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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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FINGERHUT COMPANIES, INC.
(Name of Subject Company)
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FINGERHUT COMPANIES, INC.
(Name of Person Filing Statement)
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COMMON STOCK, PAR VALUE $.01 PER SHARE
(Title of Class of Securities)
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317867 10 9
(CUSIP Number of Class of Securities)
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MICHAEL P. SHERMAN
EXECUTIVE VICE PRESIDENT, GENERAL COUNSEL AND SECRETARY
FINGERHUT COMPANIES, INC.
4400 BAKER ROAD
MINNETONKA, MINNESOTA 55343
(612) 932-3100
(Name, Address and Telephone Number of Person
Authorized to Receive Notice and Communications
on Behalf of the Person Filing Statement)
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COPIES TO:
PHILIP S. GARON, ESQ.
FAEGRE & BENSON LLP
2200 NORWEST CENTER
90 SOUTH SEVENTH STREET
MINNEAPOLIS, MINNESOTA 55402-4129
(612) 336-3000
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ITEM 1. SECURITY AND SUBJECT COMPANY
The name of the subject company is Fingerhut Companies, Inc., a Minnesota
corporation (the "Company"), and the address of its principal executive offices
is 4400 Baker Road, Minnetonka, Minnesota 55343. The title of the class of
equity securities to which this Statement relates is the common stock, $.01 par
value per share, of the Company (the "Shares").
ITEM 2. TENDER OFFER OF THE BIDDER
This Statement relates to the tender offer by Bengal Subsidiary Corp., a
Minnesota corporation ("Purchaser") and a wholly owned subsidiary of Federated
Department Stores, Inc., a Delaware corporation ("Parent"), described in a
Tender Offer Statement on Schedule 14D-1, dated February 18, 1999 (the "Schedule
14D-1"), to acquire all outstanding Shares at a price of $25.00 per Share, net
to the seller in cash, without interest thereon (the "Per Share Amount"), upon
the terms and subject to the conditions set forth in the Offer To Purchase,
dated February 18, 1999 (the "Offer To Purchase"), and the related letter of
transmittal (which, together with the Offer To Purchase, constitute the "Offer"
and are contained within the Schedule 14D-1).
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of February 10, 1999 (the "Merger Agreement"), among Parent, Purchaser and
the Company. The Merger Agreement provides, among other things, that, as
promptly as practicable after the completion of the Offer and satisfaction or
waiver of the other conditions set forth in the Merger Agreement, Purchaser will
be merged with and into the Company (the "Merger"), and the Company will
continue as the surviving corporation (the "Surviving Corporation") and a wholly
owned subsidiary of Parent. A copy of the Merger Agreement is filed herewith as
Exhibit 1 and is incorporated herein by reference.
As set forth in the Schedule 14D-1, the principal executive offices of
Parent and Purchaser are located at 7 West Seventh Street, Cincinnati, Ohio
45202 and 151 West 34th Street, New York, New York 10001.
ITEM 3. IDENTITY AND BACKGROUND
(a) The name and address of the Company, which is the person filing this
statement, are set forth in Item 1 above.
(b)(1) Certain contracts, agreements, arrangements and understandings
between the Company or its affiliates and its executive officers, directors or
affiliates are described in the Information Statement Pursuant to Section 14(f)
of the Securities Exchange Act of 1934 and Rule 14f-1 Thereunder (the
"Information Statement") attached hereto as Annex I and incorporated herein by
reference. The agreements described in the Information Statement are filed
herewith as Exhibits 10 through 16 and are incorporated herein by reference.
(b)(2) Descriptions of (i) the Merger Agreement, (ii) the Confidentiality
Agreement between the Company and Parent and (iii) the Employment Letters
between the Company and each of William J. Lansing, Michael P. Sherman, John D.
Buck and Andrew V Johnson are set forth below. Except as described or referenced
in this Item 3(b), there are no material contracts, agreements, arrangements or
understandings, or any potential or actual conflicts of interest between the
Company or its affiliates and the Company, Parent, Purchaser or any of their
respective executive officers, directors or affiliates.
THE MERGER AGREEMENT
The following is a summary of the Merger Agreement, a copy of which is filed
as Exhibit 1 hereto. Such summary is qualified in its entirety by reference to
the Merger Agreement.
THE OFFER. The Merger Agreement provides for the commencement of the Offer.
Without the prior written consent of the Company, Purchaser will not, and Parent
will cause Purchaser not to, (i) decrease or change the form of the Per Share
Amount, (ii) decrease the number of Shares sought in the Offer,
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(iii) amend or waive the Minimum Condition (as defined in the Merger Agreement)
or impose conditions other than the Offer Conditions (as defined in the Merger
Agreement) on the Offer, (iv) extend the Expiration Date (as defined in the
Merger Agreement) (which will initially be 20 business days following the
commencement of the Offer) except (a) as required by law and (b) that, in the
event that any condition to the Offer is not satisfied or waived at the time
that the Expiration Date would otherwise occur, (1) Purchaser must extend the
Expiration Date for an aggregate of ten additional business days to the extent
necessary to permit such condition to be satisfied and (2) Purchaser may, in its
sole discretion, extend the Expiration Date for such additional period as it may
determine to be appropriate (but not beyond June 30, 1999) to permit such
condition to be satisfied, and (c) that, in the event that the OCC Condition (as
defined in the Merger Agreement) is not satisfied, and all other Offer
Conditions have been satisfied or waived, at the time that the Expiration Date
(as extended as described in clauses (a) or (b) above) would have otherwise
occurred, Purchaser must either irrevocably waive the OCC Condition or extend
the Expiration Date (but not beyond the date that is 60 calendar days from the
date of the filing with the OCC in respect of the OCC Condition) to the extent
necessary to permit the OCC Condition to be satisfied, or (v) amend any term of
the Offer in any manner materially adverse to shareholders of the Company (the
"Shareholders") (including without limitation to result in any extension which
would be inconsistent with the preceding provisions of this sentence), provided,
however, that (1) subject to applicable legal requirements, Parent may cause
Purchaser to waive any Offer Condition, other than the Minimum Condition, in
Parent's sole discretion and (2) the Offer may be extended in connection with an
increase in the consideration to be paid pursuant to the Offer so as to comply
with applicable rules and regulations of the Securities and Exchange Commission
(the "Commission"). Except as set forth above and subject to applicable legal
requirements, Purchaser may amend the Offer or waive any Offer Condition in its
sole discretion. Assuming the prior satisfaction or waiver of the Offer
Conditions, Parent will cause Purchaser to accept for payment, and pay for, in
accordance with the terms of the Offer, all Shares validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the Expiration
Date.
The Company made representations to Parent in the Merger Agreement that (a)
the Company's Board of Directors (the "Board") and a special committee of the
Board formed in accordance with Section 302A.673 of the Minnesota Business
Corporation Act (the "MBCA") (each at a meeting duly called and held) have (i)
determined that the Merger Agreement, the Offer and the Merger are fair to and
in the best interests of the Company and the Shareholders, (ii) approved the
Merger Agreement and the transactions contemplated thereby, including the Offer
and the Merger, and, assuming the accuracy of Parent's and Purchaser's
representation in the Merger Agreement with respect to ownership of Shares, such
approval is sufficient to render Sections 302A.671, 302A.673 and 302A.675 of the
MBCA inapplicable to the Merger Agreement and the transactions contemplated
thereby, including the Offer and the Merger, and (iii) resolved to recommend
acceptance of the Offer and approval of the Merger Agreement by the Shareholders
and (b) the Board received an opinion from Salomon Smith Barney Inc. ("Salomon
Smith Barney"), the Company's financial advisor, to the effect that, as of the
date of the Merger Agreement, the cash consideration to be received by
Shareholders (other than Parent and its affiliates) in the Offer and the Merger
is fair to such Shareholders from a financial point of view.
BOARD REPRESENTATION. The Merger Agreement provides that, promptly upon the
purchase of Shares by Purchaser pursuant to the Offer (provided that the Minimum
Condition has been satisfied), and from time to time thereafter, (i) Parent will
be entitled to designate such number of directors ("Parent's Designees"),
rounded down to the next whole number, as will give Parent, subject to
compliance with Section 14(f) of the Exchange Act, representation on the Board
equal to the product of (a) the number of directors on the Board (giving effect
to any increase in the number of directors as described below) and (b) the
percentage that such number of Shares so purchased bears to the aggregate number
of Shares outstanding (such number being, the "Board Percentage"), provided,
however, that the Board Percentage will in all events be at least a majority of
the members of the Board, and (ii) the Company will, upon request by Parent,
promptly satisfy the Board Percentage by either (a) increasing the size of the
Board or (b) using its
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reasonable best efforts to secure the resignations of such number of directors
as is necessary to enable Parent's Designees to be elected to the Board, or
both, and will use its reasonable best efforts to cause Parent's Designees
promptly to be so elected, subject in all instances to compliance with Section
14(f) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"),
and Rule 14f-1 promulgated thereunder. At the request of Parent, the Company
will take all lawful action necessary to effect any such election. Parent will
supply to the Company in writing and be solely responsible for any information
with respect to itself, Parent's Designees and Parent's officers, directors and
affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder to be included in the Schedule 14D-9. Notwithstanding the
foregoing, at all times prior to the Effective Time (as defined in the Merger
Agreement), the Board will include at least three Continuing Directors (as
defined below).
The Merger Agreement further provides that, notwithstanding any other
provision of the Merger Agreement, of the articles of incorporation or bylaws of
the Company or of applicable law to the contrary, following the election or
appointment of Parent's Designees pursuant to the Merger Agreement and prior to
the Effective Time or, if the Effective Time has not then occurred, February 10,
2000, any amendment or termination of the Merger Agreement or amendment of the
articles of incorporation or bylaws of the Company by the Company, extension by
the Company for the performance or waiver of the obligations or other acts of
Parent or Purchaser hereunder or waiver by the Company of the Company's rights
hereunder will require the affirmative vote of the majority of members of a
committee comprised solely of Continuing Directors. The term the "Continuing
Directors" means at any time (i) those directors of the Company who are
Disinterested directors of the Company on the date of the Merger Agreement and
who voted to approve the Merger Agreement and (ii) such additional directors of
the Company who are Disinterested and who are designated as "Continuing
Directors" for purposes of the Merger Agreement by a majority of the Continuing
Directors in office at the time of such designation, provided, however, that if
there are no such Continuing Directors, the individuals who are appointed to the
Board who are both Disinterested and independent will constitute the Continuing
Directors. The term "Disinterested" has the meaning assigned to it in Section
302A.673, Subd. 1(d) of the MBCA. The term "independent" has the meaning
assigned to it in the NEW YORK STOCK EXCHANGE LISTED COMPANY GUIDE.
THE MERGER. The Merger Agreement provides that, at the Effective Time,
Purchaser will be merged with and into the Company in accordance with the
applicable provisions of the MBCA, and the separate corporate existence of
Purchaser will thereupon cease. The Company will be the Surviving Corporation in
accordance with the MBCA.
The articles of incorporation of the Surviving Corporation to be in effect
from and after the Effective Time until amended in accordance with its terms and
the MBCA will be the articles of incorporation of Purchaser immediately prior to
the Effective Time, provided, however, that at the Effective Time, by virtue of
the Merger and the Merger Agreement and without any further action by the
Company and Purchaser, Article 1 of the Surviving Corporation's articles of
incorporation will be amended to read as follows: "The name of the Corporation
is Fingerhut Companies, Inc." The bylaws of the Surviving Corporation to be in
effect from and after the Effective Time until amended in accordance with their
terms, the articles of incorporation of the Surviving Corporation and the MBCA
will be the bylaws of Purchaser immediately prior to the Effective Time.
