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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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SCHEDULE 14D-9
SOLICITATION/RECOMMENDATION STATEMENT PURSUANT TO
SECTION 14(D)(4) OF THE SECURITIES EXCHANGE ACT OF 1934
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MERCANTILE STORES COMPANY, INC.
(Name of Subject Company)
MERCANTILE STORES COMPANY, INC.
(Name of Person Filing Statement)
COMMON STOCK, PAR VALUE $.14 2/3 PER SHARE
(Title of Class of Securities)
587533 10 0
((CUSIP) Number of Class of Securities)
DAVID L. NICHOLS
CHIEF EXECUTIVE OFFICER
MERCANTILE STORES COMPANY, INC.
9450 SEWARD ROAD
FAIRFIELD, OHIO 45016
(513) 881-8000
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
COPY TO:
RUSSELL B. RICHARDS, ESQ.
KING & SPALDING
191 PEACHTREE STREET
ATLANTA, GEORGIA 30303-1763
(404) 572-4600
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Mercantile Stores Company, Inc., a
Delaware corporation (the "Company"), and the address of its principal executive
offices is 9450 Seward Road, Fairfield, Ohio 45016. The title of the equity
securities to which this Statement relates is the Common Stock, par value
$.14 2/3 per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to a tender offer disclosed in the Tender Offer
Statement on Schedule 14D-1, dated May 21, 1998 (the "Schedule 14D-1"), of MSC
Acquisitions, Inc., a Delaware corporation (the "Purchaser") and a wholly owned
subsidiary of Dillard's, Inc., a Delaware corporation ("Parent"), to purchase
all the issued and outstanding Shares at $80.00 per Share (the "Offer Price"),
net to the seller in cash (the "Offer"), upon the terms and subject to the
conditions set forth in the Offer to Purchase dated May 21, 1998 and the related
Letter of Transmittal (which together constitute the "Offer Documents"). The
principal executive offices of the Purchaser and Parent are located at 1600
Cantrell Road, Little Rock, Arkansas 72201.
The Offer is being made pursuant to an Agreement and Plan of Merger dated as
of May 16, 1998 among the Purchaser, Parent and the Company (the "Merger
Agreement"), which provides, among other things, for the making of the Offer by
the Purchaser and, subject to the conditions and upon the terms of the Merger
Agreement, for the subsequent Merger of the Company and the Purchaser (the
"Merger").
Stockholders of the Company representing approximately 40% of the issued and
outstanding Shares of the Company (the "Locked-Up Stockholders") have
contractually agreed, among other things, to tender their Shares in the Offer,
provide Parent with an irrevocable proxy and grant an option at the $80.00 Offer
Price.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, are set forth above in Item 1.
(b) (1) The following describes material contracts, agreements, arrangements
or understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Company, its executive officers, directors or
affiliates:
Certain contracts, agreements, arrangements or understandings between the
Company and certain of its directors, executive officers or affiliates are
described in the sections entitled "Stock Ownership of Certain Beneficial
Owners," "Stock Ownership of Management," Management Remuneration," and
"Transactions with Management and Others" in the Company's proxy statement dated
April 24, 1998 for its 1998 Annual Meeting of Stockholders (the "1998 Proxy
Statement"). A copy of such sections of the 1998 Proxy Statement are filed as
Exhibit (c)(1) hereto.
Certain other contracts, agreements or understandings between the Company
and certain of its directors and executive officers are described below:
The Compensation Committee approved an Incentive Performance Plan (the
"Incentive Plan") on March 14, 1998. The Incentive Plan provides for the award
of up to $3 million to five key executives (the "Covered Executives") of the
Company. The purpose of the Incentive Plan is to encourage the Covered
Executives to use their best efforts to assist the Board to pursue one or more
strategic alternatives potentially available to the Company.
If the Board pursues such alternatives, the Covered Executives will provide
all assistance the Board requests throughout the strategic process, and if a
transaction is approved by the Board and is consummated (an "Approved
Transaction"), the Covered Executives will continue to provide assistance for a
period of ninety days after such consummation. If and when an Approved
Transaction is consummated, then it would be the expectation that the Board
would elect to pay the full amount authorized under the Plan to the Covered
Executives.
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The awards under the Incentive Plan are in addition to certain payments to
which Covered Executives are entitled under certain severance protection
agreements (the "Severance Protection Agreements"). If a Covered Executive is
terminated following a change of control, the Covered Executive is entitled to
receive (i) the Incentive Plan award, (ii) any amount under the Covered
Executive's Severance Protection Agreement and (iii) an additional amount
sufficient to insure that the Covered Executive receives no more or no less than
the Covered Executive would have received if the payments in (i) and (ii) had
not been taxable under Section 4999 of the Internal Revenue Code of 1986, as
amended (the "Code"). If a Covered Executive voluntarily terminates his
employment after a change of control under certain conditions, the Covered
Executive is entitled to certain payments equaling at least the amounts in (i)
and (ii) in this paragraph.
In addition, under the Incentive Plan the Company must in certain events pay
a "Gross-Up Payment" (as defined therein) to any covered associate with respect
to any payment to be made thereunder, under the Severance Protection Agreements,
or in respect of the Company's 1996 Stock Option Plan.
(2) The following describes material contracts, agreements, arrangements or
understandings and any actual or potential conflict of interest between the
Company or its affiliates and the Purchaser, its executive officers, directors
or affiliates:
In connection with the Offer, (i) the Company has entered into the Merger
Agreement with Parent and the Purchaser, (ii) the Locked-up Stockholders and
Parent have entered into a Stockholders Agreement, dated as of May 16, 1998 (the
"Stockholder Agreement"), (iii) Parent has entered into separate Agreements and
Plans of Merger with Minot Mercantile Corporation ("Minot Mercantile") and
Woodbank Mills, Inc. ("Woodbank Mills"; individually, and with Minot Mercantile,
a "PHC"), respectively, each of which is a personal holding corporation operated
by certain of the Locked-Up Stockholders (such agreements, the "PHC Merger
Agreements) and (iv) Parent has entered into separate Proxy and Indemnification
Agreements with holders of no less than 70% of the outstanding stock of each PHC
(such agreements, the "PHC Proxy and Indemnification Agreements"; together with
the Stockholders' Agreement and the PHC Merger Agreements, the "Lock-Up
Agreements"). A copy of the Merger Agreement, the Stockholders' Agreement, the
PHC Merger Agreements and the PHC Proxy and Indemnification Agreements are filed
as Exhibits (c)(2), (c)(3), (c)(4), (c)(5),(c)(6) and (c)(7) to this Schedule
14D-9 and are hereby incorporated by reference. The Merger Agreement, the
Stockholders' Agreement, the PHC Merger Agreements and the PHC Proxy and
Indemnification Agreements are also summarized in Section 11 of the Offer to
Purchase and such summaries are incorporated herein by reference.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(a)The Company Board of Directors met to consider the proposed structure for
a possible business combination with the Purchaser and to consider the terms of
the Offer at meetings held on May 12, 13, 14 and 15, 1998. At its meeting held
on May 15, 1998, the Company Board determined that the Offer and the Merger were
advisable and were fair to and in the best interests of the Company
stockholders, approved the Offer and the Merger and agreed to recommend the
acceptance of the Offer to the Company's stockholders. A copy of the letter to
the stockholders of the Company dated May 21, 1998 from David L. Nichols,
Chairman of the Board, containing the recommendation of the Company Board, is
filed as Exhibit (a)(1) hereto and is incorporated herein by reference.
As set forth in the Purchaser's Offer to Purchase, the Purchaser will
purchase Shares tendered prior to the close of the Offer if there are validly
tendered and not properly withdrawn prior to the expiration date of the Offer a
number of Shares which, together with any Shares owned, directly or indirectly,
by the Parent or the Purchaser, constitutes more than 50% of the voting power
(determined on a fully-diluted basis), of all securities of the Company entitled
to vote generally in the election of directors or in a merger (the "Minimum
Condition") and all conditions to the Offer have been satisfied. Stockholders
considering not tendering their Shares in order to wait for the Merger should
note that the Purchaser is not obligated
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to purchase any Shares, and can terminate the Offer and the Merger Agreement and
not proceed with the Merger, if fewer than a majority of the outstanding Shares
are tendered or otherwise acquired, directly or indirectly, by the Parent or the
Purchaser prior to the expiration of the Offer or if any of the other Offer
Conditions are not satisfied. The Offer is scheduled to expire at 12:00
midnight, New York City time, on Friday, June 19, 1998, unless the Offer is
extended. However, so long as the Merger Agreement is in effect and all of the
Offer Conditions are satisfied other than the Minimum Condition and the
expiration or termination of the waiting period applicable under the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amend (the "HSR Act"),
then, at the Company's request the Purchaser, at its option, may extend the
Offer until the earlier of (1) such time as such conditions are satisfied or
waived, and (2) the date chosen by the Company which shall not be later than (x)
the Outside Date (as defined herein), or (y) the earliest date on which the
Company reasonably believes such condition will be satisfied; provided, that the
Company may request further extensions up until the Outside Date if the Offer
Conditions involving the HSR Act and the Minimum Condition are still the only
Offer Conditions not satisfied unless the Merger Agreement has been terminated.
The Outside Date means the latest of (I) 70 days following the date of the
Merger Agreement or (II) the date that the condition to the Offer requiring the
expiration or termination of any applicable waiting periods under the HSR Act
shall have been satisfied for a period of 10 business days; provided that in no
event shall the Outside Date be later than January 31, 1999. A copy of the press
release issued by the Company announcing the Merger and the Offer is filed as
Exhibit (a)(2) hereto and is incorporated herein by reference.
(b)During the past several years, the Board of Directors has reviewed the
dynamics of the department store industry, the Company's position in the
industry and the possible strategic alternatives available to the Company. As a
result of this review, various Board members have from time to time had
discussions with other department store companies regarding strategic
alternatives, including a possible business combination transaction.
On Tuesday, February 3, 1998, at a Board of Directors meeting,
representatives of Goldman, Sachs & Co. ("Goldman Sachs") made a presentation to
the Board regarding the department store industry. Goldman Sachs reviewed
positive department store industry dynamics as well as challenges facing the
industry. Goldman Sachs also discussed the various strategic alternatives
available to industry participants, including internal growth, strategic
acquisitions, and a sale to a strategic buyer. The Board requested Goldman Sachs
to work with management of the Company to review the strategic alternatives
available and report back to the Board of Directors.
On Thursday, February 26, 1998, the Board met with representatives of
Goldman Sachs who reviewed with the Board various strategic alternatives
available to the Company. Goldman Sachs also reviewed the Company's historical
and projected operating performance on a stand-alone basis. Goldman Sachs also
discussed the risks and benefits of a strategic combination with other
companies. Representatives of the Milliken family on the Board indicated that,
if the Company determined to pursue a strategic transaction, the Milliken family
(which controls directly or indirectly approximately 40% of the Shares)
preferred a transaction in which stockholders that so elected would receive
stock consideration on a tax-free basis. After a discussion of the strategic
alternatives available to the Company, the Board determined it would explore the
potential of a strategic combination with certain companies. The Board
authorized Goldman Sachs to contact four department store companies and to
determine whether such companies would be interested in pursuing a strategic
combination with the Company.
In early April 1998, Morgan Stanley, the financial advisor to Parent,
contacted representatives of the Company to discuss Parent's interest in
pursuing a potential acquisition of the Company. In response to the inquiry,
representatives of the Company informed Parent that it was not prepared to
discuss a potential transaction with Parent at that time.
As a result of contacting the four identified companies, Goldman Sachs
received, on April 28, 1998, a proposal to acquire the Company from one of the
four (the "Initial Bidder"). The Board met on April 30,
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1998 and May 1, 1998 to discuss the proposal. The Board rejected the proposal,
but authorized Goldman Sachs to discuss the proposal with the Initial Bidder and
attempt to negotiate an acceptable proposal.
On May 4, 1998, representatives of the Milliken family indicated that the
Milliken family would consider supporting either a tax-free or a taxable
transaction. Goldman Sachs was instructed to communicate this change in
circumstances to the four identified companies. In addition, Goldman Sachs was
instructed to contact Parent and invite it to submit a definitive proposal to
acquire the Company.
On May 4, 1998, Goldman Sachs called Morgan Stanley to inform them that the
Company was currently engaged in substantive negotiations with a third party
with respect to the sale of the Company and that if Parent was interested that
the Company would provide Parent with an opportunity to participate in the sale
process.
On May 7, 1998, the parties concluded that to make a meaningful assessment
of the benefits of a potential transaction, Parent would need to review
confidential information and on such date the parties entered into the Parent
Confidentiality Agreement.
On May 8-9, 1998, officers of the Parent and Parent's legal and financial
advisors continued Parent's due diligence review of the Company and commenced
the review of the Company's nonpublic information in a data room. On May 9,
1998, the executive officers of the Company delivered a management presentation
to the executive officers and legal and financial advisors of Parent.
On May 12, 1998, Morgan Stanley, on behalf of Parent, informed Goldman Sachs
that Parent was prepared to pursue the transaction at $78 per share.
On May 13, 1998, representatives of the Company met with representatives of
the Initial Bidder to discuss the Initial Bidder's proposal. The Company
representatives encouraged the Initial Bidder to submit an improved proposal. On
May 14, 1998, the Initial Bidder submitted a revised proposal.
On May 14, 1998, the legal advisors to Parent and the Company met to
negotiate the terms of the Merger Agreement and the related agreements and the
Company encouraged Parent to increase its bid to $80 per Share. Morgan Stanley
informed Goldman Sachs that Parent was prepared to offer $80 a share for the
Company if it would negotiate a transaction with Parent on an exclusive basis
for a period of 48 hours. The Board of Directors determined that the $80
proposal was superior to the revised proposal from the Initial Bidder and agreed
to enter into exclusive negotiations with Parent for 48 hours. Representatives
of the Company informed the Initial Bidder that the Company was required to
cease negotiations with the Initial Bidder regarding a proposal.
On May 14-15, 1998, the parties' legal and financial advisors negotiated the
terms of the Merger Agreement and related documents.
On May 15, 1998, the Board discussed the results of the negotiation and,
after considering reports from management and the Company's legal and financial
advisors (including Goldman Sachs' financial analysis and its delivery of an
oral fairness opinion), the Board of Directors unanimously determined that the
Offer and the Merger would be in the best interests of the Company and its
stockholders, approved the Offer and the Merger and recommended that
stockholders of the Company accept the Offer as set forth above.
Following approval of the Board of Directors of the Company and Parent, on
May 16, 1998, the Company, Parent and Purchaser entered into the Merger
Agreement and the related agreements.
In reaching the determinations described above, the Board of Directors of
the Company considered a number of factors, including the following:
(1) The financial condition, results of operations, business, prospects and
strategic objectives of the Company, as well as the risks involved in
achieving those prospects and objectives in the department store industry
with the current competitive market conditions. The Board believes,
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on the basis of its familiarity with such matters, that the consideration
to be received by the Company stockholders in the transaction fairly
reflects the Company's intrinsic value.
(2) The projected financial condition, results of operations and prospects
of the Company.
(3) The industry trend of the last several years of accelerated
consolidations in the retail department store industry and the view that
this trend would continue to pose a potential strategic risk to the
Company.
(4) The detailed financial and valuation analyses presented to the Board of
Directors by Goldman Sachs.
(5) The fact that the $80 per Share to be received by the Company's
stockholders in both the Offer and the Merger represents a premium over
the closing market price of $73 5/16 per Share on May 15, 1998 (the
trading day prior to the announcement of the Merger and a substantial
premium over the closing market price of $60 5/8 per Share on February 2,
1998 (the trading day prior to the Goldman Sachs initial presentation of
strategic alternatives to the Board).
(6) The results of the discussions (described above) held with other parties
as to possible transactions, including the fact that Parent's proposal
was determined to be superior to the other proposal received by the
Company.
(7) The oral opinion of Goldman Sachs, subsequently affirmed in writing on
May 16, 1998, that, as of such date and based upon and subject to the
various considerations set forth in its opinion, the $80 per Share in
cash to be received by the holders of Shares, other than Parent and
Purchaser in the Offer and the Merger is fair from a financial point of
view to such holders. The full text of the written opinion of Goldman
Sachs, dated as of May 16, 1998, which sets forth assumptions made,
procedures followed, matters considered and limits on the review
undertaken, is attached as an exhibit to this statement. The Company's
stockholders should read this opinion in its entirety.
(8) The relationship of the Offer price to historical market prices of the
Shares and to the Company's book value and net asset value per Share.
(9) The terms and conditions of the Merger Agreement and the course of the
negotiations resulting in the execution thereof (including the terms of
the Merger Agreement that permit the Company's Board of Directors, in the
exercise of its fiduciary duties and subject to certain conditions, to
furnish information to or enter into discussions or negotiations with,
any third party that makes an unsolicited bona fide proposal in writing
to acquire the Company pursuant to a merger, consolidation, share
exchange, purchase of a substantial portion of the assets, business
combination or other similar transaction (although the Company is not
permitted by the Merger Agreement to initiate, solicit or encourage any
third party bids), and under certain circumstances to terminate the
Merger Agreement). The Board of Directors noted that the Merger Agreement
provides that, under certain circumstances involving a completed or
prospective third party transaction, the Company would be obligated to
pay the Parent up to $88.3 million.
(10) The likelihood that the Offer and Merger would be consummated,
including the likelihood of satisfaction of the regulatory approvals
required pursuant to, and the other conditions to the Offer and the
Merger contained in, the Merger Agreement, the experience, reputation and
financial condition of the Parent and the risks to the Company if the
Offer and Merger were not consummated.
(11) The decision by the Locked-Up Stockholders to enter into the
Stockholders' Agreement and other Lock-Up Agreements pursuant to which,
among other things, such stockholders have agreed to support the
transaction with Parent.
(12) The recommendation of the Company's management with respect to the
proposed acquisition.
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Goldman Sachs' opinion is directed only to the fairness of the consideration
to be received by the holders of Shares from a financial point of view to such
holders and does not constitute a recommendation as to whether or not any holder
of Shares should tender his or her shares pursuant to the Offer or as to how any
holder of Shares should note with respect to the Merger. The summary of the
opinion of Goldman Sachs set forth in this statement is qualified in its
entirety by reference to the full text of such opinion.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
Goldman Sachs is acting as the Company's financial advisor in connection
with the Offer and the Merger. Pursuant to their agreement with the Company,
Goldman Sachs is entitled to a transaction fee of approximately $8.9 million
which shall become payable upon consummation of the transactions contemplated by
the Merger Agreement. In addition, whether or not the Offer or the Merger is
completed, the Company has agreed to reimburse Goldman Sachs periodically for
reasonable out-of-pocket expenses, including the fees and disbursements of its
counsel, and to indemnify Goldman Sachs against certain expenses and liabilities
incurred in connection with its engagement, including liabilities under federal
securities laws.
Goldman Sachs has previously rendered certain investment banking and
financial advisory services to the Company and Parent and certain of its
affiliates, for which Goldman Sachs received customary compensation. Goldman
Sachs may have other business relationships with the Company or Parent. Goldman
Sachs in the course of its normal trading activities, may from time to time
effect transactions and hold securities, including derivative securities of the
Company or Parent for its own account and for the accounts of customers and,
accordingly, may at any time hold a long or short position in such securities.
Except as set forth above, neither the Company nor any person acting on its
behalf has or currently intends to employ, retain or compensate any person to
make solicitations or recommendations to the stockholders of the Company on its
behalf with respect to the Offer.
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in the Common Stock of the Company have been effected in
the past 60 days by the Company or any affiliate or subsidiary of the Company,
or, to the best knowledge of the Company, by any executive officer or director
of the Company.
(b) To the best knowledge of the Company, each executive officer and
director of the Company currently intends to tender, pursuant to the Offer, all
Shares which are held of record or beneficially owned by such person, except to
the extent, if any, that the tender of Shares would subject such officers and
directors to liability under Section 16 of the Exchange Act. Certain directors
of the Company have entered into the Lock-Up Agreements.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as described under Item 3(b), the Company is not engaged in any
negotiations in response to the Offer which relate to or would result in: (i) an
extraordinary transaction, such as a merger or reorganization, involving the
Company or any subsidiary of the Company; (ii) a purchase, sale or transfer of a
material amount of assets by the Company or any subsidiary of the Company; (iii)
a tender offer for or other acquisition of securities by or of the Company; or
(iv) any material change in the present capitalization or dividend policy of the
Company.
(b) Except as described under Item 4, there are no transactions, board
resolutions, agreements in principle, or signed contracts in response to the
Offer, other than those described under Item 3(b), which relate to or would
result in one or more of the matters referred to in this Item 7.
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ITEM 8. ADDITIONAL INFORMATION TO BE FURNISHED
The information statement attached as Annex I hereto is being furnished in
connection with the possible designation by the Purchaser, pursuant to the
Merger Agreement, of certain persons to be appointed to the Company's Board of
Directors other than at a meeting of the Company's stockholders.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS.
The following Exhibits are filed herewith:
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<S> <C>
(a)(1) Recommendation Letter to the Stockholders of the Company, dated May 21, 1998, from
David L. Nichols, Chairman of the Board of the Company.*
(a)(2) Press Release issued by the Company announcing the Merger and the Offer.
(a)(3) Opinion of Goldman Sachs dated May 16, 1998.*
(b) None.
(c)(1) "Stock Ownership of Certain Beneficial Owners," "Stock Ownership of Management,"
"Management Remuneration," and "Transactions with Management and Others" sections
of the Proxy Statement of the Company filed with the Commission on April 24, 1998.
(c)(2) Agreement and Plan of Merger, dated May 16, 1998, by and among the Company,
Dillard's, Inc. and MSC Acquisitions, Inc.
(c)(3) Stockholders Agreement, dated May 16, 1998, by and between Dillard's, Inc. and
certain Company Stockholders.
(c)(4) Proxy and Indemnification Agreement, dated May 16, 1998, by and between Dillard's,
Inc. and certain stockholders of Woodbank Mills, Inc.
(c)(5) Proxy and Indemnification Agreement, dated May 16, 1998, by and between Dillard's,
Inc. and certain stockholders of Minot Mercantile Corporation.
(c)(6) Agreement and Plan of Merger, dated May 16, 1998, by and among Dillard's, Inc., WMI
Acquisition, Inc. and Woodbank Mills, Inc.
(c)(7) Agreement and Plan of Merger, dated May 16, 1998, by and among Dillard's, Inc., MMC
Acquisition, Inc. and Minot Mercantile Corporation.
</TABLE>
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* Included in copies mailed to stockholders.
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SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
accurate.
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<S> <C> <C>
MERCANTILE STORES COMPANY, INC.
By: /s/ DAVID L. NICHOLS
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David L. Nichols
CHAIRMAN OF THE BOARD AND CHIEF EXECUTIVE
OFFICER
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Dated: May 21, 1998
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ANNEX I
MERCANTILE STORES COMPANY, INC.
9450 SEWARD ROAD
FAIRFIELD, OHIO 45016
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INFORMATION STATEMENT PURSUANT TO
SECTION 14(f) OF THE SECURITIES
EXCHANGE ACT OF 1934 AND RULE 14f-1 THEREUNDER
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NO VOTE OR OTHER ACTION OF THE COMPANY'S STOCKHOLDERS
IS REQUIRED IN CONNECTION WITH THIS INFORMATION STATEMENT.
NO PROXIES ARE BEING SOLICITED AND
YOU ARE REQUESTED NOT TO SEND THE COMPANY A PROXY
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This Information Statement is being mailed on or about May 21, 1998, as part
of Mercantile Company Stores, Inc.'s (the "Company") Solicitation/Recommendation
Statement on Schedule 14D-9 (the "Schedule 14D-9") with respect to the tender
offer by MSC Acquisitions, Inc. (the "Purchaser"), a wholly owned subsidiary of
Dillard's, Inc. (the "Parent") to the holders of record of the Company's Common
Stock, $.14 2/3 par value per share (the "Shares"). Capitalized terms used and
not otherwise defined herein shall have the meaning set forth in the Schedule
14D-9. You are receiving this Information Statement in connection with the
possible election of persons designated by the Purchaser to a majority of the
seats on the Board of Directors of the Company (the "Board"). The Merger
Agreement provides that the Purchaser, upon purchase of Shares pursuant to the
Offer, and from time to time thereafter, shall be entitled to designate up to
such number of directors, rounded to the next whole number, on the Board as will
give the Purchaser representation on the Board equal to the product of the total
number of directors on the Board (giving effect to the directors to be elected
pursuant to the Merger Agreement) multiplied by the percentage that the
aggregate number of Shares beneficially owned by the Purchaser or any affiliate
of the Purchaser bears to the total number of outstanding Shares then
outstanding, and that the Company shall, at such time, promptly take all action
necessary to cause the Purchaser designees to be so elected, including either
increasing the size of the Board or securing the resignations of incumbent
directors, or both. The Merger Agreement further provides that, at such times,
the Company will use its reasonable best efforts to cause persons designated by
the Purchaser to constitute the same percentage as is on the board of (i) each
committee of the Board, (ii) each board of directors of each subsidiary of the
Company and (iii) each committee of each such board, in each case only to the
extent permitted by law. The Merger Agreement further provides that until the
Purchaser acquires a majority of the outstanding shares on a fully diluted
basis, the Company will use its reasonable best efforts to ensure that all
members of the Board and such boards and committees as of the date of the Merger
Agreement who are not employees of the Company shall remain members of the Board
and such board and committees. This Information Statement is required by Section
14(f) of the Securities Exchange Act of 1934, as amended, and Rule 14f-1
thereunder.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action.
The Offer to Purchase is scheduled to expire at 12:00 midnight, New York
City time, on June 19, 1998, at which time, if all conditions to the Offer have
been satisfied or waived, Purchaser has informed the Company that it intends to
purchase all of the Shares validly tendered pursuant to the Offer and not
properly withdrawn.
Purchaser has informed the Company that it currently intends to choose the
designees (the "Purchaser Designees") it has a right to designate to the Board
pursuant to the Merger Agreement from the directors and executive officers of
Parent listed in Schedule I of the Offer to Purchase, a copy of which is being
mailed to the stockholders. The information with respect to such directors and
officers in Schedule I
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is hereby incorporated herein by reference in its entirety. As of April 10,
1998, the ages of each such officers and directors are as follows:
William Dillard--83; Calvin N. Clyde, Jr.--77; Robert C. Connor--56; Drue
Corbusier--51; Will D. David--68; Alex Dillard--48; Mike Dillard--46; William
Dillard, II--53; James I. Freeman--48; John Paul Hammerschmidt--75; William B.
Harrison, Jr.--54; John H. Johnson--80; E. Ray Kemp--73; Jackson T.
Stephens--74; William H. Sutton--67 and Paul J. Schroeder, Jr.--50.
It is expected that certain of the Purchaser Designees may assume office at
any time following the purchase by Purchaser of a specified minimum number of
Shares pursuant to the Offer, which purchase cannot be earlier than June 19,
1998, and that, upon assuming office, the Purchaser Designees will thereafter
constitute at least a majority of the Board. This step will be accomplished at a
meeting or by written consent of the Board providing that the size of the Board
will be increased and/or sufficient numbers of current directors will resign
such that, immediately following such action, the number of vacancies to be
filled by Purchaser Designees will constitute at least a majority of the
available positions on the Board. It is currently not known which of the current
directors of the Company will resign. Purchaser has informed the Company that
each of the directors and officers listed in Schedule I of the Offer to Purchase
has consented to act as a director of the Company, if so designated.
None of the executive officers and directors of Parent or Purchaser
currently is a director of, or holds any position with, the Company. Except for
Jack Stephens, who owns 3600 shares of the Company, the Company has been advised
that, to the best knowledge of Parent and Purchaser (and except as contemplated
by the Merger Agreement), none of Parent's or Purchaser's other directors or
executive officers beneficially owns any equity securities, or rights to acquire
any equity securities, of the Company and none has been involved in any
transactions with the Company or any of its directors, executive officers,
affiliates or associates which are required to be disclosed pursuant to the
rules and regulations of the Securities and Exchange Commission (the "SEC")
Notwithstanding the above, until the Effective Time the Company shall have
at least three directors who were directors as of the date of the Merger
Agreement and who are not officers of the Company (the "Independent Directors").
If the number of Independent Directors falls below three, the remaining
Independent Directors (or if no Independent Directors remain the other
directors) shall be entitled to designate persons who are not officers,
stockholders or affiliates of the Company, Parent or Purchaser to fill the
vacancies.
Following the election of the Purchaser Designees and prior to the Effective
Time, the approval of a majority of the Independent Directors or their
successors will be required to authorize any amendment, or waiver of any terms
or condition, of the Merger Agreement or the Certificate of Incorporation or
By-Laws of the Company, any termination of the Merger Agreement by the Company,
any extension by the Company of the time for the performance of any of the
obligations or other acts of Purchaser or waiver or assertion of any of the
Company's rights under the Merger Agreement, the awarding of the $3 million
pursuant to the terms of the Company's incentive performance plan, and any other
consent or action by the Board of Directors with respect to the Merger
Agreement.
The terms of the Merger Agreement, a summary of the events leading up to the
Offer and the execution of the Merger Agreement and other information concerning
the Offer and the Merger are contained in the Offer to Purchase and in the
Schedule 14D-9 of the Company with respect to the Offer, copies of which are
being delivered to stockholders of the Company contemporaneously herewith.
Certain other documents (including the Merger Agreement) were filed with the SEC
as exhibits to the Tender Offer Statement on Schedule 14D-1 (the "Schedule
14D-1") of Purchaser and as exhibits to the Schedule 14D-9. The exhibits to the
Schedule 14D-1 and the Schedule 14D-9 may be examined at and copies thereof may
be obtained from the SEC in the manner set forth in Section 8 of the Offer to
Purchase.
A-2
<PAGE>
No action is required by the stockholders of the Company in connection with
the election of the Purchaser Designees to the Board. However, Section 14(f) of
the Exchange Act requires the mailing to the Company's stockholders of the
information set forth in this Information Statement prior to a change in a
majority of the Company's directors otherwise than at a meeting of the Company's
stockholders.
The information contained in this Information Statement concerning Parent,
Purchaser and the Purchaser Designees has been furnished to the Company by such
persons, and the Company assumes no responsibility for the accuracy or
completeness of such information. The principal executive offices of Parent and
Purchaser are located at 1600 Cantrell Road, Little Rock, Arkansas 72201.
SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT
At the close of business on May 15, 1998, there were issued and outstanding
36,887,475 shares of Company Common Stock, excluding Company Common Stock held
by the Company, each share being entitled to one vote upon matters to be voted
upon at a stockholders meeting. There are no other voting securities
outstanding. The table below sets forth certain information as of March 31, 1998
regarding the beneficial ownership of Company Common Stock, excluding Common
Stock held by the Company, by (i) each person known by the Company to own
beneficially more than 5% of its outstanding shares of Company Common Stock,
(ii) each director of the Company, (iii) the five executive officers of the
Company named in the Summary Compensation Table and (iv) all executive officers
and directors of the Company as a group.
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning beneficial owners of
more than 5% of the Company's common stock, as reported by such beneficial
owners:
<TABLE>
<CAPTION>
NAME AND ADDRESS OF AMOUNT OF COMMON STOCK AND
BENEFICIAL OWNER NATURE OF BENEFICIAL OWNERSHIP PERCENT OF CLASS
- -------------------------------------- --------------------------------------------------------- -----------------
<S> <C> <C>
Minot Mercantile Corporation 10,484,875 28.53
1209 Orange Street Direct
Wilmington, Delaware 19801
Minot Mercantile Corporation 14,896,521(2) 40.54
and others joint disclosure(1) Direct and Indirect
c/o 1209 Orange Street
Wilmington, Delaware 19801
Scudder Kemper Investments, Inc. 3,241,980(3) 8.82
345 Park Avenue
New York, NY 10154
</TABLE>
- ------------------------
(1) Please see the notes following the Stock Ownership of Management Table for
an explanation of this stock ownership. By definition of the Securities and
Exchange Commission, the persons involved in this joint disclosure may be
deemed to be "beneficial owners" of Purchaserstantial quantities of this
stock. Except as otherwise set forth herein, such persons disclaim admission
of beneficial ownership of these securities.
(2) These shares include the shares reported directly above by Minot Mercantile
Corporation and 27,413 shares (.07%) owned by Woodbank Mills, Inc. owner of
49.6% of the common stock of Minot Mercantile Corporation.
(3) Based upon information as of December 31, 1997 set forth in a Schedule 13G
filing dated February 12, 1998. According to the filing, Scudder Kemper
Investments, Inc., a registered investment adviser, has sole and shared
voting power with respect to 755,255 and 2,284,830 of such shares,
respectively, and sole and shared depositive power with respect to 3,233,850
and 8,130 of such shares, respectively, which are held of record by its
clients.
A-3
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
The following table sets forth information concerning beneficial ownership
of Company Common Stock by (i) each director of the Company, (ii) the five
executive officers of the Company named in the Summary Compensation Table and
(iii) all executive officers and directors of the Company as a group.
<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK
BENEFICIALLY OWNED
------------------------------------------------- PERCENT OF
NAME DIRECTLY INDIRECTLY CLASS
- --------------------------------------------- ------------------------ ----------------------- ---------------
<S> <C> <C> <C>
H. Keith H. Brodie, M.D...................... 1,000 none *
John A. Herdeg............................... 2,125 none *
Thomas J. Malone............................. 600 none *
Gerrish H. Milliken.......................... 378,037 (see notes 1 and 11) 1.3
(see note 1)
101,063
(life interest in
trusts)
Minot K. Milliken............................ 400,119 (see notes 2 and 11) 2.33
(see note 2)
454,536
(life interest in
trusts)
Roger Milliken............................... 4,220,254 (see notes 3 and 11) 11.81
(see note 3)
121,560
(life interest in
trusts)
David L. Nichols............................. 7,812 4,658 *
(see note 4)
Lawrence R. Pugh............................. 500 none *
Francis G. Rodgers........................... 2,750 none *
Roger K. Smith............................... 75,939 none *
(see note 5)
Randolph L. Burnette......................... 2,250 5,287 *
(see note 6)
William A. Carr.............................. 2,462 1,190 *
(see note 7)
James M. McVicker............................ 5,657 1,690 *
(see note 8)
Kathryn M. Muldowney......................... 1,000 1,115 *
(see note 9)
All Directors and Executive Officers......... 4,488,085 10,527,650 40.86
(see note 10)
</TABLE>
- ------------------------
* Less than one percent
There is included in the above figures, with respect to each director and
executive officer listed (and all directors and executive officers as a group)
the number of shares, if any, credited to each director's and executive
officer's account in the Savings, Profit Sharing and Supplemental Retirement
Plan and those held in the name of his or her spouse and their minor children.
Each director and executive officer, however, disclaims any admission of
beneficial ownership of any securities included herein held in the name of his
or her spouse or their minor children.
Notes: 1. Gerrish H. Milliken is the beneficial owner of 378,037 shares of the
common stock of the Company as a trustee of certain trusts.
A-4
<PAGE>
2. Minot K. Milliken is the beneficial owner of 400,119 shares of the
common stock of the Company as a trustee and an advisor of certain
trusts.
3. Roger Milliken is the beneficial owner of 4,220,254 shares of the
common stock of the Company as a trustee and an advisor of certain
trusts.
4. Includes 5,000 shares which are subject to options presently
exercisable or exercisable within 60 days.
5. Roger K. Smith is the beneficial owner of 65,803 shares of the common
stock of the Company as a trustee of certain trusts.
6. Reflects 2,250 shares which are subject to options presently
exercisable or exercisable within 60 days.
7. Includes 500 shares which are subject to options presently exercisable
or exercisable within 60 days.
8. Includes 2,250 shares which are subject to options presently
exercisable or exercisable within 60 days.
9. Reflects 1,000 shares which are subject to options presently
exercisable or exercisable within 60 days.
10. Includes 12,500 shares which are subject to options presently
exercisable or exercisable within 60 days.
11. Minot K. Milliken is the cousin of Roger Milliken and Gerrish H.
Milliken, who are brothers. The shares listed as beneficially owned by each of
Gerrish H. Milliken, Minot K. Milliken and Roger Milliken include shares listed
as beneficially owned by one or both of the other two. The overall figures for
all officers and directors as a group and the figures included below in this
note eliminate the duplication of numbers and percentages of shares. Each of
Gerrish H. Milliken, Minot K. Milliken and Roger Milliken may be deemed to be a
controlling person of, and therefore may be deemed to be the beneficial owner
of, and to share the power to direct the voting and/or the disposition of,
common stock of the Company held by Minot Mercantile Corporation and Woodbank
Mills, Inc. Gerrish H. Milliken, Minot K. Milliken and Roger Milliken together
with Minot Mercantile Corporation and Woodbank Mills, Inc. owned beneficially a
maximum of 14,896,521 shares (40.54%) of the common stock of the Company
DIRECTORS AND EXECUTIVE OFFICERS
CURRENT AND CONTINUING DIRECTORS. The following table sets forth certain
information as of April 24, 1998 with respect to the current directors of the
Company:
John A. Herdeg--Age 60, Director since 1980. Attorney at Law; member of the
Audit Committee; Chairman of the Board of Christiana Bank & Trust Company.
Thomas J. Malone--Age 59, Director since 1989. President, Chief Operating
Officer and director of Milliken & Company, manufacturer of textile products;
member of the Audit Committee.
Roger Milliken--Age 82, Director since 1939. Chairman and Chief Executive
Officer of Milliken & Company, manufacturer of textile products; member of the
Audit, Compensation and Nominating Committees; director of Minot Mercantile
Corporation and Woodbank Mills, Inc. (see note 11 to "Stock Ownership of
Management").
Francis G. Rodgers--Age 71, Director since 1987. Author and lecturer; former
Vice President-Marketing, International Business Machines Corporation; member of
the Compensation Committee;
A-5
<PAGE>
director of Milliken & Company, manufacturer of textile products, and director
of Bergen Brunswig Corporation and Dialogic Corp.
Gerrish H. Milliken--Age 80, Director since 1951. Director Emeritus of
Milliken & Company, manufacturer of textile products; director of Minot
Mercantile Corporation and Woodbank Mills, Inc. (see note 11 to "Stock Ownership
of Management").
David L. Nichols--Age 56, Director since 1992. Chairman of the Board and
Chief Executive Officer of the Company; director of The Andersons, Inc., a
diversified agribusiness and retailing company, and the Federal Reserve Bank of
Cleveland.
Lawrence R. Pugh--Age 65, Director since 1996. Chairman of VF Corporation,
apparel manufacturer and marketer; former Chief Executive Officer of VF
Corporation; member of the Compensation Committee; director of Milliken &
Company, manufacturer of textile products and UNUM Corporation, an insurance
company.
H. Keith H. Brodie, M.D.--Age 58, Director since 1987. President Emeritus of
Duke University; member of the Audit, Compensation and Nominating Committees;
director of Milliken & Company, manufacturer of textile products.
Minot K. Milliken--Age 82, Director since 1943. Director Emeritus of
Milliken & Company, manufacturer of textile products; member of the Compensation
Committee; director of Minot Mercantile Corporation and Woodbank Mills, Inc.
(see note 11 to "Stock Ownership of Management").
Roger K. Smith--Age 38, Director since 1991. Product Line Marketing Manager,
Analog Devices, Inc., manufacturer of semiconductors; member of the Nominating
Committee; director of Milliken & Company, manufacturer of textile products.
