of whether
enforceability is considered in a proceeding in equity or at
law).
(iii) To the knowledge of such counsel, there
are no actions, suits or proceedings pending or threatened
against or affecting the Company or its Subsidiaries at law
or in equity or before or by any court, governmental
department, commission, board, bureau, agency or
instrumentality, or before any arbitrator, of any kind that
seek to restrain, prohibit or invalidate the transactions
contemplated by this Agreement.
(iv) The execution and performance by the Company
of this Agreement will not violate the Certificate of
Incorporation or By-laws of the Company or the charter or by-
laws of any of its Subsidiaries, and, to the knowledge of
such counsel, will not violate, result in a breach of, or
constitute a default under, any material lease, mortgage,
contract, agreement, instrument, law, rule, regulation,
judgment, order or decree known to such counsel based upon a
certificate of the Company, to which the Company or any of
its Subsidiaries is a party or to which they or any of their
properties or assets may be bound.
(v) To the knowledge of such counsel, no consent,
approval, authorization or order of any Governmental Entity
which has not been obtained is required on behalf of the
Company or any of its Subsidiaries for consummation of the
transactions contemplated by this Agreement.
(vi) The Proxy Statement (other than financial
statements, financial data, statistical data and supporting
schedules included therein, and information relating to or
supplied by Purchaser or Sub as to which counsel expresses
no opinions) complied as to form in all material respects
with the requirements of the Exchange Act and the rules and
regulations of the SEC thereunder.
In addition, there shall be a statement to the
effect that in the course of the preparation of the Proxy
Statement such counsel has participated in conferences with
certain of the officers and representatives of the Company.
Such counsel has not independently checked the accuracy or
completeness of, or otherwise verified, and accordingly is
not passing upon, and does not assume responsibility for,
the accuracy, completeness or fairness of the statements
contained in the Proxy Statement; and such counsel has
relied as to materiality upon the judgment of certain of the
officers and representatives of the Company. Subject to the
foregoing and on the basis of the information that such
counsel gained in the course of the performance of the
services referred to above, including information obtained
from officers and representatives of the Company, nothing
has come to such counsel's attention which causes such
counsel to believe that the Proxy Statement (other than the
financial statements, financial data, statistical data and
supporting schedules included therein, and information
relating to or supplied by Purchaser or Sub, as to which
such counsel expresses no belief), at the time the S-4
became effective, included any untrue statement of a
material fact or omitted to state a material fact necessary
in order to make the statements therein, in light of the
circumstances under which they were made, not misleading.
In rendering such opinion, counsel for the Company
may rely as to matters of fact upon the representations of
officers of the Company and its Subsidiaries contained in
any certificate delivered to such counsel and certificates
of public officials which certificates should be attached to
and delivered with such opinion. Such opinion shall be
limited to the laws of the State of New York and the laws of
the United States of America.
(f) CONSENTS UNDER AGREEMENTS. The Company shall have
obtained the consent or approval of each person (other than
the Governmental Entities referred to in Section 6.1(c))
whose consent or approval shall be required in connection
with the transactions contemplated hereby under any
indenture, mortgage, evidence of indebtedness, lease or
other agreement or instrument, except where the failure to
obtain the same could not, individually or in the aggregate,
reasonably be expected to have a Material Adverse Effect on
the Company or Purchaser or the consummation of the
transactions contemplated by this Agreement.
(g) MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, there shall have been no Material Adverse Change
with respect to the Company; and Purchaser shall have
received a certificate signed on behalf of the Company by
its Chief Executive Officer and its Chief Financial Officer
to such effect.
(h) TERMINATION OF CERTAIN PLANS. The Company shall
have caused the redemption of the Rights outstanding under
the Company Rights Plan and the termination of the Company
Stock Purchase Plan, Company Dividend Reinvestment and Stock
Purchase Plan and the Company Service Award Program to the
extent it awards Company Common Stock.
6.3 CONDITIONS OF OBLIGATIONS OF THE COMPANY. The
obligation of the Company to effect the Merger is subject to the
satisfaction of the following conditions, any or all of which may
be waived in whole or in part by the Company:
(a) REPRESENTATIONS AND WARRANTIES. Each of the
representations and warranties of Purchaser and Sub set
forth in this Agreement shall be true and correct in all
material respects as of the date of this Agreement and
(except to the extent such representations and warranties
speak as of an earlier date) as of the Closing Date as
though made on and as of the Closing Date, except where the
failure to be so true and correct (without giving effect to
the individual materiality thresholds otherwise contained in
Section 3.2 hereof) could not reasonably be expected to have
a Material Adverse Effect on Purchaser or as otherwise
contemplated by this Agreement.
(b) PERFORMANCE OF OBLIGATIONS OF PURCHASER AND SUB.
Purchaser and Sub shall have performed in all material
respects all obligations required to be performed by them
under this Agreement at or prior to the Closing Date.
(c) OPINION OF PURCHASER COUNSEL. The Company shall
have received opinions from the General Counsel of Purchaser
and Baker & Botts, L.L.P., counsel to Purchaser and Sub,
dated the Effective Time, covering, collectively and
substantially, the opinions expressed below:
(i) The incorporation, good standing and
capitalization of Purchaser and Sub are as stated in this
Agreement; the authorized shares of Purchaser and Sub are as
stated in this Agreement; all outstanding shares of
Purchaser Common Stock are duly and validly authorized and
issued, fully paid and non-assessable and have not been
issued in violation of any preemptive right of stockholders;
and, to the knowledge of such counsel, there is no existing
option, warrant, right, call, subscription or other
agreement or commitment obligating Purchaser to issue or
sell, or to purchase or redeem, any shares of its capital
stock other than as stated in this Agreement.