Subject to applicable law, the members of the initial Board of Directors of
the Surviving Corporation will be the members of the Board of Directors of
Purchaser immediately prior to the Effective Time. All of the members of the
Board of Directors of the Surviving Corporation will serve until their
successors are duly elected or appointed and qualified or until their earlier
death, resignation or removal in accordance with the articles of incorporation
and the bylaws of the Surviving Corporation. The officers of the Surviving
Corporation will consist of the officers of the Company immediately prior to the
Effective Time. Such persons will continue as officers of the Surviving
Corporation until their successors have been duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and the bylaws of the Surviving Corporation.
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CONSIDERATION TO BE PAID IN THE MERGER. The Merger Agreement provides that,
on the terms and subject to the conditions set forth in the Merger Agreement and
in accordance with the MBCA, at the Effective Time, by virtue of the Merger and
without any action on the part of Parent, Purchaser, the Company or
Shareholders, each Share issued and outstanding immediately prior to the
Effective Time (other than any Shares to be canceled as described below and any
Dissenting Shares (as defined in the Merger Agreement)) and any Shares issuable
upon exercise of any Rights (as defined in the Merger Agreement) will be
converted into the right to receive the Merger Consideration (as defined in the
Merger Agreement) in cash payable to the holder thereof, without interest,
prorated for fractional Shares. All such Shares, when so converted, will no
longer be outstanding and will automatically be canceled and will cease to
exist, and each holder of a certificate formerly representing any such Share
will cease to have any rights with respect thereto, except the right to receive
the Merger Consideration therefor upon the surrender of such certificate. Any
payment made will be made net of applicable withholding taxes to the extent such
withholding is required by law. Notwithstanding the foregoing, if between the
date of the Merger Agreement and the Effective Time the outstanding Shares shall
have been changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the Merger Consideration will be
correspondingly adjusted on a per-share basis to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares.
The Merger Agreement further provides that each Share owned by Parent,
Purchaser or any other direct or indirect wholly owned subsidiary of Parent
immediately before the Effective Time (other than shares in trust accounts,
managed accounts, custodial accounts and the like that are beneficially owned by
third parties) will be automatically canceled and will cease to exist and no
payment or other consideration will be made with respect thereto.
Each common share of Purchaser issued and outstanding immediately before the
Effective Time will be converted into and become one validly issued, fully paid
and nonassessable common share of the Surviving Corporation, which, in
accordance with the Merger Agreement, will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation immediately
after the Effective Time.
COMPANY STOCK OPTION PLANS. The Merger Agreement provides that the Company
will use its reasonable best efforts (which include satisfying the requirements
of Rule 16b-3(e) promulgated under Section 16 of the Exchange Act, without
incurring any liability in connection therewith) to provide that, at the
Effective Time, each holder of a then-outstanding Option (as defined in the
Merger Agreement) to purchase Shares under the Company's Stock Option Plans (as
defined in the Merger Agreement), whether or not then exercisable, will, in
settlement thereof, receive from the Company for each Share subject to such
Option an amount (subject to any applicable withholding tax) in cash equal to
the difference between the Merger Consideration and the per Share exercise price
of such Option to the extent such difference is a positive number (the "Option
Consideration"). Notwithstanding anything stated above, no Option Consideration
will be paid with respect to any Option unless, at or prior to the time of such
payment, such Option is canceled and the holder of such Option has executed and
delivered a release of any and all rights the holder had or may have had in
respect of such Option.
In the Merger Agreement, the Company has agreed to use its reasonable best
efforts to obtain all necessary consents or releases from holders of Options
under the Stock Option Plans and take all such other lawful action as may be
necessary to give effect to the transactions contemplated by the Merger
Agreement. Except as otherwise agreed to by the parties, (i) the Stock Option
Plans will terminate as of the Effective Time and the provisions in any other
plan, program or arrangement providing for the issuance or grant of any other
interest in respect of the capital stock of the Company or any subsidiary
thereof, including the Directors' Retainer Stock Deferral Plan, will be canceled
as of the Effective Time and (ii) the Company will use its reasonable best
efforts to assure that following the Effective Time no participant in the Stock
Option Plans or such other plans, programs or arrangements will have any right
thereunder to acquire any equity securities of the Company, the Surviving
Corporation or any subsidiary
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thereof and to terminate all such plans and any Options or other Rights
thereunder. Notwithstanding the foregoing, as requested by Parent, the Company
will use its reasonable best efforts to assure that following the date of the
Merger Agreement, no participant in the 1994 Employee Stock Purchase Plan will
have any right to change any election or increase his contribution thereunder,
and the Company will take all such actions as may be available to it to cause
such plan to be suspended in respect of equity securities of the Company or the
Surviving Corporation (other than as to Shares payment for which was deducted
from employees' payroll at or prior to the date of the Merger Agreement).
SHAREHOLDER MEETING. The Merger Agreement provides that the Company will
take all action necessary in accordance with applicable law and its articles of
incorporation and bylaws to convene a meeting of the Shareholders (the "Company
Shareholders' Meeting") as promptly as practicable after the Offer Completion
Date (as defined in the Merger Agreement) to consider and vote upon the approval
of the Merger Agreement. The Board will recommend such approval and the Company
will take all lawful action to solicit such approval, including without
limitation timely mailing any proxy statement; provided, however, that such
recommendation or solicitation (but not such actions to convene the Company
Shareholders' Meeting) is subject to any action, including any withdrawal or
change of its recommendation, taken by, or upon authority of, the Board, as the
case may be, in the exercise of its good faith judgment in conformity with the
advice of outside counsel (notice of which will be promptly given to Parent and
Purchaser) that such action is required in order to satisfy the fiduciary duties
of the members of the Board to Shareholders imposed by law. Without limiting the
generality or effect of any other provision of the Merger Agreement, the
Company's obligations to convene the Company Shareholders' Meeting will not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any Company Takeover Proposal (as defined
below).
The Merger Agreement also provides that, notwithstanding the above, in the
event that Parent, Purchaser or any other subsidiary of Parent acquires at least
90% of the outstanding Shares pursuant to the Offer or otherwise, the parties
hereto will take all necessary and appropriate action to cause the Merger to
become effective in accordance with Section 302A.621 of the MBCA without a
meeting of the Shareholders as soon as practicable after the acceptance for
payment and purchase of Shares by Purchaser pursuant to the Offer.
REPRESENTATIONS AND WARRANTIES. Pursuant to the Merger Agreement, the
Company has made representations and warranties with respect to, among other
things: (i) the organization, corporate powers and qualifications of the Company
and its subsidiaries, (ii) the corporate power and authority to enter into the
Merger Agreement and, subject to obtaining any necessary Shareholder approval of
the Merger, to carry out its obligations thereunder; (iii) due authorization,
execution and delivery of the Merger Agreement by the Company and consummation
by the Company of the transactions contemplated thereby, subject to the approval
of the Merger by the Company's Shareholders in accordance with Minnesota law;
(iv) the capitalization of the Company and its significant subsidiaries; (v) the
ownership of the subsidiaries; (vi) the absence of other interests and
investments; (vii) the absence of conflicts between the Merger Agreement and the
transactions contemplated thereby with any law, regulation, court order,
judgment, decree, permit or license, agreements, contracts or other instruments
and obligations; (viii) the absence of any required waivers, consents or
approvals; (ix) the compliance of the Company and its subsidiaries with laws,
including those relating to the protection of the environment; (x) the accuracy
of documents filed with the Commission; (xi) the absence of certain litigation;
(xii) the absence of certain events since January 1, 1998, including that there
has not been any change in or effect on the business of the Company or other
event or condition that has had or can reasonably be expected to have a material
adverse effect on the business, results of operations or financial condition of
the Company and its subsidiaries, taken as a whole (other than any change,
effect, event or condition generally applicable to the industry in which the
Company and its subsidiaries operate or changes in general economic conditions,
except to the extent such changes, effects, events or conditions
disproportionately affect the Company and its subsidiaries taken as a whole) or
prevent or materially delay the Company's ability to consummate the transactions
contemplated thereby
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(a "Company Material Adverse Effect"); (xiii) certain tax considerations; (xiv)
patents, trademarks and other intellectual property; (xv) owned and leased real
property; (xvi) the Company's adoption of a plan to deal with year 2000
problems; (xvii) certain contractual obligations; (xviii) employee benefit
plans; (xix) compliance with state takeover statutes; (xx) the vote required by
Shareholders to approve the Merger Agreement; (xxi) the absence of brokerage or
finders fees or commissions payable in connection with the Merger Agreement and
the transactions contemplated thereby (other than with respect to fees payable
to Salomon Smith Barney and Wit Capital Corporation); (xxii) the receipt by the
Board of an opinion from Salomon Smith Barney; and (xxiii) the accuracy and
completeness of the information supplied by the Company in connection with the
Offer or other documents to be filed with the Commission in connection with the
transactions contemplated by the Merger Agreement.
Pursuant to the Merger Agreement, Parent and Purchaser have made
representations and warranties with respect to, among other things: (i) the
organization, corporate powers and qualifications of Parent and Purchaser; (ii)
the corporate power and authority to execute the Merger Agreement and to
consummate the transactions contemplated thereby; (iii) the absence of conflicts
between the Merger Agreement and the transactions contemplated thereby with any
law, regulation, court order, judgment, decree, permit or license, agreements,
contracts or other instruments and obligations; (iv) the absence of brokerage or
finders fees or commissions payable in connection with the Merger Agreement and
the transactions contemplated thereby (other than with respect to the fees
payable to Credit Suisse First Boston Corporation); (v) the accuracy of
documents filed with the Commission; (vi) the availability of funds or borrowing
capacity necessary for the transactions contemplated by the Merger Agreement;
(vii) the absence of certain litigation; and (viii) the beneficial ownership by
Parent or Purchaser of the Company's Shares.