The Board has standing audit, compensation and nominating committees that
are composed of directors of the Company. The members of the Audit Committee are
H. Keith H. Brodie, M.D., John A. Herdeg, Thomas J. Malone and Roger Milliken.
The functions of the Audit Committee include engaging and discharging auditors;
reviewing with the auditors and management the Company's policies and procedures
with respect to internal auditing, accounting and financial controls; reviewing
with the independent auditors, upon completion of their audit, their report or
opinion and any recommendations they may have for improving internal accounting
controls, choice of accounting principles or management systems; and meeting
with the Company's financial staff at least two times a year to discuss internal
accounting and auditing procedures.
The members of the Compensation Committee are H. Keith H. Brodie, M.D.,
Minot K. Milliken, Roger Milliken, Lawrence R. Pugh and Francis G. Rodgers. The
functions of the Compensation Committee include reviewing the compensation of
the Company's executive officers and recommending changes in such compensation.
The members of the Nominating Committee are H. Keith H. Brodie, M.D., Roger
Milliken and Roger K. Smith. The functions of the Nominating Committee include
identifying potential candidates for appointment or election as directors,
reviewing and making recommendations regarding the criteria for Board membership
and proposing nominees for election at the annual meeting and candidates to fill
Board vacancies.
During the fiscal year ended January 31, 1997, the Board held a total of
eight regularly scheduled meetings, the Audit Committee held two meetings, the
Compensation Committee held three meetings and the Nominating Committee held one
meeting. Each director attended at least 75% of the Board meetings and meetings
of any committee of which he was a member.
All directors who are not also officers of the Company receive $16,000 per
annum for serving on the Board. All directors receive a standard fee of $3,000
for each board meeting attended and $1,000 for each
A-6
<PAGE>
Committee meeting attended, plus the payment of expenses incurred in connection
therewith. In addition, all members of each Committee receive $3,000 as yearly
compensation.
EXECUTIVE OFFICERS. Set forth below is the age at March 31, 1998 and
certain other information concerning each person, including their principal
occupations and positions for the past five years, currently serving as an
executive officer of the Company.
DAVID L. NICHOLS--Age 56, Chairman of the Board and Chief Executive Officer
since 1992. Mr. Nichols serves as director of The Andersons, Inc., a diversified
agribusiness and retailing company, and the Federal Reserve Bank of Cleveland.
JAMES M. MCVICKER--Age 51, was elected Senior Vice President and Chief
Financial Officer in December 1994 (Vice President and Chief Financial Officer
in May 1993) and prior to that time was Treasurer or Assistant Treasurer from
January 1990.
RANDOLPH L. BURNETTE--Age 56, was elected Senior Vice President of Real
Estate in April 1997 (Vice President of Real Estate in January 1995 and Vice
President of Planning in March 1994) and prior to that time was Director of
Merchandise Planning from August 1992.
WILLIAM A. CARR--Age 59, was elected Secretary in June 1996 and Treasurer in
March 1994 and prior to that time was Controller.
KATHRYN M. MULDOWNEY--Age 39, was elected Vice President and Chief
Information Officer in December 1996 and prior to that time was Controller from
March 1994 and previously was Director of Strategic Planning from March 1993.
LOUIS L. RIPLEY--Age 46, was elected Vice President of Human Resources in
February 1996 and prior to that time was Director of Human Resources and
Management Development from February 1994 and previously was Director of Human
Resources.
DONALD L. RADCLIFF--Age 43, was elected Controller in December 1996 and
prior to that time was Director of Accounting Operations from March 1994 and
previously was Manager of Accounting Operations.
A-7
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth information regarding aggregate cash
compensation, stock option awards and other compensation earned by the Company's
Chief Executive Officer and the four other most highly compensated executive
officers for services rendered in all capacities to the Company and its
subsidiaries for the three years ended January 31, 1998.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
- ---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FISCAL NUMBER OF
YEAR OTHER ANNUAL SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION OPTIONS COMPENSATION(A)
- ----------------------------- --------- ---------- ------------- ----------------- ----------------- ----------------
David L. Nichols............. 01/31/98 $ 839,846 $ 409,483 $ 0 20,000 $ 72,935
CHAIRMAN OF THE BOARD........ 02/01/97 $ 799,615 $ 520,749 $ 0 -0- $ 67,788
AND CHIEF EXECUTIVE.......... 02/03/96 $ 725,385 $ 394,311 $ 0 -0- $ 58,925
OFFICER
James M. McVicker............ 01/31/98 $ 424,942 $ 188,947 $ 0 9,000 $ 24,500
SENIOR VICE PRESIDENT........ 02/01/97 $ 409,769 $ 242,622 $ 0 -0- $ 23,084
AND CHIEF FINANCIAL.......... 02/03/96 $ 361,038 $ 219,655(b) $ 0 -0- $ 19,833
OFFICER
Randolph L. Burnette......... 01/31/98 $ 313,269 $ 140,043 $ 0 9,000 $ 18,013
SENIOR VICE PRESIDENT OF..... 02/01/97 $ 296,538 $ 177,528 $ 0 -0- $ 16,571
REAL ESTATE.................. 02/03/96 $ 274,231 $ 155,306 $ 0 -0- $ 13,672
William W. Carr.............. 01/31/98 $ 255,000 $ 103,424 $ 0 2,000 $ 14,343
TREASURER AND SECRETARY...... 02/01/97 $ 255,000 $ 135,809 $ 0 -0- $ 12,067
02/03/96 $ 263,269 $ 74,025 $ 0 -0- $ 11,275
Kathryn M. Muldowney......... 01/31/98 $ 200,000 $ 81,117 $ 0 4,000 $ 10,956
VICE PRESIDENT AND CHIEF..... 02/01/97 $ 182,116 $ 98,528 $ 0 -0- $ 10,488
INFORMATION OFFICER.......... 02/03/96 $ 140,769 $ 103,862 $ 0 -0- $ 6,925
</TABLE>
(a) All Other Compensation is comprised of the Company's matching
contributions under the Company's Savings, Profit Sharing and
Supplemental Retirement Plan and the Company's Non-Qualified Savings,
Profit Sharing and Supplemental Retirement Plan. Also includes $23,000,
$24,000, and $21,000 paid to Mr. Nichols for Board of Directors' meetings
during the fiscal years ended January 31, 1998, February 1, 1997, and
February 3, 1996, respectively.
(b) Includes a special bonus in the amount of $25,000 for additional
services recognized by the Board of Directors.
A-8
<PAGE>
OPTION GRANTS TABLE
The following table sets forth information regarding options granted during
the fiscal year ended January 31, 1998 by the Company to each of the named
executive officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(B)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION ------------------------------
GRANTED(A) FISCAL YEAR (PER SHARE) DATE 5% 10%
----------- --------------- ----------- ----------- ------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David L. Nichols..................... 20,000 20.94% $ 48.06 4/18/2007 $ 604,494.00 $ 1,531,905.00
James M. McVicker.................... 9,000 9.42% $ 48.06 4/18/2007 $ 272,022.00 $ 689,357.00
Randolph L. Burnette................. 9,000 9.42% $ 48.06 4/18/2007 $ 272,022.00 $ 689,357.00
William A. Carr...................... 2,000 2.09% $ 48.06 4/18/2007 $ 60,449.00 $ 153,191.00
Kathryn M. Muldowney................. 4,000 4.19% $ 48.06 4/18/2007 $ 120,899.00 $ 306,381.00
</TABLE>
- ------------------------
(a) One-fourth of these options vested on April 20, 1998, and an additional
one-fourth will vest on April 20, 1999, April 18, 2000 and April 18, 2001.
A-9
<PAGE>
(b) The potential realizable value of the options reported was calculated by
assuming 5% and 10% compounded annual rates of appreciation of the common
stock from the date of grant of the options until the expiration of the
options, based on the market price on the date of grant. These assumed
annual rates of appreciation were used in compliance with the rules of the
Securities and Exchange Commission and are not intended to forecast future
price appreciation of the common stock.
FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth information regarding the aggregate number
and value of options held by the named executive officers as at January 31,
1998. No options were exercised by any of the named executive officers in 1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT JANUARY 31, 1998 AT JANUARY 31, 1998(1)
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------------- ------------- --------------- -------------
David L. Nichols.......................................... 0 20,000 $ 0 $ 228,800.00
James M. McVicker......................................... 0 9,000 $ 0 $ 102,960.00
Randolph L. Burnette...................................... 0 9,000 $ 0 $ 102,960.00
William A. Carr........................................... 0 2,000 $ 0 $ 22,880.00
Kathryn M. Muldowney...................................... 0 4,000 $ 0 $ 45,760.00
</TABLE>
- ------------------------
(1) The closing price for the Company's common stock on the New York Stock
Exchange on January 30, 1998 was $59.50 per share. Value is calculated on
the basis of the difference between the respective option exercise prices
and $59.50, multiplied by the number of shares of common stock underlying
the respective options.
REPORT OF THE COMPENSATION COMMITTEE
GENERAL. The Compensation Committee of the Board of Directors (the
"Committee") is composed of five outside directors. The current members of the
Committee are H. Keith H. Brodie, M.D., Minot K. Milliken, Roger Milliken,
Lawrence R. Pugh and Francis G. Rodgers. As part of its duties, the Committee
reviews and recommends to the Board of Directors compensation levels for the
Company's executive officers.
The Company's compensation program reflects the philosophy that executive
compensation levels should be linked to Company performance and also be
competitive within the retail industry. Historically, the Company has structured
compensation principally through base annual salary and year-end bonuses. With
the adoption of the Company's 1996 Stock Option Plan, the Company's compensation
program now includes an equity incentive component. The Committee recognizes
that compensation in excess of $1 million paid to the Company's Chief Executive
Officer does not presently qualify for deduction by the Company for federal
income tax purposes under Section 162(m) of the Internal Revenue Code, but
believes that the non-deductible portion is not material. Moreover, the
Committee believes that it is important to maintain the flexibility to
compensate executive officers in a manner consistent with the stated philosophy
of performance-linked and competitive compensation designed to maximize
stockholder value, notwithstanding that some portion of such compensation may
not be deductible by the Company.
BASE SALARIES. Base salaries for the Company's executives are determined by
evaluating the responsibilities of the position and the experience of the
individual, and by reference to the competitive marketplace. The Company seeks
to target base salaries within the median salary level for comparable executive
positions.
A-10
<PAGE>
ANNUAL BONUSES. The Company has a Pay-for-Performance year-end bonus
program designed to reward management and other key executives for Company
performance. Under the program, bonuses are awarded based upon the achievement
of pre-defined Company and business unit performance measurements as determined
by the Board. For 1997, with respect to each executive officer named in the
SUMMARY COMPENSATION TABLE, bonuses were based on a weighted average performance
barometer which included pre-tax store profits, total sales, inventory turnover
and operating expense ratios. The bonuses reported in the SUMMARY COMPENSATION
TABLE reflect the fact that the weighted average Company performance targets for
1997 were 91.20% achieved.
1996 STOCK OPTION PLAN. The 1996 Stock Option Plan (the "Stock Plan") is
intended to enhance the Company's ability to attract and retain employees with
valuable ability and experience and to furnish such personnel with incentives to
improve operations and increase profits of the Company. In addition, options
granted under the Stock Plan align the interests of executives with those of the
stockholders, and thus provide the executives with additional incentive to
maximize stockholder value. Options grants are made from time to time to
executives whose contributions have or are expected to have a significant impact
on the Company's long-term performance. The size of previous grants and the
number of options held are not determinative of future grants. In 1997 options
were granted to all seven of the Company's executive officers. Options are
granted at a price equal to the fair market value of the Company's common stock
on the date of grant, and, in general, vest in four equal increments over the
four year period following the date of grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The compensation of David L.
Nichols, Chairman of the Board and Chief Executive Officer of the Company, is
determined in accordance with the criteria set forth above.
Mr. Nichols, who does not have an employment contract, received a salary
increase in 1997 of approximately 5.0% to keep his salary within the median
marketplace salary level for comparable executive positions and based on an
evaluation of the other criteria set forth above under "Base Salaries." Mr.
Nichols' bonus for 1997 was based upon the performance of the Company. As a
participant in the Pay-for-Performance year-end bonus program, Mr. Nichols
received a bonus for 1997 of $409,000 based on the achievement of 91.20% of the
weighted average Company performance targets. In addition, Mr. Nichols was
awarded options to purchase 20,000 shares of the Company's Common Stock under
the Stock Plan.
H. Keith H. Brodie, M.D. Minot K. Milliken Roger Milliken
Lawrence R. Pugh Francis G. Rodgers
A-11
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing, over the last five fiscal years,
the Company's cumulative total return to stockholders with (i) the Standard &
Poor's 500 Composite Stock Price Index and (ii) the Standard & Poor's Retail
Department Stores Composite Index.
MERCANTILE STORES COMPANY, INC.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
FEBRUARY 1, 1993 THROUGH JANUARY 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MERCANTILE STOCK S&P RETAIL DEPARTMENT S&P 500 INDEX
<S> <C> <C> <C> <C> <C> <C> <C>
1992 100 100 100
1993 116.72 109.96 111.86
1994 133.5 101.07 112.48
1995 146.29 120.31 155.85
1996 155.13 128.02 196.86
1997 192.36 165.56 249.69
<CAPTION>
<S> <C>
1992
1993
1994
1995
1996
1997
Assumes $100 invested on February 1, 1993 in
Mercantile
common stock, S&P 500 index and S&P Retail Department
Stores Composite Index.
<CAPTION>
1992
1993
1994
1995
1996
1997
*Total return assumes re-investment
of
dividends.
</TABLE>
PENSION PLANS
The Company has maintained a noncontributory Pension Plan since 1945 which
has been amended from time to time. The Plan is funded through contributions by
the Company to the Plan trustee or appreciation of existing Plan assets. All
employees (including officers) with one year of employment during which at least
1,000 hours were worked and who meet certain age requirements are participants.
Normal retirement eligibility occurs at age 65 for participants in the Plan;
however, early retirement at a reduced monthly benefit is available to employees
who have reached the age of 60 and have at least 5 years of service (as
defined). The retirement benefit is in the form of a level monthly payment for
life. The benefit for service from February 1, 1976 to February 3, 1996 was
determined based on the addition of .875% of each year's compensation up to the
year's Taxable Wage Base (as defined) and 1.375% of compensation above such base
up to, since 1989, the maximum annual limitation on compensation.
The Plan was amended effective February 4, 1996 to provide pension benefits
which are more commensurate with those prevalent in the competitive retail
industry. The amendment adjusted the calculation formula benefits earned after
February 3, 1996. The new formula includes a 2-tier service breakpoint for
calculation purposes. Under the amended Plan, benefits for associates with up to
20 years of enrollment (as defined) are based on (i) .875% of annual
compensation up to the year's Taxable Wage
A-12
<PAGE>
Base, plus (ii) 1.875% of compensation above such base up to a compensation
level of twice the Taxable Wage Base, plus (iii) 3.0% of compensation above such
doubled Taxable Wage Base up to the maximum annual limitation on compensation
($160,000 during 1997). For associates with more than 20 years of enrollment,
benefits are based on (i) 1.0% of annual compensation up the year's Taxable Wage
Base, plus (ii) 2.5% of compensation above such base up to a compensation level
of twice the Taxable Wage Base, plus (iii) 4.0% of compensation above such
doubled Taxable Wage Base up to the maximum annual limitation on compensation.
Benefits payable under the noncontributory Pension Plan are subject to
maximum limitations under the Code. Payments to each employee, upon retirement,
are made from a Trust Fund maintained by the trustee. The estimated annual
benefits payable on normal retirement (without regard to maximum limitations
under the Code) to the named executive officers are as follows: David L.
Nichols, $673,509; James M. McVicker, $470,206; Randolph L. Burnette, $236,635;
William A. Carr, $140,281; and Kathryn M. Muldowney, $352,258.
The Company also maintains a Nonqualified Salaried Pension Plan to provide
benefits to employees in an amount equal to the amount by which an employee's
benefits under the Pension Plan were reduced because of limitations imposed on
tax exempt plans by the Internal Revenue Code. For the fiscal year ended January
31, 1998, there were charges against the earnings of the Company with respect to
such plan for the named executive officers in the aggregate amount of $454,797.
SEVERANCE PROTECTION AGREEMENTS
The Company has entered into severance protection agreements with each of
James M. McVicker, Randolph L. Burnette and Kathryn M. Muldowney (the
"Executives") and David L. Nichols (the "CEO"). The agreements are designed to
encourage the executives to carry out their duties with the Company in the event
of a potential change in control of the Company.
The agreements for the Executives provide that if within 24 months following
a change in control (as defined in the agreements) of the Company, the
Executive's employment is terminated either (i) by the Company or other than
cause or disability or, (ii) by the Executive, for good reason, then such
Executive will receive, in addition to base salary and bonus accrued through the
date of termination, the greater of: (a) 2.99 times annual salary and bonus at
the highest rate in effect during the one year period prior to the change in
control less the cash compensation paid the Executive for services rendered from
the date of change in control to the termination date, or (b) two weeks'
compensation for every year of service with the Company at a level equal to
salary and bonus at the highest rate in effect during the one year period prior
to the change in control. The agreement with the CEO provides that if within 24
months following a change in control of the Company, the CEO's employment is
terminated either (i) by the Company for other than cause or disability, or (ii)
by the CEO for any reason whatsoever, then the CEO will receive in addition to
base salary and bonus accrued through the date of termination, the greater of:
(a) $2,997,075, or (b) 2.99 times his annual salary and bonus at the highest
rate in effect during the one year period prior to the change in control. In
addition, each Executive and the CEO is entitled to: (i) receive all employment
benefits for the remainder of, in the case of the Executives, the 24 month
period, and in the case of the CEO, the 36 month period, following the change in
control; (ii) a lump sum payment equal to the present value of the amount by
which retirement benefits would have been larger had, in the case of the
Executives, an additional two years, and in the case of the CEO, an additional
three years, of credited service been completed; and (iii) legal fees and
expenses reasonably incurred in enforcing the agreements.
The Code imposes certain excise taxes on, and limits the deductibility of,
certain compensatory payments made by a corporation to or for the benefit of
certain individuals if such payments are contingent upon certain changes in the
ownership or effective control of the corporation or the ownership of a
substantial portion of the assets of the corporation provided that such payments
to the individual have an aggregate present value in excess of three times the
individual's annualized includible compensation for
A-13
<PAGE>
the base period, as defined in the Code. The agreements for the Executives
provide that such severance payments shall be reduced to the extent necessary so
that no such payments are subject to the excise tax. The CEO's agreement
entitles him to receive an amount sufficient to offset any excise tax payable by
the CEO pursuant to the provisions of the Code.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership (Forms 3, 4 and 5) of Common Stock and other equity
securities of the Company with the SEC and the New York Stock Exchange.
Officers, directors and greater-than-10% beneficial holders are required by SEC
regulation to furnish the Company with copies of all such forms that they file.
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and, if applicable, written
representations from certain reporting persons, that no reports on Form 5 were
required. The Company believes that during the fiscal year ended December 31,
1997, its officers, directors and greater-than-10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
A-14
<PAGE>
[LOGO]
9450 SEWARD ROAD_-_FAIRFIELD, OHIO 45014-2230
513-881-8000 - FAX 513-881-8689
EXHIBIT (A)(1)
Dear Stockholder:
I am pleased to inform you that Mercantile Stores Company, Inc. (the
"Company"), Dillard's, Inc. ("Dillard's") and MSC Acquisitions, Inc. (the
"Purchaser"), a wholly-owned subsidiary of Dillard's, have entered into an
Agreement and Plan of Merger (the "Merger Agreement") providing for the
acquisition of all of the issued and outstanding shares of the Common Stock, par
value $.14 2/3 per share, of the Company at $80.00 cash per share.
Pursuant to the Merger Agreement, the Purchaser has today commenced a cash
tender offer (the "Offer") for all outstanding shares of Common Stock at a price
of $80.00 net per share. The Merger Agreement further provides that, following
the Offer, all shares of the Common Stock of the Company which are not acquired
through the Offer will be acquired through a merger at the same $80.00 cash
price. The Offer is conditioned on, among other things, there being validly
tendered and not withdrawn a number of shares of Common Stock which, together
with any shares owned, directly or indirectly, by Dillard's or the Purchaser,
constitute more than 50% of the voting power (on a fully-diluted basis) of all
securities of the Company entitled to vote generally in the election of
directors or in a merger.
AS MORE FULLY DESCRIBED IN THE ATTACHED SCHEDULE 14D-9, YOUR BOARD OF
DIRECTORS HAS UNANIMOUSLY DETERMINED THAT THE MERGER AGREEMENT AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER, ARE
ADVISABLE AND ARE FAIR TO AND IN THE BEST INTERESTS OF THE STOCKHOLDERS OF THE
COMPANY AND RECOMMENDS THAT HOLDERS OF SHARES ACCEPT THE OFFER AND TENDER THEIR
SHARES TO THE PURCHASER.
Enclosed for your consideration are copies of the tender offer materials and
the Company's Schedule 14D-9, which are being filed today with the Securities
and Exchange Commission. These documents should be read carefully. In
particular, I call your attention to Item 4 of the enclosed Schedule 14D-9,
which describes both the reasons for the Board's recommendation and certain
additional factors that stockholders may wish to consider before taking action
with respect to the offer.
Your Board of Directors believes that the proposed acquisition of the
Company by Dillard's is fair and in the best interests of our stockholders. Each
executive officer and director of the Company currently intends to tender his or
her shares for purchase by Dillard's (except for shares that are subject to
certain restrictions) and, if a stockholder vote is required, to vote in favor
of the merger.
Sincerely,
/s/ DAVID L. NICHOLS
--------------------------------------
David L. Nichols
Chairman of the Board
<PAGE>
EXHIBIT (A)(2)
MERCANTILE STORES COMPANY, INC.
NEWS RELEASE
Bacons - Castner Knott - de Lendrecies - Gayfers - Glass Block - Hennessys - The
Jones Store Co.
J.B. White - Joslins - Lion - Maison Blanche - McAlpin's - Root's
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Dillard's Inc. to Purchase Mercantile Stores Company, Inc.
NEW YORK--May 18, 1998--Mercantile Stores Company, Inc. (NYSE:MST) has
reached an agreement with Dillard's Inc. (NYSE:DDS) to receive a cash tender
offer of $80 per share for all of the outstanding common shares of Mercantile
Stores Company, Inc., subject to the satisfaction of certain conditions. The
total cash acquisition price is approximately $2.9 billion.
Mercantile Stores Company, Inc., headquartered in Fairfield, Ohio, operates
103 traditional department stores and 16 home fashion stores in a total of 17
states. Retail sales for the fiscal year ended January 31, 1998, amounted to
$3.1 billion.
Dillard's Inc., headquartered in Little Rock, Arkansas, is a leading
national retailer operating 272 department stores in 27 states. Reported retail
sales for the 1997 fiscal year amounted to $6.6 billion.
CONTACT: Mercantile Stores Company, Inc.
W. A. Carr, 513/881-8121
9450 SEWARD ROAD - FAIRFIELD, OHIO 45014-2230
513-881-8000 - FAX 513-881-8689
<PAGE>
EXHIBIT (a)(3)
PERSONAL AND CONFIDENTIAL
May 16, 1998
Board of Directors
Mercantile Stores Company, Inc.
9450 Seward Road
Fairfield, OH 45014
Gentlemen:
You have requested our opinion as to the fairness from a financial point of
view to the holders of the outstanding shares of Common Stock, par value
$.14 2/3 per share (the "Shares"), other than Parent (as defined below) or
Purchaser (as defined below) of Mercantile Stores Company, Inc. (the "Company")
of the $80.00 per Share in cash to be received by such holders in the Tender
Offer and Merger (as defined below) pursuant to the Agreement and Plan of
Merger, dated as of May 16, 1998, among Dillard's, Inc. ("Parent"), MSC
Acquisitions, Inc., a wholly owned subsidiary of Parent ("Purchaser"), and the
Company (the "Agreement"). The Agreement provides for a tender offer for all of
the Shares (the "Tender Offer") pursuant to which Purchaser will pay $80.00 per
Share in cash for each Share accepted. The Agreement further provides that
following completion of the Tender Offer, Purchaser will be merged into the
Company (the "Merger") and each outstanding Share (other than Shares already
owned by Parent, Purchaser or their subsidiaries) will be converted into the
right to receive $80.00 in cash.
Goldman, Sachs & Co., as part of its investment banking business, is
continually engaged in the valuation of businesses and their securities in
connection with mergers and acquisitions, negotiated underwritings, competitive
biddings, secondary distributions of listed and unlisted securities, private
placements and valuations for estate, corporate and other purposes. We are
familiar with the Company having acted as its financial advisor in connection
with, and having participated in certain of the negotiations leading to, the
Agreement. We also have provided certain investment banking services to Parent
from time to time and may provide investment banking services to Parent in the
future. Goldman, Sachs, & Co. provides a full range of financial advisory and
securities services and, in the course of its normal trading activities, may
from time to time effect transactions and hold securities, including derivative
securities, of the Company or Parent for its own account and for the accounts of
customers.
In connection with this opinion, we have reviewed, among other things, the
Agreement; the Merger Agreement, dated as of May 16, 1998, among Parent, MMC
Acquisition, Inc., a wholly owned subsidiary of Parent and Minot Mercantile
Corporation (which owns approximately 28.5% of the Shares); the Merger
Agreement, dated as of May 16, 1998, among Parent, WMI Acquisition, Inc., a
wholly owned subsidiary of Parent and Woodbank Mills, Inc. (which owns
approximately 49.6% of the outstanding common stock of Minot Mercantile
Corporation, and 0.1% of the Shares); Annual Reports to Stockholders and Annual
Reports on Form 10-K of the Company for the five fiscal years ended January 31,
1998; certain interim reports to stockholders and Quarterly Reports on Form 10-Q
of the Company; certain other communications from the Company to its
stockholders; and certain internal financial analyses and forecasts for the
Company prepared by Company management. We also have held discussions with
members of the senior management of the Company regarding the past and current
business operations, financial condition and future prospects of the Company. In
addition, we have reviewed the reported price and trading activity for the
Shares, compared certain financial and stock market information for the Company
with similar information for certain other companies the securities of which are
publicly traded, reviewed the financial terms of certain recent business
combinations in the department store industry specifically and in other
industries generally, and performed such other studies and analyses as we
considered appropriate.
We have relied upon the accuracy and completeness of all of the financial
and other information reviewed by us and have assumed such accuracy and
completeness for purposes of rendering this opinion. In addition, we have not
made an independent evaluation or appraisal of the assets and liabilities of the
Company or any of its subsidiaries and we have not been furnished with any such
evaluation or appraisal.
<PAGE>
Our advisory services and the opinion expressed herein are provided for the
information and assistance of the Board of Directors of the Company in
connection with its consideration of the transaction contemplated by the
Agreement and such opinion does not constitute a recommendation as to whether
any holder of Shares should tender such Shares in the Tender Offer or as to how
any holder of Shares should vote with respect to the Merger.
Based upon and subject to the foregoing and based upon such other matters as
we consider relevant, it is our opinion that as of the date hereof the $80.00
per Share in cash to be received by the holders of Shares, other than Parent or
Purchaser, in the Tender Offer and Merger is fair from a financial point of view
to such holders.
Very truly yours,
GOLDMAN, SACHS & CO.
<PAGE>
EXHIBIT (C)(1)
STOCK OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The following table sets forth information concerning beneficial owners of
more than 5% of the Company's common stock, as reported by such beneficial
owners:
<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK AND
NAME AND ADDRESS OF NATURE OF BENEFICIAL
BENEFICIAL OWNER OWNERSHIP PERCENT OF CLASS
- ------------------------------------------------------------------ ---------------------------- -----------------
<S> <C> <C>
Minot Mercantile Corporation...................................... 10,484,875 28.53
1209 Orange Street Direct
Wilmington, Delaware 19801
Minot Mercantile Corporation...................................... 14,896,521 (b) 40.54
and others joint disclosure(a) Direct and Indirect
c/o 1209 Orange Street
Wilmington, Delaware 19801
Scudder Kemper Investments, Inc................................... 3,241,980 (c) 8.82
345 Park Avenue
New York, NY 10154
</TABLE>
- ------------------------
(a) Please see the notes following the Stock Ownership of Management Table for
an explanation of this stock ownership. By definition of the Securities and
Exchange Commission, the persons involved in this joint disclosure may be
deemed to be "beneficial owners" of substantial quantities of this stock.
Except as otherwise set forth in this proxy statement, such persons disclaim
admission of beneficial ownership of these securities.
(b) These shares include the shares reported directly above by Minot Mercantile
Corporation and 27,413 shares (.07%) owned by Woodbank Mills, Inc., owner of
49.6% of the common stock of Minot Mercantile Corporation.
(c) Based upon information as of December 31, 1997 set forth in a Schedule 13G
filing dated February 12, 1998. According to its filing, Scudder Kemper
Investments, Inc., a registered investment adviser, has sole and shared
voting power with respect to 755,255 and 2,284,830 of such shares,
respectively, and sole and shared dispositive power with respect to
3,233,850 and 8,130 of such shares, respectively, which are held of record
by its clients.
<PAGE>
STOCK OWNERSHIP OF MANAGEMENT
<TABLE>
<CAPTION>
AMOUNT OF COMMON STOCK
BENEFICIALLY OWNED
------------------------------------------------- PERCENT OF
NAME DIRECTLY INDIRECTLY CLASS
- --------------------------------------------- ------------------------ ----------------------- ---------------
<S> <C> <C> <C>
H. Keith H. Brodie, M.D...................... 1,000 none *
John A. Herdeg............................... 2,125 none *
Thomas J. Malone............................. 600 none *
Gerrish H. Milliken.......................... 378,037 (see notes 1 and 11) 1.30
(see note 1)
101,063
(life interest in
trusts)
Minot K. Milliken............................ 400,119 (see notes 2 and 11) 2.33
(see note 2)
454,536
(life interest in
trusts)
Roger Milliken............................... 4,220,254 (see notes 3 and 11) 11.81
(see note 3)
121,560
(life interest in
trusts)
David L. Nichols............................. 7,812 4,658 *
(see note 4)
Lawrence R. Pugh............................. 500 none *
Francis G. Rodgers........................... 2,750 none *
Roger K. Smith............................... 75,939 none *
(see note 5)
Randolph L. Burnette......................... 2,250 5,287 *
(see note 6)
William A. Carr.............................. 2,462 1,190 *
(see note 7)
James M. McVicker............................ 5,657 1,690 *
(see note 8)
Kathryn M. Muldowney......................... 1,000 1,115 *
(see note 9)
All Directors and Executive Officers......... 4,488,085 10,527,650 40.86
(see note 10)
</TABLE>
- ------------------------
* Less than one percent
There is included in the above figures, with respect to each director and
executive officer listed (and all directors and executive officers as a group)
the number of shares, if any, credited to each director's and executive
officer's account in the Savings, Profit Sharing and Supplemental Retirement
Plan and those held in the name of his or her spouse and their minor children.
Each director and executive officer, however, disclaims any admission of
beneficial ownership of any securities included herein held in the name of his
or her spouse or their minor children.
Notes: 1. Gerrish H. Milliken is the beneficial owner of 378,037 shares of the
common stock of the Company as a trustee of certain trusts.
2. Minot K. Milliken is the beneficial owner of 400,119 shares of the
common stock of the Company as a trustee and an advisor of certain
trusts.
3. Roger Milliken is the beneficial owner of 4,220,254 shares of the
common stock of the Company as a trustee and an advisor of certain
trusts.
<PAGE>
4. Includes 5,000 shares which are subject to options presently
exercisable or exercisable within 60 days.
5. Roger K. Smith is the beneficial owner of 65,803 shares of the common
stock of the Company as a trustee of certain trusts.
6. Reflects 2,250 shares which are subject to options presently
exercisable or exercisable within 60 days.
7. Includes 500 shares which are subject to options presently exercisable
or exercisable within 60 days.
8. Includes 2,250 shares which are subject to options presently
exercisable or exercisable within 60 days.
9. Reflects 1,000 shares which are subject to options presently
exercisable or exercisable within 60 days.
10. Includes 12,500 shares which are subject to options presently
exercisable or exercisable within 60 days.
11. Minot K. Milliken is the cousin of Roger Milliken and Gerrish H.
Milliken, who are brothers. The shares listed as beneficially owned by
each of Gerrish H. Milliken, Minot K. Milliken and Roger Milliken
include shares listed as beneficially owned by one or both of the
other two. The overall figures for all officers and directors as a
group and the figures included below in this note eliminate the
duplication of numbers and percentages of shares. Each of Gerrish H.
Milliken, Minot K. Milliken and Roger Milliken may be deemed to be a
controlling person of, and therefore may be deemed to be the
beneficial owner of, and to share the power to direct the voting
and/or the disposition of, common stock of the Company held by Minot
Mercantile Corporation and Woodbank Mills, Inc. Gerrish H. Milliken,
Minot K. Milliken and Roger Milliken together with Minot Mercantile
Corporation and Woodbank Mills, Inc. owned beneficially a maximum of
14,896,521 shares (40.54%) of the common stock of the Company.
<PAGE>
MANAGEMENT REMUNERATION
The Summary Compensation Table below shows compensation earned by or paid to
the named executive officers (the Chief Executive Officer and the other four
most highly compensated executive officers) for the three years ended January
31, 1998:
SUMMARY COMPENSATION TABLE:
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL ----------------------------------------- NUMBER OF
YEAR OTHER ANNUAL SHARES UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION ENDED SALARY BONUS COMPENSATION OPTIONS COMPENSATION(A)
- ---------------------------------- --------- ---------- ---------- ----------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C> <C>
David L. Nichols.................. 01/31/98 $ 839,846 $ 409,483 $ 0 20,000 $ 72,935
CHAIRMAN OF THE BOARD 02/01/97 $ 799,615 $ 520,749 $ 0 -0- $ 67,788
AND CHIEF EXECUTIVE 02/03/96 $ 725,385 $ 394,311 $ 0 -0- $ 58,925
OFFICER
James M. McVicker................. 01/31/98 $ 424,942 $ 188,947 $ 0 9,000 $ 24,500
SENIOR VICE PRESIDENT 02/01/97 $ 409,769 $ 242,622 $ 0 -0- $ 23,084
AND CHIEF FINANCIAL 02/03/96 $ 361,038 $ 219,655(b) $ 0 -0- $ 19,833
OFFICER
Randolph L. Burnette.............. 01/31/98 $ 313,269 $ 140,043 $ 0 9,000 $ 18,013
SENIOR VICE PRESIDENT OF 02/01/97 $ 296,538 $ 177,528 $ 0 -0- $ 16,571
REAL ESTATE 02/03/96 $ 274,231 $ 155,306 $ 0 -0- $ 13,672
William W. Carr................... 01/31/98 $ 255,000 $ 103,424 $ 0 2,000 $ 14,343
TREASURER AND SECRETARY 02/01/97 $ 255,000 $ 135,809 $ 0 -0- $ 12,067
02/03/96 $ 263,269 $ 74,025 $ 0 -0- $ 11,275
Kathryn M. Muldowney.............. 01/31/98 $ 200,000 $ 81,117 $ 0 4,000 $ 10,956
VICE PRESIDENT AND CHIEF 02/01/97 $ 182,116 $ 98,528 $ 0 -0- $ 10,488
INFORMATION OFFICER 02/03/96 $ 140,769 $ 103,862 $ 0 -0- $ 6,925
</TABLE>
- ------------------------
(a) All Other Compensation is comprised of the Company's matching contributions
under the Company's Savings, Profit Sharing and Supplemental Retirement Plan
and the Company's Non-Qualified Savings, Profit Sharing and Supplemental
Retirement Plan. Also includes $23,000, $24,000, and $21,000, paid to Mr.
Nichols for Board of Directors' meetings during the fiscal years ended
January 31, 1998, February 1, 1997, and February 3, 1996, respectively.
(b) Includes a special bonus in the amount of $25,000 for additional services
recognized by the Board of Directors.
<PAGE>
OPTION GRANTS TABLE
The following table sets forth information regarding options granted during
the fiscal year ended January 31, 1998 by the Company to each of the named
executive officers:
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE VALUE AT
NUMBER OF % OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SECURITIES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE OR TERM(B)
OPTIONS EMPLOYEES IN BASE PRICE EXPIRATION -------------------------------
GRANTED(A) FISCAL YEAR (PER SHARE) DATE 5% 10%
----------- --------------- ----------- ----------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
David L. Nichols................... 20,000 20.94% $ 48.06 4/18/2007 $ 604,494.00 $ 1,531,905.00
James M. McVicker.................. 9,000 9.42% $ 48.06 4/18/2007 $ 272,022.00 $ 689,357.00
Randolph L. Burnette............... 9,000 9.42% $ 48.06 4/18/2007 $ 272,022.00 $ 689,357.00
William A. Carr.................... 2,000 2.09% $ 48.06 4/18/2007 $ 60,449.00 $ 153,191.00
Kathryn M. Muldowney............... 4,000 4.19% $ 48.06 4/18/2007 $ 120,899.00 $ 306,381.00
</TABLE>
- ------------------------------
(a) One-fourth of these options will vest on April 20, 1998, and an additional
one-fourth will vest on April 20, 1999, April 18, 2000 and April 18, 2001.
(b) The potential realizable value of the options reported was calculated by
assuming 5% and 10% compounded annual rates of appreciation of the common
stock from the date of grant of the options until the expiration of the
options, based on the market price on the date of grant. These assumed
annual rates of appreciation were used in compliance with the rules of the
Securities and Exchange Commission and are not intended to forecast future
price appreciation of the common stock.
FISCAL YEAR END OPTION VALUE TABLE
The following table sets forth information regarding the aggregate number
and value of options held by the named executive officers as at January 31,
1998. No options were exercised by any of the named executive officers in 1997:
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED OPTIONS VALUE OF UNEXERCISED
IN-THE-MONEY OPTIONS
AT JANUARY 31, 1998 AT JANUARY 31, 1998(1)
-------------------------------- ------------------------------
<S> <C> <C> <C> <C>
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ---------------------------------------------------------- ----------------- ------------- --------------- -------------
David L. Nichols.......................................... 0 20,000 $ 0 $ 228,800.00
James M. McVicker......................................... 0 9,000 $ 0 $ 102,960.00
Randolph L. Burnette...................................... 0 9,000 $ 0 $ 102,960.00
William A. Carr........................................... 0 2,000 $ 0 $ 22,880.00
Kathryn M. Muldowney...................................... 0 4,000 $ 0 $ 45,760.00
</TABLE>
- ------------------------------
(1) The closing price for the Company's common stock on the New York Stock
Exchange on January 30, 1998 was $59.50 per share. Value is calculated on
the basis of the difference between the respective option exercise prices
and $59.50, multiplied by the number of shares of common stock underlying
the respective options.
<PAGE>
REPORT OF THE COMPENSATION COMMITTEE
GENERAL. The Compensation Committee of the Board of Directors (the
"Committee") is composed of five outside directors. The current members of the
Committee are H. Keith H. Brodie, M.D., Minot K. Milliken, Roger Milliken,
Lawrence R. Pugh and Francis G. Rodgers. As part of its duties, the Committee
reviews and recommends to the Board of Directors compensation levels for the
Company's executive officers.