(ii) Each of Purchaser and Sub has corporate power
and authority to execute, deliver and perform this Agreement
and this Agreement has been duly authorized, executed and
delivered by Purchaser or Sub, as the case may be, and
(assuming the due and valid authorization, execution and
delivery by the Company) constitutes the legal, valid and
binding agreement of Purchaser or Sub enforceable against
Purchaser or Sub in accordance with its terms, except to the
extent enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium, fraudulent transfer
or other similar laws of general applicability relating to
or affecting the enforcement of creditors' rights and by the
effect of general principles of equity (regardless of
whether enforceability is considered in a proceeding in
equity or at law).
(iii) The execution and performance by
Purchaser and Sub of this Agreement will not violate the
Certificates of Incorporation or Bylaws of Purchaser and
Sub, respectively, and, to the knowledge of such counsel,
will not violate, result in a breach of, or constitute a
default under, any material lease, mortgage, contract,
agreement, instrument, law, rule, regulation, judgment,
order or decree known to such counsel based upon a
certificate of Purchaser and Sub, to which Purchaser and Sub
is a party or by which they or any of their properties or
assets may be bound.
(iv) To the knowledge of such counsel, no consent,
approval, authorization or order of any Governmental Entity
which has not been obtained is required on behalf of
Purchaser and Sub for the consummation of the transactions
contemplated by this Agreement.
(v) To the knowledge of such counsel, there are
no actions, suits or proceedings pending or threatened
against or affecting Purchaser and Sub at law or in equity
or before or by any court, governmental department,
commission, board, bureau, agency or instrumentality, or
before any arbitrator, of any kind that seek to restrain,
prohibit or invalidate the transactions contemplated by this
Agreement.
(vi) At the time the S-4 became effective, the S-4
(other than the financial statements, financial data,
statistical data and supporting schedules included therein,
and information relating to or supplied by the Company as to
which such counsel expresses no opinion) complied as to form
in all material respects with the requirements of the
Securities Act and the rules and regulations of the SEC
thereunder.
(vii) The shares of Purchaser Common Stock to
be issued pursuant to this Agreement will be, when so
issued, duly authorized, validly issued and outstanding,
fully paid and nonassessable.
In addition, there shall be a statement to the
effect that in the course of the preparation of the S-4 such
counsel has participated in conferences with certain of the
officers and representatives of Purchaser. Such counsel
has not independently checked the accuracy or completeness
of, or otherwise verified, and accordingly is not passing
upon, and does not assume responsibility for, the accuracy,
completeness or fairness of the statements contained in the
S-4; and such counsel has relied as to materiality upon the
judgment of certain of the officers and representatives of
Purchaser. Subject to the foregoing and on the basis of the
information that such counsel gained in the course of the
performance of the services referred to above, including
information obtained from certain officers and
representatives of Purchaser, nothing has come to such
counsel's attention which causes such counsel to believe
that the S-4 (other than the financial statements, financial
data, statistical data and supporting schedules included
therein, and information relating to or supplied by the
Company, as to which such counsel expresses no belief), at
the time the S-4 became effective, included any untrue
statement of a material fact or omitted to state a material
fact necessary in order to make the statements therein not
misleading.
In rendering such opinion, counsel for the Company
may rely as to matters of fact upon the representations of
officers of Purchaser or Sub contained in any certificate
delivered to such counsel and certificates of public
officials which certificates shall be attached to or
delivered with such opinion. The opinion called for by this
Section 6.3(c) shall be limited to the laws of the State of
New York, the General Corporation Law of the State of
Delaware and the laws of the United States of America.
(d) MATERIAL ADVERSE CHANGE. Since the date of this
Agreement, there shall have been no Material Adverse Change
with respect to Purchaser; and the Company shall have
received a certificate signed on behalf of Purchaser by its
Chief Financial Officer to such effect.
ARTICLE VII
TERMINATION AND AMENDMENT
7.1 TERMINATION. This Agreement may be terminated and
the Merger may be abandoned at any time prior to the Effective
Time, whether before or after approval of the matters presented
in connection with the Merger by the stockholders of the Company:
(a) by mutual written consent of the Company and
Purchaser, or by mutual action of their respective Boards of
Directors;
(b) by either the Company or Purchaser if (i) the
Merger shall not have been consummated by December 31, 1996
(provided that the right to terminate this Agreement under
this clause (i) shall not be available to any party whose
breach of any representation or warranty or failure to
fulfill any covenant or agreement under this Agreement has
been the cause of or resulted in the failure of the Merger
to occur on or before such date); (ii) any court of
competent jurisdiction, or some other governmental body or
regulatory authority shall have issued an order, decree or
ruling or taken any other action permanently restraining,
enjoining or otherwise prohibiting the Merger and such
order, decree, ruling or other action shall have become
final and nonappealable; (iii) approval of the stockholders
of the Company shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a
duly held meeting of stockholders (including any
adjournment(s) or postponement(s) thereof); or (iv) the
Board of Directors of the Company shall have approved or
recommended any Acquisition Proposal which is financially
superior to the Merger (as determined in good faith by the
Company's Board of Directors after consultation with the
Company's financial advisors), and the Board of Directors of
the Company is advised by its outside counsel that the
fiduciary duties of the Board of Directors require
acceptance or recommendation of such Acquisition Proposal.