CONDUCT OF BUSINESS PENDING THE MERGER. The Company has agreed that during
the period from the date of the Merger Agreement until the Effective Time,
except as expressly provided for in the Merger Agreement, the Company will, and
will cause its subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner conducted
prior to the date of the Merger Agreement and, to the extent consistent
therewith, will use their reasonable efforts to preserve intact their current
business organizations, use their reasonable efforts to keep available the
services of their current officers and other key employees and preserve their
relationships with those persons having business dealings with them to the end
that their goodwill and ongoing businesses will be unimpaired at the Effective
Time. The Company has further agreed that, without limiting the generality or
effect of the foregoing, except as expressly provided by the Merger Agreement,
during the period from the date of the Merger Agreement to the Effective Time,
the Company will not and will not permit any of its subsidiaries to, without the
consent of Parent or Purchaser: (i) other than dividends and distributions
(including liquidating distributions) by a direct or indirect wholly owned
subsidiary of the Company to its parent, or by a subsidiary that is partially
owned by the Company or any of its subsidiaries, provided that the Company or
any such subsidiary receives or is to receive its proportionate share thereof,
(a) declare, set aside or pay any dividends on, or make any other distributions
in respect of, any of its capital stock, (b) split, combine or reclassify any of
its capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of its capital stock, or
(c) purchase, redeem or otherwise acquire any shares of capital stock of the
Company or any of its Subsidiaries or any other securities thereof or any
rights, warrants or options to acquire any such shares of other securities
provided that nothing therein stated will limit the Company's right to cancel
the Options in exchange for the Option Consideration; (ii) issue, deliver, sell,
pledge or otherwise encumber any shares of its capital stock, any other voting
securities or any securities convertible into, or any rights, warrants or
options to acquire, any such shares, voting securities or convertible securities
except for the issuance of Shares pursuant to the exercise of Options that are
outstanding on February 8, 1999, or pursuant to the Directors' Retainer Stock
Deferral Plan or the 1994 Employee Stock Purchase Plan (to the extent Shares
have been paid for with payroll deductions at or prior to the date of the Merger
Agreement), provided that nothing therein stated will limit the Company's right
to cancel the Options in exchange for the Option Consideration; (iii) amend its
articles of incorporation, bylaws or other comparable organizational documents;
(iv) acquire by merging
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or consolidating with, or by purchasing a substantial portion of the assets of,
or by any other manner, any business or any corporation, limited liability
company, partnership, joint venture, association or other business organization
or division thereof; (v) sell, lease, license, mortgage or otherwise encumber or
subject to any lien or otherwise dispose of any of its properties or assets,
other than (a) in the ordinary course of business consistent with past practice
and (b) sales of assets which do not individually or in the aggregate exceed
$5.0 million; (vi) (a) incur any indebtedness for borrowed money (other than
indebtedness of the Company to any subsidiary of the Company or of any
subsidiary of the Company to the Company or to any other subsidiary of the
Company) or guarantee any such indebtedness of another person, other than the
Company or a subsidiary of the Company, issue or sell any debt securities or
warrants or other rights to acquire any debt securities of the Company or any of
its subsidiaries, guarantee any debt securities of another person, other than
the Company or a subsidiary of the Company, enter into any "keep well" or other
agreement to maintain any financial statement condition of another person other
than the Company or a subsidiary of the Company or enter into any arrangement
having the economic effect of any of the foregoing, except for short-term
borrowings incurred in the ordinary course of business consistent with past
practice, or (b) make any loans, advances or capital contributions to, or
investments in, any other person, other than to the Company or any subsidiary of
the Company or any of its subsidiaries or to officers and employees of the
Company or any of its subsidiaries for travel, business or relocation expenses
in the ordinary course of business; (vii) make or agree to make any capital
expenditure or capital expenditures other than capital expenditures set forth in
the operating budget of the Company previously furnished to Parent and
additional capital expenditures not to exceed $5.0 million in the aggregate;
(viii) make any change to its accounting methods, principles or practices,
except as may be required by generally accepted accounting principles; (ix)
except as required by law or contemplated by the Merger Agreement, enter into,
adopt or amend in any material respect or terminate any Company Stock Option
Plan or any other agreement, plan or policy involving the Company or any of its
subsidiaries and one or more of their directors, officers or employees, or
materially change any actuarial or other assumption used to calculate funding
obligations with respect to any Company pension plans, or change the manner in
which contributions to any Company pension plans are made or the basis on which
such contributions are determined; (x) increase the compensation of any
director, certain executive officers or, except in the ordinary course of
business, any other key employee of the Company or pay any benefit or amount not
required by a plan or arrangement as in effect on the date of the Merger
Agreement to any such person; (xi) enter into or amend in any material respect,
any material contract or any contract or agreement, oral or written, with any
affiliate, associate or relative of the Company (other than the Company or any
subsidiary of the Company), or make any payment to or for the benefit of,
directly or indirectly, any of the foregoing other than payments to directors
and officers in the ordinary course of business or pursuant to agreements or
arrangements in effect prior to the date of the Merger Agreement; or (xii)
authorize, or commit or agree to take, any of the foregoing actions.
CONSENTS, APPROVALS AND FILINGS. The Merger Agreement provides that each of
the parties to the Merger Agreement will use all reasonable efforts to take, or
cause to be taken, all actions, and to do, or cause to be done, and to assist
and cooperate with the other parties in doing, all things, necessary, proper or
advisable to consummate and make effective, in the most expeditious manner
practicable, the Merger and the other transactions contemplated by the Merger
Agreement, including all reasonable efforts to (i) obtain all necessary actions
or nonactions, waivers, consents and approvals from governmental entities and
make all necessary registrations and filings (including filings with
governmental entities) and take all reasonable steps as may be necessary to
obtain an approval or waiver from, or to avoid an action or proceeding by, any
governmental entity, (ii) obtain all necessary material consents, approvals or
waivers from third parties, (iii) defend any lawsuits or other legal
proceedings, whether judicial or administrative, challenging the Merger
Agreement or the consummation of the transactions contemplated thereby,
including seeking to have any adverse order entered by any court or other
governmental entity vacated or reversed, and (iv) execute and deliver any
additional instruments necessary to consummate the transactions contemplated by,
and to fully carry out the purposes of, the Merger Agreement.
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The Merger Agreement also provides that, in connection with, and without
limiting the foregoing, the Company and Parent will, and Parent will cause
Purchaser to, (i) take all action necessary to ensure that no state takeover
statute or similar statute or regulation (other than Chapter 80B of the
Minnesota Statutes) is or becomes applicable to the Offer, the Merger or any of
the other transactions contemplated thereby, and (ii) if any state takeover
statute or similar statute or regulation becomes applicable thereto, take all
action necessary to ensure that the Offer and the Merger and such other
transactions may be consummated as promptly as practicable on the terms
contemplated thereby and otherwise to minimize the effect of such statute or
regulation thereon.
Notwithstanding any other provision in the Merger Agreement, in no event
will Parent be required to agree to any divestiture, hold-separate or other
requirement in connection with the Merger Agreement or
any of the transactions contemplated thereby.
PUBLICITY. The Merger Agreement provides the Company and Parent will,
subject to their respective legal obligations (including requirements of stock
exchanges and other similar regulatory bodies), consult with each other, and use
reasonable efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements with respect to the
transactions contemplated thereby and in making any filings with any
governmental entity or with any national securities exchange with respect
thereto.
INDEMNIFICATION; DIRECTORS' AND OFFICERS' INSURANCE. The Merger Agreement
provides that all rights to indemnification and exculpation from liabilities for
acts or omissions occurring at or prior to the Effective Time existing in favor
of the current or former directors or officers of the Company or each of its
subsidiaries as provided in their respective articles of incorporation or bylaws
(or comparable organizational documents) will be assumed by Parent and Parent
will be directly responsible for such indemnification, without further action,
as of the Effective Time and will continue in full force and effect in
accordance with their respective terms. In addition, from and after the
Effective Time, directors and officers of the Company who become or remain
directors or officers of Parent or the Surviving Corporation will be entitled to
the same indemnity rights and protections (including those provided by
directors' and officers' liability insurance) of Parent. These provisions (i)
are intended to be for the benefit of, and will be enforceable by, each
indemnified party, his or her heirs and his or her representatives and (ii) are
in addition to, and not in substitution for, any other rights to indemnification
or contribution that any such person may have by contract or otherwise.
The Merger Agreement further provides that Parent will, and will cause the
Surviving Corporation to, maintain in effect for not less than six years after
the Effective Time policies of directors' and officers' liability insurance
equivalent in all material respects to those maintained by or on behalf of the
Company and its Subsidiaries on the date thereof (and having at least the same
coverage and containing terms and conditions which are no less advantageous to
the persons currently covered by such policies as insured) with respect to
matters existing or occurring at or prior to the Effective Time, provided,
however, that if the aggregate annual premiums for such insurance at any time
during such period exceed 200% of the per annum rate of premium currently paid
by the Company and its Subsidiaries for such insurance on the date of the Merger
Agreement, then Parent will cause the Surviving Corporation to, and the
Surviving Corporation will, provide the maximum coverage that is then be
available at an annual premium equal to 200% of such rate.
EMPLOYEE BENEFIT MATTERS. The Merger Agreement provides that, from and
after the Effective Time, the Surviving Corporation will have sole discretion
over the hiring, promotion, retention, firing, except for employee benefit plans
to the extent set forth below, and other terms and conditions of the employment
of employees of the Surviving Corporation. Subject to the immediately preceding
sentence, Parent will provide, or will cause the Surviving Corporation or its
subsidiaries to provide, for the benefit of employees of the Surviving
Corporation or its subsidiaries, as the case may be, who were employees of the
Company or its subsidiaries immediately prior to the Effective Time, recognizing
all prior service for eligibility and
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vesting purposes (including for purposes of determining entitlement to vacation,
severance and other benefits) of the officers, directors or employees with the
Company and any of its subsidiaries as service thereunder, certain existing
qualified pension plans of the Company or its subsidiaries until the expiration
of two years after the Effective Time, and, in addition, will provide for such
two-year period, other "employee benefit plans," within the meaning of Section
3(3) of ERISA, that, together with such existing qualified pension plans, are in
the aggregate at least substantially comparable to the "employee benefit plans,"
within the meaning of Section 3(3) of ERISA, provided to such individuals by the
Company or its subsidiaries on the date of the Merger Agreement, provided,
however, that notwithstanding the foregoing (i) nothing in the Merger Agreement
will be deemed to require Parent to modify the benefit formulas under any
pension plan of the Company or any of its subsidiaries in a manner that
increases the aggregate expenses thereof as of the date of the Merger Agreement
in order to comply with the requirements of ERISA, the Internal Revenue Code of
1986, as amended (the "Code"), or the Tax Reform Act of 1986, (ii) employee
stock ownership, stock option and similar equity-based plans, programs and
arrangements of the Company or any of its subsidiaries are not encompassed
within the meaning of the term "employee benefit plans" in the Merger Agreement,
(iii) nothing in the Merger Agreement will obligate Parent or the Surviving
Corporation to continue any particular employee benefit plan, other than the
existing qualified pension plans, for any period after the Effective Time, and
(iv) no employee of the Company or any subsidiary of the Company will have any
claim or right by reason of the Merger Agreement. Parent will cause the
Surviving Corporation to honor (subject to any withholdings under applicable
law) all employment, consulting and severance agreements or arrangements to
which the Company or any of its subsidiaries is presently a party, which are
specifically disclosed to Parent, except to the extent such agreement or
arrangement is superseded or amended by any subsequent arrangements or
agreements agreed to by the parties thereto in writing.
NO SOLICITATION. The Merger Agreement provides that the Company, its
affiliates and their respective officers, directors, employees, representatives
and agents will immediately cease any existing discussions or negotiations, if
any, with any parties conducted prior to the date thereof with respect to any
Company Takeover Proposal (as defined below). The Company will not, nor will it
permit any of its subsidiaries to, nor will it authorize or permit any of its
officers, directors or employees or any investment banker, financial advisor,
attorney, accountant or other representative retained by it or any of its
subsidiaries to, directly or indirectly, (i) solicit or initiate (including
without limitation by way of furnishing information), or take any other action
(other than required by law) designed or reasonably likely to facilitate, any
inquiries or the making of any proposal which constitutes or reasonably may give
rise to any Company Takeover Proposal or (ii) participate in any discussions or
negotiations regarding any Company Takeover Proposal; provided, however, that
if, at any time prior to the date on which Purchaser purchases Shares in the
Offer, the Board determines in good faith and in conformity with the advice of
outside counsel, that failure to do so would result in a breach of its fiduciary
duties to the Shareholders under applicable law, the Company may, in response to
a Company Takeover Proposal which was not solicited by it and did not otherwise
result from a breach of any provision of the Merger Agreement, (a) furnish
information with respect to the Company and each of its subsidiaries and access
to the Company and its subsidiaries and their personnel to any person pursuant
to a customary confidentiality agreement not more favorable to the recipient of
such information than the confidentiality agreement between Parent and the
Company and (b) participate in discussions and negotiations regarding such
Company Takeover Proposal. A "Company Takeover Proposal" means any inquiry,
proposal or offer from any person relating to any direct or indirect acquisition
or purchase of 20% or more of the assets of the Company and its subsidiaries,
taken as a whole, or 20% or more of any class of equity securities of the
Company or any of its subsidiaries, any tender offer or exchange offer for
Shares of any class of equity securities of the Company or any of its
subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its subsidiaries, other than the transactions contemplated by
the Merger Agreement, or any other transaction that is intended or could
reasonably be expected to prevent the completion of the transactions
contemplated thereby.