The Company's compensation program reflects the philosophy that executive
compensation levels should be linked to Company performance and also be
competitive within the retail industry. Historically, the Company has structured
compensation principally through base annual salary and year-end bonuses. With
the adoption of the Company's 1996 Stock Option Plan, the Company's compensation
program now includes an equity incentive component. The Committee recognizes
that compensation in excess of $1 million paid to the Company's Chief Executive
Officer does not presently qualify for deduction by the Company for federal
income tax purposes under Section 162(m) of the Internal Revenue Code, but
believes that the non-deductible portion is not material. Moreover, the
Committee believes that it is important to maintain the flexibility to
compensate executive officers in a manner consistent with the stated philosophy
of performance-linked and competitive compensation designed to maximize
stockholder value, notwithstanding that some portion of such compensation may
not be deductible by the Company.
BASE SALARIES. Base salaries for the Company's executives are determined by
evaluating the responsibilities of the position and the experience of the
individual, and by reference to the competitive marketplace. The Company seeks
to target base salaries within the median salary level for comparable executive
positions.
ANNUAL BONUSES. The Company has a Pay-for-Performance year-end bonus
program designed to reward management and other key executives for Company
performance. Under the program, bonuses are awarded based upon the achievement
of pre-defined Company and business unit performance measurements as determined
by the Board. For 1997, with respect to each executive officer named in the
SUMMARY COMPENSATION TABLE, bonuses were based on a weighted average performance
barometer which included pre-tax store profits, total sales, inventory turnover
and operating expense ratios. The bonuses reported in the SUMMARY COMPENSATION
TABLE reflect the fact that the weighted average Company performance targets for
1997 were 91.20% achieved.
1996 STOCK OPTION PLAN. The 1996 Stock Option Plan (the "Stock Plan") is
intended to enhance the Company's ability to attract and retain employees with
valuable ability and experience and to furnish such personnel with incentives to
improve operations and increase profits of the Company. In addition, options
granted under the Stock Plan align the interests of executives with those of the
stockholders, and thus provide the executives with additional incentive to
maximize stockholder value. Options grants are made from time to time to
executives whose contributions have or are expected to have a significant impact
on the Company's long-term performance. The size of previous grants and the
number of options held are not determinative of future grants. In 1997 options
were granted to all seven of the Company's executive officers. Options are
granted at a price equal to the fair market value of the Company's common stock
on the date of grant, and, in general, vest in four equal increments over the
four year period following the date of grant.
COMPENSATION OF THE CHIEF EXECUTIVE OFFICER. The compensation of David L.
Nichols, Chairman of the Board and Chief Executive Officer of the Company, is
determined in accordance with the criteria set forth above.
<PAGE>
Mr. Nichols, who does not have an employment contract, received a salary
increase in 1997 of approximately 5.0% to keep his salary within the median
marketplace salary level for comparable executive positions and based on an
evaluation of the other criteria set forth above under "Base Salaries." Mr.
Nichols' bonus for 1997 was based upon the performance of the Company. As a
participant in the Pay-for-Performance year-end bonus program, Mr. Nichols
received a bonus for 1997 of $409,000 based on the achievement of 91.20% of the
weighted average Company performance targets. In addition, Mr. Nichols was
awarded options to purchase 20,000 shares of the Company's common stock under
the Stock Plan.
H. Keith H. Brodie, M.D. Minot K. Milliken Roger Milliken
Lawrence R. Pugh Francis G. Rodgers
<PAGE>
PERFORMANCE GRAPH
Set forth below is a line graph comparing, over the last five fiscal years,
the Company's cumulative total return to shareholders with (i) the Standard &
Poor's 500 Composite Stock Price Index and (ii) the Standard & Poor's Retail
Department Stores Composite Index.
MERCANTILE STORES COMPANY, INC.
COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN*
FEBRUARY 1, 1993 THROUGH JANUARY 31, 1998
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
MERCANTILE STOCK S&P RETAIL DEPARTMENT S&P 500 INDEX
<S> <C> <C> <C> <C> <C> <C> <C>
1992 100 100 100
1993 116.72 109.96 111.86
1994 133.5 101.07 112.48
1995 146.29 120.31 155.85
1996 155.13 128.02 196.86
1997 192.36 165.56 249.69
<CAPTION>
<S> <C>
1992
1993
1994
1995
1996
1997
Assumes $100 invested on February 1, 1993 in
Mercantile
common stock, S&P 500 index and S&P Retail Department
Stores Composite Index.
<CAPTION>
1992
1993
1994
1995
1996
1997
*Total return assumes re-investment
of
dividends.
</TABLE>
PENSION PLANS
The Company has maintained a noncontributory Pension Plan since 1945 which
has been amended from time to time. The Plan is funded through contributions by
the Company to the Plan trustee or appreciation of existing Plan assets. All
employees (including officers) with one year of employment during which at least
1,000 hours were worked and who meet certain age requirements are participants.
Normal retirement eligibility occurs at age 65 for participants in the Plan;
however, early retirement at a reduced monthly benefit is available to employees
who have reached the age of 60 and have at least 5 years of service (as
defined). The retirement benefit is in the form of a level monthly payment for
life. The benefit for service from February 1, 1976 to February 3, 1996 was
determined based on the addition of .875% of each year's compensation up to the
year's Taxable Wage Base (as defined) and 1.375% of compensation above such base
up to, since 1989, the maximum annual limitation on compensation.
The Plan was amended effective February 4, 1996 to provide pension benefits
which are more commensurate with those prevalent in the competitive retail
industry. The amendment adjusted the calculation formula benefits earned after
February 3, 1996. The new formula includes a 2-tier service breakpoint for
calculation purposes. Under the amended Plan, benefits for associates with up to
20 years of enrollment (as defined) are based on (i) .875% of annual
compensation up to the year's Taxable Wage Base, plus (ii) 1.875% of
compensation above such base up to a compensation level of twice the Taxable
Wage Base, plus (iii) 3.0% of compensation above such doubled Taxable Wage Base
up to the maximum annual limitation on compensation ($160,000 during 1997). For
associates with more than 20 years of
<PAGE>
enrollment, benefits are based on (i) 1.0% of annual compensation up the year's
Taxable Wage Base, plus (ii) 2.5% of compensation above such base up to a
compensation level of twice the Taxable Wage Base, plus (iii) 4.0% of
compensation above such doubled Taxable Wage Base up to the maximum annual
limitation on compensation.
SEVERANCE PROTECTION AGREEMENTS
The Company has entered into severance protection agreements with each of
James M. McVicker, Randolph L. Burnette and Kathryn M. Muldowney (the
"Executives") and David L. Nichols (the "CEO"). The agreements are designed to
encourage the executives to carry out their duties with the Company in the event
of a potential change in control of the Company.
The agreements for the Executives provide that if within 24 months following
a change in control (as defined in the agreements) of the Company, the
Executive's employment is terminated either (i) by the Company or other than
cause or disability or, (ii) by the Executive, for good reason, then such
Executive will receive, in addition to base salary and bonus accrued through the
date of termination, the greater of: (a) 2.99 times annual salary and bonus at
the highest rate in effect during the one year period prior to the change in
control less the cash compensation paid the Executive for services rendered from
the date of change in control to the termination date, or (b) two weeks'
compensation for every year of service with the Company at a level equal to
salary and bonus at the highest rate in effect during the one year period prior
to the change in control. The agreement with the CEO provides that if within 24
months following a change in control of the Company, the CEO's employment is
terminated either (i) by the Company for other than cause or disability, or (ii)
by the CEO for any reason whatsoever, then the CEO will receive in addition to
base salary and bonus accrued through the date of termination, the greater of:
(a) $2,997,075, or (b) 2.99 times his annual salary and bonus at the highest
rate in effect during the one year period prior to the change in control. In
addition, each Executive and the CEO is entitled to: (i) receive all employment
benefits for the remainder of, in the case of the Executives, the 24 month
period, and in the case of the CEO, the 36 month period, following the change in
control; (ii) a lump sum payment equal to the present value of the amount by
which retirement benefits would have been larger had, in the case of the
Executives, an additional two years, and in the case of the CEO, an additional
three years, of credited service been completed; and (iii) legal fees and
expenses reasonably incurred in enforcing the agreements.
The Code imposes certain excise taxes on, and limits the deductibility of,
certain compensatory payments made by a corporation to or for the benefit of
certain individuals if such payments are contingent upon certain changes in the
ownership or effective control of the corporation or the ownership of a
substantial portion of the assets of the corporation provided that such payments
to the individual have an aggregate present value in excess of three times the
individual's annualized includible compensation for the base period, as defined
in the Code. The agreements for the Executives provide that such severance
payments shall be reduced to the extent necessary so that no such payments are
subject to the excise tax. The CEO's agreement entitles him to receive an amount
sufficient to offset any excise tax payable by the CEO pursuant to the
provisions of the Code.
Directors who are not also officers of the Company receive $16,000 as yearly
compensation. All directors receive a standard fee of $3,000 for each board
meeting attended and $1,000 for each Committee meeting attended, plus the
payment of expenses incurred in connection therewith. In addition, all members
of each Committee receive $3,000 as yearly compensation.
SECTION 16(A) BENEFICIAL REPORTING COMPLIANCE
Section 16(a) of the Exchange Act requires the Company's officers and
directors, and persons who own more than 10% of a registered class of the
Company's equity securities, to file initial reports of ownership and reports of
changes in ownership (Forms 3, 4 and 5) of Common Stock and other equity
securities of the Company with the SEC and the New York Stock Exchange.
Officers, directors and greater-than-10% beneficial holders are required by SEC
regulation to furnish the Company with copies of all such forms that they file.
<PAGE>
To the Company's knowledge, based solely on the Company's review of the
copies of such reports received by the Company and, if applicable, written
representations from certain reporting persons, that no reports on Form 5 were
required. The Company believes that during the fiscal year ended December 31,
1997, its officers, directors and greater-than-10% beneficial owners complied
with all applicable Section 16(a) filing requirements.
TRANSACTIONS WITH MANAGEMENT AND OTHERS
Milliken & Company, of which Roger Milliken is Chairman and Chief Executive
Officer, Thomas J. Malone is President, Chief Operating Officer and a director,
Minot K. Milliken and Gerrish H. Milliken are directors emeriti, and H. Keith H.
Brodie, M.D., Lawrence R. Pugh, Francis G. Rodgers and Roger K. Smith are
directors, is one of the Company's suppliers of some types of merchandise. VF
Corporation, of which Lawrence R. Pugh is Chairman of the Board and was formerly
the Chief Executive Officer, also supplies the Company with some types of
merchandise. Such purchases for resale and use by the Company and its
subsidiaries are in the ordinary course of business at competitive prices and
amounted to approximately $420,000 in the case of Milliken & Company and
$61,955,000 in the case of VF Corporation during the last fiscal year.
<PAGE>
----------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
DILLARD'S, INC.
MSC ACQUISITIONS, INC.
and
MERCANTILE STORES COMPANY, INC.
Dated as of May 16, 1998
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
ARTICLE I
<S> <C>
THE OFFER ............................ 2
SECTION 1.1 The Offer ................................................... 2
SECTION 1.2 Company Action .............................................. 3
ARTICLE II
THE MERGER ............................ 4
SECTION 2.1 The Merger ................................................. 4
SECTION 2.2 Closing; Effective Time .................................... 4
SECTION 2.3 Effects of the Merger ...................................... 4
SECTION 2.4 Certificate of Incorporation; By-Laws ...................... 5
SECTION 2.5 Directors and Officers ..................................... 5
SECTION 2.6 Conversion of Securities ................................... 5
SECTION 2.7 Treatment of Options ....................................... 6
SECTION 2.8 Dissenting Shares and Section 262 Shares ................... 6
SECTION 2.9 Surrender of Shares; Stock Transfer Books .................. 6
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ....................... 8
SECTION 3.1 Organization and Qualification; Subsidiaries ............... 8
SECTION 3.2 Certificate of Incorporation and By-Laws ................... 8
SECTION 3.3 Capitalization ............................................. 8
SECTION 3.4 Authority Relative to This Agreement ....................... 9
SECTION 3.5 No Conflict; Required Filings and Consents ................. 10
SECTION 3.6 Compliance ................................................. 10
SECTION 3.7 SEC Filings; Financial Statements .......................... 11
SECTION 3.8 Absence of Certain Changes or Events ....................... 11
SECTION 3.9 Absence of Litigation ...................................... 12
SECTION 3.10 Employee Benefit Plans ..................................... 12
SECTION 3.11 Tax Matters ................................................ 14
SECTION 3.12 Offer Documents; Proxy Statement ........................... 14
SECTION 3.13 Environmental Matters ...................................... 15
SECTION 3.14 Real Estate Matters ........................................ 17
SECTION 3.15 Brokers .................................................... 18
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER .............................. 18
SECTION 4.1 Corporate Organization ..................................... 18
SECTION 4.2 Authority Relative to This Agreement ....................... 18
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 4.3 No Conflict; Required Filings and Consents ................. 18
SECTION 4.4 Offer Documents; Proxy Statement ........................... 19
SECTION 4.5 Brokers .................................................... 20
SECTION 4.6 Funds ...................................................... 20
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER .......................... 20
SECTION 5.1 Conduct of Business of the Company Pending the Merger ...... 20
ARTICLE VI
ADDITIONAL AGREEMENTS ................................. 22
SECTION 6.1 Stockholders Meeting ....................................... 22
SECTION 6.2 Proxy Statement ............................................ 22
SECTION 6.3 Company Board Representation; Section 14(f) ................ 23
SECTION 6.4 Access to Information; Confidentiality ..................... 24
SECTION 6.5 No Solicitation of Transactions ............................ 25
SECTION 6.6 Employee Benefits Matters .................................. 26
SECTION 6.7 Directors' and Officers' Indemnification and Insurance ..... 27
SECTION 6.8 Postponement of Annual Meeting ............................. 28
SECTION 6.9 Notification of Certain Matters ............................ 28
SECTION 6.10 Further Action; Reasonable Best Efforts .................... 28
SECTION 6.11 Public Announcements ....................................... 29
SECTION 6.12 Disposition of Litigation .................................. 29
ARTICLE VII
CONDITIONS OF MERGER ................................. 29
SECTION 7.1 Conditions to Obligation of Each Party to Effect the Merger . 29
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER ........................... 30
SECTION 8.1 Termination ................................................ 30
SECTION 8.2 Effect of Termination ...................................... 31
SECTION 8.3 Fees and Expenses .......................................... 32
SECTION 8.4 Amendment .................................................. 33
SECTION 8.5 Waiver ..................................................... 33
ARTICLE IX
GENERAL PROVISIONS .................................. 33
SECTION 9.1 Non-Survival of Representations, Warranties and Agreements 33
SECTION 9.2 Notices .................................................... 33
SECTION 9.3 Certain Definitions ........................................ 34
SECTION 9.4 Severability ............................................... 35
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
SECTION 9.5 Entire Agreement; Assignment ............................... 36
SECTION 9.6 Parties in Interest ........................................ 36
SECTION 9.7 Governing Law .............................................. 36
SECTION 9.8 Headings ................................................... 36
SECTION 9.9 Counterparts ............................................... 36
SECTION 9.10 Knowledge .................................................. 36
SECTION 9.11 Specific Performance ....................................... 36
</TABLE>
Annex A - Offer Conditions
-iii-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this
"Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), MSC
ACQUISITIONS, INC., a Delaware corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and MERCANTILE STORES COMPANY, INC., a Delaware
corporation (the "Company").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and the stockholders of the
Company to enter into this Agreement with Parent and Purchaser, providing for
the merger (the "Merger") of Purchaser with the Company in accordance with the
General Corporation Law of the State of Delaware ("DGCL"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of Parent and Purchaser have
each approved the Merger of Purchaser with the Company in accordance with the
DGCL upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("MMC MergerSub"), and Minot Mercantile Corporation,
a Delaware corporation ("Holding Co."), have entered into a merger agreement,
dated as of the date hereof (the "Holding Co. Merger Agreement"), pursuant to
which MMC MergerSub will be merged with and into Holding Co. (the "Holding Co.
Merger"), and Holding Co. shall be the surviving corporation;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("WMI MergerSub"), and Woodbank Mills, Inc., a
Delaware corporation ("Woodbank"), have entered into a merger agreement, dated
as of the date hereof (the "Woodbank Merger Agreement"), pursuant to which WMI
MergerSub will be merged with and into Woodbank (the "Woodbank Merger"), and
Woodbank shall be the surviving corporation; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent and each of Holding Co., Woodbank, various family trust
entities (collectively, the "Related Sellers") have entered into a stockholders'
agreement, dated as of the date hereof (the "Stockholders' Agreement"), pursuant
to which, among other things, the Related Sellers have granted an option in
favor of Parent with respect to the shares of Company Common Stock (as defined
herein) respectively held by such persons, subject to the terms and conditions
contained therein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
<PAGE>
2
ARTICLE I
THE OFFER
SECTION 1.1 The Offer. (a) Provided that this Agreement shall
not have been terminated in accordance with Section 8.1 and no event shall have
occurred and no circumstance shall exist which would result in a failure to
satisfy any of the conditions or events set forth in Annex A hereto (the "Offer
Conditions"), Purchaser shall, as soon as reasonably practicable after the date
hereof (and in any event within five business days from the date of public
announcement of the execution hereof), commence an offer (the "Offer") to
purchase for cash all of the issued and outstanding shares of Common Stock, par
value $.14 2/3 per share (referred to herein as either the "Shares" or "Company
Common Stock"), of the Company at a price of $80.00 per Share, net to the seller
in cash. The obligation of Purchaser to accept for payment Shares tendered
pursuant to the Offer shall be subject only to the satisfaction or waiver by
Purchaser of the Offer Conditions. Purchaser expressly reserves the right, in
its sole discretion, to waive any such condition (other than the Minimum
Condition as defined in the Offer Conditions) and make any other changes in the
terms or conditions of the Offer, provided that, unless previously approved by
the Company in writing, no change may be made which decreases the price per
Share payable in the Offer, changes the form of consideration payable in the
Offer (other than by adding consideration), reduces the maximum number of Shares
to be purchased in the Offer, modify or amend the Offer Conditions or otherwise
amend the Offer in a manner adverse to holders of the Shares. Purchaser
covenants and agrees that, subject to the terms and conditions of this
Agreement, including but not limited to the Offer Conditions, it will accept for
payment and pay for Shares as soon as it is permitted to do so under applicable
law; provided that, Purchaser shall have the right, in its sole discretion, to
extend the Offer for up to five business days, notwithstanding the prior
satisfaction of the Offer, in order to attempt to satisfy the requirements of
Section 253 of the DGCL. It is agreed that the Offer Conditions are for the
benefit of Purchaser and may be asserted by Purchaser regardless of the
circumstances giving rise to any such condition (except for any action or
inaction by Purchaser or Parent constituting a breach of this Agreement) or,
except with respect to the Minimum Condition, may be waived by Purchaser, in
whole or in part at any time and from time to time, in its sole discretion.
Purchaser further agrees that the Holding Co. Merger and the Woodbank Merger
will not be closed until the Offer Conditions are otherwise satisfied or waived
by Purchaser, and immediately prior to the purchase of the Shares by Purchaser
pursuant to the Offer. Purchaser agrees that, so long as this Agreement is in
effect and all of the Offer Conditions are satisfied other than the conditions
to the Offer set forth in clause (h) of Annex A and the Minimum Condition, at
the request of the Company the Purchaser, at its option, shall extend the Offer
until the earlier of (1) such time as such conditions are satisfied or waived,
and (2) the date chosen by the Company which shall not be later than (x) the
Outside Date (as defined herein), (y) the earliest date on which the Company
reasonably believes such condition will be satisfied; provided, that the Company
may request further extensions up until the Outside Date if the Offer Conditions
set forth in clause (h) and the Minimum Condition are still the only Offer
Condition not satisfied unless this Agreement has been terminated pursuant to
the provisions of Article VIII.
(b) As soon as reasonably practicable on the date the Offer is
commenced, Purchaser shall file a Tender Offer Statement on Schedule 14D-1 (the
"Schedule 14D-1") with
<PAGE>
3
respect to the Offer with the Securities and Exchange Commission (the "SEC").
The Schedule 14D-1 shall contain an Offer to Purchase and forms of the related
letter of transmittal (which Schedule 14D-1, Offer to Purchase and other
documents, together with any supplements or amendments thereto, are referred to
herein collectively as the "Offer Documents"). Parent and Purchaser agree that
the Company and its counsel shall be given an opportunity to review the Schedule
14D-1 before it is filed with the SEC. Parent, Purchaser and the Company each
agrees promptly to correct any information provided by it for use in the Offer
Documents that shall have become false or misleading in any material respect,
and Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
SECTION 1.2 Company Action. (a) The Company hereby approves of
and consents to the Offer and represents and warrants that: (i) its Board of
Directors, at a meeting duly called and held on May 15, 1998, has unanimously
(A) determined that this Agreement and the transactions contemplated hereby,
including the Offer and the Merger, are advisable and are fair to and in the
best interests of the holders of Shares, (B) approved this Agreement and the
transactions contemplated hereby, including each of the Offer and the Merger,
and (C) resolved to recommend that the stockholders of the Company accept the
Offer, tender their Shares to Purchaser thereunder and adopt this Agreement;
provided, however, that prior to the consummation of the Offer, if the Company's
Board of Directors by majority vote shall have determined in good faith, based
upon the advice of outside counsel to the Company, that failure to modify or
withdraw its recommendation would constitute a breach of the Board's fiduciary
duty under applicable law, the Board of Directors may so modify or withdraw its
recommendation; and (ii) Goldman, Sachs & Co. (the "Financial Adviser") has
delivered to the Board of Directors of the Company its opinion that the
consideration to be received by holders of Shares, other than Parent and
Purchaser, pursuant to each of the Offer and the Merger is fair to such holders
from a financial point of view. The Company has been authorized by the Financial
Adviser to permit, subject to prior review and consent by such Financial
Adviser, the inclusion of such fairness opinion (or a reference thereto) in the
Schedule 14D-9 referred to below and the Proxy Statement referred to in Section
3.12. The Company hereby consents to the inclusion in the Offer Documents of the
recommendations of the Company's Board of Directors described in this Section
1.2(a).
(b) The Company shall file with the SEC, contemporaneously
with the commencement of the Offer pursuant to Section 1.1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D- 9"), containing the
recommendations of the Company's Board of Directors described in Section
1.2(a)(i) and shall promptly mail the Schedule 14D-9 to the stockholders of the
Company. The Schedule 14D-9 and all amendments thereto will comply in all
material respects with the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations promulgated thereunder. The
Company, Parent and Purchaser each agrees promptly to correct any information
provided by it for use in the Schedule 14D-9 that shall have become false or
misleading in any material respect, and the Company further agrees to take all
steps necessary to cause the Schedule 14D-9 as so corrected to be filed with the
SEC and disseminated to holders of Shares, in each case as and to the extent
required by applicable federal securities laws.
<PAGE>
4
(c) In connection with the Offer, if requested by Purchaser,
the Company shall promptly furnish Purchaser with mailing labels, security
position listings, any non-objecting beneficial owner lists and any available
listings or computer files containing the names and addresses of the record
holders of Shares, each as of a recent date, and shall promptly furnish
Purchaser with such additional information (including but not limited to updated
lists of stockholders, mailing labels, security position listings and
non-objecting beneficial owner lists) and such other assistance as Parent,
Purchaser or their agents may reasonably require in communicating the Offer to
the record and beneficial holders of Shares. Subject to the requirements of law,
and except for such steps as are necessary to disseminate the Offer Documents
and any other documents necessary to consummate the Offer and the Merger, Parent
and each of its affiliates and associates shall hold in confidence the
information contained in any of such lists, labels or additional information
and, if this Agreement is terminated, shall promptly deliver to the Company all
copies of such information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the Effective
Time (as defined in Section 2.2), Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). At Parent's election,
any direct or indirect subsidiary of Parent other than Purchaser may be merged
with and into the Company instead of the Purchaser. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
SECTION 2.2 Closing; Effective Time. Subject to the provisions
of Article VII, the closing of the Merger (the "Closing") shall take place in
New York City at the offices of Simpson Thacher & Bartlett, 425 Lexington
Avenue, New York, New York, as soon as practicable but in no event later than
the first business day after the satisfaction or waiver of the conditions set
forth in Article VII, or at such other place or at such other date as Parent and
the Company may mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date". At the Closing, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is specified
in the Certificate of Merger) being the "Effective Time").
SECTION 2.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
<PAGE>
5
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 2.4 Certificate of Incorporation; By-Laws. (a) At the
Effective Time and without any further action on the part of the Company and
Purchaser, the Restated Certificate of Incorporation of the Company (as amended,
the "Certificate of Incorporation"), as in effect immediately prior to the
Effective Time, shall be the certificate of incorporation of the Surviving
Corporation until thereafter amended as provided therein and under the DGCL.
(b) At the Effective Time and without any further action on
the part of the Company and Purchaser, the By-Laws of the Purchaser, as in
effect immediately prior to the Effective Time, shall be the By-Laws of the
Surviving Corporation and thereafter may be amended or repealed in accordance
with their terms or the Certificate of Incorporation of the Purchaser and as
provided by law.
SECTION 2.5 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of the
Surviving Corporation, each to hold office in accordance with the Certificate of
Incorporation and By-Laws of the Surviving Corporation (directors of the Company
shall tender their resignations effective upon the Effective Time), and the
officers of the Company immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, in each case until their
respective successors are duly elected or appointed (as the case may be) and
qualified.
SECTION 2.6 Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be cancelled pursuant to
Section 2.6(b), Shares held by Holding Co. or Woodbank and any
Dissenting Shares (as defined in Section 2.8(a)) shall be cancelled,
extinguished and converted into the right to receive $80.00 in cash or
any higher price that may be paid pursuant to the Offer (the "Merger
Consideration") payable to the holder thereof, without interest, upon
surrender of the certificate formerly representing such Share in the
manner provided in Section 2.9, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of
the Company and each Share owned by the Company, Parent, Purchaser or
any other direct or indirect subsidiary of such persons, in each case
immediately prior to the Effective Time, shall be cancelled and retired
without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(c) Each share of common stock of Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share
of common stock of the Surviving Corporation.
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6
SECTION 2.7 Treatment of Options. Immediately prior to the
Effective Time, the Company shall cause each of the 95,500 outstanding options
to purchase Company Common Stock under the Company's 1996 Option Plan as set
forth in Schedule 2.7 to the Company Disclosure Letter (an "Option"), whether or
not then exercisable or vested, to be cancelled by the Company, and the holder
thereof to be entitled to receive at the Effective Time or as soon as
practicable thereafter from the Company in consideration for such cancellation
an amount in cash equal to the product of (a) the number of Shares previously
subject to such Option and (b) the excess, if any, of the Merger Consideration
over the exercise price per Share previously subject to such Option (such
payment to be net of applicable withholding taxes).
SECTION 2.8 Dissenting Shares and Section 262 Shares. (a)
Notwithstanding anything in this Agreement to the contrary, shares of Company
Common Stock that are issued and outstanding immediately prior to the Effective
Time and which are held by stockholders who have not voted in favor of or
consented to the Merger and shall have delivered a written demand for appraisal
of such shares of Company Common Stock in the time and manner provided in
Section 262 of the DGCL and shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but shall be entitled to receive the consideration as
shall be determined pursuant to Section 262 of the DGCL; provided, however, that
if such holder shall have failed to perfect or shall have effectively withdrawn
or lost his, her or its right to appraisal and payment under the DGCL, such
holder's shares of Company Common Stock shall thereupon be deemed to have been
converted, at the Effective Time, into the right to receive the Merger
Consideration set forth in Section 2.6(a) of this Agreement, without any
interest thereon.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal pursuant to Section 262 received by the Company,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent or
as otherwise required by applicable law, make any payment with respect to any
such demands for appraisal or offer to settle or settle any such demands.
SECTION 2.9 Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent for the holders of Shares in connection with the Merger (the
"Paying Agent") to receive the Merger Consideration to which holders of Shares
shall become entitled pursuant to Section 2.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 2.9(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
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7
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which immediately prior to
the Effective Time represented Shares (the "Certificates"), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment of the Merger Consideration therefor.
Upon surrender to the Paying Agent of a Certificate, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate, and such Certificate shall then be cancelled.
No interest shall be paid or accrued for the benefit of holders of the
Certificates on the Merger Consideration payable upon the surrender of the
Certificates. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that the
person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable.
(c) At any time following six months after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
<PAGE>
8
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that, except as set forth in the letter (the "Company Disclosure
Letter") delivered by the Company to Purchaser prior to the date of execution of
this Agreement:
SECTION 3.1 Organization and Qualification; Subsidiaries. Each
of the Company and each of its subsidiaries is a corporation duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has the requisite corporate power and authority and any
necessary governmental approvals to own, lease and operate its properties and to
carry on its business as it is now being conducted, except where the failure to
be so organized, existing and in good standing or to have such power, authority
and governmental approvals is not reasonably likely, individually or in the
aggregate, to have a Material Adverse Effect (as defined below) or prevent or
materially delay the consummation of the Offer or the Merger. Each of the
Company and each of its subsidiaries is duly qualified or licensed as a foreign
corporation to do business, and is in good standing, in each jurisdiction where
the character of its properties owned, leased or operated by it or the nature of
its activities makes such qualification or licensing necessary, except for such
failures to be so duly qualified or licensed and in good standing as are not
reasonably likely, individually or in the aggregate, to have a Material Adverse
Effect. When used in connection with the Company or any of its subsidiaries, the
term "Material Adverse Effect" means any change or effect that would be
materially adverse to the assets, liabilities, results of operations, financial
condition or business of the Company and its subsidiaries taken as a whole,
other than, as a result of changes in general economic conditions in the United
States.
SECTION 3.2 Certificate of Incorporation and By-Laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws of the Company as currently in
effect. Such Certificate of Incorporation and ByLaws are in full force and
effect and no other organizational documents are applicable to or binding upon
the Company. The Company is not in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
SECTION 3.3 Capitalization. The authorized capital stock of
the Company consists of 36,887,475 shares of Company Common Stock. As of May 16,
1998, (a) 36,748,550 shares of Company Common Stock were issued and outstanding,
all of which were validly issued, fully paid and nonassessable and were issued
free of preemptive (or similar) rights and (b) 138,925 shares of Company Common
Stock were held in the treasury of the Company. Since May 16, 1998, no options
to purchase shares of Company Common Stock have been granted and no shares of
Company Common Stock have been issued and the total number of Options
outstanding as of May 16, 1998 was 95,500. Except (i) as set forth above and
(ii) as a result of the exercise of Options outstanding as of May 16, 1998,
there are outstanding (A) no shares of capital stock or other voting securities
of the Company, (B) no securities of the Company convertible into or
exchangeable for shares of capital stock or voting securities of the Company,
(C) no options or other rights to acquire from the Company, and no obligation of
the Company
<PAGE>
9
to issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company and (D) no
equity equivalents, interests in the ownership or earnings of the Company or
other similar rights (collectively, "Company Securities"). There are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. There are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company or any
of its subsidiaries to which the Company or any of its subsidiaries is a party.
All shares of Company Common Stock subject to issuance as aforesaid, upon
issuance on the terms and conditions specified in the instruments pursuant to
which they are issuable, shall be duly authorized, validly issued, fully paid
and nonassessable and free of preemptive (or similar) rights. There are no
outstanding contractual obligations of the Company or any of its subsidiaries to
provide funds to or make any investment (in the form of a loan, capital
contribution or otherwise) in any such subsidiary or any other entity. Each of
the outstanding shares of capital stock of each of the Company's subsidiaries is
duly authorized, validly issued, fully paid and nonassessable and all such
shares are owned by the Company or another wholly owned subsidiary of the
Company as set forth in Schedule 3.3 to the Company Disclosure Letter and are
owned free and clear of all security interests, liens, claims, pledges,
agreements, limitations in voting rights, charges or other encumbrances of any
nature whatsoever, except where the failure to own such shares free and clear is
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect. The Company has delivered to Parent prior to the date hereof a
list of the subsidiaries and affiliates of the Company which evidences, among
other things, the percentage of capital stock or other equity interests owned by
the Company, directly or indirectly, in such subsidiaries or associated
entities. No entity in which the Company owns, directly or indirectly, less than
a 50% equity interest is, individually or when taken together with all such
other entities, material to the business of the Company and its subsidiaries
taken as a whole other than the Metro North Company.
SECTION 3.4 Authority Relative to This Agreement. The Company
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
adoption of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock if and to the extent required by applicable law,
and the filing of appropriate merger documents as required by the DGCL). This
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery hereof by Parent and
Purchaser, constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms. The Board of
Directors of the Company has approved this Agreement and the transactions
contemplated hereby (including but not limited to the Offer and the Merger and
the transactions contemplated by the Holding Co. Merger Agreement, Woodbank
Merger Agreement and the Stockholders Agreements and the transactions
contemplated by each such agreement) so as to render inapplicable hereto and
thereto (a) the limitation on business combinations contained in Section 203 of
the DGCL (or any similar provision) and (b) the restriction on "business
<PAGE>
10
combinations" with "related persons" contained in Article EIGHTH of the
Certificate of Incorporation. As a result of the foregoing actions subject to
the applicability of Section 253 of the DGCL, the only vote required to
authorize the Merger is the affirmative vote of a majority of the outstanding
Shares.
SECTION 3.5 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by the Company do not
and will not: (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company or the equivalent organizational documents of any of its
subsidiaries; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been
obtained and all filings described in such clauses have been made, conflict with
or violate any law, rule, regulation, order, judgment or decree applicable to
the Company or any of its subsidiaries or by which its or any of their
respective properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of the Company or any of its subsidiaries pursuant to,
any note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or any
of its subsidiaries is a party or by which the Company or any of its
subsidiaries or its or any of their respective properties are bound or affected,
except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which are not, individually
or in the aggregate, reasonably likely to have a Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement
by the Company and the consummation of the Merger by the Company do not and will
not require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, except for
(i) applicable requirements, if any, of the Exchange Act and the rules and
regulations promulgated thereunder, the Hart-Scott-Rodino Antitrust Improvements
Act of 1976, as amended (the "HSR Act"), state securities, takeover and "blue
sky" laws, (ii) the filing and recordation of appropriate merger or other
documents as required by the DGCL and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain are not, individually or in the aggregate, reasonably likely
to (x) prevent or materially delay the Company from performing its obligations
under this Agreement or (y) have a Material Adverse Effect.
SECTION 3.6 Compliance. Neither the Company nor any of its
subsidiaries is in conflict with, or in default or violation of, (i) any law,
rule, regulation, order, judgment or decree applicable to the Company or any of
its subsidiaries or by which its or any of their respective properties are bound
or affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or its or any of their respective properties are bound or
affected, except for any such conflicts, defaults or violations which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect.
<PAGE>
11
SECTION 3.7 SEC Filings; Financial Statements. (a) The Company
and, to the extent applicable, each of its then or current subsidiaries, has
filed all forms, reports, statements and documents required to be filed with the
SEC since January 1, 1995 (collectively, the "SEC Reports"), each of which has
complied in all material respects with the applicable requirements of the
Securities Act of 1933, as amended (the "Securities Act"), and the rules and
regulations promulgated thereunder, or the Exchange Act, and the rules and
regulations promulgated thereunder, each as in effect on the date so filed. None
of the SEC Reports (including but not limited to any financial statements or
schedules included or incorporated by reference therein) contained when filed,
or (except to the extent revised or superseded by a subsequent filing with the
SEC) contains, any untrue statement of a material fact or omitted or omits to
state a material fact required to be stated or incorporated by reference therein
or necessary in order to make the statements therein, in the light of the
circumstances under which they were made, not misleading.
(b) Each of the audited consolidated balance sheets of the
Company as of January 31, 1998 and February 1, 1997 and the related statements
of consolidated income and retained earnings, and statements of consolidated
cash flows for each of the three fiscal years ended January 31, 1998, February
1, 1997 and February 3, 1996, included in its Annual Reports on Form 10-K for
the fiscal years ended January 31, 1998, in each case, including any related
notes thereto, as filed with the SEC (collectively, the "Company Financial
Statements"), has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis throughout the periods involved (except
as may be indicated in the notes thereto) and fairly presents in all material
respects the consolidated financial position of the Company and its subsidiaries
at the respective date thereof and the consolidated results of its operations
and changes in cash flows for the periods indicated.
(c) There are no liabilities of the Company or any of its
subsidiaries of any kind whatsoever, whether or not accrued and whether or not
contingent or absolute, that are material to the Company and its subsidiaries,
taken as a whole, other than (i) liabilities disclosed or provided for in the
consolidated balance sheet of the Company and its subsidiaries at January 31,
1998, including the notes thereto, (ii) the SEC Reports, (iii) liabilities
incurred on behalf of the Company in connection with this Agreement and the
contemplated Merger, and (iv) liabilities incurred in the ordinary course of
business consistent with past practice since January 31, 1998, none of which
are, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect.
(d) The Company has heretofore furnished or made available to
Parent a complete and correct copy of any amendments or modifications which have
not yet been filed with the SEC to agreements, documents or other instruments
which previously had been filed by the Company with the SEC pursuant to the
Securities Act and the rules and regulations promulgated thereunder or the
Exchange Act and the rules and regulations promulgated thereunder.
SECTION 3.8 Absence of Certain Changes or Events. Since
January 31, 1998, except as contemplated by this Agreement or as disclosed in
the SEC Reports filed and publicly available prior to the date of this Agreement
or as disclosed in Schedule 3.8 to the Company Disclosure Letter, the Company
and its subsidiaries have conducted their businesses only in the
<PAGE>
12
ordinary course and in a manner consistent with past practice and, since such
date, there has not been: (i) any changes in the assets, liabilities, results of
operation, financial condition or business of the Company or any of its
subsidiaries having or reasonably likely to have a Material Adverse Effect; (ii)
any condition, event or occurrence which, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect; (iii) any damage,
destruction or loss (whether or not covered by insurance) with respect to any
assets of the Company or any of its subsidiaries which is reasonably likely,
individually or in the aggregate, to have a Material Adverse Effect; (iv) any
change by the Company in its accounting methods, principles or practices; (v)
any revaluation by the Company of any of its material assets, including but not
limited to writing down the value of inventory or writing off notes or accounts
receivable other than in the ordinary course of business; (vi) any entry by the
Company or any of its subsidiaries into any commitment or transactions material
to the Company and its subsidiaries taken as a whole (other than commitments or
transactions entered into in the ordinary course of business); (vii) any
declaration, setting aside or payment of any dividends or distributions in
respect of the Shares other than the regular quarterly dividend in the amount of
$.32 per share; (viii) any increase in or establishment of any bonus, insurance,
severance, deferred compensation, pension, retirement, profit sharing, stock
option (including without limitation the granting of stock options, stock
appreciation rights, performance awards, or restricted stock awards), stock
purchase or other employee benefit plan or agreement or arrangement, or any
other increase in the compensation payable or to become payable to any present
or former directors, officers or key employees of the Company or any of its
subsidiaries, except for increases in base compensation in the ordinary course
of business consistent with past practice, or any employment, consulting or
severance agreement or arrangement entered into with any such present or former
directors, officers or key employees; or (ix) any other action which, if it had
been taken after the date hereof, would have required the consent of Parent
under Section 5.1.