(c) by Purchaser if (i) the Company shall have failed
to comply in any material respect with any of the covenants
or agreements contained in this Agreement to be complied
with or performed by the Company at or prior to such date of
termination (provided such breach has not been cured within
30 days following receipt by the Company of written notice
of such breach and is existing at the time of termination of
this Agreement); (ii) any representation or warranty of the
Company contained in this Agreement shall not be true in all
material respects when made or on and as of the Effective
Time as if made on and as of the Effective Time (except to
the extent it relates to a particular date), except where
the failure to be so true and correct (without giving effect
to the individual materiality thresholds otherwise contained
in Section 3.1 hereof) could not reasonably be expected to
have a Material Adverse Effect; (iii) the Board of Directors
of the Company withdraws, modifies or changes its
recommendation of this Agreement or the Merger in a manner
adverse to Purchaser or Sub or shall have resolved to do any
of the foregoing; (iv) after the date hereof there has been
any Material Adverse Change with respect to the Company; or
(v) the Conversion Shares (without regard to the proviso in
the first sentence of Section 2.1(c)) would be less than
.2065614 shares of Purchaser Common Stock.
(d) by the Company if (i) Purchaser or Sub shall have
failed to comply in any material respect with any of the
covenants or agreements contained in this Agreement to be
complied with or performed by it at or prior to such date of
termination (provided such breach has not been cured within
30 days following receipt by Purchaser of written notice of
such breach and is existing at the time of termination of
this Agreement); (ii) any representation or warranty of
Purchaser or Sub contained in this Agreement shall not be
true in all material respects when made or on and as of the
Effective Time as if made on and as of the Effective Time
(except to the extent it relates to a particular date),
except where the failure to be so true and correct (without
giving effect to the individual materiality thresholds
otherwise contained in Section 3.2 hereof) could not
reasonably be expected to have a Material Adverse Effect;
(iii) after the date hereof there has been any Material
Adverse Change with respect to Purchaser; or (iv) the
Conversion Shares (without regard to the proviso in the
first sentence of Section 2.1(c)) would be more than
.3098420 shares of Purchaser Common Stock.
7.2 EFFECT OF TERMINATION.
(a) In the event of termination of this Agreement by
either the Company or Purchaser as provided in Section 7.1,
this Agreement shall forthwith become void and there shall
be no liability or obligation on the part of Purchaser, Sub
or the Company except (i) with respect to this Section 7.2
and Section 8.1, and (ii) to the extent that such
termination results from the willful breach by a party
hereto of any of its representations or warranties or of any
of its covenants or agreements, in each case, as set forth
in this Agreement except as provided in Section 8.8.
(b) If this Agreement is terminated pursuant to
Section 7.1(b)(iv) or 7.1(c)(iii), then (i) the Company
shall no later than five business days after written demand
from Purchaser, pay Purchaser in same day funds an amount
equal to $4,000,000 in lieu of reimbursing Purchaser for all
out-of-pocket expenses and fees (including, without
limitation, fees and expenses payable to investment banking
firms and other financial advisors and their respective
counsel, accountants, outside counsel, experts and
consultants) actually incurred by Purchaser or its
Subsidiaries on its or their behalf in connection with this
Agreement and the transactions contemplated hereunder and
(ii) if an Acquisition Transaction is consummated within
nine months of such termination, the Company shall, on the
day of such consummation, pay Purchaser in same day funds an
additional amount equal to $8,000,000.
(c) If Purchaser has received payments in accordance
with paragraph (b) above, and the Company is not or was not
in willful breach (other than an immaterial breach) of its
representations, warranties, covenants and agreements under
this Agreement, Purchaser shall not (i) assert or pursue in
any manner, directly or indirectly, any claim or cause of
action based in whole or in part upon alleged tortious or
other interference with rights under this Agreement against
any entity or person submitting an Acquisition Proposal or
(ii) assert or pursue in any manner, directly or indirectly,
any claim or cause of action against the Company or any of
its officers or directors based in whole or in part upon its
or their receipt, consideration, recommendation or approval
of an Acquisition Proposal or the Company's exercise of its
right of termination under Section 7.1. If Purchaser
pursues any claim or cause of action against the Company or
any of its officers or directors based in whole or in part
upon its or their receipt, consideration, recommendation or
approval of an Acquisition Proposal or the Company's
exercise of its right of termination under Section 7.1, then
the prevailing party shall be entitled to recover all
reasonable out-of-pocket costs and expenses incurred in the
prosecution or defense of such litigation, including
reasonable attorneys' fees and costs.
7.3 AMENDMENT. This Agreement may be amended by the
parties hereto, by action taken or authorized by their respective
Boards of Directors, at any time before or after approval of the
matters presented in connection with the Merger by the
stockholders of the Company, but, after any such approval, no
amendment shall be made which by law requires further approval by
such stockholders without such further approval. This Agreement
may not be amended except by an instrument in writing signed on
behalf of each of the parties hereto.
7.4 EXTENSION; WAIVER. At any time prior to the
Effective Time, the parties hereto, by action taken or authorized
by their respective Boards of Directors, may, to the extent
legally allowed: (a) extend the time for the performance of any
of the obligations or other acts of the other parties hereto; (b)
waive any inaccuracies in the representations and warranties
contained herein or in any document delivered pursuant hereto;
and (c) waive compliance with any of the agreements or conditions
contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in
a written instrument signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 PAYMENT OF EXPENSES. Each party hereto shall pay
its own expenses incident to preparing for entering into and
carrying out this Agreement and the consummation of the
transactions contemplated hereby, whether or not the Merger shall
be consummated, except (a) as set forth in Section 7.2 and (b)
that the filing fees with respect to the Proxy Statement and the
S-4 shall be shared equally by Purchaser and the Company.
8.2 NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND
AGREEMENTS. None of the representations, warranties and
agreements in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Effective Time and
any liability for breach or violation thereof shall terminate
absolutely and be of no further force and effect at and as of the
Effective Time, except for the agreements contained in Sections
2.1, 2.2, 5.10, 5.11 and 7.2 and Article VIII and the agreements
delivered pursuant to Section 5.8.