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The Merger Agreement further provides that, except as expressly permitted by
the Merger Agreement, neither the Board nor any committee thereof may (i)
withdraw or modify, or propose publicly to withdraw or modify, in a manner
adverse to Parent or Purchaser, the approval or recommendation by the Board or
such committee of the Offer, the Merger or the Merger Agreement, (ii) approve or
recommend, or propose publicly to approve or recommend, any Company Takeover
Proposal, or (iii) cause or authorize the Company to enter into any letter of
intent, agreement in principle, acquisition agreement or other similar agreement
related to any Company Takeover Proposal (each, a "Company Acquisition
Agreement"). Notwithstanding the foregoing, in the event that prior to the Offer
Completion Date, the Board determines in good faith, after the Company has
received a Superior Proposal (as defined below) and in conformity with the
advice of outside counsel, that failure to do so would result in a breach of its
fiduciary duties to the Shareholders under applicable law, the Company Board may
upon not less than three business days notice to Parent of its intention to do
so withdraw or modify or propose publicly to withdraw or modify its approval or
recommendation of the Offer, the Merger or the Merger Agreement, or approve or
recommend, or propose publicly to approve or recommend a Superior Proposal or
enter into a Company Acquisition Agreement, provided, however, that in
connection therewith, the Company simultaneously terminates the Merger
Agreement. A "Superior Proposal" means a Company Takeover Proposal that (a)
involves the direct or indirect acquisition or purchase of 50% or more of the
assets of the Company and its subsidiaries or 50% or more of any class of equity
securities of the Company or any of its subsidiaries, (b) involves payment of
consideration to the Shareholders and other terms and conditions that, taken as
a whole, are superior to the Offer and the Merger, and (c) is made by a person
reasonably capable of completing such Company Takeover Proposal, taking into
account the legal, financial, regulatory and other aspects of such Company
Takeover Proposal and the person making such Company Takeover Proposal.
The Merger Agreement further provides that the Company will (i) immediately
advise Parent orally and in writing of any request for information or of any
Company Takeover Proposal and the material terms and conditions of such request
or Company Takeover Proposal and (ii) keep Parent reasonably informed of the
status and details (including amendments or proposed amendments) of any such
request or Company Takeover Proposal.
Nothing contained in the Merger Agreement will prohibit the Company from
taking and disclosing to Shareholders a position contemplated by Rule 14e-2(a)
promulgated under the Exchange Act or from making any disclosure to Shareholders
if the Board determines in good faith in conformity with the advice of outside
counsel that failure to do so would result in a breach of its fiduciary duties
to Shareholders under applicable law, provided, however, that neither the
Company nor the Board nor any committee thereof may, except as expressly
permitted by the Merger Agreement or required by Rule 14e-2(a) promulgated under
the Exchange Act, withdraw or modify, or propose publicly to withdraw or modify,
its position with respect to the Offer, the Merger Agreement or the Merger or
approve or recommend, or propose publicly to approve or recommend, a Company
Takeover Proposal.
CONDITIONS TO THE MERGER. Pursuant to the Merger Agreement, the respective
obligations of each party to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date (as defined in the Merger
Agreement), of the following conditions: (i) Purchaser shall have made, or
caused to be made, the Offer and shall have purchased, or caused to be
purchased, the Shares validly tendered and not withdrawn pursuant to the Offer,
provided, that this condition shall be deemed to have been satisfied with
respect to the obligation of Parent and Purchaser to effect the Merger if
Purchaser fails to accept for payment or pay for Shares pursuant to the Offer in
violation of the terms of the Offer or of the Merger Agreement; (ii) if so
required by law, the Merger Agreement and the transactions contemplated thereby
shall have been approved in the manner required by applicable law by the holders
of the issued and outstanding shares of capital stock of the Company; and (iii)
no order or law enacted, entered, promulgated, enforced or issued by any court
of competent jurisdiction or other governmental entity or other legal restraint
or prohibition (collectively, "Restraints") preventing the consummation of the
Merger shall be in effect.
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The Merger Agreement further provides that the obligation of Parent and
Purchaser to effect the Merger will be subject to the fulfillment at or prior to
the Closing Date of the additional condition that the Company shall have
performed in all material respects its obligations to elect the Parent Designees
to the Board.
TERMINATION AND FEES. The Merger Agreement may be terminated and the Merger
and the transactions contemplated therein may be abandoned (i) at any time prior
to the Effective Time, before or after approval of the Merger Agreement by the
Shareholders, by mutual consent of Parent and the Company; (ii) by action of the
Board of Directors of either Parent or the Company if (a) the Offer Completion
Date shall not have occurred by June 30, 1999 (the "Outside Date") or, if the
Offer Completion Date occurs but the Effective Time shall not have occurred by
February 10, 2000 (the "Drop-Dead Date"), provided, that no party may terminate
the Merger Agreement pursuant to this clause (ii)(a) if such party's failure to
fulfill any of its obligations under the Merger Agreement shall have been the
reason that the Offer Completion Date or the Effective Time, as the case may be,
shall not have occurred on or before the applicable date, (b) any governmental
entity shall have issued a Restraint or taken any other action permanently
enjoining, restraining or otherwise prohibiting the consummation of the Offer,
the Merger or any of the other transactions contemplated by the Merger Agreement
and such restraint or other action shall have become final and nonappealable, or
(c) the Offer expires or is terminated or withdrawn pursuant to its terms
without any Shares being purchased thereunder by Purchaser as a result of the
failure of any of the Offer Conditions to be satisfied or waived prior to the
Expiration Date; (iii) at any time prior to the Offer Completion Date, by action
of the Board, if (a) there has been a material breach by Parent or Purchaser of
any representation or warranty contained in the Merger Agreement which is not
curable or, if curable, is not cured by the Outside Date and such breach could
reasonably be likely to prevent or materially delay Parent's or Purchaser's
ability to consummate the transactions contemplated by the Merger Agreement (a
"Parent Material Adverse Effect"), (b) there has been a material breach of any
of the covenants set forth in the Merger Agreement on the part of Parent or
Purchaser, which breach is not curable or, if curable, is not cured within 15
calendar days after written notice of such breach is given by the Company to
Parent, or (c) in accordance with the Board's exercise of its fiduciary duties
as described in the section entitled "No Solicitation" above; (iv) at any time
prior to the Offer Completion Date by Parent, if (a) the Board shall have (1)
withdrawn or modified in a manner adverse to Parent or Purchaser its approval or
recommendation of the Merger Agreement, the Offer or the Merger, (2) approved or
recommended, or proposed publicly to approve or recommend, a third-party Company
Takeover Proposal, (3) caused or authorized the Company or any of its
subsidiaries to enter into a Company Acquisition Agreement, (4) approved the
breach of the Company's obligations not to withdraw or modify approval of the
Offer or the Merger (or publicly propose to do so), not to approve or recommend
any Company Takeover Proposal (or publicly propose to do so) and not to cause or
authorize a Company Acquisition Agreement to be entered into, as described in
the section entitled "No Solicitation" above, or (5) resolved or publicly
disclosed any intention to take any of the foregoing actions, (b) there has been
a material breach by the Company of any representation or warranty contained in
the Merger Agreement which is not curable or, if curable, is not cured by the
Outside Date and such breach had or could reasonably be likely to have a Company
Material Adverse Effect, or (c) there has been a material breach of any of the
covenants set forth in the Merger Agreement on the part of the Company, which
breach is not curable or, if curable, is not cured within 15 days after written
notice of such breach is given by Parent to the Company.
The Merger Agreement provides that the Company will pay to Purchaser an
amount equal to $40.0 million (the "Termination Fee") in any of the following
circumstances: (w) the Merger Agreement is terminated at such time that the
Merger Agreement is terminable as described in clause (iii)(c) or clause (iv)(a)
of the preceding paragraph; (x) the Merger Agreement is terminated by either
Parent or the Company as described in clause (ii)(a) of the preceding paragraph,
and (1) at the time of such termination the Minimum Condition shall not have
been satisfied, (2) at the time of such termination the Company shall not have
the right to terminate the Merger Agreement as described in clause (iii)(a) or
(b) of the preceding paragraph, (3) prior to such termination, a Company
Takeover Proposal involving at least 50%
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of the assets of the Company and its subsidiaries, taken as a whole, or 50% of
any class of equity securities of the Company (any such Company Takeover
Proposal, a "Competing Proposal"), is (a) publicly disclosed or has been made
directly to Shareholders generally or (b) any person (including without
limitation the Company or any of its subsidiaries) publicly announces an
intention (whether or not conditional) to make such a Competing Proposal (a
"Takeover Proposal Event"), and (4) prior to the termination of the Merger
Agreement or within 12 months after the termination of the Merger Agreement, the
Company or a subsidiary thereof enters into a Company Acquisition Agreement
providing for a Competing Proposal (any such agreement, a "Competing Proposal
Agreement"); (y) the Merger Agreement is terminated by either Parent or the
Company as described in clause (ii)(c) of the preceding paragraph and (1) at the
time of such termination the Minimum Condition shall not have been satisfied,
(2) at the time of such termination the Company shall not have the right to
terminate the Merger Agreement as described in clause (iii)(a) or (b) of the
preceding paragraph, (3) prior to such termination a Takeover Proposal Event
shall have occurred, and (4) prior to the termination of the Merger Agreement or
within 12 months after the termination of the Merger Agreement, the Company or a
subsidiary thereof enters into a Competing Proposal Agreement; or (z) the Merger
Agreement is terminated by Parent as described in clause (iv)(b) or (c) of the
preceding paragraph, and (1) prior to such termination a Takeover Proposal Event
shall have occurred, and (2) prior to the termination of the Merger Agreement or
within 12 months after the termination of the Merger Agreement, the Company or a
subsidiary thereof enters into a Competing Proposal Agreement.
If the Merger Agreement is terminated in circumstances where a Termination
Fee is then payable, the Merger Agreement provides that, in any such case, the
Company will promptly, but in no event later than two business days after
submission of a request therefor, pay Parent up to $4.0 million of Parent's
documented expenses.
The Merger Agreement further provides that if a Termination Fee is payable
as described in clause (x), (y) or (z) of the second preceding paragraph, then
the Company will pay the Termination Fee to Parent upon the signing of a
Competing Proposal Agreement or, if no Competing Proposal Agreement is signed,
then at the closing (and as a condition of closing) of a Competing Proposal.
Notwithstanding any other provision thereof, (a) in no event may the Company
enter into a Competing Proposal Agreement unless, prior thereto, the Company has
paid any amount due or which will become due under the Merger Agreement, (b) the
Company may not terminate the Merger Agreement unless prior thereto it has paid
to Parent all amounts then due under the Merger Agreement, (c) all amounts due
as described in clause (w) of the second preceding paragraph and in the
circumstances in which the Company has not entered into a Competing Proposal
Agreement will be payable promptly, but in no event more than two business days
after request therefor is made, and (d) all amounts due under the Merger
Agreement will be paid on the date due in immediately available funds wire
transferred to the account designated by Parent.
The Merger Agreement further provides that, except as set forth above, all
fees and expenses (including Commission filing fees) incurred in connection with
the Offer, the Merger, the Merger Agreement and the transactions contemplated
thereby will be paid by the party incurring such fees or expenses, whether or
not the Merger is consummated, except that Parent and the Company will bear and
pay one-half of the costs and expenses incurred in connection with the printing
and mailing of the Offer documents, the Schedule 14D-9 and the proxy statement.
AMENDMENT. The Merger Agreement may be amended by the parties thereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by
Shareholders of the Company but after any such Shareholder approval, no
amendment will be made which by law requires the further approval of such
Shareholders without obtaining such further approval. The Merger Agreement may
not be amended except by an instrument in writing signed on behalf of each of
the parties thereto.
ASSIGNMENT. Neither the Merger Agreement nor any of the rights, interests
or obligations thereunder may be assigned by any of the parties thereto (whether
by operation of law or otherwise) without the prior
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written consent of the other parties. Subject to the preceding sentence, the
Merger Agreement will be binding upon and will inure to the benefit of the
parties thereto and their respective successors and assigns. Notwithstanding
anything contained in the Merger Agreement to the contrary, except as described
in the section entitled "Indemnification; Directors' and Officers' Insurance,"
nothing in the Merger Agreement, expressed or implied, is intended to confer on
any person other than the parties thereto or their respective heirs, successors,
executors, administrators and assigns any rights, remedies, obligations or
liabilities under or by reason of the Merger Agreement.