SECTION 3.9 Absence of Litigation. Except as disclosed in the
SEC Reports filed and publicly available prior to the date of this Agreement,
there are no suits, claims, actions, proceedings or investigations pending or,
to the best knowledge of the Company, threatened against the Company or any of
its subsidiaries, or any properties or rights of the Company or any of its
subsidiaries, before any court, arbitrator or administrative, governmental or
regulatory authority or body, that, individually or in the aggregate, is
reasonably likely to have a Material Adverse Effect. As of the date hereof,
neither the Company nor any of its subsidiaries nor any of their respective
properties is or are subject to any order, writ, judgment, injunction, decree,
determination or award having, or which, insofar as can be reasonably foreseen,
is reasonably likely to have a Material Adverse Effect or prevent or materially
delay consummation of the transactions contemplated hereby.
SECTION 3.10 Employee Benefit Plans. Except (i) as set forth
in the SEC Reports filed and publicly available prior to the date of this
Agreement or (ii) as is not, individually or in the aggregate, reasonably likely
to have a Material Adverse Effect or prevent or materially delay the
consummation of the Offer or the Merger:
(a) Schedule 3.10 to the Company Disclosure Letter contains a
true and complete list of each "employee benefit plan" (within the
meaning of section 3(3) of the Employee Retirement Income Security Act
of 1974, as amended ("ERISA"), including,
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13
without limitation, multiemployer plans within the meaning of ERISA
section 3(37)), stock purchase, stock option, severance, employment,
change-in-control, fringe benefit, collective bargaining, bonus,
incentive, deferred compensation and all other employee benefit plans,
agreements, programs, policies or other arrangements, whether or not
subject to ERISA, whether formal or informal, oral or written, legally
binding or not, under which any employee or former employee of the
Company or any of its subsidiaries, has any present or future right to
benefits or under which the Company or any of its subsidiaries has any
present or future liability. All such plans, agreements, programs,
policies and arrangements shall be collectively referred to as the
"Company Plans".
(b) With respect to each Company Plan, the Company has
delivered or made available to Parent a current, accurate and complete
copy (or, to the extent no such copy exists, an accurate description)
thereof and, to the extent applicable: (i) any related trust agreement
or other funding instrument; (ii) the most recent determination letter,
if applicable; (iii) any summary plan description and other written
communications by the Company or any of its subsidiaries to their
employees concerning the extent of the benefits provided under a
Company Plan; and (iv) for the three most recent years (A) the Form
5500 and attached schedules, (B) audited financial statements and (C)
actuarial valuation reports.
(c) (i) Each Company Plan has been established and
administered in accordance with its terms, and in material compliance
with the applicable provisions of ERISA, the Internal Revenue Code of
1986, as amended (the "Code"), and other applicable laws, rules and
regulations; (ii) each Company Plan which is intended to be qualified
within the meaning of Code section 401(a) is so qualified and has
received a favorable determination letter as to its qualification, and
nothing has occurred, whether by action or failure to act, that would
cause the loss of such qualification; (iii) no event has occurred and
no condition exists that would subject the Company or any of its
subsidiaries, either directly or by reason of their affiliation with
any member of their "Controlled Group" (defined as any organization
which is a member of a controlled group of organizations within the
meaning of Code sections 414(b), (c), (m) or (o)), to any tax, fine,
lien or penalty imposed by ERISA, the Code or other applicable laws,
rules and regulations; (iv) for each Company Plan with respect to which
a Form 5500 has been filed, no material change has occurred with
respect to the matters covered by the most recent Form since the date
thereof; and (v) no "reportable event" (as such term is defined in
ERISA section 4043), "prohibited transaction" (as such term is defined
in ERISA section 406 and Code section 4975) or "accumulated funding
deficiency" (as such term is defined in ERISA section 302 and Code
section 412 (whether or not waived)) has occurred with respect to any
Company Plan.
(d) With respect to each of the Company Plans that is subject
to Title IV of ERISA, as of the Effective Time, the assets of each such
Company Plan are at least equal in value to the present value of the
accrued benefits (vested and unvested) of the participants in such
Company Plan on a termination basis, based on the actuarial methods and
assumptions indicated in the most recent actuarial valuation reports.
<PAGE>
14
(e) Neither the Company nor any subsidiary is a party to any
multiemployer plan within the meaning of section 4001(a)(3) of ERISA or
any collective bargaining agreement.
(f) With respect to any Company Plan, (i) no actions, suits or
claims (other than routine claims for benefits in the ordinary course)
are pending or, to the knowledge of the Company, threatened, and (ii)
no facts or circumstances exist, to the knowledge of the Company, that
could give rise to any such actions, suits or claims.
(g) No Company Plan exists that could result in the payment to
any present or former employee of the Company or any of its
subsidiaries of any money or other property or accelerate or provide
any other rights or benefits to any present or former employee of the
Company or any of its subsidiaries as a result of the transaction
contemplated by this Agreement, whether or not such payment would
constitute a parachute payment within the meaning of Code section 280G.
SECTION 3.11 Tax Matters. The Company and each of its
subsidiaries, and any consolidated, combined, unitary or aggregate group for tax
purposes of which the Company or any of its subsidiaries is or has been a member
has timely filed all Tax Returns required to be filed by it in the manner
provided by law, has paid all Taxes (including interest and penalties) shown
thereon to be due and has provided adequate reserves in its financial statements
according to generally accepted accounting principles for any Taxes that have
not been paid, whether or not shown as being due on any Tax Returns. All such
Tax Returns were true, correct and complete in all material respects. Except as
has been disclosed to Parent in Schedule 3.11 to the Company Disclosure Letter:
(i) no material claim for unpaid Taxes has become a lien or encumbrance of any
kind against the property of the Company or any of its subsidiaries or is being
asserted against the Company or any of its subsidiaries; (ii) as of the date
hereof no audit of any Tax Return of the Company or any of its subsidiaries is
being conducted by a Tax authority; and (iii) no extension of the statute of
limitations on the assessment of any Taxes has been granted by the Company or
any of its subsidiaries and is currently in effect. As used herein, "Taxes"
shall mean any taxes of any kind, including but not limited to those on or
measured by or referred to as income, gross receipts, capital, sales, use, ad
valorem, franchise, profits, license, withholding, payroll, employment, excise,
severance, stamp, occupation, premium, value added, property or windfall profits
taxes, customs, duties or similar fees, assessments or charges of any kind
whatsoever, together with any interest and any penalties, additions to tax or
additional amounts imposed by any governmental authority. As used herein, "Tax
Return" shall mean any return, report or statement required to be filed with any
governmental authority with respect to Taxes.
SECTION 3.12 Offer Documents; Proxy Statement. Neither the
Schedule 14D-9, nor any of the information supplied by the Company for inclusion
in the Offer Documents, shall, at the respective times such Schedule 14D-9, the
Offer Documents or any amendments or supplements thereto are filed with the SEC
or are first published, sent or given to stockholders, as the case may be,
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 the light of the circumstances under which they were made, not
misleading. Neither the proxy statement to be sent to the stockholders of the
Company in connection with the Stockholders Meeting (as
<PAGE>
15
defined in Section 6.1) or the information statement to be sent to such
stockholders, as appropriate (such proxy statement or information statement, as
amended or supplemented, is herein referred to as the "Proxy Statement"), shall,
at the date the Proxy Statement (or any amendment thereof or supplement thereto)
is first mailed to stockholders and at the time of the Stockholders Meeting, if
any, and at the Effective Time, be false or misleading with respect to any
material fact, or omit to state any material fact required to be stated therein
or necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading or necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Stockholders Meeting which has become false or misleading.
Notwithstanding the foregoing, the Company makes no representation or warranty
with respect to any information supplied by Parent or Purchaser or any of their
respective representatives which is contained in the Schedule 14D-9 or the Proxy
Statement. The Schedule 14D-9 and the Proxy Statement will comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder.
SECTION 3.13 Environmental Matters. (a) Except as disclosed in
SEC Reports filed and publicly available prior to the date of this Agreement and
to the extent that the inaccuracy of any of the following (or the circumstances
giving rise to such inaccuracy), individually or in the aggregate, is not
reasonably likely to have a Material Adverse Effect or prevent or materially
delay consummation of the Offer or the Merger:
(i) the Company and its subsidiaries are, and within
the period of all applicable statutes of limitation have been, in
compliance with all applicable Environmental Laws;
(ii) the Company and its subsidiaries hold all
Environmental Permits (each of which is in full force and effect)
required for any of their current operations and for any property
owned, leased, or otherwise operated by any of them, and are, and
within the period of all applicable statutes of limitation have been,
in compliance with all such Environmental Permits;
(iii) no review by, or approval of, any Governmental
Authority or other person is required under any Environmental Law in
connection with the execution or delivery of this Agreement or the
consummation of the transactions contemplated hereby;
(iv) neither the Company nor any of its subsidiaries has
received any Environmental Claim (as hereinafter defined) against any
of them, and the Company has no knowledge of any such Environmental
Claim being threatened;
(v) to the knowledge of the Company, Hazardous
Materials are not present on any property owned, leased, or operated by
the Company or any of its subsidiaries, that is reasonably likely to
form the basis of any Environmental Claim against any of them; and the
Company has no reason to believe that Hazardous Materials are present
on any other property that is reasonably likely to form the basis of
any Environmental Claim against any of them;
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16
(vi) the Company has no knowledge of any material
Environment Claim pending or threatened, or of the presence or
suspected presence of any Hazardous Materials that is reasonably likely
to form the basis of any Environmental Claim, in any case against any
person or entity whose liability the Company or any of its subsidiaries
has or may have retained or assumed either contractually or by
operation of law. or against any real property which the Company or any
of its subsidiaries formerly owned, leased, or operated, in whole or in
part; and
(vii) to the knowledge of the Company, the Company has
informed the Parent and the Purchaser of: all material facts which the
Company reasonably believes could form the basis of a material
Environmental Claim against the Company or any of its subsidiaries
arising out of the non-compliance or alleged non-compliance with any
Environmental Law, or the presence or suspected presence of Hazardous
Materials at any location.
(b) For purposes of this Agreement, the terms below shall have
the following meanings:
"Environmental Claim" means any claim, demand, action, suit,
complaint, proceeding, directive, investigation, lien, demand letter,
or notice (written or oral) of noncompliance, violation, or liability,
by any person or entity asserting liability or potential liability
(including without limitation liability or potential liability for
enforcement, investigatory costs, cleanup costs, governmental response
costs, natural resource damages, property damage, personal injury,
fines or penalties) arising out of, based on or resulting from (i) the
presence, discharge, emission, release or threatened release of any
Hazardous Materials at any location, (ii) circumstances forming the
basis of any violation or alleged violation of any Environmental Laws
or Environmental Permits, or (iii) otherwise relating to obligations or
liabilities under any Environmental Law.
"Environmental Laws" means any and all laws, rules, orders,
regulations, statutes, ordinances, guidelines, codes, decrees, or other
legally enforceable requirement (including, without limitation, common
law) of any foreign government, the United States, or any state, local,
municipal or other governmental authority, regulating, relating to or
imposing liability or standards of conduct concerning protection of
human health as affected by the environment or Hazardous Materials
(including without limitation employee health and safety) or the
environment (including without limitation indoor air, ambient air,
surface water, groundwater, land surface, subsurface strata, or plant
or animal species).
"Environmental Permits" means all permits, licenses,
registrations, approvals, exemptions and other filings with or
authorizations by any Governmental Authority under any Environmental
Law.
"Governmental Authority" means any government, any state or
other political subdivision thereof and any entity (including, without
limitation, a court) exercising
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17
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
"Hazardous Materials" means all hazardous or toxic substances,
wastes, materials or chemicals, petroleum (including crude oil or any
fraction thereof), petroleum products, asbestos, asbestos-containing
materials, pollutants, contaminants, radioactivity, electromagnetic
fields and all other materials, whether or not defined as such, that
are regulated pursuant to any Environmental Laws or that could result
in liability under any applicable Environmental Laws.
SECTION 3.14 Real Estate Matters. (a) The Company or its
subsidiaries has good, valid, and, in the case of Owned Properties (as defined
below), marketable fee title to: (i) all of the material real property and
interests in real property owned by the Company or its subsidiaries, except for
properties sold or otherwise disposed of in the ordinary course of business (the
"Owned Properties"), and (ii) all of the material leasehold estates in all real
properties leased by the Company or its subsidiaries, except leasehold interests
terminated in the ordinary course of business (the "Leased Properties"; the
Owned Properties and Leased Properties being sometimes referred to herein as the
"Real Properties"), in each case free and clear of all mortgages, liens,
security interests, easements, covenants, rights-of-way, subleases and other
similar restrictions and encumbrances ("Encumbrances"), except for Encumbrances
which, individually or in the aggregate, are not reasonably likely to have a
Material Adverse Effect.
(b) Except to the extent that the inaccuracy of any of the
following (or the circumstances giving rise to such inaccuracy), individually or
in the aggregate, are not reasonably likely to have a Material Adverse Effect:
(i) each of the agreements by which the Company has obtained a leasehold
interest in each Leased Property (individually, a "Lease" and collectively, the
"Leases") is in full force and effect in accordance with its respective terms
and the Company or its subsidiary is the holder of the lessee's or tenant's
interest thereunder; to the knowledge of the Company, there exists no default
under any Lease and no circumstance exists which, with the giving of notice, the
passage of time or both, is reasonably likely to result in such a default; the
Company and its subsidiaries have complied with and timely performed all
conditions, covenants, undertakings and obligations on their parts to be
complied with or performed under each of the Leases; the Company and its
subsidiaries have paid all rents and other charges to the extent due and payable
under the Leases; (ii) there are no leases, subleases, licenses, concessions or
any other contracts or agreements granting to any person or entity other than
the Company or any of its subsidiaries any right to the possession, use,
occupancy or enjoyment of any Real Property or any portion thereof; (iii) the
current operation and use of the Real Properties does not violate any statute,
law, regulation, rule, ordinance, permit, requirement, order or decree now in
effect; the use being made of each Real Property at present is in conformity
with the certificate of occupancy issued for such Real Property; (iv) there are
no existing, or to the knowledge of the Company, threatened, condemnation or
eminent domain proceedings (or proceedings in lieu thereof) affecting the Real
Properties or any portion thereof; (v) no default or breach exists under any of
the covenants, conditions, restrictions, rights-of-way, or easements, if any,
affecting all or any portion of a Real Property, which are to be performed or
complied with by the Company or any of its subsidiaries; and (vi) all the
buildings, structures, equipment and other tangible
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18
assets of the Company (whether owned or leased) are in normal operating
condition (normal wear and tear excepted) and are fit for use in the ordinary
course of business.
(c) Neither the Company nor any of its subsidiaries is
obligated under or bound by any option, right of first refusal, purchase
contract, or other contractual right to sell or dispose of any Owned Property or
any portions thereof or interests therein which property, portions and
interests, individually or in the aggregate, are material to the Company and its
subsidiaries.
SECTION 3.15 Brokers. No broker, finder or investment banker
(other than the Financial Adviser) is entitled to any brokerage, finder's or
other fee or commission in connection with the transactions contemplated by this
Agreement based upon arrangements made by and on behalf of the Company. The
Company has heretofore furnished to Parent information concerning the fee which
will be payable to the Financial Advisor in connection with the transactions
contemplated hereby.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 4.1 Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority and any necessary governmental authority to own, operate or lease
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and governmental approvals is not, individually or in the
aggregate, reasonably likely to prevent the consummation of the Offer or the
Merger.
SECTION 4.2 Authority Relative to This Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the DGCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 4.3 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by Parent and
Purchaser do not and will not: (i)
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19
conflict with or violate the respective certificates of incorporation or by-laws
of Parent or Purchaser; (ii) assuming that all consents, approvals and
authorizations contemplated by clauses (i), (ii) and (iii) of subsection (b)
below have been obtained and all filings described in such clauses have been
made, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or Purchaser or by which either of them or their
respective properties are bound or affected; or (iii) result in any breach or
violation of or constitute a default (or an event which with notice or lapse of
time or both could become a default) or result in the loss of a material benefit
under, or give rise to any right of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the property or assets of Parent or Purchaser pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Parent or Purchaser is a party or by
which Parent or Purchaser or any of their respective properties are bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults or other occurrences which are not, individually
or in the aggregate, reasonably likely to prevent or materially delay the
consummation of the Offer or the Merger.
(b) The execution, delivery and performance of this Agreement
by Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, except (i) for applicable requirements, if
any, of the Exchange Act and the rules and regulations promulgated thereunder,
the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to prevent the consummation of the Offer or the
Merger.
SECTION 4.4 Offer Documents; Proxy Statement. The Offer
Documents, as filed pursuant to Section 1.1, will not, at the time such Offer
Documents are filed with the SEC or are first published, sent or given to
stockholders, as the case may be, contain any untrue statement of a material
fact or omit to state any material fact required to be stated or incorporated by
reference therein or necessary in order to make the statements therein, in light
of the circumstances under which they were made, not misleading. The information
supplied by Parent for inclusion in the Proxy Statement shall not, on the date
the Proxy Statement is first mailed to stockholders, at the time of the
Stockholders Meeting (as defined in Section 6.1), if any, or at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it shall be made, is false or misleading with respect
to any material fact, or shall omit to state a material fact required to be
stated therein or necessary in order to make the statements therein not false or
misleading or necessary to correct any statement in any earlier communication
with respect to the solicitation of proxies for the Stockholders Meeting which
has become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in or
incorporated by reference in any of the foregoing documents or the Offer
Documents. The Offer Documents, as amended and supplemented, will comply in all
material respects as to form with the requirements of the Exchange Act and the
rules and regulations promulgated thereunder.
<PAGE>
20
SECTION 4.5 Brokers. No broker, finder or investment banker
(other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Parent or Purchaser.
SECTION 4.6 Funds. Parent or Purchaser, at the expiration date
of the Offer and at the Effective Time, will have the funds necessary to
consummate the Offer and the Merger, respectively.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.1 Conduct of Business of the Company Pending the
Merger. The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, unless Parent shall otherwise agree in writing,
the businesses of the Company and its subsidiaries shall be conducted only in,
and the Company and its subsidiaries shall not take any action except in, the
ordinary course of business and in a manner consistent with past practice; and
the Company and its subsidiaries shall each use its reasonable best efforts to
preserve substantially intact the business organization of the Company and its
subsidiaries, to keep available the services of the present officers, employees
and consultants of the Company and its subsidiaries and to preserve the present
relationships of the Company and its subsidiaries with customers, suppliers and
other persons with which the Company or any of its subsidiaries has significant
business relations. By way of amplification and not limitation, neither the
Company nor any of its subsidiaries shall, between the date of this Agreement
and the Effective Time, directly or indirectly do, or commit to do, any of the
following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation
or by-laws or equivalent organizational documents;
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (i) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom
stock), of the Company or any of its subsidiaries (except for the
issuance of up to 95,500 shares of Common Stock required to be issued
pursuant to the terms of Options outstanding as of May 16, 1998) or
(ii) any material assets of the Company or any of its subsidiaries,
except for sales of inventory in the ordinary course of business and in
a manner consistent with past practice;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock (other than regular quarterly
dividends consistent with past practice, in an amount not to exceed
$.32 per share);
<PAGE>
21
(d) Reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof; (ii) incur any indebtedness for
borrowed money (except for drawdowns on the Company's existing credit
facility in the ordinary course of business consistent with past
practice) or issue any debt securities or assume, guarantee or endorse,
or otherwise as an accommodation become responsible for, the
obligations of any person, or make any loans, advances or capital
contributions to, or investments in, any other person; (iii) enter into
any contract or agreement other than in the ordinary course of business
consistent with past practice; or (iv) except as set forth in Schedule
5.1(e)(iv) of the Company Disclosure Letter, other than as provided in
the Company's capital expenditure budget (a copy of which was provided
to Parent) authorize any single capital expenditure which is in excess
of $200,000 or capital expenditures which are, in the aggregate, in
excess of $1,000,000 for the Company and its subsidiaries taken as a
whole;
(f) Except to the extent required under existing employee and
director benefit plans, agreements or arrangements as in effect on the
date of this Agreement, increase the compensation or fringe benefits of
any of its directors, officers or employees, except for increases in
salary or wages of employees of the Company or its subsidiaries who are
not officers of the Company in the ordinary course of business in
accordance with past practice, or grant any severance or termination
pay not currently required to be paid under existing severance plans to
or enter into any employment, consulting or severance agreement or
arrangement with any present or former director, officer or other
employee of the Company or any of its subsidiaries, or establish,
adopt, enter into or amend or terminate any collective bargaining
agreement or Company Plan, including, but not limited to, bonus, profit
sharing, thrift, compensation, stock option, restricted stock, pension,
retirement, deferred compensation, employment, termination, severance
or other plan, agreement, trust, fund, policy or arrangement for the
benefit of any directors, officers or employees;
(g) Except as may be required as a result of a change in law
or in generally accepted accounting principles, change any of the
accounting practices or principles used by it;
(h) Make any material Tax election, change any material method
of Tax accounting or settle or compromise any material federal, state,
local or foreign Tax liability;
(i) Settle or compromise any pending or threatened suit,
action or claim which is material or which relates to the transactions
contemplated hereby;
(j) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company or any of its subsidiaries not
constituting an inactive subsidiary (other than the Merger);
<PAGE>
22
(k) Pay, discharge or satisfy any claims, liabilities or
obligations (absolute, accrued, asserted or unasserted, contingent or
otherwise), other than the payment, discharge or satisfaction (i) in
the ordinary course of business and consistent with past practice of
liabilities reflected or reserved against in the Company Financial
Statements or incurred in the ordinary course of business and
consistent with past practice and (ii) of liabilities required to be
paid, discharged or satisfied pursuant to the terms of any contract in
existence on the date hereof (including, without limitation, benefit
plans relating to directors); or
(l) Take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 5.1(a)
through 5.1(k) or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action
had then been taken, or would result in any of the conditions set forth
in Annex A not being satisfied.
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.1 Stockholders Meeting. (a) If adoption of this
Agreement is required by applicable law, the Company, acting through its Board
of Directors, shall in accordance with and subject to applicable law and the
Company's Certificate of Incorporation and By-Laws, (i) duly call, give notice
of, convene and hold a meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of adopting this Agreement
and the transactions contemplated hereby (the "Stockholders Meeting") and (ii)
except if the Board of Directors by majority vote determines in good faith,
based on the advice of outside legal counsel to the Company that to do so would
constitute a breach of fiduciary duty under applicable law, (A) include in the
Proxy Statement the unanimous recommendation of the Board of Directors that the
stockholders of the Company vote in favor of the adoption of this Agreement and
the written opinion of the Financial Adviser that the consideration to be
received by the stockholders of the Company pursuant to the Offer and the Merger
is fair to such stockholders and (B) use its reasonable best efforts to obtain
the necessary adoption of this Agreement. At the Stockholders Meeting, Parent
and Purchaser shall cause all Shares then owned by them and their subsidiaries
to be voted in favor of adoption of this Agreement.
(b) Notwithstanding the foregoing, in the event that Purchaser
shall acquire at least 90% of the outstanding Shares, the Company agrees, at the
request of Purchaser, subject to Article VII, to take all necessary and
appropriate action to cause the Merger to become effective as soon as reasonably
practicable after such acquisition, without a meeting of the Company's
stockholders, in accordance with Section 253 of the DGCL.
SECTION 6.2 Proxy Statement. If required by applicable law, as
soon as practicable following Parent's request, the Company shall file with the
SEC under the Exchange Act and the rules and regulations promulgated thereunder,
and shall use its reasonable best efforts
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23
to have cleared by the SEC, the Proxy Statement with respect to the Stockholders
Meeting. Parent, Purchaser and the Company will cooperate with each other in the
preparation of the Proxy Statement; without limiting the generality of the
foregoing, each of Parent and Purchaser will furnish to the Company the
information relating to it required by the Exchange Act and the rules and
regulations promulgated thereunder to be set forth in the Proxy Statement. The
Company agrees to use its reasonable best efforts, after consultation with the
other parties hereto, to respond promptly to any comments made by the SEC with
respect to the Proxy Statement and any preliminary version thereof filed by it
and cause such Proxy Statement to be mailed to the Company's stockholders at the
earliest practicable time.
SECTION 6.3 Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Purchaser shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board of
Directors of the Company as shall give Purchaser representation on the Board of
Directors equal to the product of the total number of directors on such Board
(giving effect to the directors elected pursuant to this sentence and including
any vacancies or unfilled newly-created directorships) multiplied by the
percentage that the aggregate number of Shares beneficially owned by Purchaser
or any affiliate of Purchaser bears to the total number of Shares then
outstanding, and the Company shall amend, or cause to be amended its by-laws to
provide for each of the matters set forth in this Section 6.3 and shall, at such
time, promptly take all action necessary to cause Purchaser's designees to be so
elected, including either increasing the size of the Board of Directors or
securing the resignations of incumbent directors or both. At such times, the
Company will use its reasonable best efforts to cause persons designated by
Purchaser to constitute the same percentage as is on the board of (i) each
committee of the Board of Directors, (ii) each board of directors of each
subsidiary of the Company and (iii) each committee of each such board, in each
case only to the extent permitted by law. Until Purchaser acquires a majority of
the outstanding Shares on a fully diluted basis, the Company shall use its
reasonable best efforts to ensure that all the members of the Board of Directors
and such boards and committees as of the date hereof who are not employees of
the Company shall remain members of the Board of Directors and such boards and
committees.
(b) The Company's obligations to appoint designees to its
Board of Directors shall be subject to Section 14(f) of the Exchange Act and
Rule 14f-1 promulgated thereunder. The Company shall promptly take all actions
required pursuant to Section 14(f) and Rule 14f-1 in order to fulfill its
obligations under this Section 6.3 and shall include in the Schedule 14D-9 or a
separate Rule 14f-1 information statement provided to stockholders such
information with respect to the Company and its officers and directors as is
required under Section 14(f) and Rule 14f-1 to fulfill its obligations under
this Section 6.3. Parent or Purchaser will supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by Section 14(f) and Rule
14f-1.
(c) In addition to any vote of the Board of Directors required
by law, the Certificate of Incorporation or the By-laws of the Company,
following the election or appointment of Purchaser's designees pursuant to this
Section 6.3 and prior to the Effective Time, the concurrence of a majority of
the directors of the Company then in office who are neither designated by
Purchaser nor are employees of the Company (the "Disinterested Directors") will
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24
be required to authorize any amendment, or waiver of any term or condition, of
this Agreement or the Certificate of Incorporation or By-Laws of the Company,
any termination of this Agreement by the Company, any extension by the Company
of the time for the performance of any of the obligations or other acts of
Purchaser or waiver or assertion of any of the Company's rights hereunder, the
awarding of the $3 million pursuant to the terms of the Company's incentive
performance plan, and any other consent or action by the Board of Directors with
respect to this Agreement. Notwithstanding Section 6.3(a) hereof, the number of
Disinterested Directors shall be not less than three; provided, however, that,
in such event, if the number of Disinterested Directors shall be reduced below
three for any reason, the remaining Disinterested Director(s) shall be entitled
to designate persons to fill such vacancies who shall be deemed to be
Disinterested Directors for purposes of this Agreement, or if no Disinterested
Directors then remain, the other directors who were directors prior to the date
hereof shall designate three persons to fill such vacancies who shall not be
officers, stockholders or affiliates of the Company, Parent or Purchaser, and
such persons shall be deemed to be Disinterested Directors for purposes of this
Agreement.
SECTION 6.4 Access to Information; Confidentiality. (a) From
the date hereof to the Effective Time, the Company shall, and shall cause its
subsidiaries, officers, directors, employees, auditors and other agents to,
afford the officers, employees, auditors and other agents of Parent, and
financing sources who shall agree to be bound by the provisions of this Section
6.4 as though a party hereto, complete access, consistent with applicable law,
at all reasonable times to its officers, employees, agents, properties, offices,
plants and other facilities and to all books and records, and shall furnish
Parent and such financing sources with all financial, operating and other data
and information as Parent, through its officers, employees or agents, or such
financing sources may from time to time reasonably request. Notwithstanding the
foregoing, any such investigation or consultation shall be conducted in such a
manner as not to interfere unreasonably with the business or operations of the
Company or its subsidiaries.
(b) As soon as practicable after the date of this Agreement,
Company and Parent shall cooperate in good faith to develop a plan (the "Plan")
with respect to the communications with their respective employees and the
employees of their respective subsidiaries regarding the transactions
contemplated by this Agreement. Prior to consummation of the Offer, Parent shall
use its reasonable best efforts to coordinate any communications to the
Company's employees (including employees of the Company's subsidiaries) through
the officers of the Company and in a manner that will not disrupt the operations
of the Company.
(c) All information obtained by Parent and Purchaser pursuant
to this Section 6.4 shall be kept confidential in accordance with the
Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent
Confidentiality Agreement"), between Parent and the Company; provided, that
Parent shall not be prohibited from sharing information with any potential
purchaser of assets in connection with the future divestiture of any of the
Company's stores or assets.
(d) No investigation pursuant to this Section 6.4 shall affect
any representations or warranties of the parties herein or the conditions to the
obligations of the parties hereto.
<PAGE>
25
SECTION 6.5 No Solicitation of Transactions. The Company, its
affiliates and their respective officers, directors, employees, representatives
and agents shall immediately cease any existing discussions or negotiations, if
any, with any parties conducted heretofore with respect to any acquisition or
exchange of all or any material portion of the assets of, or any equity interest
in, the Company or any of its subsidiaries or any business combination with or
involving the Company or any of its subsidiaries. At any time prior to
consummation of the Offer, the Company may, directly or indirectly, furnish
information and access, in each case only in response to a request for such
information or access to any person made after the date hereof which was not
encouraged, solicited or initiated by the Company or any of its affiliates or
any of its or their respective officers, directors, employees, representatives
or agents after the date hereof, pursuant to appropriate confidentiality
agreements containing terms and conditions (including standstill provisions)
that are no less favorable than the terms and conditions contained in the Parent
Confidentiality Agreement, and may participate in discussions and negotiate with
such person concerning any merger, sale of assets, sale of shares of capital
stock or similar transaction (including an exchange of stock or assets)
involving the Company or any subsidiary or division of the Company, in each case
(whether furnishing information and access or participating in discussions and
negotiations) only if such person has submitted a written proposal to the Board
of Directors of the Company relating to any such transaction and the Board by a
majority vote determines in good faith, based upon the advice of outside counsel
to the Company, that failing to take such action would constitute a breach of
the Board's fiduciary duty under applicable law. The Board shall provide a copy
of any such written proposal to Parent immediately after receipt thereof, shall
notify Parent immediately if any proposal (oral or written) is made and shall in
such notice, indicate in reasonable detail the identity of the offeror and the
terms and conditions of any proposal and shall keep Parent promptly advised of
all developments which could reasonably be expected to culminate in the Board of
Directors withdrawing, modifying or amending its recommendation of the Offer,
the Merger and the other transactions contemplated by this Agreement. Except as
set forth in this Section 6.5, neither the Company or any of its affiliates, nor
any of its or their respective officers, directors, employees, representatives
or agents, shall, directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group (other than Parent and
Purchaser, any affiliate or associate of Parent and Purchaser or any designees
of Parent or Purchaser) concerning any merger, sale of any material portion or
assets, sale of any shares of capital stock or similar transactions (including
an exchange of stock or assets) involving the Company or any subsidiary or
division of the Company; provided, however, that nothing herein shall prevent
the Board from taking, and disclosing to the Company's stockholders, a position
contemplated by Rules 14d-9 and 14e-2 promulgated under the Exchange Act with
regard to any tender offer; provided, further, that the Board shall not
recommend that the stockholders of the Company tender their Shares in connection
with any such tender offer unless the Board by majority vote shall have
determined in good faith, based upon the advice of outside counsel to the
Company, that failing to take such action would constitute a breach of the
Board's fiduciary duty under applicable law. The Company agrees not to release
any third party from, or waive any provisions of, any confidentiality or
standstill agreement to which the Company is a party, unless the Board by
majority vote shall have determined in good faith, based upon the advice of
outside counsel, that failing to release such third party or waive such
provisions would constitute a breach of the fiduciary duties of the Board of
Directors under applicable law.
<PAGE>
26
SECTION 6.6 Employee Benefits Matters. (a) On and after the
Effective Time, Parent shall cause the Surviving Corporation and its
subsidiaries to promptly pay or provide when due all compensation and benefits
earned through or prior to the Effective Time as provided pursuant to the terms
of any compensation arrangements, employment agreements and employee or director
benefit plans, programs and policies in existence as of the date hereof for all
employees (and former employees) and directors (and former directors) of the
Company and its subsidiaries (including all compensation and benefits earned
through the Effective Time pursuant to the Company Plans set forth in Schedule
3.10(a) of the Company Disclosure Letter). Parent and the Company agree that the
Surviving Corporation and its subsidiaries shall pay promptly or provide when
due all compensation and benefits required to be paid pursuant to the terms of
any individual agreement with any employee, former employee, director or former
director in effect as of the date hereof and disclosed in Schedule 3.10(a) of
the Company Disclosure Letter.
(b) Except as set forth in Schedule 6.6(b) of the Company
Disclosure Letter, Parent shall cause the Surviving Corporation, for the period
commencing at the Effective Time and ending on the second anniversary thereof,
to provide employee benefits under plans, programs and arrangements which, in
the aggregate, will provide benefits to the employees of the Surviving
Corporation and its subsidiaries (other than employees covered by a collective
bargaining agreement) which are no less favorable in the aggregate than those
provided to Parent's similarly situated employees pursuant to the plans,
programs and arrangements (other than those related to the equity securities of
the Company) of Parent and its subsidiaries in effect on the date hereof and
employees covered by collective bargaining agreements shall be provided with
such benefits as shall be required under the terms of any applicable collective
bargaining agreement; provided, however, that nothing herein shall prevent the
amendment or termination of any specific plan, program or arrangement, require
that the Surviving Corporation provide or permit investment in the securities of
Parent, the Company or the Surviving Corporation or interfere with the Surviving
Corporation's right or obligation to make such changes as are necessary to
conform with applicable law. Employees of the Surviving Corporation shall be
given credit for all service with the Company and its subsidiaries, to the same
extent as such service was credited for such purpose by the Company, under each
employee benefit plan, program, or arrangement of the Parent in which such
employees are eligible to participate for purposes of eligibility and vesting;
provided, however, that in no event shall the employees be entitled to any
credit to the extent that it would result in a duplication of benefits with
respect to the same period of service.
(c) If employees of the Surviving Corporation and its
subsidiaries become eligible to participate in a medical, dental or health plan
of Parent or its subsidiaries, Parent shall cause such plan to (i) waive any
preexisting condition limitations for conditions covered under the applicable
medical, health or dental plans of the Company and its subsidiaries and (ii)
honor any deductible and out-of-pocket expenses incurred by the employees and
their beneficiaries under such plans during the portion of the calendar year
prior to such participation.
(d) Nothing in this Section 6.6 shall require the continued
employment of any person or, with respect to clauses (b) and (c) hereof, prevent
the Company and/or the Surviving Corporation and their subsidiaries from taking
any action or refraining from taking any action
<PAGE>
27
which the Company and its subsidiaries prior to the Effective Time, could have
taken or refrained from taking.
SECTION 6.7 Directors' and Officers' Indemnification and
Insurance. (a) The Certificate of Incorporation and By-Laws of the Surviving
Corporation shall contain provisions no less favorable with respect to
indemnification than are set forth in the Certificate of Incorporation and
By-laws of the Company, which provisions shall not be amended, repealed or
otherwise modified for a period of six years from the Effective Time in any
manner that would adversely affect the rights thereunder of individuals who at
the Effective Time were directors, officers or employees of the Company.
(b) Parent shall use its reasonable best efforts to cause to
be maintained in effect for six years from the Effective Time the current
policies of the directors' and officers' liability insurance maintained by the
Company (provided that Parent may substitute therefor policies of at least the
same coverage containing terms and conditions which are not materially less
advantageous) with respect to matters occurring prior to the Effective Time to
the extent such insurance is reasonably available.
(c) For six years after the Effective Time, Parent agrees that
it will or will cause the Surviving Corporation to indemnify and hold harmless
each present and former director and officer of the Company, determined as of
the Effective Time (the "Indemnified Parties"), against any costs or expenses
(including reasonable attorneys' fees), judgments, fines, losses, claims,
damages or liabilities (collectively, "Costs") (but only to the extent such
Costs are not otherwise covered by insurance and paid) incurred in connection
with any claim, action, suit, proceeding or investigation, whether civil,
criminal, administrative or investigative (collectively, "Claims"), arising out
of or pertaining to matters existing or occurring at or prior to the Effective
Time, whether asserted or claimed prior to, at or after the Effective Time, to
the fullest extent permitted under applicable law (and Parent shall, or shall
cause the Surviving Corporation to, also advance expenses as incurred to the
fullest extent permitted under applicable law provided the person to whom
expenses are advanced provides an undertaking to repay such advances if it is
ultimately determined that such person is not entitled to indemnification).
(d) Any Indemnified Party wishing to claim indemnification
under Section 6.7(c), upon learning of any such Claim, shall promptly notify
Parent thereof, but the failure to so notify shall not relieve Parent of any
liability it may have to such Indemnified Party if such failure does not
materially prejudice Parent. In the event of any such Claim (whether arising
before or after the Effective Time), (i) Parent or the Surviving Corporation
shall have the right to assume the defense thereof with counsel reasonably
acceptable to the Indemnified Parties and Parent shall not be liable to such
Indemnified Parties for any legal expenses of other counsel or any other
expenses subsequently incurred by such Indemnified Parties in connection with
the defense thereof, except that if Parent or the Surviving Corporation elects
not to assume such defense or counsel for the Indemnified Parties advises that
there are issues that raise conflicts of interest between Parent or the
Surviving Corporation and the Indemnified Parties, the Indemnified Parties may
retain counsel satisfactory to them, and Parent or the Surviving Corporation
shall pay all reasonable fees and expenses of such counsel for the Indemnified
Parties promptly as statements therefor are received; provided, however, that
Parent shall be obligated pursuant to
<PAGE>
28
this paragraph (d) to pay for only one firm of counsel for all Indemnified
Parties in any jurisdiction unless the use of one counsel for such Indemnified
Parties would present such counsel with a conflict of interest, (ii) the
Indemnified Parties will cooperate in the defense of any such matter and (iii)
Parent shall not be liable for any settlement effected without its prior written
consent, which consent shall not be unreasonably withheld; and provided,
further, that Parent shall not have any obligation hereunder to any Indemnified
Party when and if a court of competent jurisdiction shall ultimately determine,
and such determination shall have become final, that the indemnification of such
Indemnified Party in the manner contemplated hereby is prohibited by applicable
law.
SECTION 6.8 Postponement of Annual Meeting. The Company shall
as soon as possible indefinitely postpone its annual meeting of stockholders
currently scheduled for May 27, 1998, and shall take no action unless compelled
by legal process to reschedule such annual meeting or to call a special meeting
of stockholders of the Company except in accordance with this Agreement unless
and until this Agreement has been terminated in accordance with its terms.