8.3 NOTICES. All notices, requests, claims, demands
and other communications required or permitted hereunder shall be
in writing and shall be given (and shall be deemed to have been
duly received if given) by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier service,
such as Federal Express), or by any courier service, such as
Federal Express, providing proof of delivery. All communications
hereunder shall be delivered to the respective parties at the
following addresses:
(a) if to Purchaser or Sub, to:
J. C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3698
Attention: Donald A. McKay
with copies to:
J. C. Penney Company, Inc.
6501 Legacy Drive
Plano, TX 75024-3698
Attention: Charles R. Lotter
and
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, TX 75201
Attention: Michael A. Saslaw
and (b) if to the Company, to:
Fay's Incorporated
7245 Henry Clay Blvd.
Liverpool, New York 13088
Attention: David H. Panasci
with copies to:
Fay's Incorporated
7245 Henry Clay Blvd.
Liverpool, New York 13088
Attention: Warren D. Wolfson
Bryan Cave LLP
245 Park Avenue
New York, NY 10167
Attention: Robert Altman
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004-1980
Attention: Jeffrey Bagner
8.4 INTERPRETATION. When a reference is made in this
Agreement to Sections, such reference shall be to a Section of
this Agreement unless otherwise indicated. The table of
contents, glossary of defined terms 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 word "include," "includes" or
"including" are used in this Agreement, they shall be deemed to
be followed by the words "without limitation." The phrase "made
available" in this Agreement shall mean that the information
referred to has been made available if requested by the party to
whom such information is to be made available. Unless the
context otherwise requires, "or" is disjunctive but not
necessarily exclusive, and words in the singular include the
plural and in the plural include the singular. The phrase "to
the knowledge of the Company" in this Agreement shall mean to the
actual knowledge of the Company's executive officers and such
additional persons, with respect to specific representations and
warranties, as set forth in Schedule 8.4.
8.5 COUNTERPARTS. This Agreement may be executed in
two or more counterparts, all of which shall be considered one
and the same agreement and shall become effective when two or
more counterparts have been signed by each of the parties and
delivered to the other parties, it being understood that all
parties need not sign the same counterpart.
8.6 ENTIRE AGREEMENT; NO THIRD PARTY BENEFICIARIES.
This Agreement (together with any other 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
hereto, except for the Confidentiality Agreements dated April 22,
1996, and July 10, 1996, between Purchaser and the Company, and
(b) except as provided in Sections 5.10 and 5.11, is not intended
to confer upon any person other than the parties hereto any
rights or remedies hereunder.
8.7 GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of New
York, without giving effect to the principles of conflicts of law
thereof.
8.8 NO REMEDY IN CERTAIN CIRCUMSTANCES. Each party
agrees that, should any court or other competent authority hold
any provision of this Agreement or part hereof to be null, void
or unenforceable, or order any party to take any action
inconsistent herewith or not to take an action consistent
herewith or required hereby, the validity, legality and
enforceability of the remaining provisions and obligations
contained or set forth herein shall not in any way be affected or
impaired thereby, unless the foregoing inconsistent action or the
failure to take an action constitutes a material breach of this
Agreement or makes the Agreement impossible to perform in which
case this Agreement may be terminated pursuant to Article VII
hereof. Except as otherwise contemplated by this Agreement, to
the extent that a party hereto took an action inconsistent
herewith or failed to take action consistent herewith or required
hereby in each case pursuant to an order or judgment of a court
or other competent authority, such party shall not incur any
liability or obligation unless such party did not in good faith
seek to resist or object to the imposition or entering of such
order or judgment and give notice as soon as possible to the
other party of the commitment of any action that could give rise
to any such order or judgment.
8.9 SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any covenants
or agreements contained in this Agreement will cause the other
parties to sustain damages for which they would not have an
adequate remedy at law for money damages, and therefore each of
the parties hereto agrees that in the event of any such breach,
an aggrieved party shall be entitled to the remedy of specific
performance of such covenants and agreements and injunctive and
other equitable relief in addition to any other remedy to which
it may be entitled, at law or in equity.
8.10 ASSIGNMENT. Neither this Agreement nor any of the
rights, interests or obligations hereunder shall be assigned by
any of the parties hereto (whether by operation of law or
otherwise) without the prior written consent of the other
parties, except that Sub may assign, in its sole discretion, any
or all of its rights, interests and obligations hereunder to any
newly-formed direct wholly owned Subsidiary of Purchaser.
Subject to the preceding sentence, this Agreement will be binding
upon, inure to the benefit of and be enforceable by the parties
and their respective successors and assigns.
8.11 SCHEDULES. For purposes of this Agreement,
Schedules shall mean the Schedules contained in the Confidential
Disclosure Schedule, dated the date hereof, delivered in
connection with this Agreement and initialed by the parties
hereto. Disclosure of information by a party in one Schedule
shall be deemed to be adequate disclosure of such information
under any other Schedule in which such information is required to
be disclosed by such party.
(REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK)
IN WITNESS WHEREOF, each party has caused this
Agreement to be signed by its respective officers thereunto duly
authorized, all as of the date first written above.
J. C. PENNEY COMPANY, INC.
By:
-----------------------------
Name:
------------------------
Title:
------------------------
BETA ACQUISITION CORP.
By:
-----------------------------
Name:
------------------------
Title:
------------------------
FAY'S INCORPORATED
By:
-----------------------------
Name:
------------------------
Title:
------------------------
EXHIBIT A
STOCKHOLDERS AGREEMENT
AGREEMENT (this "Agreement"), dated as of August 5,
1996, by and among J.C. Penney Company, Inc., a Delaware
corporation ("Purchaser"), Beta Acquisition Corp., a New York
corporation and a direct wholly owned subsidiary of Parent
("Sub"), Henry A. Panasci, Jr. and David H. Panasci (each of
Henry A. Panasci, Jr. and David H. Panasci and such other
stockholders being referred to herein individually as a
"Stockholder" and collectively as the "Stockholders").