CONFIDENTIALITY AGREEMENT
On November 11, 1998, the Company and Parent entered into a confidentiality
agreement (the "Confidentiality Agreement"). The Confidentiality Agreement
contains customary provisions pursuant to which, among other matters, Parent and
the Company each agreed to keep confidential all non-public information
furnished to it by the other party and to use such information solely in
connection with evaluating a possible transaction involving the Company and
Parent. Parent has agreed in the Confidentiality Agreement that, for a period of
one year after the date of the Confidentiality Agreement, neither it nor any of
its affiliates will, without the prior written consent of the Company, acquire
or seek to acquire any of the Company's voting securities or otherwise seek to
influence or control management or policies of the Company. However, the Merger
Agreement amends the Confidentiality Agreement to eliminate these provisions
with respect to certain transactions in which Parent offers to acquire all of
the Shares at not less than the Per Share Amount. The foregoing summary of the
Confidentiality Agreement is qualified in its entirety by reference to the full
text of the Confidentiality Agreement, which is filed herewith as Exhibit 2 and
is incorporated herein by reference, and by reference to Section 8.4 of the
Merger Agreement.
EMPLOYMENT LETTERS
In connection with the execution of the Merger Agreement, at the request of
Parent, certain executive officers of the Company, namely William J. Lansing,
Michael P. Sherman, John D. Buck and Andrew V Johnson (the "Executives"), have
entered into non-binding employment letters (the "Employment Letters"), each
dated February 10, 1999, with Parent relating to their employment following the
Effective Time. Each Employment Letter provides that the terms of the Severance
Agreement (described under "Executive Compensation" in the Information
Statement) between the Company and the Executive would be superseded by a
definitive employment agreement entered into pursuant to the Employment Letter
to the extent that the Executive's Severance Agreement relates to the
compensation and benefits to be received by the Executive during the two-year
period following the Effective Time. The following summary of the Employment
Letters is qualified in its entirety by reference to the full text of the
Employment Letters, which are filed herewith as Exhibits 3 through 6 and are
incorporated herein by reference.
If the Executives were to enter into definitive employment agreements with
Parent under the terms set forth in their respective Employment Letters, then in
exchange for full-time employment with the Company and at the Effective Time,
the following would occur: Mr. Lansing would receive an annual base salary of
$600,000, which would increase to $800,000 on May 1, 1999; Mr. Sherman would
receive an annual base salary of $400,000; Mr. Buck would receive an annual base
salary of $400,000; and Mr. Johnson would receive an annual base salary of
$325,000. Mr. Lansing's, Mr. Buck's and Mr. Sherman's compensation for the year
ended December 31, 1998 is described in the Information Statement. Mr. Johnson's
base salary for 1998 was $285,000. Mr. Lansing, currently the Company's
President, would be named President and Chief Executive Officer of the Company
on May 1, 1999, and subsequently be named Chairman and Chief Executive Officer
of the Company on January 1, 2000. Each of the other Executives would retain his
current position and title. Mr. Lansing's annual target bonus would be 125% of
his annual salary (which for 1999 would be calculated based upon a deemed annual
salary of $700,000), with a maximum of 168% (and a minimum bonus of $300,000 in
1999). Messrs. Buck and Sherman's annual target bonus would be 110% of their
annual salary (which for 1999 would be calculated based upon a deemed annual
salary of $387,500), with a maximum of 146% (and a minimum
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bonus of $347,500 in 1999). Mr. Johnson's annual target bonus would be 100% of
his annual salary, with a maximum of 134%.
Each Executive would also receive at the Effective Time an award of options
to purchase Parent's common stock exercisable at the closing price of Parent's
common stock on February 10, 1999, and an award of shares of restricted stock
from Parent. Mr. Lansing would receive options to purchase 300,000 Parent shares
and restricted stock of Parent valued at $1,585,769 plus an additional 25,000
shares of restricted stock of Parent; Messrs. Buck and Sherman would each
receive options to purchase 125,000 Parent shares and restricted stock of Parent
valued at $290,902 plus an additional 10,000 shares of restricted stock of
Parent; and Mr. Johnson would receive options to purchase 50,000 Parent shares
and 5,000 shares of restricted stock of Parent. In addition, Mr. Lansing would
exchange current options to purchase 370,000 Company shares and restricted stock
of the Company valued at approximately $3,600,000 for options to purchase
approximately 210,000 Parent shares and approximately 82,000 shares of
restricted stock of Parent. Messrs. Buck and Sherman would each exchange current
options to purchase 100,000 Company shares for approximately 57,000 Parent
shares, and Mr. Johnson would exchange current options to purchase 65,000
Company shares for options to purchase approximately 37,000 Parent shares.
If the Executives were to enter into definitive employment agreements under
the terms set forth in their respective Employment Letters, each employment
agreement would have a three-year term. Each Executive's Severance Agreement
(other than Mr. Johnson's) would be modified by such employment agreement to
eliminate the Executive's right to receive severance under his Severance
Agreement if he voluntarily terminates his employment with the Company for any
reason during the thirteenth month after the Effective Time, as well as his
right to receive severance under his Severance Agreement if his employment were
terminated by the Company during the two-year period following the Effective
Time. Instead, the terms of such Employment Letters provide that each such
Executive (other than Mr. Johnson) would receive a retention bonus on the first
anniversary of the Effective Time unless the Executive has voluntarily
terminated his employment prior to that time for other than good reason (as
defined in the Severance Agreements). Mr. Lansing's retention bonus would be
equal to three times his 1998 base salary ($1,350,000) plus the greater of (i)
three times his 1998 bonus ($1,650,000) and (ii) three times his actual bonus
earned for 1999 calculated on a $450,000 base salary. Each of Mr. Buck's and Mr.
Sherman's retention bonuses would be equal to three times the greater of (i) his
aggregate 1998 base salary and bonus paid in respect of 1998 performance and
(ii) the aggregate of $350,000 and the bonus payable in respect of his 1999
performance assuming a $350,000 base salary.
ITEM 4. THE SOLICITATION OR RECOMMENDATION
(A) RECOMMENDATION OF THE BOARD OF DIRECTORS
At a meeting of the Board held on February 10, 1999 (one director being
absent), the Board unanimously approved the Merger Agreement and the
transactions contemplated thereby, including the Offer and the Merger.
The Board (one director being absent) unanimously resolved to recommend that
Shareholders accept the Offer and approve the Merger Agreement and the Merger
and determined that the Offer and the Merger are fair to and in the best
interests of the Company and the Shareholders.
A letter to the Shareholders communicating the Board's recommendation and a
press release announcing the Offer, the Merger and the Merger Agreement are
filed herewith as Exhibit 7 and Exhibit 8, respectively, and are incorporated
herein by reference.
(b) BACKGROUND REASONS FOR THE BOARD OF DIRECTORS' RECOMMENDATION.
On October 27, 1998, Ronald W. Tysoe, Parent's Vice Chairman, Theodore
Deikel, the Company's Chairman and Chief Executive Officer, and a representative
of the Company met at Parent's request to discuss a possible commercial
relationship under which the Company would provide logistical services to
Parent. Mr. Tysoe indicated in that meeting that Parent might also be willing to
explore a possible
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substantial investment or other strategic transaction involving the Company. Mr.
Deikel indicated at the October 27th meeting that the Company was not for sale
and was pursuing its own long-term growth strategy as an independent company,
but that the Company would nonetheless consider Parent's indication of possible
interest and respond thereto in due course.
In November 1998, representatives of the Company informed representatives of
Parent that the Company would be willing to explore a possible substantial
investment by Parent or other strategic transaction involving the Company, but
only if Parent signed a customary confidentiality/standstill agreement.
Thereafter, such an agreement, dated as of November 11, 1998, was signed and,
commencing in December 1998, the Company provided Parent non-public financial
and operating information relating to the Company, including at a senior
management presentation on December 9, 1998. In mid-December 1998,
representatives of Parent informed representatives of the Company that Parent
had an interest in exploring, on a preliminary basis, a possible business
combination transaction with the Company and indicated a valuation range of
$20-$24 per Share, subject to further due diligence by Parent. The parties
determined to continue discussions and the due diligence review in January 1999
following the completion of the Christmas retail season, although
representatives of the Company informed representatives of Parent that the
Company's willingness to continue discussions did not indicate that the Company
agreed with Parent's valuation range.
The parties renewed their preliminary discussions and the due diligence
review in mid-January 1999, including at a senior management presentation on
January 13, 1999. On January 27, 1999, Parent proposed to acquire the Company at
$24 per Share in cash.
At a Board meeting on January 29, 1999, the terms of Parent's proposal were
reviewed by Faegre & Benson LLP ("Faegre & Benson"), counsel to the Company,
with the Board, and Salomon Smith Barney, the Company's financial advisor,
analyzed the proposed transaction assuming the $24.00 per Share price proposed
by Parent. The Board instructed management and Salomon Smith Barney to continue
negotiations and to attempt to obtain a higher price for the Company.
On January 29, 1999, representatives of the Company informed representatives
of Parent that the Board had considered Parent's proposal and instructed the
Company's management not to accept it. Representatives of the Company also
indicated they believed the Board would support a transaction at $26.00 per
Share and that the Company was willing to continue discussions of a possible
business combination transaction if Parent was interested in so doing.
On February 2, 1999, Mr. Tysoe and Thomas G. Cody, Parent's Executive Vice
President, met at Parent's request with Mr. Lansing and other senior executives
of the Company to further review the Company's business plans and discuss
Parent's desire to assure that the Company's senior management team would remain
with the Company if a decision were made to proceed with a transaction.
Following that meeting, Mr. Tysoe informed Mr. Deikel that Parent would be
willing to increase its indicated price to $25.00 per Share, subject to
confirming the willingness of certain senior executives of the Company to
continue with the Company following any such transaction and the negotiation of
definitive documentation satisfactory to Parent. Thereafter, representatives of
the parties engaged in continued discussions regarding definitive documentation
and other matters relating to a possible transaction and Parent completed its
initial due diligence review of the Company. In addition, representatives of
Parent engaged in discussions with certain senior executives of the Company
relating to their willingness to continue with the Company following a business
combination transaction, their terms of employment and Parent's request that
certain options and restricted Shares which otherwise would vest in any
transaction such as the Offer and the Merger be converted into options to
acquire Parent common shares and restricted Parent common shares.
The Board met on February 5, 1999 to discuss Parent's new proposal to
acquire the Company for $25.00 per Share. Mr. Deikel and Mr. Lansing discussed
recent developments, including Parent's request that Mr. Lansing and certain
other members of senior management of the Company enter into employment term
sheets with Parent and the status of the negotiations between Mr. Lansing and
members of
15
<PAGE>
senior management of Parent concerning the terms of their employment in the
event the transaction was completed. Salomon Smith Barney analyzed the proposed
transaction assuming a $25.00 per Share price. The draft of the Merger Agreement
received from Jones, Day, Reavis & Pogue, counsel to Parent and Purchaser
("Jones Day"), was distributed and that draft, together with the changes that
had been negotiated by Faegre & Benson and Jones Day, were reviewed by Faegre &
Benson and the major outstanding issues were discussed. The Board authorized
management to continue negotiations on the outstanding issues.
Between February 5, 1999 and February 10, 1999, representatives of Faegre &
Benson and Jones Day then continued their negotiation of the Merger Agreement,
Parent continued its due diligence review of the Company and Mr. Lansing and
other members of senior management of the Company continued discussions with
members of senior management of Parent concerning the terms of their future
employment.