SECTION 6.9 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence or non-occurrence of (i) any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 6.9 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 6.10 Further Action; Reasonable Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
but not limited to (i) cooperation in the preparation and filing of the Offer
Documents, the Schedule 14D-9, the Proxy Statement, any required filings under
the HSR Act and any amendments to any thereof, (ii) cooperation with respect to
consummating the financing for the Offer and the Merger and (iii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests for
further information and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and
parties to contracts with the Company and its subsidiaries and Parent and its
subsidiaries as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Offer and
the Merger. In case at any time after the Effective Time any further action is
necessary or desirable to carry out the purposes of this Agreement, the proper
officers and directors of each party to this Agreement shall use their
reasonable best efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly
<PAGE>
29
furnishing the other with copies of notices or other communications received by
Parent or the Company, as the case may be, or any of their subsidiaries, from
any governmental authority with respect to the Offer or the Merger or any of the
other transactions contemplated by this Agreement. The parties hereto will
consult and cooperate with one another, and consider in good faith the views of
one another in connection with any analyses, appearances, presentations,
memoranda, briefs, arguments, opinions and proposals made or submitted by or on
behalf of any party hereto in connection with proceedings under or relating to
the HSR Act or any other antitrust law.
(c) Each party shall timely and promptly make all filings
which are required under the HSR Act and Parent shall pay the filing fee. Each
party will furnish to the other such necessary information and reasonable
assistance as it may request in connection with its preparation of such filings.
Each party will supply the other with copies of all correspondence, filings or
communications between such party or its representatives and the Federal Trade
Commission, the Antitrust Division of the United States Department of Justice or
any other governmental agency or authority or members of their respective staffs
with respect to this Agreement or the transactions contemplated hereby.
SECTION 6.11 Public Announcements. Parent and the Company
shall consult with each other before issuing any press release or otherwise
making any public statements with respect to the Offer or the Merger and shall
not issue any such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with its
securities exchange.
SECTION 6.12 Disposition of Litigation. (a) The Company agrees
that it will not settle any litigation currently pending, or commenced after the
date hereof, against the Company or any of its directors by any stockholder of
the Company relating to the Offer or this Agreement, without the prior written
consent of Parent (which shall not be unreasonably withheld).
(b) The Company will not voluntarily cooperate with any third
party which has sought or may hereafter seek to restrain or prohibit or
otherwise oppose the Offer or the Merger and will cooperate with Parent and
Purchaser to resist any such effort to restrain or prohibit or otherwise oppose
the Offer or the Merger.
ARTICLE VII
CONDITIONS OF MERGER
SECTION 7.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) If required by the DGCL, this Agreement shall have been
adopted by the affirmative vote of the stockholders of the Company by
the requisite vote in accordance
<PAGE>
30
with the Company's Certificate of Incorporation and the DGCL (which the
Company has represented shall be solely the affirmative vote of a
majority of the outstanding Shares).
(b) No statute, rule, regulation, executive order, decree,
ruling, injunction or other order (whether temporary, preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by
any United States, foreign, federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the
consummation of the Merger; provided, however, that prior to invoking
this condition each party agrees to comply with Section 6.10.
(c) Purchaser shall have purchased Shares pursuant to the
Offer.
(d) Any waiting period applicable to the Merger under the HSR
Act shall have terminated or expired.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time, notwithstanding approval thereof by the stockholders of the
Company:
(a) By mutual written consent of Parent, Purchaser and the
Company;
(b) By Parent or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States shall have issued a final order, injunction,
decree, judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Offer or the Merger and such
order, injunction, decree, judgment, ruling or other action is or shall
have become final and nonappealable; provided, however, that prior to
invoking this right of termination each party agrees to comply with
Section 6.10;
(c) By Parent if due to an occurrence or circumstance which
resulted in a failure to satisfy any of the Offer Conditions (other
than as a result of a breach by Parent or Purchaser of its obligations
hereunder), Purchaser shall have (i) terminated the Offer or (ii)
failed to pay for Shares pursuant to the Offer on or prior to the
Outside Date (as defined below);
(d) By the Company if (i) there shall have been a material
breach of any covenant or agreement on the part of Parent or the
Purchaser contained in this Agreement which materially adversely
affects Parent's or Purchaser's ability to consummate (or materially
delays commencement or consummation of) the Offer, and which shall not
have been cured prior to the earlier of (A) 10 business days following
notice of such breach and (B) two business days prior to the date on
which the Offer expires, (ii)
<PAGE>
31
Purchaser shall have (A) terminated the Offer or (B) failed to pay for
Shares pursuant to the Offer on or prior to the Outside Date (unless
such failure is caused by or results from the failure of any
representation or warranty of the Company to be true and correct in any
material respect or the failure of the Company to perform in any
material respect any of its covenants or agreements contained in this
Agreement) or (iii) prior to the purchase of Shares pursuant to the
Offer, any person shall have made a bona fide offer to acquire the
Company (A) that the Board of Directors of the Company by majority vote
determines in its good faith judgment is more favorable to the
Company's stockholders than the Offer and the Merger and (B) as a
result of which the Board of Directors by majority vote determines in
good faith, based upon the advice of outside counsel, that it is
obligated by its fiduciary obligations under applicable law to
terminate this Agreement, provided that such termination under this
clause (iii) shall not be effective until the Company has made payment
of the full fee and expense reimbursement required by Section 8.3; or
(e) By Parent prior to the purchase of Shares pursuant to the
Offer, if (i) there shall have been a breach of any representation,
warranty, covenant or agreement on the part of the Company contained in
this Agreement which is reasonably likely to have a Material Adverse
Effect, which shall not have been cured prior to the earlier of (A) 10
business days following notice of such breach and (B) two business days
prior to the date on which the Offer expires, (ii) the Board shall have
withdrawn or modified (including by amendment of the Schedule 14D-9) in
a manner adverse to Purchaser its approval or recommendation of the
Offer, this Agreement or the Merger or shall have recommended another
offer or transaction in accordance with Section 6.5, shall have
resolved to effect any of the foregoing, or (iii) the Minimum Condition
shall not have been satisfied by the expiration date of the Offer as it
may have been extended pursuant hereto and on or prior to such date (A)
any person (including the Company but not including Parent or
Purchaser) shall have made a public announcement, disclosure or
communication to the Company with respect to a Third Party Acquisition
or (B) any person (including the Company or any of its affiliates or
subsidiaries), other than Parent or any of its affiliates, shall have
become (and remain at the time of termination) the beneficial owner of
19.9% or more of the Shares (unless such person shall have tendered and
not withdrawn such person's Shares pursuant to the Offer). As used
herein, the "Outside Date" shall mean the latest of (I) 70 days
following the date hereof or (II) the date that all conditions to the
Offer set forth in paragraph (h) of the Offer Conditions, the
satisfaction of which involve compliance with or otherwise relate to
any United States antitrust or competition laws or regulations
(including any enforcement thereof), have been satisfied for a period
of 10 business days; provided that in no event shall the Outside Date
be later than January 31, 1999.
SECTION 8.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 8.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 8.3 and Section 9.1; provided, however,
that nothing herein shall relieve any party from liability for any wilful breach
hereof; provided, further, that the payment of the termination fee set forth in
Section 8.3(a)(i) shall be considered with respect to the calculation of any
damages resulting from any such wilful breach by the Company.
<PAGE>
32
SECTION 8.3 Fees and Expenses. (a) If:
(i) Parent terminates this Agreement pursuant to
Section 8.1(e)(i) hereof, or if the Company terminates this Agreement
pursuant to Section 8.1(d)(ii) hereof under circumstances that would
have permitted Parent to terminate this Agreement pursuant to Section
8.1(e)(i) hereof, and within 12 months thereafter, the Company enters
into an agreement with respect to a Third Party Acquisition, or a Third
Party Acquisition occurs, involving any party (or any affiliate or
associate thereof) (x) with whom the Company (or its agents) had any
discussions with respect to a Third Party Acquisition, (y) to whom the
Company (or its agents) furnished information with respect to or with a
view to a Third Party Acquisition or (z) who had submitted a proposal
or expressed any interest publicly or to the Company in a Third Party
Acquisition, in the case of each of clauses (x), (y) and (z) prior to
such termination; or
(ii) (A) the Company terminates this Agreement pursuant
to 8.1(d)(iii) or (B) the Company terminates this Agreement pursuant to
Section 8.1(d)(ii)(B) hereof and at such time Parent would have been
permitted to terminate this Agreement under Section 8.1(e)(ii) or (iii)
hereof or (C) Parent terminates this Agreement pursuant to Section
8.1(e)(ii) or (iii) hereof;
then the Company shall pay to Parent and Purchaser, within one business day
following the execution and delivery of such agreement or such occurrence, as
the case may be, or simultaneously with any termination contemplated by Section
8.3(a)(ii) above, a fee, in cash, of $88,288,000, provided, however, that the
Company in no event shall be obligated to pay more than one such fee with
respect to all such agreements and occurrences and such termination. The payment
of any expenses pursuant to Section 8.3(b) shall be credited against the payment
of any fee pursuant to Section 8.3(a).
"Third Party Acquisition" means the occurrence of any of the
following events: (i) the acquisition of the Company by merger or similar
business combination by any person other than Parent, Purchaser or any affiliate
thereof (a "Third Party"); (ii) the acquisition by a Third Party of 20.0% or
more of the book or fair market value of the consolidated assets of the Company
and its subsidiaries, taken as a whole; or (iii) the acquisition by a Third
Party of 20.0% or more of the outstanding Shares.
(b) Upon the termination of this Agreement (i) under
circumstances in which Parent shall have been entitled to terminate this
Agreement pursuant to Section 8.1(e)(i) hereof (whether or not expressly
terminated on such basis) or (ii) if any of the representations and warranties
of the Company contained in this Agreement were untrue or incorrect in any
material respect when made and at the time of termination remained untrue or
incorrect in any material respect and such misrepresentation materially
adversely affected the consummation (or materially delayed commencement or
consummation) of the Offer, then the Company shall reimburse Parent, Purchaser
and their affiliates (not later than one business day after submission of
statements therefor) for all actual documented out-of-pocket fees and expenses
actually incurred by any of them or on their behalf in connection with the Offer
and the Merger and the consummation of all transactions contemplated by this
Agreement (including, without limitation,
<PAGE>
33
fees and disbursements payable to financing sources, investment bankers, counsel
to Purchaser or Parent or any of the foregoing, and accountants) up to a maximum
amount of $3 million; provided, however, that in no circumstances shall any
payment be made under this Section 8.3(b) after a payment has been made under
Section 8.3(a).
(c) Except as otherwise specifically provided herein, each
party shall bear its own expenses in connection with this Agreement and the
transactions contemplated hereby.
SECTION 8.4 Amendment. Subject to Section 6.3, this Agreement
may be amended by the parties hereto by action taken by or on behalf of their
respective Boards of Directors at any time prior to the Effective Time;
provided, however, that, after adoption of the Agreement by the stockholders of
the Company, no amendment may be made which would reduce the amount or change
the type of consideration into which each Share shall be converted upon
consummation of the Merger. This Agreement may not be amended except by an
instrument in writing signed by the parties hereto.
SECTION 8.5 Waiver. Subject to Section 6.3, at any time prior
to the Effective Time, any party hereto may (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 such extension or
waiver shall be valid only if set forth in an instrument in writing signed by
the party or parties to be bound thereby.
ARTICLE IX
GENERAL PROVISIONS
SECTION 9.1 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this Agreement
pursuant to Section 8.1, as the case may be, except that the agreements set
forth in Article II, Section 6.6, Section 6.7 and Article IX shall survive the
Effective Time and those set forth in Section 6.4, Section 8.3 and Article IX
shall survive termination of this Agreement.
SECTION 9.2 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 given upon receipt) by delivery in person, by
cable, telecopy, telegram or telex or by registered or certified mail (postage
prepaid, return receipt requested) to the respective parties at the following
addresses (or at such other address for a party as shall be specified by like
notice):
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34
if to Parent or Purchaser:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James I. Freeman
with additional copies to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
if to the Company:
Mercantile Stores Company
9450 Seward Road
Fairfield, Ohio 45016
Attention: David L. Nichols
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Russell B. Richards, Esq.
with a further copy to:
Curtis, Mallet-Prevost, Colt & Mosle
101 Park Avenue, 35th Floor
New York, New York 10178
Attention: Jeremiah T. Mulligan, Esq.
SECTION 9.3 Certain Definitions. For purposes of this
Agreement, the term:
"affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person;
"beneficial owner" with respect to any Shares means a person
who shall be deemed to be the beneficial owner of such Shares (i) which
such person or any of its affiliates or associates beneficially owns,
directly or indirectly, (ii) which such person or any of its affiliates
or associates (as such term is defined in Rule 12b-2 of the Exchange
Act) has, directly or indirectly, (A) the right to acquire (whether
such right is exercisable immediately or subject only to the passage of
time), pursuant to any agreement, arrangement or understanding or upon
the exercise of consideration rights, exchange
<PAGE>
35
rights, warrants or options, or otherwise, or (B) the right to vote
pursuant to any agreement, arrangement or understanding or (iii) which
are beneficially owned, directly or indirectly, by any other persons
with whom such person or any of its affiliates or person with whom such
person or any of its affiliates or associates has any agreement,
arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of any shares; provided, however, that no person
nor any affiliate or associate of such person shall be deemed to be the
beneficial owner of any securities by reason of a revocable proxy
granted for a particular meeting of stockholders, pursuant to a public
solicitation of proxies for such meeting, and with respect to which
shares neither such person nor any such affiliate or associate is
otherwise deemed the beneficial owner.
"control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of a person, whether through the ownership
of stock, as trustee or executor, by contract or credit arrangement or
otherwise;
"generally accepted accounting principles" shall mean the
generally accepted accounting principles set forth in the opinions and
pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such
other statements by such other entity as may be approved by a
significant segment of the accounting profession in the United States,
in each case applied on a basis consistent with the manner in which the
audited financial statements for the fiscal year of the Company ended
January 31, 1998 were prepared;
"person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act); and
"subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent or any other person means any corporation,
partnership, joint venture or other legal entity of which the Company,
the Surviving Corporation, Parent or such other person, as the case may
be (either alone or through or together with any other subsidiary),
owns, directly or indirectly, 50% or more of the stock or other equity
interests the holder of which is generally entitled to vote for the
election of the board of directors or other governing body of such
corporation or other legal entity.
SECTION 9.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
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36
SECTION 9.5 Entire Agreement; Assignment. This Agreement,
together with the Stockholders Agreement, Parent Confidentiality Agreement, the
Holding Co. Merger Agreement and the Woodbank Merger Agreement, constitutes the
entire agreement among the parties with respect to the subject matter hereof and
supersedes all prior agreements and undertakings, both written and oral, among
the parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Parent and Purchaser may assign all or any of their respective rights and
obligations hereunder to any direct or indirect wholly owned subsidiary or
subsidiaries of Parent, provided that no such assignment shall relieve the
assigning party of its obligations hereunder if such assignee does not perform
such obligations.
SECTION 9.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, except for the provisions of Section 6.7,
is intended to or shall confer upon any other person any rights, benefits or
remedies of any nature whatsoever under or by reason of this Agreement.
SECTION 9.7 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 9.8 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.9 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
SECTION 9.10 Knowledge. As used in this Agreement, the terms
"the best knowledge of the Company", "known to the Company" or words of similar
import used herein with respect to the Company shall mean the actual knowledge
of any Company Executive, together with the knowledge a reasonable business
person would have obtained after making reasonable inquiry and after exercising
reasonable diligence with respect to the matters at hand. The "Company
Executives" shall consist of David L. Nichols, James M. McVicker, Randolph L.
Burnette, Kathryn M. Muldowney and Louis L. Ripley. As used in this Agreement,
the terms "the best knowledge of Parent", "known to Parent" or words of similar
import used herein with respect to Parent shall mean the actual knowledge of any
Parent Executive, together with the knowledge a reasonable business person would
have obtained after making reasonable inquiry and after exercising reasonable
diligence with respect to the matters at hand. The "Parent Executives" shall
consist of the executive officers of Parent as listed in the latest proxy
statement or registration statement of Parent filed with the SEC.
SECTION 9.11 Specific Performance. The parties agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in
<PAGE>
37
accordance with their specific terms or were otherwise breached. It is
accordingly agreed that the parties shall be entitled to an injunction or
injunctions to prevent breaches of this Agreement and to enforce specifically
the terms and provisions of this Agreement in any court of the United States
located in the State of Delaware or in any Delaware state court, this being in
addition to any other remedy to which such party is entitled at law or in
equity. In addition, each of the parties hereto (i) consents to submit itself to
the personal jurisdiction of any Federal court located in the State of Delaware
or any Delaware state court in the event any dispute arises out of this
Agreement or any of the transactions contemplated by this Agreement, (ii) agrees
that it will not attempt to deny or defeat such personal jurisdiction by motion
or other request for leave from any such court, (iii) agrees that it will not
bring any action relating to this Agreement or any of the transactions
contemplated by this Agreement in any court other than a Federal or state court
sitting in the State of Delaware, and (iv) consents to service being made
through the notice procedures set forth in Section 9.2.
<PAGE>
38
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
DILLARD'S, INC.
By: /s/ James I. Freeman
--------------------------------
Name: James I. Freeman
Title: Senior Vice President and
Chief Financial Officer
MSC ACQUISITIONS, INC.
By: /s/ James I. Freeman
--------------------------------
Name: James I. Freeman
Title: Senior Vice President and
Chief Financial Officer
MERCANTILE STORES COMPANY, INC.
By:
--------------------------------
Name: David L. Nichols
Title: Chief Executive Officer
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by
their respective officers thereunto duly authorized.
DILLARD'S, INC.
By:
----------------------------
Name:
Title:
MSC ACQUISITIONS, INC.
By:
----------------------------
Name:
Title:
MERCANTILE STORES COMPANY, INC.
By: /s/ David L. Nichols
----------------------------
Name: David L. Nichols
Title: Chairman of the Board
<PAGE>
ANNEX A
Offer Conditions
The capitalized terms used in this Annex A have the meanings
set forth in the attached Merger Agreement.
Notwithstanding any other provision of the Offer, but subject
to the terms and conditions of the Merger Agreement, Purchaser shall not be
required to accept for payment or, subject to any applicable rules and
regulations of the SEC, including Rule 14e-1(c) under the Exchange Act (relating
to Purchaser's obligation to pay for or return tendered Shares promptly after
termination or withdrawal of the Offer), pay for any Shares tendered pursuant to
the Offer, and may postpone the acceptance for payment or, subject to the
restriction referred to above, payment for any Shares tendered pursuant to the
Offer, and may amend or terminate the Offer (whether or not any Shares have
theretofore been purchased or paid for) to the extent permitted by the Merger
Agreement if, (i) at the expiration of the Offer, a number of shares of Company
Common Stock which, together with any Shares owned, directly or indirectly, by
Parent or Purchaser (including the shares of Company Common Stock to be acquired
pursuant to the Holding Co. Merger and Woodbank Merger), constitutes more than
50% of the voting power (determined on a fully-diluted basis), on the date of
purchase, of all the securities of the Company entitled to vote generally in the
election of directors or in a merger shall not have been validly tendered and
not properly withdrawn prior to the expiration of the Offer, the ("Minimum
Condition") or (ii) at any time on or after the date of the Merger Agreement and
prior to the acceptance for payment of Shares, any of the following conditions
occurs or has occurred:
(a) there shall have been entered any order, preliminary or
permanent injunction, decree, judgment or ruling in any action or
proceeding before any court or governmental, administrative or
regulatory authority or agency, or any statute, rule or regulation
enacted, entered, enforced, promulgated, amended or issued that is
applicable to Parent, Purchaser, the Company or any subsidiary or
affiliate of Purchaser or the Company or the Offer or the Merger, by
any legislative body, court, government or governmental, administrative
or regulatory authority or agency that is reasonably likely to have the
effect of: (i) making illegal or otherwise directly or indirectly
restraining or prohibiting the making of the Offer in accordance with
the terms of the Merger Agreement, the acceptance for payment of, or
payment for, some of or all the Shares by Purchaser or any of its
affiliates or the consummation of the Merger; (ii) prohibiting the
ownership or operation of the Company and its subsidiaries by Parent or
any of Parent's subsidiaries, (iii) imposing limitations on the ability
of Parent, Purchaser or any of Parent's affiliates effectively to
acquire or hold or to exercise full rights of ownership of the Shares,
including without limitation the right to vote any Shares acquired or
owned by Parent or Purchaser or any of its affiliates on all matters
properly presented to the stockholders of the Company, including
without limitation the adoption of the Merger Agreement or the right to
vote any shares of capital stock of any subsidiary directly or
indirectly owned by the Company; or (iv) requiring divestiture by
Parent or Purchaser or any of their affiliates of any Shares; provided,
that prior to invoking this condition each party agrees to comply with
Section 6.10.
A-1
<PAGE>
(b) there shall have occurred any event that is reasonably
likely to have a Material Adverse Effect;
(c) there shall have occurred (i) any general suspension of
trading in, or limitation on prices (other than suspensions or
limitations triggered on the New York Stock Exchange by price
fluctuations on a trading day) for, securities on any national
securities exchange, (ii) a declaration of a banking moratorium or any
suspension of payments in respect of banks in the United States, (iii)
a commencement of a war or material armed hostilities or other material
national calamity directly involving the United States or materially
adversely affecting the consummation of the Offer or (v) in the case of
any of the foregoing existing at the time of commencement of the Offer,
a material acceleration or worsening thereof;
(d) (A) the Board of Directors of the Company or any committee
thereof shall have withdrawn or modified in a manner adverse to Parent
or Purchaser the approval or recommendation of the Offer, the Merger or
the Merger Agreement, or approved or recommended any takeover proposal
or any other acquisition of Shares other than the Offer, (B) any such
person or group shall have entered into a definitive agreement or an
agreement in principle with the Company with respect to a tender offer
or exchange offer for any Shares or a merger, consolidation or other
business combination with or involving the Company or any of its
subsidiaries, or (C) the Board of Directors of the Company or any
committee thereof shall have resolved to do any of the foregoing;
(e) any of the representations and warranties of the Company
set forth in the Merger Agreement that are qualified by reference to a
Material Adverse Effect shall not be true and correct, or any such
representations and warranties that are not so qualified shall not be
true and correct in any respect that is reasonably likely to have a
Material Adverse Effect, in each case as if such representations and
warranties were made at the time of such determination;
(f) the Company shall have failed to perform in any material
respect any material obligation or to comply in any material respect
with any material agreement or material covenant of the Company to be
performed or complied with by it under the Merger Agreement;
(g) the Merger Agreement shall have been terminated in
accordance with its terms or the Offer shall have been terminated with
the consent of the Company;
(h) any waiting periods under the HSR Act applicable to the
purchase of Shares pursuant to the Offer or the Merger shall not have
expired or been terminated; or
(i) each of the Holding Co. Merger and the Woodbank Merger
shall not have been consummated in accordance with the terms of the
Holding Co. Merger Agreement and the Woodbank Merger Agreement,
respectively;
which, in the reasonable judgment of Purchaser with respect to each and every
matter referred to above and regardless of the circumstances (except for any
action or inaction by Purchaser or
A-2
<PAGE>
any of its affiliates constituting a breach of the Merger Agreement) giving rise
to any such condition, makes it inadvisable to proceed with the Offer or with
such acceptance for payment of or payment for Shares or to proceed with the
Merger.
The foregoing conditions are for the sole benefit of Purchaser
and may be asserted by Purchaser regardless of the circumstances giving rise to
any such condition (except for any action or inaction by Purchaser or any of its
affiliates constituting a breach of the Merger Agreement) or (other than the
Minimum Condition) may be waived by Purchaser in whole or in part at any time
and from time to time in its sole discretion (subject to the terms of the Merger
Agreement). The failure by Purchaser at any time to exercise any of the
foregoing rights shall not be deemed a waiver of any such right, the waiver of
any such right with respect to particular facts and other circumstances shall
not be deemed a waiver with respect to any other facts and circumstances, and
each such right shall be deemed an ongoing right that may be asserted at any
time and from time to time.
A-3
<PAGE>
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT (this "Agreement"), dated as of May
16, 1998, by and between Dillard's, Inc., a company organized under the laws of
Delaware ("Purchaser"), and each of the parties listed on the signature page
hereto (individually a "Seller" and collectively, the "Sellers").
RECITALS
Concurrently herewith, Purchaser, MSC Acquisitions, Inc., a
Delaware corporation and a wholly-owned subsidiary of Purchaser, and Mercantile
Stores Company (the "Company"), a Delaware corporation, are entering into an
Agreement and Plan of Merger of even date herewith attached hereto (the "Merger
Agreement"; capitalized terms used but not defined herein shall have the
meanings set forth in the Merger Agreement), pursuant to which Sub agrees to
make a tender offer (the "Offer") for all outstanding shares of common stock,
$.14 2/3 par value per share (the "Common Stock"), of the Company, at $80 per
share (the "Offer Price"), net to the seller in cash, to be followed by a merger
(the "Merger") of Sub with and into the Company.
As a condition to their willingness to enter into the Merger
Agreement and make the Offer, Purchaser and Sub have required that each of the
Sellers agree, and each Seller has agreed, among other things, to grant to
Purchaser the Option and irrevocable proxy with respect to the number of shares
of Common Stock of such Seller set forth opposite such Seller's name on the
signature page hereto, together with any additional shares when and if they are
acquired (such shares, and any additional shares when and if they are acquired,
being referred to herein as the "Shares") on the terms and conditions provided
for herein.
The Board of Directors of the Company has approved the
Purchaser becoming an "interested shareholder" for purposes of Section 203 of
the Delaware General Corporation Law and for all purposed under Article Eighth
of the Company's Certificate of Incorporation.
AGREEMENT
To implement the foregoing and in consideration of the mutual
agreements contained herein, the parties agree as follows:
1. Option to Purchase Shares.
1.1 Grant of Option. Each Seller hereby grants to Purchaser an
irrevocable option (the "Option") to purchase all of the Shares set forth below
such Seller's name on the signature page hereto at a purchase price of $80 per
share (the "Exercise
<PAGE>
2
Price") in cash (subject to adjustment pursuant to Section 7 below) for each
Share purchased.
1.2 Exercise of Option.
(a) Subject to applicable law (including Rule 10b-
13 under the Securities Exchange Act of 1934, as amended (the "Exchange Act")),
the Option may be exercised by Purchaser, in whole or in part, at any time, or
from time to time, commencing upon the Exercise Date and prior to the Expiration
Date (as hereinafter defined). As used herein, the term "Exercise Date" means
the first to occur of any of the following dates:
(i) Seller fails to perform any agreement or covenant
of Seller contained herein in any material respect; or
(ii) the Merger Agreement is terminated and Purchaser
is entitled to the payment of a termination fee pursuant to any of the
provisions set forth in Section 8.3(a)(ii) of the Merger Agreement.
As used herein, the term "Expiration Date" means the first to
occur of any of the following dates:
(1) the Effective Time (as defined in the Merger
Agreement);
(2) 12 months after the date of the termination
of the Merger Agreement; or
(3) written notice of termination of this Agreement
by Purchaser to the Seller.
(b) In the event Purchaser wishes to exercise the Option,
Purchaser shall send a written notice to Seller of its intention to so exercise
the Option (a "Notice"), specifying the place, time and date of the closing of
such purchase (the "Closing"), which date shall not be less than two business
days nor more than five business days from the date on which a Notice is
delivered; provided, that the Closing shall be held only if such purchase would
not otherwise then violate or cause the violation of, any applicable law or
regulations (including, without limitation, the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 (the "HSR Act")) or any decree, order or injunction of
any governmental agency, authority or court, whether temporary, preliminary or
permanent. If the Closing shall be violative of any such laws or rules or any
such decree, order or injunction, then such Notice shall be deemed rescinded and
of no effect and Purchaser shall send a new Notice at such time as the Closing
is not violative of such laws, rules, decrees, orders or injunctions.
Notwithstanding the occurrence of such rescission, this Agreement shall remain
in full force and effect.
<PAGE>
3
(c) At the Closing, Seller shall deliver to Purchaser all of
the Shares to be purchased by delivery of a certificate or certificates
evidencing such Shares so purchased by Purchaser duly endorsed or with executed
blank stock power attached, in either event with signature guaranteed such that
registered ownership of the Shares may be registered for transfer on the books
of the Company and Purchaser will make payment to Seller of the aggregate
Exercise Price for the Shares being purchased upon exercise of the Option in
immediately available funds in the amount equal to the Exercise Price multiplied
by the number of Shares purchased pursuant to this Section 1.
(d) Notwithstanding any of the foregoing, with respect to the
Shares held by Minot Mercantile Corporation and Woodbank Mills, Inc.
(collectively, the "C Corps"), Purchaser shall form an acquisition subsidiary to
acquire such Shares in the form of a merger pursuant to a form of merger
agreement reasonably acceptable to the parties, and each party will use its best
efforts to consummate the acquisition of such Shares pursuant to the Option by
merger.
2. Agreement to Tender. Each Seller hereby agrees to validly
tender pursuant to the Offer and not withdraw all Shares; provided, however, the
C Corps shall not be obligated to tender the Shares held by each of them because
such Shares will be acquired by Merger as contemplated by the Merger Agreement.
3. Irrevocable Proxy. Each Seller hereby irrevocably appoints
Purchaser or any designee of Purchaser the lawful agent, attorney and proxy of
such shareholder, during the term of this Agreement, to (a) vote the Shares in
favor adoption of the Merger Agreement; (b) vote the Shares against any action
or agreement that would result in a breach in any material respect of any
covenant, representation or warranty or any other obligation or agreement of the
Company under the Merger Agreement; and (c) vote the Shares against any action
or agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company and its subsidiaries; (ii) a sale or
transfer of a material amount of assets of the Company and its subsidiaries or a
reorganization, recapitalization or liquidation of the Company and its
subsidiaries; (iii) any change in the management or board of directors of the
Company, except as otherwise agreed to in writing by Purchaser; (iv) any
material change in the present capitalization or dividend policy of the Company;
or (v) any other material change in the Company's corporate structure or
business. Each Seller intends this proxy to be irrevocable and coupled with an
interest and will take such further action or execute such other instruments as
may be necessary to effectuate the intent of this proxy and hereby revokes any
proxy previously
<PAGE>
4
granted by it with respect to the Shares. Each Seller shall not hereafter,
unless and until this Agreement terminates pursuant to Section 8.6 hereof,
purport to vote (or execute a consent with respect to) such Shares (other than
through this irrevocable proxy) or grant any other proxy or power of attorney
with respect to any Shares, deposit any Shares into a voting trust or enter into
any agreement (other than this Agreement), arrangement or understanding with any
person, directly or indirectly, to vote, grant any proxy or give instructions
with respect to the voting of such Shares. Notwithstanding anything herein to
the contrary, the Sellers may transfer as charitable gifts up to an aggregate of
300,000 Shares.
4. Representations and Warranties.
4.1 Representations and Warranties of Purchaser.
Purchaser hereby represents and warrants to each Seller as follows:
(a) Due Authorization. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of Purchaser, and no other corporate proceedings on the part of
Purchaser are necessary to authorize this Agreement or to consummate
the transactions contemplated hereby. This Agreement has been duly and
validly executed and delivered by Purchaser and constitutes a valid and
binding agreement of Purchaser, enforceable against Purchaser in
accordance with its terms, except that such enforceability (i) may be
limited by bankruptcy, insolvency, moratorium or other similar laws
affecting or relating to enforcement of creditors' rights generally and
(ii) is subject to general principles of equity.
(b) No Conflicts. Except for (i) filings under the
HSR Act, if applicable, (ii) the applicable requirements of the
Exchange Act and the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the applicable requirements of state
securities, takeover or Blue Sky laws and (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by Purchaser
and the consummation by Purchaser of the transactions contemplated
hereby and (B) neither the execution and delivery of this Agreement by
Purchaser nor the consummation by Purchaser of the transactions
contemplated hereby nor compliance by Purchaser with any of the
provisions hereof shall (1) conflict with or result in any breach of
any provision of the certificate of incorporation or by-laws (or
similar documents) of
<PAGE>
5
Purchaser, (2) 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, bond, mortgage, indenture, license, contract,
agreement or other instrument or obligation to which Purchaser is a
party or by which it or any of its properties or assets may be bound or
(3) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Purchaser or any of its properties or assets,
except in the case of (2) or (3) for violations, breaches or defaults
which would not in the aggregate materially impair the ability of
Purchaser to perform its obligations hereunder.
(c) Good Standing. Purchaser is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority to execute
and deliver this Agreement.
4.2 Representations and Warranties of Sellers. Each Seller
hereby severally and not jointly represents and warrants to Purchaser as
follows:
(a) Ownership of Shares. Subject to Section 5.3, such Seller
is the owner of the Shares set forth below its name and has the power
to vote and dispose of such Shares. To Seller's knowledge, such Shares
are validly issued, fully paid and nonassessable, with no personal
liability attaching to the ownership thereof. Such Seller has good
title to the Shares, free and clear of any agreements, liens, adverse
claims or encumbrances whatsoever with respect to the ownership of or
the right to vote such Shares.
(b) Power; Binding Agreement. Such Seller has the legal
capacity, power and authority to enter into and perform all of its
obligations under this Agreement, except for the approval of the
holders of a majority of the stockholders of Minot Mercantile
Corporation is required with respect to their obligations under Section
1. The execution, delivery and performance of this Agreement by such
Seller will not violate any other agreement to which such Seller is a
party including, without limitation, any voting agreement, stockholders
agreement or voting trust. This Agreement has been duly and validly
authorized, executed and delivered by such Seller and constitutes a
valid and binding agreement of such Seller, enforceable against such
Seller in accordance with its terms, except that such enforceability
(i) may be limited by bankruptcy, insolvency, moratorium or other
similar laws affecting or
<PAGE>
6
relating to enforcement of creditors' rights generally and (ii) is
subject to general principles of equity.
(c) No Conflicts. Except for (i) filings under the HSR Act,
if applicable, (ii) the applicable requirements of the Exchange Act
and the Securities Act, (iii) the applicable requirements of state
securities, takeover or Blue Sky laws, (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by such
Seller and the consummation by such Seller of the transactions
contemplated hereby and (B) neither the execution and delivery of this
Agreement by such Seller nor the consummation by such Seller of the
transactions contemplated hereby nor compliance by such Seller with any
of the provisions hereof shall (1) conflict with or result in any
breach of any provision of the certificate of incorporation, by-laws,
trust or charitable instruments (or similar documents) of such Seller,
(2) 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, bond, mortgage, indenture, license, contract, agreement or other
instrument or obligation to which such Seller is a party or by which he
or any of his properties or assets may be bound or (3) violate any
order, writ, injunction, decree, statute, rule or regulation applicable
to such Seller or any of his properties or assets, except in the case
of (2) or (3) for violations, breaches or defaults which would not in
the aggregate materially impair the ability of such Seller to perform
his obligations hereunder.
5. Certain Covenants of Sellers. Each Seller hereby covenants
and agrees as follows:
5.1 No Solicitation. Such Seller shall not, directly or
indirectly, solicit, encourage, participate in or initiate any inquiries or the
making of any proposal by any person or entity (other than Purchaser or any
affiliate of Purchaser) which constitutes, or may reasonably be expected to lead
to, (a) any sale of the Shares or (b) any acquisition or purchase of a material
portion of the Company's assets or any equity interest in, or any merger,
consolidation or business combination with, the Company or any of its
subsidiaries. If such Seller receives an inquiry or proposal with respect to the
sale of Shares, then such Seller shall promptly inform Purchaser of the terms
and conditions, if any, of such inquiry or proposal and the identity of the
person making it. Each Seller will immediately cease and cause to be terminated
any existing activities, discussions or
<PAGE>
7
negotiations with any parties conducted heretofore with respect
to any of the foregoing.
5.2 Restriction on Transfer, Proxies and NonInterference.
Each Seller hereby agrees, while this Agreement is in effect, and except as
contemplated hereby, not to (a) sell, transfer, pledge, encumber, assign or
otherwise dispose of, or enter into any contract, option or other arrangement or
understanding with respect to the sale, transfer, pledge, encumbrance,
assignment or other disposition of, any of the Shares or (b) grant any proxies,
deposit any Shares into a voting trust or enter into a voting agreement with
respect to any Shares or (c) take any action that would make any representation
or warranty of such Seller contained herein untrue or incorrect or have the
effect of preventing or disabling such Seller from performing his obligations
under this Agreement.
5.3 Legending of Certificates; Nominees Shares. If requested
by Purchaser, each Seller agrees to submit to Purchaser contemporaneously with
or promptly following execution of this Agreement all certificates representing
the Shares so that Purchaser may note thereon a legend referring to the option,
proxy and other rights granted to it by this Agreement. If any of the Shares
beneficially owned by such Seller are held of record by a brokerage firm in
"street name" or in the name of any other nominee (a "Nominee," and, as to such
Shares, "Nominee Shares"), each Seller agrees that, upon written notice by
Purchaser requesting it, such Seller will within five days of the giving of such
notice execute and deliver to Purchaser a limited power of attorney in such form
as shall be reasonably satisfactory to Purchaser enabling Purchaser to require
the Nominee to (i) grant to Purchaser an option and irrevocable proxy to the
same effect as Sections 1 and 3 hereof with respect to the Nominee Shares held
by such Nominee, (ii) tender such Nominee Shares in the Offer pursuant to
Section 2 hereof and (iii) submit to Purchaser the certificates representing
such Nominee Shares for notation of the above-referenced legend thereon.
5.4 Stop Transfer Order. In furtherance of this Agreement,
concurrently herewith, each Seller shall and hereby does authorize the Company's
counsel to notify the Company's transfer agent that there is a stop transfer
order with respect to all of the Shares (and that this Agreement places limits
on the voting and transfer of such shares).
6. 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
action as may be necessary or desirable to consummate the transactions
contemplated by this Agreement, including, without limitation, to vest in
Purchaser good title to any Shares purchased hereunder.
<PAGE>
8
7. Adjustments to Prevent Dilution, Etc. In the event of a
stock dividend or distribution, or any change in the Company's Common Stock by
reason of any stock dividend, split-up, reclassification, recapitalization,
combination or the exchange of shares, the term "Shares" shall be deemed to
refer to and include the Shares as well as all such stock dividends and
distributions and any shares into which or for which any or all of the Shares
may be changed or exchanged. In such event, the amount to be paid per share by
Purchaser shall be proportionately adjusted.
8. Miscellaneous.
8.1 Entire Agreement; Assignment. This Agreement (i)
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
and (ii) shall not be assigned by operation of law or otherwise, provided that
Purchaser may assign its rights and obligations hereunder to any direct or
indirect wholly owned parent company or subsidiary of Purchaser, but no such
assignment shall relieve Purchaser of its obligations hereunder if such assignee
does not perform such obligations.
8.2 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
8.3 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 so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) 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 the
Sellers: c/o Ivins Phillips & Barker
1700 Pennsylvania Avenue
Washington, D.C. 20006
If to Purchaser:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James Freeman
copy to: Simpson Thacher & Bartlett
<PAGE>
9
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
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.
8.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
8.5 Cooperation as to Regulatory Matters. If so requested by
Purchaser, promptly after the date hereof, the Seller will use its reasonable
best efforts to cause it and the Company (if required) to make all filings which
are required under the HSR Act and applicable requirements and to seek all
regulatory approvals required in connection with the transactions contemplated
hereby. The parties shall furnish to each other such necessary information and
reasonable assistance as may be requested in connection with the preparation of
filings and submissions to any governmental agency, including, without
limitation, filings under the provisions of the HSR Act. The Seller shall also
use its reasonable best efforts to cause the Company to supply Purchaser with
copies of all correspondence, filings or communications (or memoranda setting
forth the substance thereof) between the Company and its representatives and the
Federal Trade Commission, the Department of Justice and any other governmental
agency or authority and members of their respective staffs with respect to this
Agreement and the transactions contemplated hereby.