W I T N E S S E T H
---------------------
WHEREAS, concurrently with the execution of this
Agreement, Purchaser, Sub and Fay's Incorporated, a New York
corporation (the "Company"), have entered into an Agreement and
Plan of Merger (as such agreement may hereafter be amended from
time to time, the "Merger Agreement") pursuant to which Sub will
be merged with and into the Company (the "Merger");
WHEREAS, as an inducement and a condition to entering
into the Merger Agreement, Purchaser has required that the
Stockholders agree, and the Stockholders have agreed, to enter
into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and
the mutual promises, representations, warranties, covenants and
agreements contained herein, the parties hereto, intending to be
legally bound hereby, agree as follows:
1. CERTAIN DEFINITIONS. Capitalized terms used and
not defined herein have the respective meanings ascribed to them
in the Merger Agreement. For purposes of this Agreement:
(a) "Beneficially Own" or "Beneficial Ownership" with
respect to any securities shall mean having "beneficial
ownership" of such securities (as determined pursuant to
Rule 13d-3 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act")), including pursuant to any
agreement, arrangement or understanding, whether or not in
writing. Without duplicative counting of the same
securities by the same holder, securities Beneficially Owned
by a Person shall include securities Beneficially Owned by
all other Persons with whom such Person would constitute a
"group" within the meaning of Section 13(d) of the Exchange
Act.
(b) "Company Common Stock" shall mean the common
stock, $0.10 par value per share, of the Company.
(c) "Person" shall mean an individual, corporation,
partnership, limited liability company, joint venture,
association, trust, unincorporated organization or other
entity.
2. VOTING OF COMPANY COMMON STOCK. Each Stockholder
hereby agrees that during the period commencing on the date
hereof and continuing until the first to occur of (a) the
Effective Time or (b) termination of this Agreement in accordance
with its terms, at any meeting (whether annual or special and
whether or not an adjourned or postponed meeting) of the holders
of Company Common Stock, however called, or in connection with
any written consent of the holders of Company Common Stock, such
Stockholder shall vote (or cause to be voted) all shares of
Company Common Stock held of record or Beneficially Owned by such
Stockholder (i) in favor of the Merger, the execution and
delivery by the Company of the Merger Agreement and the approval
and adoption of the terms thereof and each of the other actions
contemplated by the Merger Agreement and this Agreement and any
actions required in furtherance thereof and hereof; (ii) against
any action or agreement that would result in a breach in any
respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement
or this Agreement; and (iii) except as otherwise agreed to in
writing in advance by Purchaser, against the following actions
(other than the Merger and the transactions contemplated by this
Agreement and the Merger Agreement): (A) any extraordinary
corporate transaction, such as a merger, consolidation or other
business combination involving the Company or any of its
Subsidiaries; (B) any sale, lease or transfer of a material
amount of assets of the Company or any of its Subsidiaries, or a
reorganization, restructuring, recapitalization, special
dividend, dissolution or liquidation of the Company or its
Subsidiaries; or (C)(1) any change in a majority of the persons
who constitute the board of directors of the Company; (2) any
change in the present capitalization of the Company or any of its
Subsidiaries; (3) any amendment of the Company's Restated
Certificate of Incorporation or By-laws; (4) any other change in
the Company's corporate structure or business; or (5) any other
action which, in the case of each of the matters referred to in
clauses (C)(1), (2), (3) or (4), is intended, or could reasonably
be expected, to impede, interfere with, delay, postpone, or
materially adversely affect the Merger or the transactions
contemplated by this Agreement and the Merger Agreement. Each
Stockholder agrees that such Stockholder shall not enter into any
agreement or understanding with any person or entity the effect
of which would be inconsistent or violative of the provisions and
agreements contained in this Section 2.
3. STOCKHOLDER COVENANT. For a period of (a) 60 days
following termination of the Merger Agreement pursuant to Section
7.1(b)(iii) thereof, provided that such period shall be extended
to an aggregate of six months (including the initial 60 days) if
within the initial 60 day period a public announcement is made
regarding an Acquisition Proposal, (b) six months following
termination of the Merger Agreement pursuant to Section
7.1(b)(iv) thereof, and (c) 60 days following termination of the
Merger Agreement pursuant to Section 7.1(c)(iii), provided that
such period shall be extended to an aggregate of six months
(including the initial 60 days) if within the initial 60 day
period a public announcement is made regarding an Acquisition
Proposal, each Stockholder agrees that such stockholder shall
not enter into, execute, or be a party to any agreement or
understanding, written or otherwise, with any Person whereby such
Stockholder (x) grants or otherwise gives to such Person an
option or right to purchase or acquire any or all of the shares
of Company Common Stock held of record or Beneficially Owned by
such Stockholder other than sales made in open market
transactions; (y) agrees or covenants to vote or to grant a proxy
to vote any or all of the shares of Company Common Stock held of
record or Beneficially Owned by such Stockholder, at any meeting
(whether annual or special and whether or not an adjourned or
postponed meeting) of the holders of Company Common Stock,
however called, or in connection with any written consent of the
holders of Company Common Stock; or (z) agrees or covenants to
tender any or all of the shares of Company Common Stock held of
record or Beneficially Owned by such Stockholder into any tender
offer or exchange offer relating to the Company Common Stock.
4. COVENANTS, REPRESENTATIONS AND WARRANTIES OF
STOCKHOLDER. Each Stockholder hereby represents and warrants to,
and agrees with, Purchaser and Sub as follows:
(a) OWNERSHIP OF SHARES. Such Stockholder is the
Beneficial Owner of the number of shares of Company Common
Stock indicated beside such Stockholder's name on Schedule 1
hereto (such shares, with respect to each Stockholder, being
referred to herein as such Stockholder's "Existing Shares").