On February 10, 1999, the Board met again. Members of the Company's
management, Salomon Smith Barney and Faegre & Benson updated the Board on the
status of discussions, including the indicated willingness of Parent to accept a
$40 million termination fee in lieu of the $50 million termination fee that had
initially been requested by Parent and the proposed resolution of the remaining
issues regarding the Merger Agreement. Faegre & Benson reviewed with the Board
the other provisions of the most recent draft of the Merger Agreement that had
previously been distributed to the members of the Board. Salomon Smith Barney
updated the Board as to certain aspects of its February 5 presentation, and
rendered to the Board its oral opinion (which opinion was subsequently confirmed
by delivery of a written opinion dated February 10, 1999) as to the fairness,
from a financial point of view, of the $25.00 per Share cash consideration to be
received in the Offer and Merger by the holders of Shares (other than Parent and
its affiliates). A special committee of the Board, consisting of all independent
directors of the Board for purposes of Section 302A.673 of the MBCA, unanimously
(with two directors absent because of their advisory or consulting relationships
with the Company) approved the Offer, the Merger and the Merger Agreement.
Immediately thereafter, the Board (with one director absent) unanimously
approved the Offer, the Merger and the Merger Agreement and determined that the
terms of the Offer and Merger were fair to and in the best interests of the
Company and its Shareholders.
That evening the parties signed the Merger Agreement.
On February 11, 1999, Parent and the Company publicly announced that they
had entered into the Merger Agreement.
REASONS FOR TRANSACTIONS; FACTORS CONSIDERED BY THE BOARD OF DIRECTORS
In approving the Merger, the Offer and the Merger Agreement and recommending
that all Shareholders tender their Shares pursuant to the Offer and approve and
adopt the Merger Agreement and the transactions contemplated by the Merger
Agreement, including the Merger, the Board considered a number of factors,
including:
1. the financial and other terms and conditions of the Offer, the Merger
and the Merger Agreement;
2. the Board's familiarity with and review of the business, financial
condition, results of operations and prospects of the Company, including the
desirability of continuing to implement the Company's strategy of expansion
in its core catalog business and in internet-based commerce and the need for
substantial additional capital in order to fully implement the Company's
expansion strategies;
3. the Board's belief, after considering the possible alternatives to
the Offer and the Merger, that no other buyer would be likely to provide a
comparable value to the Shareholders, in light of Parent's financial
condition, the particular synergies that would be created for Parent as a
result of the Company's business combination with Parent and Parent's growth
plans;
16
<PAGE>
4. the risks of implementing the Company's strategies and increasing its
profitability as an independent company, including the likelihood of
acquiring sufficient capital within a time frame that would not limit its
expansion, the challenges of integrating its present and contemplated future
acquisitions and the likelihood of increasing its revenues sufficiently to
overcome its pricing decreases and of maintaining its favorable bad debt
performance;
5. the historical market price performance of the Shares and the
likelihood that the present value of the future market price of the Shares
would exceed $25.00 per Share;
6. the fact that the Merger Agreement, which prohibits the Company, its
subsidiaries and their respective officers, directors, employees,
representatives and agents or any officer, director, investment banker,
financial advisor, attorney, accountant or other representative retained by
it or any of its subsidiaries from soliciting or initiating or taking other
action designed or reasonably likely to facilitate any inquiries or
proposals that constitute or reasonably may give rise to a Company Takeover
Proposal or participating in discussions regarding a Company Takeover
Proposal, does permit the Company to furnish information and provide access
to, or to participate in discussions and negotiations with, any person or
entity that makes an unsolicited Company Takeover Proposal after the date of
the Merger Agreement, if the Board determines in good faith and in
conformity with the advice of outside counsel that failure to do so would
result in a breach of its fiduciary duties to its Shareholders under
applicable law;
7. the benefits to the Company's additional constituents (principally
its work force and the local community) from Parent's intent to maintain the
Company's work force generally and its covenant contained in the Merger
Agreement to provide existing employees who continue to be employees of the
Company with certain employee benefits at least substantially comparable in
the aggregate to the employee benefits they currently enjoy for two years
after the Effective Time and to maintain certain of the Company's qualified
pension plans in effect during that two-year period, and from its current
intent to keep the Company's headquarters in the Minneapolis metropolitan
area;
8. the Board's belief that the terms of the Merger Agreement, taking
into account the termination fee and the required reimbursement of
documented out-of-pocket expenses payable to Parent in the event of the
Company's actual, or publicly proposed, withdrawal or modification, in a
manner adverse to Parent, of its approval or recommendation of the Merger or
its actual, or publicly proposed, approval or recommendation of a Superior
Proposal or its entry into a third-party acquisition agreement, which was an
integral part of Parent's proposal, should not unduly discourage superior
third-party offers;
9. the presentations of Salomon Smith Barney at the January 29, February
5, and February 10, 1999 Board meetings, including the opinion of Salomon
Smith Barney, dated February 10, 1999, to the effect that, as of such date
and based upon and subject to certain matters stated in such opinion, the
$25.00 per Share cash consideration to be received in the Offer and the
Merger by holders of Shares (other than Parent and its affiliates) was fair,
from a financial point of view, to such holders. The full text of Salomon
Smith Barney's opinion, which sets forth the assumptions made, matters
considered and limitations on the review undertaken by Salomon Smith Barney,
is attached hereto as Exhibit 9 and is incorporated herein by reference.
Salomon Smith Barney's opinion is directed only to the fairness, from a
financial point of view, of the $25.00 per Share cash consideration to be
received in the Offer and the Merger by holders of Shares (other than Parent
and its affiliates) and is not intended to constitute, and does not
constitute, a recommendation as to whether any Shareholder should tender
Shares pursuant to the Offer. HOLDERS OF SHARES ARE ENCOURAGED TO READ
SALOMON SMITH BARNEY'S OPINION CAREFULLY IN ITS ENTIRETY; and
10. the limited number of conditions to the obligations of Parent and
Purchaser to consummate the Offer and the Merger, including the absence of a
financing condition to the Offer or any condition based on fluctuations in
general stock prices.
17
<PAGE>
Each of the factors set forth above was believed by the Board to support its
decision to recommend acceptance of the Offer and to approve, and to recommend
approval by the Shareholders of, the Merger and the Merger Agreement, except for
the sixth and eighth factors, relating to the terms of the Merger Agreement,
which are inherent in merger transactions.
The Board did not find it necessary or practical to assign relative weights
to the factors or determine that any factor was determinative or of more
importance than other factors. Rather, the Board viewed its position and
recommendation as being based on the totality of the information presented to
and considered by it. Furthermore, individual directors may have given different
weights to different factors.
The Board also considered the detriments of the Merger, namely:
1. the Company's long term potential for growth and profitability if it
could overcome the risks referenced above, to the extent not reflected in
the Merger Consideration, would not benefit the former Shareholders;
2. the synergies resulting from the Merger, to the extent not reflected
in the Merger Consideration, would not benefit the former Shareholders; and
3. the sale of Shares in the Offer and the conversion of Shares in the
Merger would be taxable to Shareholders for federal income tax purposes.
However, the Board determined that such detriments were inherent in proceeding
with the Offer and the Merger and were offset by the benefits of the Offer and
the Merger summarized above.
ITEM 5. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED
The Company has retained Salomon Smith Barney to act as its financial
advisor in connection with the Offer and the Merger. Pursuant to the terms of
Salomon Smith Barney's engagement, the Company agreed to pay Salomon Smith
Barney an aggregate financial advisory fee equal to 0.49% of the aggregate
consideration payable in the Offer and the Merger. The Company also has agreed
to reimburse Salomon Smith Barney for travel and other reasonable out-of-pocket
expenses, including the reasonable fees and disbursements of its legal counsel,
and to indemnify Salomon Smith Barney and related parties against certain
liabilities, including liabilities under the federal securities laws, arising
out of Salomon Smith Barney's engagement. Salomon Smith Barney has in the past
provided investment banking services to the Company and Parent unrelated to the
proposed Offer and Merger, for which services Salomon Smith Barney has received
compensation. In the ordinary course of business, Salomon Smith Barney and its
affiliates (including Citigroup Inc. and its affiliates) may actively trade or
hold the securities of the Company and Parent for their own account or for the
account of customers and, accordingly, may at any time hold a long or short
position in such securities.
The Company has entered into an agreement with Wit Capital Corporation ("Wit
Capital") for financial advisory services in connection with the Offer and the
Merger. Robert H. Lessin, a member of the Board, is the Chairman and Chief
Executive Officer of Wit Capital and a former executive officer of Salomon Smith
Barney. For its services as financial advisor, the Company has agreed to pay Wit
Capital a cash fee of $500,000 in the event of completion of a business
combination with Parent. The Company has also agreed to indemnify Wit Capital
against certain liabilities, including liabilities under the federal securities
laws, arising out of Wit Capital's engagement. The full text of this agreement
is filed herewith as Exhibit 10 and is incorporated herein by reference.
Neither the Company nor any other persons acting on its behalf currently
intends to employ, retain or compensate any other person to make solicitations
or recommendations to Shareholders on its behalf concerning the Offer.
18
<PAGE>
ITEM 6. RECENT TRANSACTIONS AND INTENT WITH RESPECT TO SECURITIES
(a) No transactions in the Shares have been effected during the past 60 days
by the Company or, to the knowledge of the Company, by any executive officer,
director, affiliate or subsidiary of the Company other than (i) a grant to Mr.
Johnson on January 26, 1999 of options to purchase 25,000 Shares, (ii) the sale
of 41,000 Shares in an open-market transaction on January 28, 1999 by a trust of
which Mr. Deikel is a trustee, and (iii) a gift of 800 Shares made by Mr. Deikel
on December 31, 1998.
(b) To the knowledge of the Company, its executive officers, directors,
affiliates and subsidiaries presently intend to tender, pursuant to the Offer,
any Shares that are held of record or are beneficially owned by them, except in
certain cases in which an individual may benefit from a tax standpoint from
extending his or her holding period for long term capital gains by holding
certain Shares until the Effective Time or may avoid liability under Section
16(b) of the Exchange Act by converting Shares in the Merger rather than
tendering Shares in the Offer.
ITEM 7. CERTAIN NEGOTIATIONS AND TRANSACTIONS BY THE SUBJECT COMPANY
(a) Except as set forth in this Schedule 14D-9, the Company is not engaged
in any negotiation in response to the Offer that relates 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. As described in Item 4(b) above, the Board, in connection
with the exercise of its fiduciary duties, is permitted under certain conditions
to engage in negotiations in response to certain unsolicited Company takeover
proposals.
(b) Except as described in Items 3(b) and 4 above, there are no
transactions, Board resolutions, agreements in principle or signed contracts in
response to the Offer that relate to or would result in one or more of the
matters referred to in paragraph (a) of this Item 7.
ITEM 8. ADDITIONAL INFORMATION
(a) The Information Statement attached as Annex I hereto and incorporated
herein by reference is being furnished pursuant to Rule 14f-1 under the Exchange
Act in connection with the potential designation by Parent, pursuant to the
Merger Agreement, of certain persons to be appointed to the Board other than at
a meeting of Shareholders, as described in Item 3.
(b) At its meeting held on February 10, 1999, a special committee of the
Board authorized and approved entering into the Merger Agreement and the
transactions contemplated thereby for purposes of Sections 302A.671 and 302A.673
of the MBCA.
(c) No dissenters' rights are available in connection with the Offer.
However, if the Merger is consummated, dissenting Shareholders who comply with
statutory procedural requirements will be entitled to exercise dissenters'
rights for the fair value for their Shares under Section 302A.473 of the MBCA.