8.6 Termination. Except for the provisions of Sections 1 and
5.2 which shall expire on the Expiration Date, this Agreement shall terminate on
the earlier of (i) the Effective Time or (ii) the termination of the Merger
Agreement in accordance with its terms.
8.7 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 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.
8.8 Counterparts. This Agreement may be executed in
two counterparts, each of which shall be deemed to be an
<PAGE>
10
original, but both of which shall constitute one and the same
Agreement.
8.9 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.
8.10 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.
<PAGE>
11
IN WITNESS WHEREOF, the Sellers and Purchaser have caused this
Agreement to be duly executed as of the day and year first above written.
DILLARD'S, INC.
By: /s/ James I. Freeman
-------------------------------
Name: James I. Freeman
Title: Senior Vice President and
Chief Financial Officer
[The Sellers listed on the attached signature pages]
<PAGE>
/s/ Roger Milliken
- -------------------------------
Roger Milliken
Wilmington Trust Company
By: /s/ Carol M. Drummond
-------------------------------
Name: Carol M. Drummond
Title: Assistant Vice President
as the trustees of trusts
holding 2,120,485
shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
Wilmington Trust Company
By: /s/ Carol M. Drummond
-------------------------------
Name: Carol M. Drummond
Title: Assistant Vice President
as the trustee of trusts holding
1,654,311 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Justine VR. Milliken
- -------------------------------
Justine VR. Milliken
/s/ Minot K. Milliken
- -------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 27,645 shares of the common stock,
par value of $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Justine VR. Milliken
- -------------------------------
Justine VR. Milliken
/s/ Gerrish H. Milliken, Jr.
- -------------------------------
Gerrish H. Milliken, Jr.
/s/ Minot K. Milliken
- -------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 25,065 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
Woodbank Mills, Inc.
By: /s/ Roger Milliken
-------------------------------
Name: Roger Milliken
Title: Chairman
as the holder of 27,413 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
Minot Mercantile Corporation
By: /s/ Roger Milliken
-------------------------------
Name: Roger Milliken
Title: Chairman
as the holder of 10,484,875 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Roger Milliken
- -------------------------------
Roger Milliken
/s/ Gerrish H. Milliken, Jr.
- -------------------------------
Gerrish H. Milliken, Jr.
as a majority of the trustees of trusts holding
56,848 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Roger Milliken
- -------------------------------
Roger Milliken
/s/ Gerrish H. Milliken, Jr.
- -------------------------------
Gerrish H. Milliken, Jr.
/s/ Minot K. Milliken
- -------------------------------
Minot K. Milliken
as a majority of the trustees of trusts holding
258,178 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Roger Milliken
- -------------------------------
Roger Milliken
/s/ Minot K. Milliken
- -------------------------------
Minot K. Milliken
as a majority of the trustees of trusts holding
22,104 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
/s/ Gerrish H. Milliken, Jr.
- -------------------------------
Gerrish H. Milliken, Jr.
/s/ Minot K. Milliken
- -------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 32,419 shares of the common stock,
par value $.14 2/3 per share,
of Mercantile Stores Company, Inc.
<PAGE>
PROXY AND INDEMNIFICATION AGREEMENT
PROXY AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated
as of May 16, 1998, among DILLARD'S, INC., a Delaware corporation ("Parent"),
and each of the stockholders of WOODBANK MILLS, INC., a Delaware corporation
(the "Company"), that are signatories hereto (each, a "WMI Stockholder").
W I T N E S S E T H :
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), and the Company have entered into a
merger agreement, dated as of the date hereof (the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement), pursuant to which WMI MergerSub will be merged with
and into the Company (the "Merger"), and the Company shall be the surviving
corporation; and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and consummate the Merger, Parent and Purchaser have required
that each WMI Stockholder agree, and each WMI Stockholder has agreed, among
other things, (i) to grant to Parent the irrevocable proxy with respect to all
of the Company's common stock, par value $1.00 per share ("Company Common
Stock"), owned by such WMI Stockholder, together with any additional shares when
and if they are acquired (such shares, and any additional shares when and if
they are acquired, being referred to herein as such WMI Stockholder's "Shares"
and collectively as the "Shares") on the terms and conditions provided for
herein, and (ii) to indemnify and hold harmless Parent and Purchaser, in the
manner provided herein, on account of any Losses (as defined herein) arising out
of or relating to the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent and each WMI Stockholder hereby agree as follows:
1. Irrevocable Proxy. Each WMI Stockholder hereby irrevocably
appoints Parent or any designee of Parent the lawful agent, attorney and proxy
of such stockholder, during the term of this Agreement, to (a) vote such WMI
Stockholder's Shares in favor of the Merger; (b) vote such WMI Stockholder's
Shares against any action or agreement that would result in a breach in any
material respect of any covenant, representation or warranty or any other
obligation or agreement of the Company under the Merger Agreement; and (c) vote
such WMI Stockholder's Shares against any action or agreement (other than the
Merger Agreement or the transactions contemplated thereby) that would impede,
interfere with, delay, postpone or attempt to discourage the Merger or the
Offer, including, but not limited to: (i) any extraordinary corporate
transaction, such as a merger, consolidation or other business combination
involving the Company; (ii) a sale or transfer of a material amount of assets of
the Company or a reorganization, recapitalization or liquidation of the Company;
(iii) any change in the management or board of directors of the Company, except
as otherwise agreed to in writing by Purchaser; (iv) any material change in the
present capitalization or dividend policy of the
<PAGE>
2
Company; or (v) any other material change in the Company's corporate structure
or business. Each WMI Stockholder intends this proxy to be irrevocable and
coupled with an interest and will take such further action or execute such other
instruments as may be necessary to effectuate the intent of this proxy and
hereby revokes any proxy previously granted by it with respect to the Shares.
Each WMI Stockholder shall not hereafter, unless and until this Agreement
terminates pursuant to Section 7.6 hereof, purport to vote (or execute a consent
with respect to) his Shares (other than through this irrevocable proxy) or grant
any other proxy or power of attorney with respect to such Shares, deposit any
such Shares into a voting trust or enter into any agreement (other than this
Agreement), arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with respect to the
voting of such Shares.
2. Representations and Warranties.
2.1 Representations and Warranties of Parent. Parent hereby
represents and warrants to the WMI Stockholders as follows:
(a) Due Authorization. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of Parent, and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by Parent and constitutes a valid and binding agreement
of Parent, enforceable against Parent in accordance with its terms,
except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) is subject to
general principles of equity.
(b) No Conflicts. Except for (i) filings under the
HSR Act, if applicable, (ii) the applicable requirements of the
Exchange Act and the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the applicable requirements of state
securities, takeover or Blue Sky laws and (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by Parent
and the consummation by Parent of the transactions contemplated hereby
and (B) neither the execution and delivery of this Agreement by Parent
nor the consummation by Parent of the transactions contemplated hereby
nor compliance by Parent with any of the provisions hereof shall (1)
conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws (or similar documents) of
Parent, (2) 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, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation to which Parent is a party or by which
it or any of its properties or assets may be bound or (3) violate any
order, writ, injunction, decree, statute, rule or regulation applicable
to Parent or any of its properties or assets, except in the case of (2)
or (3) for violations,
<PAGE>
3
breaches or defaults which would not in the aggregate materially impair
the ability of Parent to perform its obligations hereunder.
(c) Good Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority to execute
and deliver this Agreement.
2.2 Representations and Warranties of each WMI Stockholder.
Each WMI Stockholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. Such WMI Stockholder is the owner of
his Shares and has the power to vote and dispose of such Shares. To
such WMI Stockholder's knowledge, his Shares are validly issued, fully
paid and nonassessable, with no personal liability attaching to the
ownership thereof. Such WMI Stockholder has good title to his Shares,
free and clear of any agreements, liens, adverse claims or encumbrances
whatsoever with respect to the ownership of or the right to vote such
Shares.
(b) Power; Binding Agreement. Such WMI Stockholder has the
legal capacity, power and authority to enter into and perform all of
its obligations under this Agreement. The execution, delivery and
performance of this Agreement by such WMI Stockholder will not violate
any other agreement to which such WMI Stockholder is a party including,
without limitation, any voting agreement, stockholders agreement or
voting trust. This Agreement has been duly and validly authorized,
executed and delivered by such WMI Stockholder and constitutes a valid
and binding agreement of such WMI Stockholder, enforceable against such
WMI Stockholder in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) is subject to general principles
of equity.
(c) No Conflicts. Except for (i) filings under the HSR Act, if
applicable, (ii) the applicable requirements of the Exchange Act and
the Securities Act, (iii) the applicable requirements of state
securities, takeover or Blue Sky laws, (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by such WMI
Stockholder and the consummation by such WMI Stockholder of the
transactions contemplated hereby and (B) neither the execution and
delivery of this Agreement by such WMI Stockholder nor the consummation
by such WMI Stockholder of the transactions contemplated hereby nor
compliance by such WMI Stockholder with any of the provisions hereof
shall (1) conflict with or result in any breach of any provision of the
certificate of incorporation, by-laws, trust or charitable instruments
(or similar documents) of such WMI Stockholder, (2) 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, bond, mortgage,
indenture, license, contract, agreement or other instrument or
obligation to which such WMI Stockholder is
<PAGE>
4
a party or by which such WMI Stockholder or any of his properties or
assets may be bound or (3) violate any order, writ, injunction, decree,
statute, rule or regulation applicable to such WMI Stockholder or any
of his properties or assets, except in the case of (2) or (3) for
violations, breaches or defaults which would not in the aggregate
materially impair the ability of such WMI Stockholder to perform his
obligations hereunder.
3. Certain Covenants of each WMI Stockholder. Each WMI
Stockholder hereby covenants and agrees as follows:
3.1 No Solicitation. Such WMI Stockholder shall not, directly
or indirectly, solicit, encourage, participate in or initiate any inquiries or
the making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) which constitutes, or may reasonably be expected to lead
to, (a) any sale of the Shares or (b) any acquisition or purchase of a material
portion of the Company's assets or any equity interest in, or any merger,
consolidation or business combination with, the Company. If any WMI Stockholder
receives an inquiry or proposal with respect to the sale of Shares, then such
WMI Stockholder shall promptly inform Parent of the terms and conditions, if
any, of such inquiry or proposal and the identity of the person making it. Each
WMI Stockholder will immediately cease and cause to be terminated any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing.
3.2 Restriction on Transfer, Proxies and Non-Interference.
Each WMI Stockholder hereby agrees, while this Agreement is in effect, and
except as contemplated hereby, not to (a) sell, transfer, pledge, encumber,
assign or otherwise dispose of, or enter into any contract, option or other
arrangement or understanding with respect to the sale, transfer, pledge,
encumbrance, assignment or other disposition of, any of his Shares or (b) grant
any proxies, deposit any of his Shares into a voting trust or enter into a
voting agreement with respect to any of his Shares or (c) take any action that
would make any representation or warranty of such WMI Stockholder contained
herein untrue or incorrect or have the effect of preventing or disabling such
WMI Stockholder from performing his obligations under this Agreement.
4. 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 action as may be
necessary or desirable to consummate the transactions contemplated by this
Agreement.
5. Adjustments to Prevent Dilution, Etc. In the event of a
stock dividend or distribution, or any change in the Company Common Stock by
reason of any stock dividend, split-up, recapitalization, combination or the
exchange of shares, the term "Shares" shall be deemed to refer to and include
the Shares as well as all such stock dividends and distributions and any shares
into which or for which any or all of the Shares may be changed or exchanged.
6. Indemnification.
6.1 General Indemnification. Each WMI Stockholder
(collectively, the "Indemnifying Party"), jointly and severally, indemnifies,
defends and holds Parent, Purchaser
<PAGE>
5
and Surviving Corporation and their respective directors, officers, employees
and affiliates (collectively, the "Indemnified Party") harmless from any and all
liabilities, damages, expenses, losses or other claims (including, without
limitation, reasonable attorneys' fees and expenses) ("Losses"), directly or
indirectly, suffered or paid that arise out of or relate to (i) the failure of
any representation or warranty made by (A) the Company under the Merger
Agreement or (B) any WMI Stockholder hereunder, in each case to be true and
correct in all respects as of the date of this Agreement and as of the Closing
Date, (ii) any breach by (A) the Company of any of its covenants or agreements
contained in the Merger Agreement and (B) any WMI Stockholder of any of its
covenants or agreements contained herein, and (iii) the Company's business,
operations or conduct at any time on or prior to the Closing Date, including,
without limitation, any and all Taxes imposed on the Company in respect of
periods on or prior to the Closing Date; provided that, the aggregate amount of
the Holdback Amount (as defined in Section 1.6 of the Merger Agreement) shall be
applied to the payment of any Losses prior to any recourse to any Indemnifying
Party's indemnity hereunder.
6.2 Indemnification Procedures. If any indemnifiable claim is
asserted by any third party against or sought to be collected from any
Indemnified Party, such Indemnified Party shall promptly notify the Indemnifying
Party of such claim and the amount or the estimated amount thereof to the extent
then feasible (which estimate shall not be conclusive of the final amount of
such claim); provided, however, that failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
Indemnifying Party shall have been actually prejudiced as a result of such
failure. The Indemnifying Party shall have 20 days after receipt of such notice
to assume the conduct and control, through counsel reasonably acceptable to the
Indemnified Party and at the expense of the Indemnifying Party, of the
settlement or defense thereof; provided that the Indemnifying Party shall permit
the Indemnified Party to participate in such settlement or defense through
counsel chosen by the Indemnified Party so long as the fees and expenses of such
counsel are borne by the Indemnified Party. So long as the Indemnifying Party is
reasonably contesting any such claim in good faith, the Indemnified Party shall
not pay or settle any such claim; provided that the Indemnified Party may pay or
settle any such claim if the Indemnified Party waives its right to
indemnification hereunder in respect of such claim. If the Indemnifying Party
does not notify the Indemnified Party within 20 days after the receipt of the
Indemnified Party's notice of a claim of indemnity hereunder that it elects to
undertake the defense thereof, the Indemnified Party shall have the right to
contest, pay or settle the claim but shall not thereby waive any right to
indemnity therefor pursuant to this Agreement. The Indemnifying Party shall not,
except with the consent of the Indemnified Party, enter into any settlement that
does not include as an unconditional term thereof the unconditional release of
the Indemnified Party from all liability with respect to the related claim. The
obligations to indemnify and hold harmless pursuant to this Section 6 shall
survive the consummation of the transactions contemplated hereby.
7. Miscellaneous.
7.1 Entire Agreement; Assignment. This Agreement, together
with the Merger Agreement, (i) 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 and (ii) shall not be assigned by
<PAGE>
6
operation of law or otherwise, provided that Parent may assign its rights and
obligations hereunder to any direct or indirect wholly owned parent company or
subsidiary of Parent, but no such assignment shall relieve Parent of its
obligations hereunder if such assignee does not perform such obligations.
7.2 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
7.3 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 so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at (i) in the case of any WMI Stockholder, c/o Ivins Phillips
& Barker, 1700 Pennsylvania Avenue, Washington, D.C. 20006, and (ii) in the case
of Parent, the following address:
if to Parent:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James I. Freeman
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
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.
7.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
7.5 Cooperation as to Regulatory Matters. If so requested by
Parent, promptly after the date hereof, each WMI Stockholder will use its
reasonable best efforts to cause it and the Company (if required) to make all
filings which are required under the HSR Act and applicable requirements and to
seek all regulatory approvals required in connection with the transactions
contemplated hereby. The parties shall furnish to each other such necessary
information and reasonable assistance as may be requested in connection with the
preparation of filings and submissions to any governmental agency, including,
without limitation, filings under the provisions of the HSR Act. Each WMI
Stockholder shall also use its reasonable best efforts
<PAGE>
7
to cause the Company to supply Parent with copies of all correspondence, filings
or communications (or memoranda setting forth the substance thereof) between the
Company and its representatives and the Federal Trade Commission, the Department
of Justice and any other governmental agency or authority and members of their
respective staffs with respect to this Agreement and the transactions
contemplated hereby.
7.6 Termination. Except for the provisions of Section 6 which
shall remain in effect indefinitely, this Agreement shall terminate on the
earlier of (i) the Effective Time or (ii) the termination of the Merger
Agreement in accordance with its terms.
7.7 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 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.
7.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same Agreement.
7.9 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.
7.10 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.
<PAGE>
8
IN WITNESS WHEREOF, Parent and each WMI Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
DILLARD'S, INC.
By: /s/ James I. Freeman
----------------------------------
Name: James I. Freeman
Title: Chief Financial Officer
WMI STOCKHOLDERS (listed on next page)
<PAGE>
/s/ Roger Milliken
- ----------------------------------
Roger Milliken
Wilmington Trust Company
By: /s/ Carol M. Drummond
------------------------------
Name: Carol M. Drummond
Title: Assistant Vice President
as the trustees of trusts
holding 6,440 shares of
the common stock,
par value $1.00 per share,
of Woodbank Mills, Inc.
<PAGE>
/s/ Roger Milliken
- ----------------------------------
Roger Milliken
/s/ Gerrish H. Milliken, Jr.
- ----------------------------------
Gerrish H. Milliken, Jr.
as a majority of the trustees of trusts
holding 26,300 shares of the common stock,
par value $1.00 per share,
of Woodbank Mills, Inc.
<PAGE>
/s/ Roger Milliken
- ----------------------------------
Roger Milliken
/s/ Minot K. Milliken
- ----------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 47,400 shares of the common stock,
par value $1.00 per share,
of Woodbank Mills, Inc.
<PAGE>
/s/ Justine VR. Milliken
- ----------------------------------
Justine VR. Milliken
/s/ Minot K. Milliken
- ----------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 51,000 shares of the common stock,
par value $1.00 per share,
of Woodbank Mills, Inc.
<PAGE>
/s/ Roger Milliken
- ----------------------------------
Roger Milliken
/s/ Gerrish H. Milliken
- ----------------------------------
Gerrish H. Milliken, Jr.
/s/ Minot K. Milliken
- ----------------------------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 16,300 shares of the common stock,
par value $1.00 per share,
of Woodbank Mills, Inc.
<PAGE>
PROXY AND INDEMNIFICATION AGREEMENT
PROXY AND INDEMNIFICATION AGREEMENT (this "Agreement"), dated
as of May 16, 1998, among DILLARD'S, INC., a Delaware corporation ("Parent"),
and each of the stockholders of MINOT MERCANTILE CORPORATION, a Delaware
corporation (the "Company"), that are signatories hereto (each, a "MMC
Stockholder").
W I T N E S S E T H :
- - - - - - - - - - -
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Purchaser"), and the Company have entered into a
merger agreement, dated as of the date hereof (the "Merger Agreement";
capitalized terms used but not defined herein shall have the meanings set forth
in the Merger Agreement), pursuant to which MMC MergerSub will be merged with
and into the Company (the "Merger"), and the Company shall be the surviving
corporation; and
WHEREAS, as a condition to their willingness to enter into the
Merger Agreement and consummate the Merger, Parent and Purchaser have required
that each MMC Stockholder agree, and each MMC Stockholder has agreed, among
other things, (i) to grant to Parent the irrevocable proxy with respect to all
of the Company's common stock, par value $5.00 per share ("Company Common
Stock"), owned by such MMC Stockholder, together with any additional shares when
and if they are acquired (such shares, and any additional shares when and if
they are acquired, being referred to herein as such MMC Stockholder's "Shares"
and collectively as the "Shares") on the terms and conditions provided for
herein, and (ii) to indemnify and hold harmless Parent and Purchaser, in the
manner provided herein, on account of any Losses (as defined herein) arising out
of or relating to the Merger Agreement;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent and each MMC Stockholder hereby agree as follows:
1. Irrevocable Proxy. Each MMC Stockholder hereby irrevocably
appoints Parent or any designee of Parent the lawful agent, attorney and proxy
of such stockholder, during the term of this Agreement, to (a) vote such MMC
Stockholder's Shares in favor of the Merger and, if applicable, in favor of
Parent's exercise of its option under the Company's Stockholder's Agreement; (b)
vote such MMC Stockholder's Shares against any action or agreement that would
result in a breach in any material respect of any covenant, representation or
warranty or any other obligation or agreement of the Company under the Merger
Agreement; and (c) vote such MMC Stockholder's Shares against any action or
agreement (other than the Merger Agreement or the transactions contemplated
thereby) that would impede, interfere with, delay, postpone or attempt to
discourage the Merger or the Offer, including, but not limited to: (i) any
extraordinary corporate transaction, such as a merger, consolidation or other
business combination involving the Company; (ii) a sale or transfer of a
material amount of assets of the Company or a reorganization, recapitalization
or liquidation of the Company; (iii) any change in the management or board of
directors of the Company, except as otherwise agreed to in writing by
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Purchaser; (iv) any material change in the present capitalization or dividend
policy of the Company; or (v) any other material change in the Company's
corporate structure or business. Each MMC Stockholder intends this proxy to be
irrevocable and coupled with an interest and will take such further action or
execute such other instruments as may be necessary to effectuate the intent of
this proxy and hereby revokes any proxy previously granted by it with respect to
the Shares. Each MMC Stockholder shall not hereafter, unless and until this
Agreement terminates pursuant to Section 7.6 hereof, purport to vote (or execute
a consent with respect to) his Shares (other than through this irrevocable
proxy) or grant any other proxy or power of attorney with respect to such
Shares, deposit any such Shares into a voting trust or enter into any agreement
(other than this Agreement), arrangement or understanding with any person,
directly or indirectly, to vote, grant any proxy or give instructions with
respect to the voting of such Shares.
2. Representations and Warranties.
2.1 Representations and Warranties of Parent. Parent hereby
represents and warrants to the MMC Stockholders as follows:
(a) Due Authorization. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby have been duly and validly authorized by the Board of Directors
of Parent, and no other corporate proceedings on the part of Parent are
necessary to authorize this Agreement or to consummate the transactions
contemplated hereby. This Agreement has been duly and validly executed
and delivered by Parent and constitutes a valid and binding agreement
of Parent, enforceable against Parent in accordance with its terms,
except that such enforceability (i) may be limited by bankruptcy,
insolvency, moratorium or other similar laws affecting or relating to
enforcement of creditors' rights generally and (ii) is subject to
general principles of equity.
(b) No Conflicts. Except for (i) filings under the
HSR Act, if applicable, (ii) the applicable requirements of the
Exchange Act and the Securities Act of 1933, as amended (the
"Securities Act"), (iii) the applicable requirements of state
securities, takeover or Blue Sky laws and (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by Parent
and the consummation by Parent of the transactions contemplated hereby
and (B) neither the execution and delivery of this Agreement by Parent
nor the consummation by Parent of the transactions contemplated hereby
nor compliance by Parent with any of the provisions hereof shall (1)
conflict with or result in any breach of any provision of the
certificate of incorporation or by-laws (or similar documents) of
Parent, (2) 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, bond, mortgage, indenture, license, contract, agreement or
other instrument or obligation to which Parent is a party or by which
it or any of its properties or assets may be bound or
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(3) violate any order, writ, injunction, decree, statute, rule or
regulation applicable to Parent or any of its properties or assets,
except in the case of (2) or (3) for violations, breaches or defaults
which would not in the aggregate materially impair the ability of
Parent to perform its obligations hereunder.
(c) Good Standing. Parent is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware and has all requisite corporate power and authority to execute
and deliver this Agreement.
2.2 Representations and Warranties of each MMC Stockholder.
Each MMC Stockholder hereby represents and warrants to Parent as follows:
(a) Ownership of Shares. Such MMC Stockholder is the owner of
his Shares and has the power to vote and dispose of such Shares. To
such MMC Stockholder's knowledge, his Shares are validly issued, fully
paid and nonassessable, with no personal liability attaching to the
ownership thereof. Such MMC Stockholder has good title to his Shares,
free and clear of any agreements, liens, adverse claims or encumbrances
whatsoever with respect to the ownership of or the right to vote such
Shares.
(b) Power; Binding Agreement. Such MMC Stockholder has the
legal capacity, power and authority to enter into and perform all of
its obligations under this Agreement. The execution, delivery and
performance of this Agreement by such MMC Stockholder will not violate
any other agreement to which such MMC Stockholder is a party including,
without limitation, any voting agreement, stockholders agreement or
voting trust. This Agreement has been duly and validly authorized,
executed and delivered by such MMC Stockholder and constitutes a valid
and binding agreement of such MMC Stockholder, enforceable against such
MMC Stockholder in accordance with its terms, except that such
enforceability (i) may be limited by bankruptcy, insolvency, moratorium
or other similar laws affecting or relating to enforcement of
creditors' rights generally and (ii) is subject to general principles
of equity.
(c) No Conflicts. Except for (i) filings under the HSR Act, if
applicable, (ii) the applicable requirements of the Exchange Act and
the Securities Act, (iii) the applicable requirements of state
securities, takeover or Blue Sky laws, (iv) such notifications,
filings, authorizing actions, orders and approvals as may be required
under other laws, (A) no filing with, and no permit, authorization,
consent or approval of, any state, federal or foreign public body or
authority is necessary for the execution of this Agreement by such MMC
Stockholder and the consummation by such MMC Stockholder of the
transactions contemplated hereby and (B) neither the execution and
delivery of this Agreement by such MMC Stockholder nor the consummation
by such MMC Stockholder of the transactions contemplated hereby nor
compliance by such MMC Stockholder with any of the provisions hereof
shall (1) conflict with or result in any breach of any provision of the
certificate of incorporation, by-laws, trust or charitable instruments
(or similar documents) of such MMC Stockholder, (2) 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
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4
any of the terms, conditions or provisions of any note, bond, mortgage,
indenture, license, contract, agreement or other instrument or
obligation to which such MMC Stockholder is a party or by which such
MMC Stockholder or any of his properties or assets may be bound or (3)
violate any order, writ, injunction, decree, statute, rule or
regulation applicable to such MMC Stockholder or any of his properties
or assets, except in the case of (2) or (3) for violations, breaches or
defaults which would not in the aggregate materially impair the ability
of such MMC Stockholder to perform his obligations hereunder.
3. Certain Covenants of each MMC Stockholder. Each MMC
Stockholder hereby covenants and agrees as follows:
3.1 No Solicitation. Such MMC Stockholder shall not,
directly or indirectly, solicit, encourage, participate in or initiate any
inquiries or the making of any proposal by any person or entity (other than
Parent or any affiliate of Parent) which constitutes, or may reasonably be
expected to lead to, (a) any sale of the Shares or (b) any acquisition or
purchase of a material portion of the Company's assets or any equity interest
in, or any merger, consolidation or business combination with, the Company.
If any MMC Stockholder receives an inquiry or proposal with respect to the
sale of Shares, then such MMC Stockholder shall promptly inform Parent of the
terms and conditions, if any, of such inquiry or proposal and the identity of
the person making it. Each MMC Stockholder will immediately cease and cause
to be terminated any existing activities, discussions or negotiations with
any parties conducted heretofore with respect to any of the foregoing.
3.2 Restriction on Transfer, Proxies and
Non-Interference. Each MMC Stockholder hereby agrees, while this Agreement is
in effect, and except as contemplated hereby, not to (a) sell, transfer,
pledge, encumber, assign or otherwise dispose of, or enter into any contract,
option or other arrangement or understanding with respect to the sale,
transfer, pledge, encumbrance, assignment or other disposition of, any of his
Shares or (b) grant any proxies, deposit any of his Shares into a voting
trust or enter into a voting agreement with respect to any of his Shares or
(c) take any action that would make any representation or warranty of such
MMC Stockholder contained herein untrue or incorrect or have the effect of
preventing or disabling such MMC Stockholder from performing his obligations
under this Agreement.
4. 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
action as may be necessary or desirable to consummate the transactions
contemplated by this Agreement.
5. Adjustments to Prevent Dilution, Etc. In the event of a
stock dividend or distribution, or any change in the Company Common Stock by
reason of any stock dividend, split-up, recapitalization, combination or the
exchange of shares, the term "Shares" shall be deemed to refer to and include
the Shares as well as all such stock dividends and distributions and any
shares into which or for which any or all of the Shares may be changed or
exchanged.
6. Indemnification.
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6.1 General Indemnification. Each MMC Stockholder
(collectively, the "Indemnifying Party"), jointly and severally, indemnifies,
defends and holds Parent, Purchaser and Surviving Corporation and their
respective directors, officers, employees and affiliates (collectively, the
"Indemnified Party") harmless from any and all liabilities, damages, expenses,
losses or other claims (including, without limitation, reasonable attorneys'
fees and expenses) ("Losses"), directly or indirectly, suffered or paid that
arise out of or relate to (i) the failure of any representation or warranty made
by (A) the Company under the Merger Agreement or (B) any MMC Stockholder
hereunder, in each case to be true and correct in all respects as of the date of
this Agreement and as of the Closing Date, (ii) any breach by (A) the Company of
any of its covenants or agreements contained in the Merger Agreement and (B) any
MMC Stockholder of any of its covenants or agreements contained herein, and
(iii) the Company's business, operations or conduct at any time on or prior to
the Closing Date, including, without limitation, any and all Taxes imposed on
the Company in respect of periods on or prior to the Closing Date; provided
that, the aggregate amount of the Holdback Amount (as defined in Section 1.6 of
the Merger Agreement) shall be applied to the payment of any Losses prior to any
recourse to any Indemnifying Party's indemnity hereunder.
6.2 Indemnification Procedures. If any indemnifiable
claim is asserted by any third party against or sought to be collected from
any Indemnified Party, such Indemnified Party shall promptly notify the
Indemnifying Party of such claim and the amount or the estimated amount
thereof to the extent then feasible (which estimate shall not be conclusive
of the final amount of such claim); provided, however, that failure to give
such notification shall not affect the indemnification provided hereunder
except to the extent the Indemnifying Party shall have been actually
prejudiced as a result of such failure. The Indemnifying Party shall have 20
days after receipt of such notice to assume the conduct and control, through
counsel reasonably acceptable to the Indemnified Party and at the expense of
the Indemnifying Party, of the settlement or defense thereof; provided that
the Indemnifying Party shall permit the Indemnified Party to participate in
such settlement or defense through counsel chosen by the Indemnified Party so
long as the fees and expenses of such counsel are borne by the Indemnified
Party. So long as the Indemnifying Party is reasonably contesting any such
claim in good faith, the Indemnified Party shall not pay or settle any such
claim; provided that the Indemnified Party may pay or settle any such claim
if the Indemnified Party waives its right to indemnification hereunder in
respect of such claim. If the Indemnifying Party does not notify the
Indemnified Party within 20 days after the receipt of the Indemnified Party's
notice of a claim of indemnity hereunder that it elects to undertake the
defense thereof, the Indemnified Party shall have the right to contest, pay
or settle the claim but shall not thereby waive any right to indemnity
therefor pursuant to this Agreement. The Indemnifying Party shall not, except
with the consent of the Indemnified Party, enter into any settlement that
does not include as an unconditional term thereof the unconditional release
of the Indemnified Party from all liability with respect to the related
claim. The obligations to indemnify and hold harmless pursuant to this
Section 6 shall survive the consummation of the transactions contemplated
hereby.
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7. Miscellaneous.
7.1 Entire Agreement; Assignment. This Agreement, together
with the Merger Agreement, (i) 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 and (ii) shall not be assigned by operation
of law or otherwise, provided that Parent may assign its rights and obligations
hereunder to any direct or indirect wholly owned parent company or subsidiary of
Parent, but no such assignment shall relieve Parent of its obligations hereunder
if such assignee does not perform such obligations.
7.2 Amendments. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto.
7.3 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 so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at (i) in the case of any MMC Stockholder, c/o Ivins Phillips
& Barker, 1700 Pennsylvania Avenue, Washington, D.C. 20006, and (ii) in the case
of Parent, the following address:
if to Parent:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James I. Freeman
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
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.
7.4 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts of
laws thereof.
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7.5 Cooperation as to Regulatory Matters. If so requested by
Parent, promptly after the date hereof, each MMC Stockholder will use its
reasonable best efforts to cause it and the Company (if required) to make all
filings which are required under the HSR Act and applicable requirements and to
seek all regulatory approvals required in connection with the transactions
contemplated hereby. The parties shall furnish to each other such necessary
information and reasonable assistance as may be requested in connection with the
preparation of filings and submissions to any governmental agency, including,
without limitation, filings under the provisions of the HSR Act. Each MMC
Stockholder shall also use its reasonable best efforts to cause the Company to
supply Parent with copies of all correspondence, filings or communications (or
memoranda setting forth the substance thereof) between the Company and its
representatives and the Federal Trade Commission, the Department of Justice and
any other governmental agency or authority and members of their respective
staffs with respect to this Agreement and the transactions contemplated hereby.
7.6 Termination. Except for the provisions of Section 6
which shall remain in effect indefinitely, this Agreement shall terminate on
the earlier of (i) the Effective Time or (ii) the termination of the Merger
Agreement in accordance with its terms.
7.7 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 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.
7.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all of
which taken together shall constitute one and the same Agreement.
7.9 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.
7.10 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.
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IN WITNESS WHEREOF, Parent and each MMC Stockholder have
caused this Agreement to be duly executed as of the day and year first above
written.
DILLARD'S, INC.
By: /s/ James I. Freeman
---------------------------------------
Name: James I. Freeman
Title: Chief Financial Officer
MMC STOCKHOLDERS (listed on next page)
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Woodbank Mills, Inc.
By: /s/ Roger Milliken
------------------
Name: Roger Milliken
Title: Chairman
as the holder of 139,000 shares
of the common stock,
par value $5.00 per share,
of Minot Mercantile Corporation
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/s/ Roger Milliken
------------------
Roger Milliken
/s/ Gerrish H. Milliken, Jr.
------------------------
Gerrish H. Milliken, Jr.
/s/ Minot K. Milliken
-----------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 32,646 shares of the common stock,
par value $5.00 per share,
of Minot Mercantile Corporation
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/s/ Roger Milliken
------------------
Roger Milliken
/s/ Gerrish H. Milliken, Jr.
------------------------
Gerrish H. Milliken, Jr.
as a majority of the trustees of trusts
holding 43,680 shares of the common stock,
par value $5.00 per share,
of Minot Mercantile Corporation
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/s/ Roger Milliken
------------------
Roger Milliken
/s/ Minot K. Milliken
-----------------
Minot K. Milliken
as a majority of the trustees of trusts
holding 5,660 shares of the common stock,
par value $5.00 per share,
of Minot Mercantile Corporation
<PAGE>
----------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
DILLARD'S, INC.
WMI ACQUISITION, INC.
and
WOODBANK MILLS, INC.
Dated as of May 16, 1998
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
ARTICLE I
THE MERGER ........................... 2
SECTION 1.1 The Merger ................................................. 2
SECTION 1.2 Closing; Effective Time .................................... 2
SECTION 1.3 Effects of the Merger ...................................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws ...................... 2
SECTION 1.5 Directors and Officers ..................................... 3
SECTION 1.6 Conversion of Securities ................................... 3
SECTION 1.7 Dissenting Shares and Section 262 Shares ................... 4
SECTION 1.8 Surrender of Shares; Stock Transfer Books .................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ................... 6
SECTION 2.1 Corporate Organization; Subsidiaries and Employees ......... 6
SECTION 2.2 Certificate of Incorporation and By-Laws ................... 6
SECTION 2.3 Capitalization ............................................. 7
SECTION 2.4 Authority Relative to This Agreement ....................... 7
SECTION 2.5 No Conflict; Required Filings and Consents ................. 7
SECTION 2.6 Compliance ................................................. 8
SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed
Liabilities .............................................. 8
SECTION 2.8 Absence of Litigation ...................................... 9
SECTION 2.9 Tax Matters ................................................ 9
SECTION 2.10 Investment Company ......................................... 10
SECTION 2.11 Brokers .................................................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER ................................. 10
SECTION 3.1 Corporate Organization ..................................... 10
SECTION 3.2 Authority Relative to This Agreement ....................... 10
SECTION 3.3 No Conflict; Required Filings and Consents ................. 10
SECTION 3.4 Brokers .................................................... 11
SECTION 3.5 Funds ...................................................... 11
ARTICLE IV
CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS .................... 11
SECTION 4.1 Conduct of Business of the Company Pending the Merger ...... 11
SECTION 4.2 Stockholders Meeting ....................................... 13
-i-
<PAGE>
SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders'
Agreement .................................................. 13
SECTION 4.4 Access to Information; Confidentiality ..................... 13
SECTION 4.5 Notification of Certain Matters ............................ 14
SECTION 4.6 Further Action; Reasonable Best Efforts .................... 14
SECTION 4.7 Public Announcements ....................................... 14
ARTICLE V
CONDITIONS OF MERGER .................................. 15
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger 15
SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser
to Effect the Merger ....................................... 15
SECTION 5.3 Additional Conditions to Obligation of the Company to Effect
the Merger ................................................. 16
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER .......................... 16
SECTION 6.1 Termination ................................................ 16
SECTION 6.2 Effect of Termination ...................................... 17
SECTION 6.3 Amendment .................................................. 17
SECTION 6.4 Waiver ..................................................... 17
ARTICLE VII
GENERAL PROVISIONS .................................. 17
SECTION 7.1 Survival of Representations, Warranties and Agreements ..... 17
SECTION 7.2 Notices .................................................... 17
SECTION 7.3 Certain Definitions ........................................ 19
SECTION 7.4 Severability ............................................... 19
SECTION 7.5 Entire Agreement; Assignment ............................... 19
SECTION 7.6 Parties in Interest ........................................ 19
SECTION 7.7 Fees and Expenses .......................................... 20
SECTION 7.8 Governing Law .............................................. 20
SECTION 7.9 Headings ................................................... 20
SECTION 7.10 Counterparts ............................................... 20
Schedule 1.6(d) - Schedule of Cash Equivalents
-ii-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this
"Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), WMI
ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and WOODBANK MILLS, INC., a Delaware corporation (the
"Company").