Except as specified on Schedule 1 hereto, all of such
Stockholder's Existing Shares are owned of record by such
Stockholder. Such Stockholder's Existing Shares constitute
all shares of Company Common Stock owned of record or
Beneficially Owned by such Stockholder. Except as specified
on Schedule 1 hereto, each Stockholder has sole voting power
and sole power to issue instructions with respect to the
matters set forth in Section 2 hereof, sole power of
disposition, sole power of conversion, sole power to demand
appraisal rights and sole power to agree to all of the
matters set forth in this Agreement, in each case with
respect to such Stockholder's Existing Shares with no
limitations, qualifications or restrictions on such rights,
subject to applicable securities laws and the terms of this
Agreement and applicable fiduciary obligations.
(b) AUTHORIZATION. This Agreement has been duly and
validly executed and delivered by such Stockholder and
constitutes a valid and binding agreement enforceable
against such Stockholder in accordance with its terms except
to the extent (i) such enforcement may be limited by
applicable bankruptcy, insolvency or similar laws affecting
creditors rights and (ii) the remedy of specific performance
and injunctive and other forms of equitable relief may be
subject to equitable defenses and to the discretion of the
court before which any proceeding therefor may be brought.
(c) NO CONFLICTS. No filing with, and no permit,
authorization, consent or approval of, any state or federal
public body or authority is necessary for the execution of
this Agreement by such Stockholder and the consummation by
such Stockholder of the transactions contemplated hereby,
and none of the execution and delivery of this Agreement by
such Stockholder, the consummation by such Stockholder of
the transactions contemplated hereby or compliance by such
Stockholder with any of the provisions hereof shall (i)
result in a violation or breach of, or constitute (with or
without notice or lapse of time or both) a default (or give
rise to any third party right of termination, cancellation,
material modification or acceleration) under any of the
terms, conditions or provisions of any note, loan agreement,
bond, mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or
obligation of any kind to which such Stockholder is a party
or by which such Stockholder or any of its properties or
assets may be bound or (ii) violate any order, writ,
injunction, decree, judgment, statute, rule or regulation
applicable to such Stockholder or any of its properties or
assets.
(d) NO FINDER'S FEES. No broker, investment banker,
financial advisor or other person is entitled to any
broker's, finder's, financial adviser's or other similar fee
or commission in connection with the transactions
contemplated hereby based upon arrangements made by or on
behalf of such Stockholder.
(e) NO SOLICITATION. Such Stockholder shall not, and
shall cause its Affiliates and investment bankers,
attorneys, accountants and other agents and representatives
of such Stockholder and such Affiliates (such Affiliates,
investment bankers, attorneys, accountants, agents and
representatives of any Person are hereinafter collectively
referred to as the "Representatives" of such Person) not to,
directly or indirectly (i) initiate, solicit or encourage,
or take any action to facilitate the making of, any offer or
proposal which constitutes or is reasonably likely to lead
to any Acquisition Proposal or any inquiry with respect
thereto, or (ii) in the event of an unsolicited Acquisition
Proposal, engage in negotiations or discussions with, or
provide any information or data to, any Person (other than
Purchaser, any of its Affiliates or representatives)
relating to any Acquisition Proposal. Such Stockholder
shall notify Purchaser and Sub orally and in writing of any
such offers, proposals, or inquiries relating to the
purchase or acquisition by any Person of any shares of
Company Common Stock held of record or Beneficially Owned by
such Stockholder (including, without limitation, the terms
and conditions thereof and the identity of the Person making
it), within 24 hours of the receipt thereof. Such
Stockholder shall, and shall cause its Representatives to,
immediately cease and cause to be terminated any and all
existing activities, discussions or negotiations, if any,
with any parties conducted heretofore with respect to any
Acquisition Proposal, other than discussions or negotiations
with Purchaser and its Affiliates. Notwithstanding the
restrictions set forth in this Section 4(e), any Person who
is an officer or director of the Company may exercise his
fiduciary duties in his capacity as a director or officer of
the Company consistent with the terms of the Merger
Agreement.
(f) RESTRICTION ON TRANSFER, PROXIES AND NON-
INTERFERENCE. Except as applicable in connection with the
transactions contemplated by the Merger Agreement, the
Stockholder shall not, directly or indirectly: (i) offer for
sale, sell, transfer, tender, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or
other arrangement or understanding with respect to or
consent to the offer for sale, sale, transfer, tender,
pledge, encumbrance, assignment or other disposition of, any
shares of Company Common Stock held of record or
Beneficially Owned by such Stockholder or any interest
therein; (ii) except as contemplated by this Agreement,
grant any proxies or powers of attorney with respect to any
shares of Company Common Stock held of record or
Beneficially Owned by such Stockholder, deposit into a
voting trust or enter any such shares into a voting
agreement with respect to any such shares; or (iii) take any
action that would make any representation or warranty of
such Stockholder contained herein untrue or incorrect or
would result in a breach by such Stockholder of their
obligations under this Agreement or a breach by the Company
of its obligations under the Merger Agreement.
(g) RELIANCE BY PURCHASER. Such Stockholder
understands and acknowledges that Purchaser is entering
into, and causing Sub to enter into, the Merger Agreement in
reliance upon the Stockholder's execution and delivery of
this Agreement.
(h) FURTHER ASSURANCES. From time to time, at the
other party's request and without further consideration,
each party hereto shall execute and deliver such additional
documents and take all such further lawful action as may be
necessary or desirable to consummate and make effective, in
the most expeditious manner practicable, the transactions
contemplated by this Agreement.