To be entitled to payment, a dissenting Shareholder must not accept the Offer,
must file with the Company, prior to the vote for the Merger, a written notice
of intent to demand payment of the fair value of the Shares, must not vote in
favor of the Merger and must satisfy the other procedural requirements of
Section 302A.473 of the MBCA. Any Shareholders contemplating the exercise of
their dissenters' rights should review carefully the provisions of Sections
302A.471 and 302A.473 of the MBCA, particularly the procedural steps required to
perfect such rights. SUCH RIGHTS WILL BE LOST IF THE PROCEDURAL REQUIREMENTS OF
SECTION 302A.473 OF THE MBCA ARE NOT FULLY AND PRECISELY SATISFIED.
If a vote of Shareholders is required to approve the Merger under the MBCA,
the notice and proxy statement for the Shareholder meeting will again inform
each Shareholder of record as of the record date of the Shareholder meeting
(excluding persons who tender all of their Shares pursuant to the Offer if such
19
<PAGE>
Shares are purchased in the Offer) of their dissenters' rights and will include
a copy of Sections 302A.471 and 302A.473 of the MBCA and a summary description
of the procedures to be followed under those Sections to obtain payment of fair
value for their Shares in cash under those Sections. If a Shareholder vote is
not required to approve the Merger, the Surviving Corporation will send a notice
to those persons who are Shareholders of the Company immediately prior to the
Effective Time which, among other things, will include a copy of Sections
302A.471 and 302A.473 of the MBCA and a summary description of the procedures to
be followed under those Sections to obtain payment of fair value for their
Shares in cash under those Sections.
ITEM 9. MATERIAL TO BE FILED AS EXHIBITS
<TABLE>
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of February 10, 1999, among Purchaser,
Parent and the Company.
Exhibit 2 Confidentiality Agreement, dated November 11, 1998, between the Company and
Parent.
Exhibit 3 Employment Letter, dated February 10, 1999, between the Company and William J.
Lansing.
Exhibit 4 Employment Letter, dated February 10, 1999, between the Company and Michael P.
Sherman.
Exhibit 5 Employment Letter, dated February 10, 1999, between the Company and John D.
Buck.
Exhibit 6 Employment Letter, dated February 10, 1999, between the Company and Andrew V
Johnson.
Exhibit 7 Letter to shareholders of the Company, dated February 18, 1999.*
Exhibit 8 Joint press release issued by the Company and Parent on February 11, 1999.
Exhibit 9 Opinion of Salomon Smith Barney Inc., dated February 10, 1999.*
Exhibit Letter agreement, dated February 2, 1999, between the Company and Wit Capital
10 Corporation.
Exhibit Employment Agreement, dated May 1, 1998, between the Company and William J.
11 Lansing.
Exhibit Resignation Agreement, dated December 11, 1998, between the Company and Thomas
12 C. Vogt.
Exhibit Form of Severance Agreement entered into between the Company and each of Messrs.
13 Deikel, Lansing, Sherman, Knight and Buck. (Incorporated by reference to Exhibit
10.1 to the Company's Quarterly Report on Form 10-Q for the fiscal quarter ended
June 26, 1998)
Exhibit Form of Severance Agreement entered into between the Company and certain other
14 executive officers. (Incorporated by reference to Exhibit 10.2 to the Company's
Quarterly Report on Form 10-Q for the fiscal quarter ended June 26, 1998)
Exhibit Severance Agreement, dated May 1, 1998, between the Company and William J.
15 Lansing.
Exhibit Letter agreement, dated August 6, 1998, between the Company and Wit Capital
16 Corporation.
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
20
<PAGE>
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
correct.
<TABLE>
<CAPTION>
Fingerhut Companies, Inc.
<S> <C> <C>
By /s/ THEODORE DEIKEL
---------------------------------------
Theodore Deikel
Chairman and Chief Executive Officer
</TABLE>
Dated: February 18, 1999
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT DESCRIPTION
- ------------ ----------------------------------------------------------------------------------------------------
<S> <C>
Exhibit 1 Agreement and Plan of Merger, dated as of February 10, 1999, among Purchaser, Parent and the
Company.
Exhibit 2 Confidentiality Agreement, dated November 11, 1998, between the Company and Parent.
Exhibit 3 Employment Letter, dated February 10, 1999, between the Company and William J. Lansing.
Exhibit 4 Employment Letter, dated February 10, 1999, between the Company and Michael P. Sherman.
Exhibit 5 Employment Letter, dated February 10, 1999, between the Company and John D. Buck.
Exhibit 6 Employment Letter, dated February 10, 1999, between the Company and Andrew V Johnson.
Exhibit 7 Letter to shareholders of the Company, dated February 18, 1999.*
Exhibit 8 Joint press release issued by the Company and Parent on February 11, 1999.
Exhibit 9 Opinion of Salomon Smith Barney Inc., dated February 10, 1999.*
Exhibit 10 Letter agreement, dated February 2, 1999, between the Company and Wit Capital Corporation.
Exhibit 11 Employment Agreement, dated May 1, 1998, between the Company and William J. Lansing.
Exhibit 12 Resignation Agreement, dated December 11, 1998, between the Company and Thomas C. Vogt.
Exhibit 13 Form of Severance Agreement entered into between the Company and each of Messrs. Deikel, Lansing,
Sherman, Knight and Buck . (Incorporated by reference to Exhibit 10.1 to the Company's Quarterly
Report on Form 10-Q for the fiscal quarter ended June 26, 1998)
Exhibit 14 Form of Severance Agreement entered into between the Company and certain other executive officers.
(Incorporated by reference to Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q for the
fiscal quarter ended June 26, 1998)
Exhibit 15 Severance Agreement, dated May 1, 1998, between the Company and William J. Lansing.
Exhibit 16 Letter agreement, dated August 6, 1998, between the Company and Wit Capital Corporation.
</TABLE>
- ------------------------
* Included in copies of the Schedule 14D-9 mailed to shareholders.
<PAGE>
ANNEX I
FINGERHUT COMPANIES, INC.
4400 BAKER ROAD
MINNETONKA, MINNESOTA 55343
INFORMATION STATEMENT PURSUANT TO
SECTION 14(F) OF THE SECURITIES EXCHANGE
ACT OF 1934 AND RULE 14F-1 THEREUNDER
------------------------
GENERAL INFORMATION
This Information Statement is mailed on or about February 18, 1999, as part
of the Solicitation/ Recommendation Statement on Schedule 14D-9 (the "Schedule
14D-9") of Fingerhut Companies, Inc., a Minnesota corporation (the "Company"),
to the holders of record of shares of common stock, par value $.01 per share, of
the Company (the "Common Stock" or the "Shares"). You are receiving this
Information Statement in connection with the possible election of persons
designated by Purchaser (as defined below) to a majority of the seats on the
Board of Directors of the Company (the "Board").
On February 10, 1999, the Company, Federated Department Stores, Inc., a
Delaware corporation ("Parent"), and Bengal Subsidiary Corp., a Minnesota
corporation and a direct, wholly owned subsidiary of Parent ("Purchaser"),
entered into an Agreement and Plan of Merger (the "Merger Agreement") pursuant
to which (i) Purchaser will commence a tender offer (the "Offer) for all
outstanding Shares at a price of $25.00 per Share, net to the seller in cash
without interest thereon, and (ii) Purchaser will be merged with and into the
Company (the "Merger"). As a result of the Offer and the Merger, the Company
will become a direct, wholly owned subsidiary of Parent.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of the Shares pursuant to the Offer (provided that the Minimum Condition has
been satisfied), Purchaser will be entitled to designate directors (the
"Purchaser Designees") on the Board that will give Purchaser representation
substantially proportionate to its ownership interest. The Merger Agreement
requires the Company promptly to take necessary action to cause the Purchaser
Designees to be elected or appointed to the Board under the circumstances
described therein. This Information Statement is required by Section 14(f) of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule
14f-1 thereunder. Capitalized terms used herein and not otherwise defined shall
have the meaning set forth in the Schedule 14D-9.
You are urged to read this Information Statement carefully. You are not,
however, required to take any action in connection with this Information
Statement.
The information contained in this Information Statement concerning Purchaser
and the Purchaser Designees has been furnished to the Company by Purchaser. The
Company assumes no responsibility for the accuracy or completeness of such
information.
The Common Stock is the only class of voting securities of the Company
outstanding. Each share of Common Stock has one vote. As of February 16, 1999,
there were 49,630,294 shares of Common Stock outstanding.
RIGHT TO DESIGNATE DIRECTORS; PURCHASER DESIGNEES
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of the Shares pursuant to the Offer (provided that the Minimum Condition has
been satisfied), and from time to time thereafter, Purchaser will be entitled,
subject to compliance with Section 14(f) of the Exchange Act, to designate up to
such number of directors, rounded down to the next whole number, on the Board as
will give Purchaser representation on the Board equal to the product of the
total number of directors on the
<PAGE>
Board (giving effect to the directors elected pursuant to the requirements of
the Merger Agreement) multiplied by the percentage that the aggregate number of
Shares purchased pursuant to the Offer bears to the total number of Shares then
outstanding, and the Company will, at such time, promptly take all actions
necessary to cause the Purchaser Designees to be elected as directors of the
Company, including increasing the size of the Board or using its best efforts to
secure the resignations of incumbent directors or both. Notwithstanding anything
stated herein, if Shares are purchased pursuant to the Offer, the Board must
include (if any such directors are available) at least three Continuing
Directors. The term "Continuing Directors" means at any time (i) those directors
of the Company who are Disinterested directors of the Company on the date of the
Merger Agreement and who voted to approve the Merger Agreement and (ii) such
additional directors of the Company who are Disinterested and who are designated
as Continuing Directors for purposes of the Merger Agreement by a majority of
the Continuing Directors in office at the time of such designation, provided,
however, that if there are no such Continuing Directors, the individuals who are
appointed to the Board who are both Disinterested and independent will
constitute the Continuing Directors. For purposes of the Merger Agreement, the
term "Disinterested" means the director is neither an officer nor an employee of
the Company or any related organization and has not been an officer or employee
within the five years preceding the relevant time. The term "independent" has
the meaning assigned to it in the New York Stock Exchange Listed Company Guide.
As of the date of this Information Statement, Purchaser has not determined
who will be the Purchaser Designees. However, the Purchaser Designees will be
selected by Purchaser from among the directors and executive officers of Parent
or Purchaser. Certain information regarding the list of candidates as Purchaser
Designees is contained in Schedule I annexed hereto.
None of the persons from among whom the Purchaser Designees will be
selected, or their associates, is a director of, or holds any position with, the
Company. To the knowledge of the Company, except as set forth in Schedule I
annexed hereto, none of the persons from among whom the Purchaser Designees will
be selected or their associates beneficially owns any equity securities, or
rights to acquire any equity securities, of the Company or has been involved in
any transactions with the Company or any of its directors or executive officers
that are required to be disclosed pursuant to the rules and regulations of the
Commission.
BOARD OF DIRECTORS AND EXECUTIVE OFFICERS
The Board consists of eight directors, each of whom holds office until his
or her resignation or removal and until his or her successor is duly elected and
qualified. In accordance with the terms of the Company's Amended and Restated
Articles of Incorporation, the Board of Directors is divided into three classes
of directors who serve for staggered three year terms. At each annual meeting,
directors who are elected to succeed the class of directors whose terms expire
at that meeting will be elected for three year terms. Of the directors named
below, the terms of Messrs. Deikel, Anderson and Gage expire in 1999, the terms
of Messrs. Lessin and Morrison expire in 2000, and the terms of Messrs. Hubbard
and Macke and Ms. Shea expire in 2001.
THEODORE DEIKEL, age 63, has served as Chairman of the Board and Chief
Executive Officer of the Company since 1989. Mr. Deikel also served as President
of the Company from 1989 to 1998. Mr. Deikel has served as a director of the
Company since 1989. From 1983 until rejoining the Company, Mr. Deikel served as
Chairman and CEO of CVN Companies, Inc., a direct marketing company using
television and direct mail. From 1979 to 1983, Mr. Deikel was Executive Vice
President of American Can Company (a predecessor to Travelers Group Inc.) and
Chairman of American Can Company's specialty retailing division, which included
the Company. In addition, Mr. Deikel was Chief Executive Officer of Fingerhut
from 1975 to 1983.