W I T N E S S E T H :
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and the stockholders of the
Company to enter into this Agreement with Parent and Purchaser, providing for
the merger (the "Merger") of Purchaser with the Company in accordance with the
General Corporation Law of the State of Delaware ("DGCL"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of Parent and Purchaser have
each approved the Merger of Purchaser with the Company in accordance with the
DGCL upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, MSC Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("MSC MergerSub"), and Mercantile Stores Company,
Inc., a Delaware corporation ("MSC"), have entered into a merger agreement,
dated as of the date hereof (the "MSC Merger Agreement"), pursuant to which MSC
MergerSub has agreed to make a tender offer (the "Offer") for all outstanding
shares of common stock, $.14 2/3 par value per share (the "MSC Common Stock"),
of MSC, at $80.00 per share, or any higher price that may be paid pursuant to
the Offer (the "Offer Price"), net to the seller in cash, subject to the offer
condition contained therein (the "Offer Conditions"), to be followed by a merger
(the "MSC Merger") of MSC MergerSub with and into MSC, with MSC as the surviving
corporation;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, MMC Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("MMC MergerSub"), and Minot Mercantile Corporation,
a Delaware corporation ("MMC"), have entered into a merger agreement, dated as
of the date hereof (the "MMC Merger Agreement"), pursuant to which MMC MergerSub
will be merged with and into MMC (the "MMC Merger"), and MMC shall be the
surviving corporation;
WHEREAS, concurrently with the execution and delivery of this
Agreement, holders of not less than 70% of all of the holders (the "WMI
Stockholders") of the Company's common stock, par value $1.00 per share
(referred to herein as the "Shares" or "Company Common Stock"), have executed
and delivered an agreement (the "Proxy and Indemnification Agreement"), pursuant
to which (i) the WMI Stockholders have granted Parent an irrevocable proxy to
vote their Shares in favor of the adoption of this Agreement and the Merger at
the Stockholders Meeting (as defined herein), and (ii) the WMI Stockholders have
agreed to indemnify Parent and Purchaser in respect of any and all claims
resulting from the Merger, in each case, subject to the terms and conditions
contained therein; and
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent and each of the Company, MMC and certain affiliated
stockholders of MSC (collectively,
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2
the "Related Sellers") have entered into a stockholders' agreement, each dated
as of the date hereof (each, a "Stockholders' Agreement"), pursuant to which,
among other things, each Related Seller has granted an option in favor of Parent
with respect to the shares of Company Common Stock respectively held by such
person, subject to the terms and conditions contained therein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.2), Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). At Parent's election,
any direct or indirect subsidiary of Parent other than Purchaser may be merged
with and into the Company instead of the Purchaser. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
SECTION 1.2 Closing; Effective Time. Subject to the provisions
of Article V, the closing of the Merger (the "Closing") shall take place in New
York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York, as soon as practicable but in no event later than the first
business day after the satisfaction or waiver of the conditions set forth in
Article V, or at such other place or at such other date as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date". At the Closing, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is specified
in the Certificate of Merger) being the "Effective Time").
SECTION 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the
Effective Time and without any further action on the part of the Company and
Purchaser, the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be
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3
amended and restated so as to read in its entirety in the form set forth in
Exhibit A hereto and, as so amended, until thereafter and further amended as
provided therein and under the DGCL, it shall be the Certificate of
Incorporation of the Surviving Corporation following the Merger.
(b) At the Effective Time and without any further action on
the part of the Company and Purchaser, the By-Laws of Purchaser, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the Certificate of Incorporation of the Purchaser and as provided by
law.
SECTION 1.5 Directors and Officers. The directors and officers
of Purchaser immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
SECTION 1.6 Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each share of the Company Common Stock, issued and
outstanding immediately prior to the Effective Time (other than any
Shares to be cancelled pursuant to Section 1.6(b) and any Dissenting
Shares (as defined in Section 1.7(a)) shall be cancelled, extinguished
and converted into the right to receive an amount (the "Merger
Consideration") calculated as follows: (i) the Aggregate Value of
Company Assets (as defined in Section 1.6(d) below) immediately prior
to the Effective Time divided by (ii) the aggregate number of shares of
Company Common Stock issued and outstanding immediately prior to the
Effective Time. The Merger Consideration shall be payable to the holder
of each Share, without interest, upon surrender of the certificate
formerly representing such Share in the manner provided in Section 1.8,
less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of
the Company and each Share owned by the Company, Parent, Purchaser or
any other direct or indirect subsidiary of such persons, in each case
immediately prior to the Effective Time, shall be cancelled and retired
without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(c) Each share of common stock of Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share
of identical common stock of the Surviving Corporation.
(d) "Aggregate Value of Company Assets" means an amount equal
to (i) the product of (A) the aggregate number of outstanding shares of
MSC Common Stock directly owned by MMC immediately prior to the
"Effective Time" (under and as defined in the MMC Merger Agreement),
(B) the Offer Price and (C) a fraction, the numerator
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4
of which is the aggregate number of outstanding shares of MMC common
stock directly owned by the Company and the denominator of which is all
of the outstanding shares of MMC common stock, in each case,
immediately prior to the "Effective Time" (under and as defined in the
MMC Merger Agreement), plus (ii) the product of (A) the aggregate
number of outstanding shares of MSC Common Stock directly owned by the
Company immediately prior to the Effective Time and (B) the Offer
Price, plus (iii) the aggregate amount of Net Assets (as defined
below). "Net Assets" means the amount by which the Company's assets
exceeds its liabilities, each of which will be calculated from the
Closing Balance Sheet (as defined below). Attached hereto as Schedule
1.6(d) is a list of all of assets and liabilities of the Company as of
the date hereof.
(e) "Closing Balance Sheet" means a balance sheet of the
Company reflecting its assets and liabilities as of Closing, as
prepared by the Company and delivered to Parent, for its review and
consent, no later than 15 days prior to Closing. Parent shall, within
five days of its receipt of the Closing Balance Sheet, complete its
review thereof and identify to the Company any items with which Parent
does not agree. Parent and the Company will promptly attempt to resolve
in good faith any disagreement as to items contained on the Closing
Balance Sheet. The Company will, as promptly as practicable after the
date hereof, undertake to liquidate and/or sell all of its investments
and other assets (other than its shares of MSC Common Stock and MMC
common stock) so that the Company's assets, as reflected on the Closing
Balance Sheet, will consist solely of cash and short-term, highly
liquid cash equivalents (with maturities of seven days or less). The
Closing Balance Sheet will set forth, in reasonable detail and
specificity (with notes where appropriate), all of the Company's assets
and liabilities as of the Closing, including without limitation all tax
liabilities incurred on account of any liquidations or sales of the
Company's investments or other assets and all liabilities, fees and
expenses owing to the Company's advisors. The amount of cash and cash
equivalents that are held back to cover the Company's liabilities, as
identified on the Closing Balance Sheet, is referred to as the
"Holdback Amount". The Holdback Amount will be applied by Parent and
Purchaser to pay, upon presentment of proper invoices, to any
post-Closing fees, expenses, liabilities and other obligations of the
Company.
(f) Promptly following the date on which all of the Company's
liabilities that were identified on the Closing Balance Sheet, together
with all outstanding "Losses" under and as defined in the Proxy and
Indemnification Agreement, have been paid in full, any remaining
Holdback Amount shall be released to the Paying Agent (as hereinafter
defined) for distribution to the former holders of the Shares.
SECTION 1.7 Dissenting Shares and Section 262 Shares. (a)
Notwithstanding anything in this Agreement to the contrary, shares of Company
Common Stock that are issued and outstanding immediately prior to the Effective
Time and which are held by stockholders who have not voted in favor of or
consented to the Merger and shall have delivered a written demand for appraisal
of such shares of Company Common Stock in the time and manner provided in
Section 262 of the DGCL and shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but shall be
<PAGE>
5
entitled to receive the consideration as shall be determined pursuant to Section
262 of the DGCL; provided, however, that if such holder shall have failed to
perfect or shall have effectively withdrawn or lost his, her or its right to
appraisal and payment under the DGCL, such holder's shares of Company Common
Stock shall thereupon be deemed to have been converted, at the Effective Time,
into the right to receive the Merger Consideration set forth in Section 1.6(a)
of this Agreement, without any interest thereon.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal pursuant to Section 262 received by the Company,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent or
as otherwise required by applicable law, make any payment with respect to any
such demands for appraisal or offer to settle or settle any such demands.
Pursuant to the Proxy and Indemnification Agreement, the WMI Stockholders shall
indemnify, defend and hold harmless Parent and Purchaser against any and all
liabilities, damages, expenses, losses or other claims that are paid in respect
of any Dissenting Shares (including reasonable attorneys' fees and expenses) in
excess of the aggregate Merger Consideration that would otherwise have been
payable in respect of such Dissenting Shares pursuant to Section 1.6(a).
SECTION 1.8 Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent for the holders of Shares in connection with the Merger (the
"Paying Agent") to receive the Merger Consideration to which holders of Shares
shall become entitled pursuant to Section 1.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 1.8(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which immediately prior to
the Effective Time represented Shares (the "Certificates"), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment of the Merger Consideration therefor.
Upon surrender to the Paying Agent of a Certificate, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate, and such Certificate shall then be cancelled.
No interest shall be paid or accrued for the benefit of holders of the
<PAGE>
6
Certificates on the Merger Consideration payable upon the surrender of the
Certificates. If payment of the Merger Consideration is to be made to a person
other than the person in whose name the surrendered Certificate is registered,
it shall be a condition of payment that the Certificate so surrendered shall be
properly endorsed or shall be otherwise in proper form for transfer and that the
person requesting such payment shall have paid any transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder of the Certificate surrendered or shall have
established to the satisfaction of the Surviving Corporation that such tax
either has been paid or is not applicable.
(c) At any time following six months after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that:
SECTION 2.1 Corporate Organization; Subsidiaries and
Employees. (a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power and authority and any necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted. The Company is not qualified or licensed as a foreign corporation to
do business in any jurisdiction. When used in connection with the Company, the
term "Material Adverse Effect" means any change or effect that would be
materially adverse to the assets, liabilities, results of operations, financial
condition or business of the Company.
(b) The Company has no subsidiaries and no employees.
<PAGE>
7
SECTION 2.2 Certificate of Incorporation and By-Laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws of the Company as currently in
effect. Such Certificate of Incorporation and ByLaws are in full force and
effect and no other organizational documents are applicable to or binding upon
the Company. The Company is not in violation of any of the provisions of its
Certificate of Incorporation or By-Laws.
SECTION 2.3 Capitalization. The authorized capital stock of
the Company consists of 188,200 shares of Company Common Stock, of which (a)
188,200 shares of Company Common Stock are issued and outstanding, all of which
are validly issued, fully paid and nonassessable and have been issued free of
preemptive (or similar) rights, and (b) no shares of Company Common Stock are
held in the treasury of the Company. Except as set forth above, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, (iii) no options or
other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company and (iv) no
equity equivalents, interests in the ownership or earnings of the Company or
other similar rights (collectively, "Company Securities"). There are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. There are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company to
which the Company is a party. There are no outstanding contractual obligations
of the Company to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity and, except for the
shares of MSC Common Stock, the Company has no other direct or indirect equity
interests in any other person.
SECTION 2.4 Authority Relative to This Agreement. The Company
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
adoption of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock and the filing of appropriate merger documents as
required by the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. As a result of the foregoing actions, the only vote required to authorize
the Merger is the affirmative vote of a majority of the outstanding Shares.
SECTION 2.5 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by the Company do not
and will not: (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company or the equivalent
<PAGE>
8
organizational documents of any of its subsidiaries; (ii) assuming that all
consents, approvals and authorizations contemplated by clauses (i), (ii) and
(iii) of subsection (b) below have been obtained and all filings described in
such clauses have been made, conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to the Company or any of its subsidiaries
or by which its or any of their respective properties are bound or affected; or
(iii) result in any breach or violation of or constitute a default (or an event
which with notice or lapse of time or both could become a default) or result in
the loss of a material benefit under, or give rise to any right of termination,
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the properties or assets of the Company or any of its
subsidiaries pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which the Company or any of its subsidiaries is a party or by which the
Company or any of its subsidiaries or its or any of their respective properties
are bound or affected, except, in the case of clauses (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which are
not, individually or in the aggregate, reasonably likely to have a Material
Adverse Effect.
(b) The execution, delivery and performance of this Agreement
by the Company and the consummation of the Merger by the Company do not and will
not require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, except for
(i) applicable requirements, if any, of the Hart- Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), state securities, takeover
and "blue sky" laws, (ii) the filing and recordation of appropriate merger or
other documents as required by the DGCL and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain are not, individually or in the aggregate, reasonably likely
to (x) prevent or materially delay the Company from performing its obligations
under this Agreement or (y) have a Material Adverse Effect.
SECTION 2.6 Compliance. The Company is not in conflict with,
or in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or by which its properties are bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or its properties are bound or
affected, except for any such conflicts, defaults or violations which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect.
SECTION 2.7 Limited Operations; Financial Statements; No
Undisclosed Liabilities. (a) The Company operates solely as a "personal holding
corporation" within the meaning of Section 542 of the Internal Revenue Code of
1986, as amended (the "Code"). Except for (i) this Agreement and the
transactions contemplated hereby, (ii) activities related to maintaining its
corporate existence and (iii) activities related to the Company's ownership of
the shares of MSC Common Stock and other investments (including, without
limitation, the investment and reinvestment of proceeds received on account of
such investments and distributions to the Company's stockholders), the Company
has not engaged in any business activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person. The legal name of
the Company is as set forth in this Agreement. The Company has no trade names,
fictitious names, assumed names or "doing business as" names.
<PAGE>
9
(b) The Company has not incurred, directly or indirectly, any
liabilities, commitments, or obligations of any kind whatsoever, whether or not
accrued and whether or not contingent or absolute, other than liabilities
disclosed in Schedule 2.7(b) of the Company Disclosure Letter.
(c) The Company has delivered to Parent true and correct
copies of the Company's audited balance sheets for the prior three fiscal years
and the related statements of consolidated income and retained earnings, and
statements of consolidated cash flows for each of the last three fiscal years,
including any related notes thereto (collectively, the "Company Financial
Statements"). The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the financial position of
the Company at the respective date thereof and the results of its operations and
changes in cash flows for the periods indicated.
SECTION 2.8 Absence of Litigation. There are no suits, claims,
actions, proceedings or investigations pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
properties or rights of the Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body. As of the date hereof, neither the Company nor any of its subsidiaries nor
any of their respective properties is or are subject to any order, writ,
judgment, injunction, decree, determination or award.
SECTION 2.9 Tax Matters. The Company has, or will have, (i)
filed all Tax Returns and reports required to be filed by it prior to the
Closing Date (taking into account extensions), (ii) paid or accrued all Taxes
due and payable for all taxable years or periods ending on or prior to the
Closing Date, and (iii) paid or accrued all Taxes for which a notice of
assessment or collection has been received (other than amounts being contested
in good faith by appropriate proceedings). All such Tax Returns are complete and
correct in all material respects. Neither the Internal Revenue Service (the
"IRS") nor any other Taxing authority has asserted any claim for Taxes, or is
threatening to assert any claims for Taxes, against the Company. The Company has
withheld or collected and paid over to the appropriate Taxing authorities all
Taxes required by law to be withheld or collected and paid over to such Taxing
authorities. The Company has not made an election under Section 341(f) of the
Code. There are no liens for Taxes upon any of the assets of the Company (other
than liens for Taxes that are not yet due or that are being contested in good
faith by appropriate proceedings). No extension of the statute of limitations on
the assessment of any Taxes has been granted by the Company and is currently in
effect. As used herein, "Taxes" shall mean any taxes of any kind, including but
not limited to those on or measured by or referred to as income, gross receipts,
capital, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority. As
used herein, "Tax Return" shall mean any return, report or statement required to
be filed with any governmental authority with respect to Taxes.
<PAGE>
10
SECTION 2.10 Investment Company. The Company is not an
"investment company" or a company controlled by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or is exempt from
all provisions of such act.
SECTION 2.11 Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of the Company (other than Goldman, Sachs & Co.'s
engagement as financial advisor on behalf of MSC).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 3.1 Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority and any necessary governmental authority to own, operate or lease
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and governmental approvals is not, individually or in the
aggregate, reasonably likely to prevent the consummation of the Merger.
SECTION 3.2 Authority Relative to This Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the DGCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 3.3 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by Parent and
Purchaser do not and will not: (i) conflict with or violate the respective
certificates of incorporation or by-laws of Parent or Purchaser; (ii) assuming
that all consents, approvals and authorizations contemplated by clauses (i),
(ii) and (iii) of subsection (b) below have been obtained and all filings
described in such clauses have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which either of them or their respective properties are bound or affected; or
(iii) result in any breach or violation of or constitute a default (or an
<PAGE>
11
event which with notice or lapse of time or both could become a default) or
result in the loss of a material benefit under, or give rise to any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the property or assets of Parent or
Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or Purchaser is a party or by which Parent or Purchaser or any of their
respective properties are bound or affected, except, in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which are not, individually or in the aggregate, reasonably likely
to prevent or materially delay the consummation of the Merger.
(b) The execution, delivery and performance of this Agreement
by Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, except (i) for applicable requirements, if
any, of the Exchange Act and the rules and regulations promulgated thereunder,
the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to prevent the consummation of the Merger.
SECTION 3.4 Brokers. No broker, finder or investment banker
(other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Parent or Purchaser.
SECTION 3.5 Funds. Parent or Purchaser, at the expiration date
of the Offer and at the Effective Time, will have the funds necessary to
consummate the Merger.
ARTICLE IV
CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS
SECTION 4.1 Conduct of Business of the Company Pending the
Merger. The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, unless Parent shall otherwise agree in writing and
except as otherwise expressly contemplated by this Agreement, the Company shall
not (i) engage in any business activities of any type or kind whatsoever or
enter into any agreements or arrangements with any person, except as otherwise
contemplated pursuant to this Agreement and (ii) incur, directly or indirectly,
any liabilities, commitments, or obligations of any kind whatsoever, whether or
not accrued and whether or not contingent or absolute. By way of amplification
and not limitation, the Company shall not, between the date of this Agreement
and the Effective Time, directly or indirectly do, or commit to do, any of the
following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation
or by-laws;
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12
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (i) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom
stock), of the Company or (ii) any assets of the Company;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof, or otherwise form or commit to form
any subsidiary; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments
in, any other person; (iii) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice;
or (iv) authorize any capital expenditures of any nature whatsoever;
(f) Hire, appoint or engage, or commit to hire, appoint or
engage, any director, officer, employee, consultant or other advisor,
or otherwise pay or commit to pay any compensation, fringe benefits or
severance or other termination benefits to any such persons, other than
the engagement of any agent by the Company in connection with the
liquidation and/or sale of the Company's assets and investments in the
manner contemplated herein;
(g) Make any Tax election, change any method of Tax accounting
or settle or compromise any federal, state, local or foreign Tax
liability;
(h) Settle or compromise any pending or threatened suit,
action or claim;
(i) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company (other than the Merger); or
(j) Take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 4.1(a)
through 4.1(i) or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action
had then been taken.
Notwithstanding anything contained in this Section 4.1, the
Company shall be entitled to liquidate and/or sell all or any of its investments
and other assets (other than its MSC
<PAGE>
13
Common Stock and MMC common stock) and/or declare and pay dividends to its
stockholders (other than of its MSC Common Stock or MMC common stock), so long
as the Closing Balance Sheet accurately reflects the results of any such
liquidation, sale and/or dividend.
SECTION 4.2 Stockholders Meeting. Promptly following the date
hereof, the Company, acting through its Board of Directors, shall in accordance
with and subject to applicable law and the Company's Certificate of
Incorporation and By-Laws, duly call, give notice of, convene and hold a meeting
of its stockholders for the purpose of adopting this Agreement and the
transactions contemplated hereby (the "Stockholders Meeting"). The Company's
Board of Directors shall include, in any notice to stockholders of the
Stockholders Meeting, the unanimous recommendation of the Board of Directors
that the stockholders of the Company vote in favor of the adoption of this
Agreement and use its reasonable best efforts to obtain the necessary adoption
of this Agreement. At the Stockholders Meeting, Parent and Purchaser shall cause
all Shares subject to the WMI Stockholders' proxy under the Proxy and
Indemnification Agreement to be voted in favor of adoption of this Agreement.
SECTION 4.3 No Solicitation; Affirmation of Covenants in
Stockholders' Agreement. (a) The Company shall not, and the Company shall cause
all of its directors, agents, affiliates and associates to not, directly or
indirectly, solicit, encourage, participate in or initiate any inquiries or the
making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) which constitutes, or may reasonably be expected to lead
to, (i) any sale of the Shares or (ii) any acquisition or purchase of any of the
Company's assets or any equity interest in, or any merger, consolidation or
business combination with, the Company. If the Company receives an inquiry or
proposal with respect to the sale of Shares, then the Company shall promptly
inform Parent of the terms and conditions, if any, of such inquiry or proposal
and the identity of the person making it. The Company and its directors, agents,
affiliates and associates will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) The Company affirms and agrees that it shall comply in all
respects with the covenants set forth in its Stockholders' Agreement, including
without limitation the covenants set forth in Section 5 thereof.
SECTION 4.4 Access to Information; Confidentiality. From the
date hereof to the Effective Time, the Company shall, and shall cause its
officers, directors and other agents to, afford the officers, employees,
auditors and other agents of Parent, and financing sources who shall agree to be
bound by the provisions of this Section 4.4 as though a party hereto, complete
access, consistent with applicable law, at all reasonable times to all books and
records of the Company, and shall furnish Parent and such financing sources with
all financial, operating and other data and information as Parent, through its
officers, employees or agents, or such financing sources may from time to time
reasonably request. All information obtained by Parent and Purchaser pursuant to
this Section 4.4 shall be kept confidential in accordance with the
Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent
Confidentiality Agreement"), between Parent and MSC. No investigation pursuant
to this Section 4.4 shall affect any representations or warranties of the
parties herein or the conditions to the obligations of the parties hereto.
<PAGE>
14
SECTION 4.5 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence or non-occurrence of (i) any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.5 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 4.6 Further Action; Reasonable Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
but not limited to (i) cooperation in the preparation and filing of any required
filings under the HSR Act and any amendments to any thereof and (ii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests for
further information and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and any
other third parties as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use their reasonable best
efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their subsidiaries, from any governmental authority with respect to the Merger
or any of the other transactions contemplated by this Agreement. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
SECTION 4.7 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with its securities exchange.
<PAGE>
15
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction (or, in the case of Section 5.1(d) below, the
waiver, to the extent available, by Parent) at or prior to the Effective Time of
the following conditions:
(a) This Agreement shall have been adopted by the affirmative
vote of the stockholders of the Company by the requisite vote in
accordance with the Company's Certificate of Incorporation and the DGCL
(which the Company has represented shall be solely the affirmative vote
of a majority of the outstanding Shares).
(b) No statute, rule, regulation, executive order, decree,
ruling, injunction or other order (whether temporary, preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by
any United States, foreign, federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the
consummation of the Merger, the Offer or the MSC Merger.
(c) Any waiting period applicable to the Merger under the HSR
Act shall have terminated or expired.
(d) All of the Offer Conditions, other than the consummation
of the Merger, shall have been satisfied and MSC MergerSub shall have
determined to purchase the shares of MSC Common Stock pursuant to the
Offer; provided that, if the MSC Merger Agreement is terminated under
circumstances in which Parent is entitled to the payment of the fees
set forth in Section 8.3(a)(ii) of the MSC Merger Agreement, Parent (in
its sole and absolute discretion) shall be entitled to waive the
satisfaction of the conditions in this Section 5.1(d).
SECTION 5.2 Additional Conditions to Obligation of Parent and
Purchaser to Effect the Merger. The obligations of Parent and Purchaser to
effect the Merger shall be subject to the satisfaction (or waiver) at or prior
to the Effective Time of the following conditions:
(a) The Company shall have performed in all material respects
all covenants and agreements required to be performed by it under this
Agreement at or prior to the Closing Date.
(b) The representations and warranties made herein by the
Company shall have been true and correct in all material respects on
the date of this Agreement and as of the Effective Time, except to the
extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall
have been true and correct as of such date.
<PAGE>
16
(c) Each of (i) the Stockholder's Agreement of the Company
(and the Stockholder's Agreements for each other Related Seller), and
(ii) the Proxy and Indemnification Agreement shall continue to be in
full force and effect, with no amendments or other changes thereto.
SECTION 5.3 Additional Conditions to Obligation of the Company
to Effect the Merger. The obligations of the Company to effect the Merger shall
be subject to the satisfaction (or waiver) at or prior to the Effective Time of
the following conditions:
(a) Parent and Purchaser shall have performed in all material
respects all of their respective covenants and agreements required to
be performed by them under this Agreement at or prior to the Closing
Date.
(b) The representations and warranties made herein by Parent
and Purchaser shall have been true and correct in all material respects
on the date of this Agreement and as of the Effective Time, except to
the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall
have been true and correct as of such date.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time:
(a) By mutual written consent of Parent, Purchaser and the
Company;
(b) By Parent or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States shall have issued a final order, injunction,
decree, judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger, the Offer or the MSC
Merger and such order, injunction, decree, judgment, ruling or other
action is or shall have become final and nonappealable;
(c) By Parent if due to an occurrence or circumstance which
resulted in a failure to satisfy any of the Offer Conditions (other
than as a result of a breach by Parent or MSC MergerSub of its
obligations under the MSC Merger Agreement), MSC MergerSub shall have
(i) terminated the Offer or (ii) failed to pay for shares of MSC Common
Stock pursuant to the Offer on or prior to the Outside Date (as defined
in the MSC Merger Agreement);
(d) By the Company if (i) the MSC Merger Agreement is
terminated and (ii) Parent is no longer entitled to the payment of the
fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement; or
<PAGE>
17
(e) By Parent prior to the purchase of shares of MSC Common
Stock pursuant to the Offer, if (i) there shall have been a breach of
any representation, warranty, covenant or agreement on the part of the
Company contained in this Agreement which is reasonably likely to have
a Material Adverse Effect, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B)
two business days prior to the date on which the Offer expires, or (ii)
the MSC Merger Agreement is terminated.
SECTION 6.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 7.1; provided, however, that nothing
herein shall relieve any party from liability for any wilful breach hereof.
SECTION 6.3 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that no
amendment may be made which would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger without the redelivery by the Company's stockholders of a stockholders'
consent thereto. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 6.4 Waiver. At any time prior to the Effective Time,
any party hereto may (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 such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Survival of Representations, Warranties and
Agreements. (a) Except as set forth in Section 7.1(b), all representations,
warranties and agreements contained in this Agreement shall terminate and be
extinguished at the Effective Time or the earlier date of termination of this
Agreement pursuant to Section 6.1.
(b) Notwithstanding Section 7.1(a), (i) the covenants and
agreements made by the parties in this Agreement which by their terms
contemplate performance after the Effective Time (or after termination) shall
survive the Effective Time (or such termination) until fully performed, and (ii)
the representations and warranties of the Company contained herein shall survive
the Effective Time indefinitely.
SECTION 7.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have
<PAGE>
18
been duly given upon receipt) by delivery in person, by cable, telecopy,
telegram or telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to Parent or Purchaser:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James I. Freeman
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
if to the Company:
c/o Ivins Phillips & Barker
1700 Pennslyvania Avenue
Washington, D.C. 20006
Attention: Stuart Dunn, Esq.
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Russell B. Richards, Esq.
with a further copy to:
Morris, Nichols, Arsht & Tunnel
1201 N. Market Street
Wilminton, Delaware 19801
Attention: Andrew M. Johnston, Esq.
<PAGE>
19
SECTION 7.3 Certain Definitions. For purposes of this
Agreement, the term:
"affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person;
"control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of a person, whether through the ownership
of stock, as trustee or executor, by contract or credit arrangement or
otherwise;
"person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act); and
"subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which
such person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holder of which is generally entitled to
vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
SECTION 7.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement,
together with the Stockholders Agreements, Parent Confidentiality Agreement, the
MSC Merger Agreement, the MMC Merger Agreement and the Proxy and Indemnification
Agreement, constitutes the entire agreement among the parties with respect to
the subject matter hereof and supersedes all prior agreements and undertakings,
both written and oral, among the parties, or any of them, with respect to the
subject matter hereof. This Agreement shall not be assigned by operation of law
or otherwise, except that Parent and Purchaser may assign all or any of their
respective rights and obligations hereunder to any direct or indirect wholly
owned subsidiary or subsidiaries of Parent, provided that no such assignment
shall relieve the assigning party of its obligations hereunder if such assignee
does not perform such obligations.
SECTION 7.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
<PAGE>
20
SECTION 7.7 Fees and Expenses. Except as otherwise
specifically provided herein, in the MSC Merger Agreement and in the Proxy and
Indemnification Agreement, whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses.
SECTION 7.8 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
SECTION 7.9 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 7.10 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>
21
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
DILLARD'S, INC.
By: /s/ James I. Freeman
---------------------------------
Name: James I. Freeman
Title: Chief Financial Officer
WMI ACQUISITION, INC.
By: /s/ James I. Freeman
---------------------------------
Name: James I. Freeman
Title:
WOODBANK MILLS, INC.
By: /s/ Roger Milliken
---------------------------------
Name: Roger Milliken
Title: Chairman
<PAGE>
----------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
Among
DILLARD'S, INC.
MMC ACQUISITION, INC.
and
MINOT MERCANTILE CORPORATION
Dated as of May 16, 1998
----------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
ARTICLE I
<TABLE>
<S> <C> <C>
THE MERGER .......................... 2
SECTION 1.1 The Merger ................................................ 2
SECTION 1.2 Closing; Effective Time ................................... 2
SECTION 1.3 Effects of the Merger ..................................... 2
SECTION 1.4 Certificate of Incorporation; By-Laws ..................... 3
SECTION 1.5 Directors and Officers .................................... 3
SECTION 1.6 Conversion of Securities .................................. 3
SECTION 1.7 Dissenting Shares and Section 262 Shares .................. 4
SECTION 1.8 Surrender of Shares; Stock Transfer Books ................. 5
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY ............. 6
SECTION 2.1 Corporate Organization; Subsidiaries and Employees ........ 6
SECTION 2.2 Certificate of Incorporation and By-Laws .................. 6
SECTION 2.3 Capitalization ............................................ 7
SECTION 2.4 Authority Relative to This Agreement ...................... 7
SECTION 2.5 No Conflict; Required Filings and Consents ................ 7
SECTION 2.6 Compliance ................................................ 8
SECTION 2.7 Limited Operations; Financial Statements; No Undisclosed
Liabilities ............................................... 8
SECTION 2.8 Absence of Litigation ..................................... 9
SECTION 2.9 Tax Matters ............................................... 9
SECTION 2.10 Investment Company ........................................ 9
SECTION 2.11 Brokers ................................................... 10
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER ............................... 10
SECTION 3.1 Corporate Organization .................................... 10
SECTION 3.2 Authority Relative to This Agreement ...................... 10
SECTION 3.3 No Conflict; Required Filings and Consents ................ 10
SECTION 3.4 Brokers ................................................... 11
SECTION 3.5 Funds ..................................................... 11
ARTICLE IV
CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS ........ 11
SECTION 4.1 Conduct of Business of the Company Pending the Merger ..... 11
SECTION 4.2 Stockholders Meeting ...................................... 13
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 4.3 No Solicitation; Affirmation of Covenants in Stockholders'
Agreement ................................................. 13
SECTION 4.4 Access to Information; Confidentiality .................... 13
SECTION 4.5 Notification of Certain Matters ........................... 13
SECTION 4.6 Further Action; Reasonable Best Efforts ................... 14
SECTION 4.7 Public Announcements ...................................... 14
ARTICLE V
CONDITIONS OF MERGER ............................ 14
SECTION 5.1 Conditions to Obligation of Each Party to Effect the Merger 14
SECTION 5.2 Additional Conditions to Obligation of Parent and Purchaser
to Effect the Merger ..................................... 15
SECTION 5.3 Additional Conditions to Obligation of the Company to Effect
the Merger ............................................... 16
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER ......................... 16
SECTION 6.1 Termination ............................................... 16
SECTION 6.2 Effect of Termination ..................................... 17
SECTION 6.3 Amendment ................................................. 17
SECTION 6.4 Waiver .................................................... 17
ARTICLE VII
GENERAL PROVISIONS ................................. 17
SECTION 7.1 Survival of Representations, Warranties and Agreements .... 17
SECTION 7.2 Notices ................................................... 17
SECTION 7.3 Certain Definitions ....................................... 18
SECTION 7.4 Severability .............................................. 19
SECTION 7.5 Entire Agreement; Assignment .............................. 19
SECTION 7.6 Parties in Interest ....................................... 19
SECTION 7.7 Fees and Expenses ......................................... 19
SECTION 7.8 Governing Law ............................................. 19
SECTION 7.9 Headings .................................................. 20
SECTION 7.10 Counterparts .............................................. 20
Schedule 1.6(d) - Current Schedule of Assets and Liabilities
Exhibit A - Certificate of Incorporation of Surviving Corporation
</TABLE>
-ii-
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of May 16, 1998 (this
"Agreement"), among DILLARD'S, INC., a Delaware corporation ("Parent"), MMC
ACQUISITION, INC., a Delaware corporation and a wholly owned subsidiary of
Parent ("Purchaser"), and MINOT MERCANTILE CORPORATION, a Delaware corporation
(the "Company").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, the Board of Directors of the Company has determined
that it is in the best interests of the Company and the stockholders of the
Company to enter into this Agreement with Parent and Purchaser, providing for
the merger (the "Merger") of Purchaser with the Company in accordance with the
General Corporation Law of the State of Delaware ("DGCL"), upon the terms and
subject to the conditions set forth herein;
WHEREAS, the Board of Directors of Parent and Purchaser have
each approved the Merger of Purchaser with the Company in accordance with the
DGCL upon the terms and subject to the conditions set forth herein;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, MSC Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("MSC MergerSub"), and Mercantile Stores Company,
Inc., a Delaware corporation ("MSC"), have entered into a merger agreement,
dated as of the date hereof (the "MSC Merger Agreement"), pursuant to which MSC
MergerSub has agreed to make a tender offer (the "Offer") for all outstanding
shares of common stock, $.14 2/3 par value per share (the "MSC Common Stock"),
of MSC, at $80.00 per share, or any higher price that may be paid pursuant to
the Offer (the "Offer Price"), net to the seller in cash, subject to the offer
condition contained therein (the "Offer Conditions"), to be followed by a merger
(the "MSC Merger") of MSC MergerSub with and into MSC, with MSC as the surviving
corporation;
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent, WMI Acquisition, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("WMI MergerSub"), and Woodbank Mills, Inc., a
Delaware corporation ("Woodbank"), have entered into a merger agreement, dated
as of the date hereof (the "Woodbank Merger Agreement"), pursuant to which WMI
MergerSub will be merged with and into Woodbank (the "Woodbank Merger"), and
Woodbank shall be the surviving corporation;
WHEREAS, concurrently with the execution and delivery of this
Agreement, holders of not less than 70% of all of the holders (the "MMC
Stockholders") of the Company's common stock, par value $5.00 per share
(referred to herein as the "Shares" or "Company Common Stock"), have executed
and delivered an agreement (the "Proxy and Indemnification Agreement"), pursuant
to which (i) the MMC Stockholders have granted Parent an irrevocable proxy to
vote their Shares in favor of the adoption of this Agreement and the Merger at
the Stockholders Meeting (as defined herein), and (ii) the MMC Stockholders have
agreed to indemnify Parent and Purchaser in respect of any and all claims
resulting from the Merger, in each case, subject to the terms and conditions
contained therein; and
<PAGE>
2
WHEREAS, concurrently with the execution and delivery of this
Agreement, Parent and each of the Company, Woodbank and certain affiliated
stockholders of MSC (collectively, the "Related Sellers") have entered into a
stockholders' agreement, each dated as of the date hereof (each, a
"Stockholders' Agreement"), pursuant to which, among other things, each Related
Seller has granted an option in favor of Parent with respect to the shares of
Company Common Stock respectively held by such person, subject to the terms and
conditions contained therein;
NOW, THEREFORE, in consideration of the foregoing and the
mutual covenants and agreements herein contained, and intending to be legally
bound hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE MERGER
SECTION 1.1 The Merger. Upon the terms and subject to the
conditions of this Agreement and in accordance with the DGCL, at the Effective
Time (as defined in Section 1.2), Purchaser shall be merged with and into the
Company. As a result of the Merger, the separate corporate existence of
Purchaser shall cease and the Company shall continue as the surviving
corporation of the Merger (the "Surviving Corporation"). At Parent's election,
any direct or indirect subsidiary of Parent other than Purchaser may be merged
with and into the Company instead of the Purchaser. In the event of such an
election, the parties agree to execute an appropriate amendment to this
Agreement in order to reflect such election.
SECTION 1.2 Closing; Effective Time. Subject to the provisions
of Article V, the closing of the Merger (the "Closing") shall take place in New
York City at the offices of Simpson Thacher & Bartlett, 425 Lexington Avenue,
New York, New York, as soon as practicable but in no event later than the first
business day after the satisfaction or waiver of the conditions set forth in
Article V, or at such other place or at such other date as Parent and the
Company may mutually agree. The date on which the Closing actually occurs is
hereinafter referred to as the "Closing Date". At the Closing, the parties
hereto shall cause the Merger to be consummated by filing this Agreement or a
certificate of merger or a certificate of ownership and merger (the "Certificate
of Merger") with the Secretary of State of the State of Delaware, in such form
as required by and executed in accordance with the relevant provisions of the
DGCL (the date and time of the filing of the Certificate of Merger with the
Secretary of State of the State of Delaware (or such later time as is specified
in the Certificate of Merger) being the "Effective Time").
SECTION 1.3 Effects of the Merger. The Merger shall have the
effects set forth in the applicable provisions of the DGCL. Without limiting the
generality of the foregoing and subject thereto, at the Effective Time all the
property, rights, privileges, immunities, powers and franchises of the Company
and Purchaser shall vest in the Surviving Corporation, and all debts,
liabilities and duties of the Company and Purchaser shall become the debts,
liabilities and duties of the Surviving Corporation.
<PAGE>
3
SECTION 1.4 Certificate of Incorporation; By-Laws. (a) At the
Effective Time and without any further action on the part of the Company and
Purchaser, the Certificate of Incorporation of the Company, as in effect
immediately prior to the Effective Time, shall be amended and restated so as to
read in its entirety in the form set forth in Exhibit A hereto and, as so
amended, until thereafter and further amended as provided therein and under the
DGCL, it shall be the Certificate of Incorporation of the Surviving Corporation
following the Merger.
(b) At the Effective Time and without any further action on
the part of the Company and Purchaser, the By-Laws of Purchaser, as in effect
immediately prior to the Effective Time, shall be the By-Laws of the Surviving
Corporation and thereafter may be amended or repealed in accordance with their
terms or the Certificate of Incorporation of the Purchaser and as provided by
law.
SECTION 1.5 Directors and Officers. The directors and officers
of Purchaser immediately prior to the Effective Time shall be the initial
directors and officers of the Surviving Corporation, each to hold office in
accordance with the Certificate of Incorporation and By-Laws of the Surviving
Corporation.
SECTION 1.6 Conversion of Securities. At the Effective Time,
by virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the following securities:
(a) Each share of the Company Common Stock, issued and
outstanding immediately prior to the Effective Time (other than any
Shares to be cancelled pursuant to Section 1.6(b), any Shares held by
Woodbank and any Dissenting Shares (as defined in Section 1.7(a)) shall
be cancelled, extinguished and converted into the right to receive an
amount (the "Merger Consideration") calculated as follows: (i) the
Aggregate Value of Company Assets (as defined in Section 1.6(d) below)
immediately prior to the Effective Time divided by (ii) the aggregate
number of shares of Company Common Stock issued and outstanding
immediately prior to the Effective Time. The Merger Consideration shall
be payable to the holder of each Share, without interest, upon
surrender of the certificate formerly representing such Share in the
manner provided in Section 1.8, less any required withholding taxes.
(b) Each share of Company Common Stock held in the treasury of
the Company and each Share owned by the Company, Parent, Purchaser or
any other direct or indirect subsidiary of such persons, in each case
immediately prior to the Effective Time, shall be cancelled and retired
without any conversion thereof and no payment or distribution shall be
made with respect thereto.