5. REPRESENTATIONS AND WARRANTIES OF PURCHASER AND
SUB. Purchaser and Sub hereby represent and warrant to
Stockholder as follows:
(a) ORGANIZATION. Each of Purchaser and Sub is a
corporation duly organized, validly existing and in good
standing under the laws of its state of incorporation and
has all requisite corporate power or other power and
authority to execute and deliver this Agreement and perform
its obligations hereunder. The execution and delivery by
Purchaser and Sub of this Agreement and the performance by
Purchaser and Sub of their respective obligations hereunder
have been duly and validly authorized by the Board of
Directors of Purchaser and Sub, respectively, and no other
corporate proceedings on the part of Purchaser or Sub are
necessary to authorize the execution, delivery or
performance of this Agreement or the consummation of the
transactions contemplated hereby.
(b) CORPORATE AUTHORIZATION. This Agreement has been
duly and validly executed and delivered by Purchaser and Sub
and constitutes a valid and binding agreement of each of
Purchaser and Sub enforceable against each of Purchaser and
Sub in accordance with its terms except to the extent (i)
such enforcement may be limited by applicable bankruptcy,
insolvency or similar laws affecting creditors rights and
(ii) the remedy of specific performance and injunctive and
other forms of equitable relief may be subject to equitable
defenses and to the discretion of the court before which any
proceeding therefor may be brought.
(c) NO CONFLICTS. No filing with, and no permit,
authorization, consent or approval of any state or federal
public body or authority is necessary for the execution of
this Agreement by Purchaser or Sub and the consummation by
Purchaser or Sub of the transactions contemplated hereby,
and none of the execution and delivery of this Agreement by
Purchaser or Sub, the consummation by Purchaser or Sub of
the transactions contemplated hereby compliance by Purchaser
or Sub with any of the provisions hereof shall (i) conflict
with or result in any breach of the certificate of
incorporation or by-laws of Purchaser or Sub, (ii) result in
a violation or breach of, or constitute (with or without
notice or lapse of time or both) a default (or give rise to
any third party right of termination, cancellation, material
modification or acceleration) under any of the terms,
conditions or provisions of any note, loan agreement, bond,
mortgage, indenture, license, contract, commitment,
arrangement, understanding, agreement or other instrument or
obligation of any kind to which Purchaser or Sub is a party
or by which Purchaser or Sub or any of their respective
properties or assets may be bound, or (iii) violate any
order, writ, injunction, decree, judgment, statute, rule or
regulation applicable to Purchaser or Sub or any of their
respective properties or assets.
6. STOP TRANSFER; LEGEND. Except as otherwise
provided in this Agreement, each Stockholder agrees with, and
covenants to, Purchaser and Sub that such Stockholder shall not
request that the Company register the transfer (book-entry or
otherwise) of any certificate or uncertificated interest
representing shares of Company Common Stock held of record or
beneficially by such Stockholder. Each Stockholder agrees that
the provisions of this Agreement shall apply with respect to such
Stockholders's Existing Shares and also with respect to any other
shares of Company Common Stock that at any time during the term
of this Agreement are held of record or Beneficially Owned by
such Stockholder.
7. TERMINATION. Except as otherwise provided herein,
the covenants and agreements contained herein shall terminate
upon the earlier of (i) the consummation of the Merger and (ii)
the termination of the Merger Agreement in accordance with its
terms, except that the covenant and agreement set forth in
Section 3 hereof shall survive for the periods following such
termination specified in such Section.
8. FIDUCIARY OBLIGATIONS. Notwithstanding any
provision of this Agreement to the contrary, with respect to any
shares of Company Common Stock held of record or Beneficially
Owned by any Stockholder in a fiduciary capacity and specified on
Schedule 1 hereof as being covered by this provision, the
obligations of such Stockholder under this Agreement relating to
such shares shall be subject to any fiduciary obligation under
applicable law. Further, notwithstanding anything herein to the
contrary, no other shares held of record or Beneficially Owned by
any Stockholder in a fiduciary capacity are so exempted from the
obligations of such Stockholder hereunder.
9. PERMITTED TRANSFERS. Notwithstanding any
provision in this Agreement to the contrary; (a) the Stockholders
shall be free to donate an aggregate of up to 50,000 shares
Beneficially Owned by such Stockholders to any bona fide tax-
exempt charitable organization free of the conditions of this
Agreement, (b) each Stockholder shall be free to transfer his
shares by gift or sale to a member of such Stockholder's family;
provided, that such family member shall first agree in writing to
be bound by all of the terms and subject to all of the conditions
of this Agreement, and (c) Purchaser may, in its sole discretion,
permit a transfer of shares in any other circumstances, upon the
written request of a Stockholder.
10. MISCELLANEOUS.
(a) ENTIRE AGREEMENT. This Agreement constitutes the
entire agreement among the parties with respect to the
subject matter hereof and supersedes all other prior
agreements and understandings, both written and oral,
between the parties with respect to the subject matter
hereof, except for the Confidentiality Agreements dated
April 22, and July 10, 1996, between Purchaser and the
Company.
(b) BINDING AGREEMENT. Each Stockholder agrees that
this Agreement and the obligations hereunder shall attach to
all shares of Company Common Stock held of record or
Beneficially Owned by such Stockholder and shall be binding
upon any person or entity to which legal or Beneficial
Ownership of such shares shall pass, whether by operation of
law or otherwise, including, without limitation, such
Stockholder's heirs, distributees, guardians,
administrators, executors, legal representatives, or
successors or other transferees (for value or otherwise) and
any other successors in interest.
(c) ASSIGNMENT. This Agreement shall not be assigned
by operation of law or otherwise without the prior written
consent of the other party, provided that Purchaser may
assign, in its sole discretion, its rights and obligations
hereunder to any direct or indirect wholly owned subsidiary
of Purchaser, but no such assignment shall relieve Purchaser
of its obligations hereunder if such assignee does not
perform such obligations.
(d) AMENDMENTS, WAIVERS, ETC. This Agreement may not
be amended, changed, supplemented, waived or otherwise
modified or terminated, except upon the execution and
delivery of a written agreement executed by the parties
hereto.
(e) NOTICES. All notices, requests, claims, demands
and other communications hereunder shall be in writing and
shall be given (and shall be deemed to have been duly
received if given) by hand delivery or telecopy (with a
confirmation copy sent for next day delivery via courier
service, such as Federal Express), or by any courier
service, such as Federal Express, providing proof of
delivery. All communications hereunder shall be delivered
to the respective parties at the following addresses:
If to Henry A. Panasci, Jr.:
Henry A. Panasci, Jr.
3000 Howlett Hill Road
Camillus, NY 13031
Telephone No.: (315) 673-1682
copy to:
Jeffrey Bagner
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telephone No.: (212) 859-8000
Telecopy No.: (212) 859-4000
If to David H. Panasci:
David H. Panasci
6924 Kassonta Drive
Jamesville, NY 13078
Telephone No.: (315) 682-8032
copy to:
Jeffrey Bagner
Fried, Frank, Harris, Shriver & Jacobson
One New York Plaza
New York, NY 10004
Telephone No.: (212) 859-8000
Telecopy No.: (212) 859-4000
Warren D. Wolfson
8484 Bubbling Springs Drive
Baldwinsville, NY 13027
Telephone No.: (315) 652-9394
If to Purchaser or Sub:
J.C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3698
Attention: Donald A. McKay
Telephone No.: (214) 431-1923
Telecopy No.: (214) 431-1962
copies to:
J.C. Penney Company, Inc.
6501 Legacy Drive
Plano, Texas 75024-3698
Attention: Charles R. Lotter
Telephone No.: (214) 431-1201
Telecopy No.: (214) 431-1133
and
Baker & Botts, L.L.P.
2001 Ross Avenue
Dallas, Texas 75201
Attention: Michael A. Saslaw
Telephone No.: (214) 953-6865
Telecopy No.: (214) 953-6503
or to such other address as the person to whom notice is
given may have previously furnished to the others in writing
in the manner set forth above.
(f) SEVERABILITY. Whenever possible, each provision
or portion of any provision of this Agreement will be
interpreted in such manner as to be effective and valid
under applicable law but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal
or unenforceable in any respect under any applicable law or
rule in any jurisdiction such invalidity, illegality or
unenforceability will not affect any other provision or
portion of any provision in such jurisdiction, and this
Agreement will be reformed, construed and enforced in such
jurisdiction as if such invalid, illegal or unenforceable
provision or portion of any provision had never been
contained herein.
(g) SPECIFIC PERFORMANCE. Each of the parties hereto
recognizes and acknowledges that a breach by it of any
covenants or agreements contained in this Agreement will
cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages, and
therefore each of the parties hereto agrees that in the
event of any such breach the aggrieved party shall be
entitled to the remedy specific performance of such
covenants and agreements and injunctive and other equitable
relief in addition to any other remedy to which it may be
entitled, at law or in equity.
(h) REMEDIES CUMULATIVE. All rights, powers and
remedies provided under this Agreement or otherwise
available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise of any
thereof by any party shall not preclude the simultaneous or
later exercise of any other such right, power or remedy by
such party.
(i) NO WAIVER. The failure of any party hereto to
exercise any right, power or remedy provided under this
Agreement or otherwise available in respect hereof at law or
in equity, or to insist upon compliance by any other party
hereto with its obligations hereunder, and any custom or
practice of the parties at variance with the terms hereof,
shall not constitute a waiver by such party of its right to
exercise any such or other right, power or remedy or to
demand such compliance.
(j) NO THIRD PARTY BENEFICIARIES. This Agreement is
not intended to be for the benefit of, and shall not be
enforceable by, any person or entity who or which is not a
party hereto.
(k) GOVERNING LAW. This Agreement shall be governed
and construed in accordance with the laws of the State of
New York, without giving effect to the principles of
conflicts of law thereof.
(l) DESCRIPTIVE HEADINGS. The descriptive headings
used herein are inserted for convenience of reference only
and are not intended to be part of or to affect the meaning
or interpretation of this Agreement.
(m) COUNTERPARTS. This Agreement may be executed in
counterparts, each of which shall be deemed to be an
original, but all of which, taken together, shall constitute
one and the same Agreement.
IN WITNESS WHEREOF, Purchaser, Sub and the Stockholders
have caused this Agreement to be duly executed as of the day and
year first above written.
J. C. PENNEY COMPANY, INC.
By:
-----------------------------
Name:
------------------------
Title:
------------------------
BETA ACQUISITION CORP.
By:
-----------------------------
Name:
------------------------
Title:
------------------------
--------------------------------
Henry A. Panasci, Jr.
--------------------------------
David H. Panasci
Schedule 1
The Estate of Henry Panasci 1,117,175
Henry A. Panasci, Jr. 2,808,962
Henry A. Panasci, Jr., Trustee
under Trust Agreement with
Henry Panasci dated 9/11/69
f/b/o Beth Panasci 488,451
Henry A. Panasci, Jr., Trustee
under Trust Agreement with
Henry Panasci dated 9/11/69
f/b/o David H. Panasci 485,426
Henry A. Panasci, Jr., Trustee*
under Trust Agreement with
Henry Panasci dated 9/11/69
f/b/o Arlene Panasci 672,298
David H. Panasci 329,545
David H. and Janice L. Panasci,
Joint Tenants 4,936
* These shares are covered by Section 8 "Fiduciary Obligations"
of the Stockholders Agreement