(c) Each share of common stock of Purchaser issued and
outstanding immediately prior to the Effective Time shall be converted
into and become one validly issued, fully paid and nonassessable share
of identical common stock of the Surviving Corporation.
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4
(d) "Aggregate Value of Company Assets" means an amount equal
to (i) the product of (A) the aggregate number of outstanding shares of
MSC Common Stock, directly owned by the Company immediately prior to
the Effective Time, and (B) the Offer Price, plus (ii) the aggregate
amount of Net Assets (as defined below). "Net Assets" means the amount
by which the Company's assets exceeds its liabilities, each of which
will be calculated from the Closing Balance Sheet (as defined below).
Attached hereto as Schedule 1.6(d) is a list of all of assets and
liabilities of the Company as of the date hereof.
(e) "Closing Balance Sheet" means a balance sheet of the
Company reflecting its assets and liabilities as of Closing, as
prepared by the Company and delivered to Parent, for its review and
consent, no later than 15 days prior to Closing. Parent shall, within
five days of its receipt of the Closing Balance Sheet, complete its
review thereof and identify to the Company any items with which Parent
does not agree. Parent and the Company will promptly attempt to resolve
in good faith any disagreement as to items contained on the Closing
Balance Sheet. The Company will, as promptly as practicable after the
date hereof, undertake to liquidate and/or sell all of its investments
and other assets (other than its shares of MSC Common Stock) so that
the Company's assets, as reflected on the Closing Balance Sheet, will
consist solely of cash and short-term, highly liquid cash equivalents
(with maturities of seven days or less). The Closing Balance Sheet will
set forth, in reasonable detail and specificity (with notes where
appropriate), all of the Company's assets and liabilities as of the
Closing, including without limitation all tax liabilities incurred on
account of any liquidations or sales of the Company's investments or
other assets and all liabilities, fees and expenses owing to the
Company's advisors. The amount of cash and cash equivalents that are
held back to cover the Company's liabilities, as identified on the
Closing Balance Sheet, is referred to as the "Holdback Amount". The
Holdback Amount will be applied by Parent and Purchaser to pay, upon
presentment of proper invoices, to any post-Closing fees, expenses,
liabilities and other obligations of the Company.
(f) Promptly following the date on which all of the Company's
liabilities that were identified on the Closing Balance Sheet, together
with all outstanding "Losses" under and as defined in the Proxy and
Indemnification Agreement, have been paid in full, any remaining
Holdback Amount shall be released to the Paying Agent (as hereinafter
defined) for distribution to the former holders of the Shares.
SECTION 1.7 Dissenting Shares and Section 262 Shares. (a)
Notwithstanding anything in this Agreement to the contrary, shares of Company
Common Stock that are issued and outstanding immediately prior to the Effective
Time and which are held by stockholders who have not voted in favor of or
consented to the Merger and shall have delivered a written demand for appraisal
of such shares of Company Common Stock in the time and manner provided in
Section 262 of the DGCL and shall not have failed to perfect or shall not have
effectively withdrawn or lost their rights to appraisal and payment under the
DGCL (the "Dissenting Shares") shall not be converted into the right to receive
the Merger Consideration, but shall be entitled to receive the consideration as
shall be determined pursuant to Section 262 of the DGCL; provided, however, that
if such holder shall have failed to perfect or shall have effectively
<PAGE>
5
withdrawn or lost his, her or its right to appraisal and payment under the DGCL,
such holder's shares of Company Common Stock shall thereupon be deemed to have
been converted, at the Effective Time, into the right to receive the Merger
Consideration set forth in Section 1.6(a) of this Agreement, without any
interest thereon.
(b) The Company shall give Parent (i) prompt notice of any
demands for appraisal pursuant to Section 262 received by the Company,
withdrawals of such demands, and any other instruments served pursuant to the
DGCL and received by the Company and (ii) the opportunity to direct all
negotiations and proceedings with respect to demands for appraisal under the
DGCL. The Company shall not, except with the prior written consent of Parent or
as otherwise required by applicable law, make any payment with respect to any
such demands for appraisal or offer to settle or settle any such demands.
Pursuant to the Proxy and Indemnification Agreement, the MMC Stockholders shall
indemnify, defend and hold harmless Parent and Purchaser against any and all
liabilities, damages, expenses, losses or other claims that are paid in respect
of any Dissenting Shares (including reasonable attorneys' fees and expenses) in
excess of the aggregate Merger Consideration that would otherwise have been
payable in respect of such Dissenting Shares pursuant to Section 1.6(a).
SECTION 1.8 Surrender of Shares; Stock Transfer Books. (a)
Prior to the Effective Time, Purchaser shall designate a bank or trust company
to act as agent for the holders of Shares in connection with the Merger (the
"Paying Agent") to receive the Merger Consideration to which holders of Shares
shall become entitled pursuant to Section 1.6(a). When and as needed, Parent or
Purchaser will make available to the Paying Agent sufficient funds to make all
payments pursuant to Section 1.8(b). Such funds shall be invested by the Paying
Agent as directed by Purchaser or, after the Effective Time, the Surviving
Corporation, provided that such investments shall be in obligations of or
guaranteed by the United States of America, in commercial paper obligations
rated A-1 or P-1 or better by Moody's Investors Service, Inc. or Standard &
Poor's Corporation, respectively, or in certificates of deposit, bank repurchase
agreements or banker's acceptances of commercial banks with capital exceeding
$500 million. Any net profit resulting from, or interest or income produced by,
such investments will be payable to the Surviving Corporation or Parent, as
Parent directs.
(b) Promptly after the Effective Time, the Surviving
Corporation shall cause to be mailed to each record holder, as of the Effective
Time, of an outstanding certificate or certificates which immediately prior to
the Effective Time represented Shares (the "Certificates"), a form of letter of
transmittal (which shall specify that delivery shall be effected, and risk of
loss and title to the Certificates shall pass, only upon proper delivery of the
Certificates to the Paying Agent) and instructions for use in effecting the
surrender of the Certificates for payment of the Merger Consideration therefor.
Upon surrender to the Paying Agent of a Certificate, together with such letter
of transmittal, duly completed and validly executed in accordance with the
instructions thereto, and such other documents as may be required pursuant to
such instructions, the holder of such Certificate shall be entitled to receive
in exchange therefor the Merger Consideration for each Share formerly
represented by such Certificate, and such Certificate shall then be cancelled.
No interest shall be paid or accrued for the benefit of holders of the
Certificates on the Merger Consideration payable upon the surrender of the
Certificates. If payment of the Merger Consideration is to be made to a person
other than the person in whose
<PAGE>
6
name the surrendered Certificate is registered, it shall be a condition of
payment that the Certificate so surrendered shall be properly endorsed or shall
be otherwise in proper form for transfer and that the person requesting such
payment shall have paid any transfer and other taxes required by reason of the
payment of the Merger Consideration to a person other than the registered holder
of the Certificate surrendered or shall have established to the satisfaction of
the Surviving Corporation that such tax either has been paid or is not
applicable.
(c) At any time following six months after the Effective Time,
the Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds (including any interest received with respect thereto)
which had been made available to the Paying Agent and which have not been
disbursed to holders of Certificates, and thereafter such holders shall be
entitled to look to the Surviving Corporation (subject to abandoned property,
escheat or other similar laws) only as general creditors thereof with respect to
the Merger Consideration payable upon due surrender of their Certificates.
Notwithstanding the foregoing, neither the Surviving Corporation nor the Paying
Agent shall be liable to any holder of a Certificate for Merger Consideration
delivered to a public official pursuant to any applicable abandoned property,
escheat or similar law.
(d) At the Effective Time, the stock transfer books of the
Company shall be closed and thereafter there shall be no further registration of
transfers of shares of Company Common Stock on the records of the Company. From
and after the Effective Time, the holders of Certificates evidencing ownership
of Shares outstanding immediately prior to the Effective Time shall cease to
have any rights with respect to such Shares except as otherwise provided for
herein or by applicable law.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and
Purchaser that:
SECTION 2.1 Corporate Organization; Subsidiaries and
Employees. (a) The Company is a corporation duly organized, validly existing and
in good standing under the laws of the State of Delaware and has the requisite
corporate power and authority and any necessary governmental approvals to own,
lease and operate its properties and to carry on its business as it is now being
conducted. The Company is not qualified or licensed as a foreign corporation to
do business in any jurisdiction. When used in connection with the Company, the
term "Material Adverse Effect" means any change or effect that would be
materially adverse to the assets, liabilities, results of operations, financial
condition or business of the Company.
(b) The Company has no subsidiaries and no employees.
SECTION 2.2 Certificate of Incorporation and By-Laws. The
Company has heretofore furnished to Parent a complete and correct copy of the
Certificate of Incorporation and the By-Laws of the Company as currently in
effect. Such Certificate of Incorporation and By-
<PAGE>
7
Laws are in full force and effect and no other organizational documents are
applicable to or binding upon the Company. The Company is not in violation of
any of the provisions of its Certificate of Incorporation or By-Laws.
SECTION 2.3 Capitalization. The authorized capital stock of
the Company consists of 280,300 shares of Company Common Stock, of which (a)
280,300 shares of Company Common Stock are issued and outstanding, all of which
are validly issued, fully paid and nonassessable and have been issued free of
preemptive (or similar) rights, and (b) no shares of Company Common Stock are
held in the treasury of the Company. Except as set forth above, there are
outstanding (i) no shares of capital stock or other voting securities of the
Company, (ii) no securities of the Company convertible into or exchangeable for
shares of capital stock or voting securities of the Company, (iii) no options or
other rights to acquire from the Company, and no obligation of the Company to
issue, any capital stock, voting securities or securities convertible into or
exchangeable for capital stock or voting securities of the Company and (iv) no
equity equivalents, interests in the ownership or earnings of the Company or
other similar rights (collectively, "Company Securities"). There are no
outstanding obligations of the Company or any of its subsidiaries to repurchase,
redeem or otherwise acquire any Company Securities. There are no other options,
calls, warrants or other rights, agreements, arrangements or commitments of any
character relating to the issued or unissued capital stock of the Company to
which the Company is a party. There are no outstanding contractual obligations
of the Company to provide funds to or make any investment (in the form of a
loan, capital contribution or otherwise) in any other entity and, except for the
shares of MSC Common Stock, the Company has no other direct or indirect equity
interests in any other person.
SECTION 2.4 Authority Relative to This Agreement. The Company
has all necessary corporate power and authority to execute and deliver this
Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by the Company and the consummation by the Company of the
transactions contemplated hereby have been duly and validly authorized by all
necessary corporate action and no other corporate proceedings on the part of the
Company are necessary to authorize this Agreement or to consummate the
transactions so contemplated (other than, with respect to the Merger, the
adoption of this Agreement by the holders of a majority of the outstanding
shares of Company Common Stock and the filing of appropriate merger documents as
required by the DGCL). This Agreement has been duly and validly executed and
delivered by the Company and, assuming the due authorization, execution and
delivery hereof by Parent and Purchaser, constitutes a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms. As a result of the foregoing actions, the only vote required to authorize
the Merger is the affirmative vote of a majority of the outstanding Shares.
SECTION 2.5 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by the Company do not
and will not: (i) conflict with or violate the Certificate of Incorporation or
By-Laws of the Company or the equivalent organizational documents of any of its
subsidiaries; (ii) assuming that all consents, approvals and authorizations
contemplated by clauses (i), (ii) and (iii) of subsection (b) below have been
obtained and all filings described in such clauses have been made, conflict with
or violate any
<PAGE>
8
law, rule, regulation, order, judgment or decree applicable to the Company or
any of its subsidiaries or by which its or any of their respective properties
are bound or affected; or (iii) result in any breach or violation of or
constitute a default (or an event which with notice or lapse of time or both
could become a default) or result in the loss of a material benefit under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the properties
or assets of the Company or any of its subsidiaries pursuant to, any note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which the Company or any of its subsidiaries
is a party or by which the Company or any of its subsidiaries or its or any of
their respective properties are bound or affected, except, in the case of
clauses (ii) and (iii), for any such conflicts, violations, breaches, defaults
or other occurrences which are not, individually or in the aggregate, reasonably
likely to have a Material Adverse Effect.
(b) The execution, delivery and performance of this Agreement
by the Company and the consummation of the Merger by the Company do not and will
not require any consent, approval, authorization or permit of, action by, filing
with or notification to, any governmental or regulatory authority, except for
(i) applicable requirements, if any, of the Hart- Scott-Rodino Antitrust
Improvements Act of 1976, as amended (the "HSR Act"), state securities, takeover
and "blue sky" laws, (ii) the filing and recordation of appropriate merger or
other documents as required by the DGCL and (iii) such consents, approvals,
authorizations, permits, actions, filings or notifications the failure of which
to make or obtain are not, individually or in the aggregate, reasonably likely
to (x) prevent or materially delay the Company from performing its obligations
under this Agreement or (y) have a Material Adverse Effect.
SECTION 2.6 Compliance. The Company is not in conflict with,
or in default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to the Company or by which its properties are bound or
affected, or (ii) any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which the
Company is a party or by which the Company or its properties are bound or
affected, except for any such conflicts, defaults or violations which are not,
individually or in the aggregate, reasonably likely to have a Material Adverse
Effect.
SECTION 2.7 Limited Operations; Financial Statements; No
Undisclosed Liabilities. (a) The Company operates solely as a "personal holding
corporation" within the meaning of Section 542 of the Internal Revenue Code of
1986, as amended (the "Code"). Except for (i) this Agreement and the
transactions contemplated hereby, (ii) activities related to maintaining its
corporate existence and (iii) activities related to the Company's ownership of
the shares of MSC Common Stock and other investments (including, without
limitation, the investment and reinvestment of proceeds received on account of
such investments and distributions to the Company's stockholders), the Company
has not engaged in any business activities of any type or kind whatsoever or
entered into any agreements or arrangements with any person. The legal name of
the Company is as set forth in this Agreement. The Company has no trade names,
fictitious names, assumed names or "doing business as" names.
<PAGE>
9
(b) The Company has not incurred, directly or indirectly, any
liabilities, commitments, or obligations of any kind whatsoever, whether or not
accrued and whether or not contingent or absolute, other than liabilities
disclosed in Schedule 1.6(d) hereto.
(c) The Company has delivered to Parent true and correct
copies of the Company's audited balance sheets for the prior three fiscal years
and the related statements of consolidated income and retained earnings, and
statements of consolidated cash flows for each of the last three fiscal years,
including any related notes thereto (collectively, the "Company Financial
Statements"). The Company Financial Statements have been prepared in accordance
with generally accepted accounting principles applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto) and fairly present in all material respects the financial position of
the Company at the respective date thereof and the results of its operations and
changes in cash flows for the periods indicated.
SECTION 2.8 Absence of Litigation. There are no suits, claims,
actions, proceedings or investigations pending or, to the best knowledge of the
Company, threatened against the Company or any of its subsidiaries, or any
properties or rights of the Company or any of its subsidiaries, before any
court, arbitrator or administrative, governmental or regulatory authority or
body. As of the date hereof, neither the Company nor any of its subsidiaries nor
any of their respective properties is or are subject to any order, writ,
judgment, injunction, decree, determination or award.
SECTION 2.9 Tax Matters. The Company has, or will have, (i)
filed all Tax Returns and reports required to be filed by it prior to the
Closing Date (taking into account extensions), (ii) paid or accrued all Taxes
due and payable for all taxable years or periods ending on or prior to the
Closing Date, and (iii) paid or accrued all Taxes for which a notice of
assessment or collection has been received (other than amounts being contested
in good faith by appropriate proceedings). All such Tax Returns are complete and
correct in all material respects. Neither the Internal Revenue Service (the
"IRS") nor any other Taxing authority has asserted any claim for Taxes, or is
threatening to assert any claims for Taxes, against the Company. The Company has
withheld or collected and paid over to the appropriate Taxing authorities all
Taxes required by law to be withheld or collected and paid over to such Taxing
authorities. The Company has not made an election under Section 341(f) of the
Code. There are no liens for Taxes upon any of the assets of the Company (other
than liens for Taxes that are not yet due or that are being contested in good
faith by appropriate proceedings). No extension of the statute of limitations on
the assessment of any Taxes has been granted by the Company and is currently in
effect. As used herein, "Taxes" shall mean any taxes of any kind, including but
not limited to those on or measured by or referred to as income, gross receipts,
capital, sales, use, ad valorem, franchise, profits, license, withholding,
payroll, employment, excise, severance, stamp, occupation, premium, value added,
property or windfall profits taxes, customs, duties or similar fees, assessments
or charges of any kind whatsoever, together with any interest and any penalties,
additions to tax or additional amounts imposed by any governmental authority. As
used herein, "Tax Return" shall mean any return, report or statement required to
be filed with any governmental authority with respect to Taxes.
<PAGE>
10
SECTION 2.10 Investment Company. The Company is not an
"investment company" or a company controlled by an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or is exempt from
all provisions of such act.
SECTION 2.11 Brokers. No broker, finder or investment banker
is entitled to any brokerage, finder's or other fee or commission in connection
with the transactions contemplated by this Agreement based upon arrangements
made by and on behalf of the Company (other than Goldman, Sachs & Co.'s
engagement as financial advisor on behalf of MSC).
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
PARENT AND PURCHASER
Parent and Purchaser hereby, jointly and severally, represent
and warrant to the Company that:
SECTION 3.1 Corporate Organization. Each of Parent and
Purchaser is a corporation duly organized, validly existing and in good standing
under the laws of the State of Delaware and has the requisite corporate power
and authority and any necessary governmental authority to own, operate or lease
its properties and to carry on its business as it is now being conducted, except
where the failure to be so organized, existing and in good standing or to have
such power, authority and governmental approvals is not, individually or in the
aggregate, reasonably likely to prevent the consummation of the Merger.
SECTION 3.2 Authority Relative to This Agreement. Each of
Parent and Purchaser has all necessary corporate power and authority to enter
into this Agreement, to perform its obligations hereunder and to consummate the
transactions contemplated hereby. The execution, delivery and performance of
this Agreement by each of Parent and Purchaser and the consummation by each of
Parent and Purchaser of the transactions contemplated hereby have been duly
authorized by all necessary corporate action on the part of Parent and Purchaser
other than filing and recordation of appropriate merger documents as required by
the DGCL. This Agreement has been duly executed and delivered by Parent and
Purchaser and, assuming due authorization, execution and delivery by the
Company, constitutes a legal, valid and binding obligation of each such
corporation enforceable against such corporation in accordance with its terms.
SECTION 3.3 No Conflict; Required Filings and Consents. (a)
The execution, delivery and performance of this Agreement by Parent and
Purchaser do not and will not: (i) conflict with or violate the respective
certificates of incorporation or by-laws of Parent or Purchaser; (ii) assuming
that all consents, approvals and authorizations contemplated by clauses (i),
(ii) and (iii) of subsection (b) below have been obtained and all filings
described in such clauses have been made, conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or Purchaser or
by which either of them or their respective properties are bound or affected; or
(iii) result in any breach or violation of or constitute a default (or an
<PAGE>
11
event which with notice or lapse of time or both could become a default) or
result in the loss of a material benefit under, or give rise to any right of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the property or assets of Parent or
Purchaser pursuant to, any note, bond, mortgage, indenture, contract, agreement,
lease, license, permit, franchise or other instrument or obligation to which
Parent or Purchaser is a party or by which Parent or Purchaser or any of their
respective properties are bound or affected, except, in the case of clauses (ii)
and (iii), for any such conflicts, violations, breaches, defaults or other
occurrences which are not, individually or in the aggregate, reasonably likely
to prevent or materially delay the consummation of the Merger.
(b) The execution, delivery and performance of this Agreement
by Parent and Purchaser do not and will not require any consent, approval,
authorization or permit of, action by, filing with or notification to, any
governmental or regulatory authority, except (i) for applicable requirements, if
any, of the Exchange Act and the rules and regulations promulgated thereunder,
the HSR Act, state securities, takeover and "blue sky" laws, (ii) the filing and
recordation of appropriate merger or other documents as required by the DGCL,
and (iii) such consents, approvals, authorizations, permits, actions, filings or
notifications the failure of which to make or obtain are not, individually or in
the aggregate, reasonably likely to prevent the consummation of the Merger.
SECTION 3.4 Brokers. No broker, finder or investment banker
(other than Morgan Stanley & Co. Incorporated) is entitled to any brokerage,
finder's or other fee or commission in connection with the transactions
contemplated by this Agreement based upon arrangements made by and on behalf of
Parent or Purchaser.
SECTION 3.5 Funds. Parent or Purchaser, at the expiration date
of the Offer and at the Effective Time, will have the funds necessary to
consummate the Merger.
ARTICLE IV
CONDUCT PENDING THE CLOSING; ADDITIONAL AGREEMENTS
SECTION 4.1 Conduct of Business of the Company Pending the
Merger. The Company covenants and agrees that, during the period from the date
hereof to the Effective Time, unless Parent shall otherwise agree in writing and
except as otherwise expressly contemplated by this Agreement, the Company shall
not (i) engage in any business activities of any type or kind whatsoever or
enter into any agreements or arrangements with any person, except as otherwise
contemplated pursuant to this Agreement and (ii) incur, directly or indirectly,
any liabilities, commitments, or obligations of any kind whatsoever, whether or
not accrued and whether or not contingent or absolute. By way of amplification
and not limitation, the Company shall not, between the date of this Agreement
and the Effective Time, directly or indirectly do, or commit to do, any of the
following without the prior written consent of Parent:
(a) Amend or otherwise change its certificate of incorporation
or by-laws;
<PAGE>
12
(b) Issue, deliver, sell, pledge, dispose of or encumber, or
authorize or commit to the issuance, sale, pledge, disposition or
encumbrance of, (i) any shares of capital stock of any class, or any
options, warrants, convertible securities or other rights of any kind
to acquire any shares of capital stock, or any other ownership interest
(including but not limited to stock appreciation rights or phantom
stock), of the Company or (ii) any assets of the Company;
(c) Declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with
respect to any of its capital stock;
(d) Reclassify, combine, split, subdivide or redeem, purchase
or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) Acquire (by merger, consolidation, or acquisition of
stock or assets) any corporation, partnership or other business
organization or division thereof, or otherwise form or commit to form
any subsidiary; (ii) incur any indebtedness for borrowed money or issue
any debt securities or assume, guarantee or endorse, or otherwise as an
accommodation become responsible for, the obligations of any person, or
make any loans, advances or capital contributions to, or investments
in, any other person; (iii) enter into any contract or agreement other
than in the ordinary course of business consistent with past practice;
or (iv) authorize any capital expenditures of any nature whatsoever;
(f) Hire, appoint or engage, or commit to hire, appoint or
engage, any director, officer, employee, consultant or other advisor,
or otherwise pay or commit to pay any compensation, fringe benefits or
severance or other termination benefits to any such persons, other than
the engagement of any agent by the Company in connection with the
liquidation and/or sale of the Company's assets and investments in the
manner contemplated herein;
(g) Make any Tax election, change any method of Tax accounting
or settle or compromise any federal, state, local or foreign Tax
liability;
(h) Settle or compromise any pending or threatened suit,
action or claim;
(i) Adopt a plan of complete or partial liquidation,
dissolution, merger, consolidation, restructuring, recapitalization or
other reorganization of the Company (other than the Merger); or
(j) Take, or offer or propose to take, or agree to take in
writing or otherwise, any of the actions described in Sections 4.1(a)
through 4.1(i) or any action which would make any of the
representations or warranties of the Company contained in this
Agreement untrue and incorrect as of the date when made if such action
had then been taken.
Notwithstanding anything contained in this Section 4.1, the
Company shall be entitled to liquidate and/or sell all or any of its investments
and other assets (other than its MSC
<PAGE>
13
Common Stock) and/or declare and pay dividends to its stockholders (other than
of its MSC Common Stock), so long as the Closing Balance Sheet accurately
reflects the results of any such liquidation, sale and/or dividend.
SECTION 4.2 Stockholders Meeting. Promptly following the date
hereof, the Company, acting through its Board of Directors, shall in accordance
with and subject to applicable law and the Company's Certificate of
Incorporation and By-Laws, duly call, give notice of, convene and hold a meeting
of its stockholders for the purpose of adopting this Agreement and the
transactions contemplated hereby (the "Stockholders Meeting"). The Company's
Board of Directors shall include, in any notice to stockholders of the
Stockholders Meeting, the unanimous recommendation of the Board of Directors
that the stockholders of the Company vote in favor of the adoption of this
Agreement and use its reasonable best efforts to obtain the necessary adoption
of this Agreement. At the Stockholders Meeting, Parent and Purchaser shall cause
all Shares subject to the MMC Stockholders' proxy under the Proxy and
Indemnification Agreement to be voted in favor of adoption of this Agreement.
SECTION 4.3 No Solicitation; Affirmation of Covenants in
Stockholders' Agreement. (a) The Company shall not, and the Company shall cause
all of its directors, agents, affiliates and associates to not, directly or
indirectly, solicit, encourage, participate in or initiate any inquiries or the
making of any proposal by any person or entity (other than Parent or any
affiliate of Parent) which constitutes, or may reasonably be expected to lead
to, (i) any sale of the Shares or (ii) any acquisition or purchase of any of the
Company's assets or any equity interest in, or any merger, consolidation or
business combination with, the Company. If the Company receives an inquiry or
proposal with respect to the sale of Shares, then the Company shall promptly
inform Parent of the terms and conditions, if any, of such inquiry or proposal
and the identity of the person making it. The Company and its directors, agents,
affiliates and associates will immediately cease and cause to be terminated any
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing.
(b) The Company affirms and agrees that it shall comply in all
respects with the covenants set forth in its Stockholders' Agreement, including
without limitation the covenants set forth in Section 5 thereof.
SECTION 4.4 Access to Information; Confidentiality. From the
date hereof to the Effective Time, the Company shall, and shall cause its
officers, directors and other agents to, afford the officers, employees,
auditors and other agents of Parent, and financing sources who shall agree to be
bound by the provisions of this Section 4.4 as though a party hereto, complete
access, consistent with applicable law, at all reasonable times to all books and
records of the Company, and shall furnish Parent and such financing sources with
all financial, operating and other data and information as Parent, through its
officers, employees or agents, or such financing sources may from time to time
reasonably request. All information obtained by Parent and Purchaser pursuant to
this Section 4.4 shall be kept confidential in accordance with the
Confidentiality Agreement, dated on or about May 7, 1998 (the "Parent
Confidentiality Agreement"), between Parent and MSC. No investigation pursuant
to this Section 4.4 shall affect any representations or warranties of the
parties herein or the conditions to the obligations of the parties hereto.
<PAGE>
14
SECTION 4.5 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of the occurrence or non-occurrence of (i) any event the occurrence or
non-occurrence of which would be likely to cause any representation or warranty
contained in this Agreement to be untrue or inaccurate in any material respect
and (ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy in any material respect any covenant, condition or
agreement to be complied with or satisfied by it hereunder; provided, however,
that the delivery of any notice pursuant to this Section 4.5 shall not limit or
otherwise affect the remedies available hereunder to the party receiving such
notice.
SECTION 4.6 Further Action; Reasonable Best Efforts. (a) Upon
the terms and subject to the conditions hereof, each of the parties hereto shall
use its reasonable best efforts to take, or cause to be taken, all appropriate
action, and to do or cause to be done, all things necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement as soon as practicable, including
but not limited to (i) cooperation in the preparation and filing of any required
filings under the HSR Act and any amendments to any thereof and (ii) using its
reasonable best efforts to promptly make all required regulatory filings and
applications including, without limitation, responding promptly to requests for
further information and to obtain all licenses, permits, consents, approvals,
authorizations, qualifications and orders of governmental authorities and any
other third parties as are necessary for the consummation of the transactions
contemplated by this Agreement and to fulfill the conditions to the Merger. In
case at any time after the Effective Time any further action is necessary or
desirable to carry out the purposes of this Agreement, the proper officers and
directors of each party to this Agreement shall use their reasonable best
efforts to take all such necessary action.
(b) The Company and Parent each shall keep the other apprised
of the status of matters relating to completion of the transactions contemplated
hereby, including promptly furnishing the other with copies of notices or other
communications received by Parent or the Company, as the case may be, or any of
their subsidiaries, from any governmental authority with respect to the Merger
or any of the other transactions contemplated by this Agreement. The parties
hereto will consult and cooperate with one another, and consider in good faith
the views of one another in connection with any analyses, appearances,
presentations, memoranda, briefs, arguments, opinions and proposals made or
submitted by or on behalf of any party hereto in connection with proceedings
under or relating to the HSR Act or any other antitrust law.
SECTION 4.7 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making any
public statements with respect to the Merger and shall not issue any such press
release or make any such public statement prior to such consultation, except as
may be required by law or any listing agreement with its securities exchange.
<PAGE>
15
ARTICLE V
CONDITIONS OF MERGER
SECTION 5.1 Conditions to Obligation of Each Party to Effect
the Merger. The respective obligations of each party to effect the Merger shall
be subject to the satisfaction (or, in the case of Section 5.1(d) below, the
waiver, to the extent available, by Parent) at or prior to the Effective Time of
the following conditions:
(a) This Agreement shall have been adopted by the affirmative
vote of the stockholders of the Company by the requisite vote in
accordance with the Company's Certificate of Incorporation and the DGCL
(which the Company has represented shall be solely the affirmative vote
of a majority of the outstanding Shares).
(b) No statute, rule, regulation, executive order, decree,
ruling, injunction or other order (whether temporary, preliminary or
permanent) shall have been enacted, entered, promulgated or enforced by
any United States, foreign, federal or state court or governmental
authority which prohibits, restrains, enjoins or restricts the
consummation of the Merger, the Offer or the MSC Merger.
(c) Any waiting period applicable to the Merger under the HSR
Act shall have terminated or expired.
(d) All of the Offer Conditions, other than the consummation
of the Merger, shall have been satisfied and MSC MergerSub shall have
determined to purchase the shares of MSC Common Stock pursuant to the
Offer; provided that, if the MSC Merger Agreement is terminated under
circumstances in which Parent is entitled to the payment of the fees
set forth in Section 8.3(a)(ii) of the MSC Merger Agreement, Parent (in
its sole and absolute discretion) shall be entitled to waive the
satisfaction of the conditions in this Section 5.1(d).
(e) The Woodbank Merger shall have been consummated.
SECTION 5.2 Additional Conditions to Obligation of Parent and
Purchaser to Effect the Merger. The obligations of Parent and Purchaser to
effect the Merger shall be subject to the satisfaction (or waiver) at or prior
to the Effective Time of the following conditions:
(a) The Company shall have performed in all material respects
all covenants and agreements required to be performed by it under this
Agreement at or prior to the Closing Date.
(b) The representations and warranties made herein by the
Company shall have been true and correct in all material respects on
the date of this Agreement and as of the Effective Time, except to the
extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall
have been true and correct as of such date.
<PAGE>
16
(c) Each of (i) the Stockholder's Agreement of the Company
(and the Stockholder's Agreements for each other Related Seller), and
(ii) the Proxy and Indemnification Agreement shall continue to be in
full force and effect, with no amendments or other changes thereto.
SECTION 5.3 Additional Conditions to Obligation of the Company
to Effect the Merger. The obligations of the Company to effect the Merger shall
be subject to the satisfaction (or waiver) at or prior to the Effective Time of
the following conditions:
(a) Parent and Purchaser shall have performed in all material
respects all of their respective covenants and agreements required to
be performed by them under this Agreement at or prior to the Closing
Date.
(b) The representations and warranties made herein by Parent
and Purchaser shall have been true and correct in all material respects
on the date of this Agreement and as of the Effective Time, except to
the extent that any such representation or warranty is made as of a
specified date, in which case such representation or warranty shall
have been true and correct as of such date.
ARTICLE VI
TERMINATION, AMENDMENT AND WAIVER
SECTION 6.1 Termination. This Agreement may be terminated and
the Merger contemplated hereby may be abandoned at any time prior to the
Effective Time:
(a) By mutual written consent of Parent, Purchaser and the
Company;
(b) By Parent or the Company if any court of competent
jurisdiction or other governmental body located or having jurisdiction
within the United States shall have issued a final order, injunction,
decree, judgment or ruling or taken any other final action restraining,
enjoining or otherwise prohibiting the Merger, the Offer or the MSC
Merger and such order, injunction, decree, judgment, ruling or other
action is or shall have become final and nonappealable;
(c) By Parent if due to an occurrence or circumstance which
resulted in a failure to satisfy any of the Offer Conditions (other
than as a result of a breach by Parent or MSC MergerSub of its
obligations under the MSC Merger Agreement), MSC MergerSub shall have
(i) terminated the Offer or (ii) failed to pay for shares of MSC Common
Stock pursuant to the Offer on or prior to the Outside Date (as defined
in the MSC Merger Agreement);
(d) By the Company if (i) the MSC Merger Agreement is
terminated and (ii) Parent is no longer entitled to the payment of the
fees set forth in Section 8.3(a)(ii) of the MSC Merger Agreement; or
<PAGE>
17
(e) By Parent prior to the purchase of shares of MSC Common
Stock pursuant to the Offer, if (i) there shall have been a breach of
any representation, warranty, covenant or agreement on the part of the
Company contained in this Agreement which is reasonably likely to have
a Material Adverse Effect, which shall not have been cured prior to the
earlier of (A) 10 business days following notice of such breach and (B)
two business days prior to the date on which the Offer expires, or (ii)
the MSC Merger Agreement is terminated.
SECTION 6.2 Effect of Termination. In the event of the
termination of this Agreement pursuant to Section 6.1, this Agreement shall
forthwith become void and there shall be no liability on the part of any party
hereto except as set forth in Section 7.1; provided, however, that nothing
herein shall relieve any party from liability for any wilful breach hereof.
SECTION 6.3 Amendment. This Agreement may be amended by the
parties hereto by action taken by or on behalf of their respective Boards of
Directors at any time prior to the Effective Time; provided, however, that no
amendment may be made which would reduce the amount or change the type of
consideration into which each Share shall be converted upon consummation of the
Merger without the redelivery by the Company's stockholders of a stockholders'
consent thereto. This Agreement may not be amended except by an instrument in
writing signed by the parties hereto.
SECTION 6.4 Waiver. At any time prior to the Effective Time,
any party hereto may (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 such extension or waiver shall be
valid if set forth in an instrument in writing signed by the party or parties to
be bound thereby.
ARTICLE VII
GENERAL PROVISIONS
SECTION 7.1 Survival of Representations, Warranties and
Agreements. (a) Except as set forth in Section 7.1(b), all representations,
warranties and agreements contained in this Agreement shall terminate and be
extinguished at the Effective Time or the earlier date of termination of this
Agreement pursuant to Section 6.1.
(b) Notwithstanding Section 7.1(a), (i) the covenants and
agreements made by the parties in this Agreement which by their terms
contemplate performance after the Effective Time (or after termination) shall
survive the Effective Time (or such termination) until fully performed, and (ii)
the representations and warranties of the Company contained herein shall survive
the Effective Time indefinitely.
SECTION 7.2 Notices. All notices, requests, claims, demands
and other communications hereunder shall be in writing and shall be given (and
shall be deemed to have
<PAGE>
18
been duly given upon receipt) by delivery in person, by cable, telecopy,
telegram or telex or by registered or certified mail (postage prepaid, return
receipt requested) to the respective parties at the following addresses (or at
such other address for a party as shall be specified by like notice):
if to Parent or Purchaser:
Dillard's, Inc.
1600 Cantrell Road
Little Rock, Arkansas 72201
Attention: James I. Freeman
with a copy to:
Simpson Thacher & Bartlett
425 Lexington Avenue
New York, New York 10017
Attention: Alan G. Schwartz, Esq.
if to the Company:
c/o Ivins Phillips & Barker
1700 Pennslyvania Avenue
Washington, D.C. 20006
Attention: Stuart Dunn, Esq.
with a copy to:
King & Spalding
191 Peachtree Street
Atlanta, Georgia 30303
Attention: Russell B. Richards, Esq.
with a further copy to:
Morris, Nichols, Arsht & Tunnel
1201 N. Market Street
Wilminton, Delaware 19801
Attention: Andrew M. Johnston, Esq.
SECTION 7.3 Certain Definitions. For purposes of this
Agreement, the term:
"affiliate" of a person means a person that directly or
indirectly, through one or more intermediaries, controls, is controlled
by, or is under common control with, the first mentioned person;
"control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or
as trustee or executor, of the power to direct or cause the direction
of the management policies of a person, whether through the ownership
of stock, as trustee or executor, by contract or credit arrangement or
otherwise;
<PAGE>
19
"person" means an individual, corporation, partnership,
association, trust, unincorporated organization, other entity or group
(as defined in Section 13(d)(3) of the Exchange Act); and
"subsidiary" or "subsidiaries" of any person means any
corporation, partnership, joint venture or other legal entity of which
such person (either alone or through or together with any other
subsidiary), owns, directly or indirectly, 50% or more of the stock or
other equity interests the holder of which is generally entitled to
vote for the election of the board of directors or other governing body
of such corporation or other legal entity.
SECTION 7.4 Severability. If any term or other provision of
this Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner adverse to any party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
SECTION 7.5 Entire Agreement; Assignment. This Agreement,
together with the Stockholders Agreements, Parent Confidentiality Agreement, the
MSC Merger Agreement, the Woodbank Merger Agreement and the Proxy and
Indemnification Agreement, constitutes the entire agreement among the parties
with respect to the subject matter hereof and supersedes all prior agreements
and undertakings, both written and oral, among the parties, or any of them, with
respect to the subject matter hereof. This Agreement shall not be assigned by
operation of law or otherwise, except that Parent and Purchaser may assign all
or any of their respective rights and obligations hereunder to any direct or
indirect wholly owned subsidiary or subsidiaries of Parent, provided that no
such assignment shall relieve the assigning party of its obligations hereunder
if such assignee does not perform such obligations.
SECTION 7.6 Parties in Interest. This Agreement shall be
binding upon and inure solely to the benefit of each party hereto, and nothing
in this Agreement, express or implied, is intended to or shall confer upon any
other person any rights, benefits or remedies of any nature whatsoever under or
by reason of this Agreement.
SECTION 7.7 Fees and Expenses. Except as otherwise
specifically provided herein, in the MSC Merger Agreement and in the Proxy and
Indemnification Agreement, whether or not the transactions contemplated hereby
are consummated, all costs and expenses incurred in connection with this
Agreement and the transactions contemplated hereby will be paid by the party
incurring such costs and expenses.
SECTION 7.8 Governing Law. This Agreement shall be governed
by, and construed in accordance with, the laws of the State of Delaware,
regardless of the laws that might otherwise govern under applicable principles
of conflicts of laws thereof.
<PAGE>
20
SECTION 7.9 Headings. The descriptive headings contained in
this Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 7.10 Counterparts. This Agreement may be executed in
one or more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original but
all of which taken together shall constitute one and the same agreement.
<PAGE>
21
IN WITNESS WHEREOF, Parent, Purchaser and the Company have
caused this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
DILLARD'S, INC.
By: /s/ James I. Freeman
--------------------------------------
Name: James I. Freeman
Title: Chief Financial Officer
MMC ACQUISITION, INC.
By: /s/ James I. Freeman
--------------------------------------
Name: James I. Freeman
Title:
MINOT MERCANTILE CORPORATION
By: /s/ Roger Milliken
--------------------------------------
Name: Roger Milliken
Title: Chairman