WENDELL R. ANDERSON, age 66, has been a director of the Company since 1990.
Since July 1998, Mr. Anderson has been a self-employed attorney. Prior thereto
and since 1991 he was of counsel to the law
2
<PAGE>
firm of Larkin, Hoffman, Daly and Lindgren, Ltd., and was a partner in the firm
for more than five years prior to that time. The law firm provides legal
services to the Company from time to time. Mr. Anderson is a former United
States Senator and former Governor of the State of Minnesota, serves on the
board of the University of Minnesota Foundation and is also a director of
National City Bancorporation, Evans Environmental Corporation and Turbodyne
Technologies, Inc.
EDWIN C. GAGE, age 58, has been a director of the Company since 1992. Mr.
Gage is Chairman and Chief Executive Officer of Gage Marketing Group LLC, an
integrated marketing services company which he formed in January 1992. He was
Chief Executive Officer of Carlson Companies, Inc. from 1989 to 1991. Mr. Gage
is also a director of SuperValu Inc., Carlson Holdings, Inc., AHL Services, Inc.
and Minnegasco Advisory Board, and is an advisory board member for the Kellogg
Graduate School of Management at Northwestern University.
STANLEY S. HUBBARD, age 65, has been a director of the Company since 1990.
For more than the past five years he has been Chairman of the Board, President
and Chief Executive Officer of Hubbard Broadcasting, Inc., a privately-held
communications company. Mr. Hubbard is also an executive officer of several
other entities affiliated with Hubbard Broadcasting, including Conus
Communications, a satellite news gathering company. He is the founder and
Chairman of the Board of United States Satellite Broadcasting Company, Inc., a
television broadcasting company.
ROBERT H. LESSIN, age 43, became a director of the Company in 1998. Since
April 1998, Mr. Lessin has been Chairman and Chief Executive Officer of Wit
Capital Corporation. From 1993 to April 1998, Mr. Lessin was a Vice Chairman at
Salomon Smith Barney, an investment banking firm. Mr. Lessin is also a director
of Wit Capital Corporation, iParty Inc., Wattage Monitor, Inc. and MaMaMedia.
KENNETH A. MACKE, age 60, has been a director of the Company since 1997. He
is the retired Chairman of the Board, Chief Executive Officer and Chairman of
the Executive Committee of Dayton Hudson Corporation ("DHC"), a general
merchandise retailer. He joined DHC as a merchandise trainee and advanced
through various management positions at DHC and Target, a DHC affiliate. He
served as President of DHC from 1981 to 1984. He was elected Chief Operating
Officer of DHC in 1982, Chief Executive Officer of DHC in 1983, Chairman of the
Board of DHC in 1984 and Chairman of the DHC Executive Committee in 1985. Mr.
Macke retired from DHC in 1994. He is also a director of General Mills, Inc.,
Unisys Corporation, Carlson Companies, Inc. and Select Comfort Corporation. He
is also the general partner of Macke Partners, a private venture capital firm.
JOHN M. MORRISON, age 61, became a director of the Company in 1996. For more
than the past five years, he has been Chairman of the Board of the Central Bank
Group, a financial services company. Mr. Morrison is also a trustee of the
University of St. Thomas and a director of Fairview Corporation.
CHRISTINA L. SHEA, age 45, has been a director of the Company since 1997.
Since 1994, she has been a senior vice president of General Mills, Inc. and
President of Betty Crocker Products, a division of General Mills, Inc. From 1992
to 1994, she was Vice President and General Manager of BC Main Meals, a business
unit of General Mills, Inc.
Executive officers are elected by the Board for an indefinite term or until
their successors are elected.
ALAN F. BIGNALL, age 47, has served as Chief Information Officer of the
Company since August 1998. He served as Senior Vice President, Development and
Architecture Services of the Company from February 1998 to August 1998. From
1995 to 1997, Mr. Bignall served as Vice President, Technology for American
Express Financial Advisors, an investment advisory firm, and from 1990 to 1995
he served as Vice President, Financial Planning for that company.
THOMAS J. BOZLINSKI, age 51, has served as Senior Vice President, Operations
and Network Services of the Company since March 1998. From 1996 to February 1998
he served as Senior Vice President,
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<PAGE>
Information Systems of the Company, and from 1993 to 1996 he served as Vice
President, Information Systems.
JOHN D. BUCK, age 48, has served as Executive Vice President, Operations,
Information Services and Human Resources of the Company and President of
Fingerhut Business Services, Inc. since June 1998. He served as Senior Vice
President, Operations, Information Services and Human Resources of the Company
from 1997 to June 1998 and Senior Vice President, Human Resources from 1996 to
1997. Prior to 1997, Mr. Buck was Vice President, Administration of Alliant
Techsystems, Inc., a supplier of defense products and services.
ANDREW V JOHNSON, age 42, has served as Senior Vice President, Market
Development of the Company since January 1998. From 1993 to 1997, he served as
Senior Vice President, Marketing of the Company.
GERALD T. KNIGHT, age 51, has served as Executive Vice President and Chief
Financial Officer of the Company since June 1998. He joined the Company as
Senior Vice President and Chief Financial Officer in 1997. From 1992 to 1997,
Mr. Knight was Vice President and Chief Financial Officer for The Toro Company,
a producer of outdoor landscape products, services and systems.
WILLIAM J. LANSING, age 40, has served as President of the Company since May
1998. He served as Vice President, Business Development at General Electric
Corporation from 1996 until May 1998. In 1996, he served as Chief Operating
Officer of Prodigy, Inc., an Internet service provider. He was a partner at
McKinsey & Co., a consulting firm, for more than the previous five years.
JOHN C. MANNING, age 51, has served as Vice President, Finance of the
Company since 1996. Prior to that time, he served as Senior Vice President and
Chief Financial Officer of Melville Realty Corporation, a retail business, from
1992 until 1996.
MICHAEL P. SHERMAN, age 46, has served as Executive Vice President, Business
Development, General Counsel and Secretary of the Company since June 1998. He
previously served as Senior Vice President, Business Development, General
Counsel and Secretary of the Company from 1996 to June 1998. Prior to that time,
Mr. Sherman was Executive Vice President, Corporate Affairs, General Counsel and
Secretary of Hanover Direct, Inc., a catalog retailer.
BRIAN M. SZAMES, age 39, has served as Vice President and Treasurer of the
Company since August 1998. From 1996 to August 1998, he served as Vice President
and Treasurer for Footstar, Inc., a specialty retailer of athletic footwear and
apparel. Prior to 1996, Mr. Szames served as Assistant Treasurer of Melville
Corporation.
RICHARD L. TATE, age 53, has served as Senior Vice President, Merchandising
of the Company since 1993.
THOMAS C. VOGT, age 52, has served as Corporate Controller of the Company
since 1994. Prior to that time, he was Assistant Controller, Operations of the
Company from 1991 to 1994.
None of the above directors is related to each other or to any executive
officer of the Company, and none of the above executive officers is related to
each other or to any director of the Company.
COMMITTEES OF THE BOARD OF DIRECTORS AND MEETING ATTENDANCE
The Board has established Executive, Compensation and Audit Committees. The
Company does not have a nominating committee.
The Executive Committee is authorized to exercise the full power of the
Board in the management and conduct of the business affairs of the Company
during the interim between meetings of the Board. The Executive Committee may
also review and make recommendations to the Board with respect to various
4
<PAGE>
corporate matters. The current members of the Executive Committee are Messrs.
Anderson and Deikel. During the fiscal year ended December 25, 1998, the
Executive Committee met four times.
The Compensation Committee sets the compensation of all the Company's
officers whose base annual salary exceeds $200,000, approves, adopts and
administers compensation plans, administers and grants stock options under the
Company's stock option plans, reviews administration of the Company's benefit
plans and reviews and makes recommendations to the Board on matters relating to
compensation of all officers. The current members of the Compensation Committee
are Messrs. Morrison (chairman), Gage and Macke and Ms. Shea. During the fiscal
year ended December 25, 1998, the Compensation Committee met five times.
The Audit Committee supervises and reviews the Company's accounting and
financial services, makes recommendations to the Board as to nomination of
independent auditors, confers with the independent auditors and internal
auditors regarding the scope of their proposed audits and their audit findings,
reports and recommendations, reviews the Company's financial controls,
procedures and practices, approves all nonaudit services by the independent
auditors and reviews transactions between the Company and its affiliates. The
current members of the Audit Committee are Messrs. Macke (chairman), Gage and
Morrison. During the fiscal year ended December 25, 1998, the Audit Committee
met four times.
During the fiscal year ended December 25, 1998, the Board met six times. All
incumbent directors attended at least 75% of all the meetings of the Board and
committees that were held while they were serving on the Board or on such
committee. The Board and its committees also act from time to time by written
consent in lieu of meetings.
COMPENSATION OF DIRECTORS
Members of the Board who are not employees of the Company receive an annual
retainer of $20,000 for membership on the Board, including service on committees
of the Board. The directors designated and serving as the chairperson of the
Audit Committee and of the Compensation Committee also receive an annual
retainer of $4,000 for service as chairperson of such committee. In addition,
non-employee directors receive an attendance fee of $2,500 for each regular or
special meeting attended of the Board. Directors employed by the Company receive
no directors' fees. The Company also reimburses reasonable travel, lodging and
other incidental expenses incurred by directors in attending meetings of the
Board and committees.
Pursuant to the Fingerhut Companies, Inc. Nonemployee Director Stock Option
Plan, non-employee directors were each granted the option to purchase 5,000
shares of Common Stock on the earlier of March 1, 1996 or the commencement of
their service on the Board. In addition, each non-employee director is entitled
to receive annual grants of options to purchase 5,000 shares of Common Stock. In
1998 the Company determined to grant such options biannually, and, as a result,
on September 28, 1998, each of the non-employee directors was granted, for 1998
and 1999, the option to purchase 10,000 shares of Common Stock at the exercise
price of $8.52 per share. These options vest in two equal annual installments.
Under the Fingerhut Companies, Inc. Directors' Retainer Stock Deferral Plan,
non-employee directors may elect to have all or a portion of the annual
retainers for service on the Board paid in the form of shares of Common Stock.
The payment may be deferred, in which case directors who elect to defer their
retainer will have their deferred stock accounts credited with the number of
shares equal to the deferred retainer amount divided by the market price of the
Common Stock on the date the retainer was otherwise payable. Mr. Lessin and Ms.
Shea have both elected to have all of their annual retainer paid in the form of
deferred Common Stock.
5
<PAGE>
COMPENSATION COMMITTEE REPORT ON EXECUTIVE COMPENSATION
The Compensation Committee of the Board (the "Compensation Committee")
consists of John M. Morrison, Edwin C. Gage, Kenneth A. Macke and Christina L.
Shea, each of whom is not an employee of the Company. A subcommittee (the
"Subcommittee") of the Compensation Committee currently composed of Messrs.
Morrison and Macke and Ms. Shea (each a "Non-Employee Director" as defined in
Rule 16b-3 of the Exchange Act) approved the grant of all stock options and
other stock-based long-term incentive compensation pursuant to the Company's
existing stock option and incentive plans during 1998. The Subcommittee also
administers the Annual Incentive Plan, as described below. All references to
"Compensation Committee" set forth herein shall be deemed to include the
Subcommittee described above.
COMPENSATION POLICIES
The Company's current executive compensation policies are intended to
achieve three basic goals: (i) allow the Company to attract and retain the
highest caliber executives; (ii) provide compensation programs that reward
individual and corporate performance and motivate executives to achieve
strategic corporate goals for both short-term and long-term financial results;
and (iii) align the interests of executives with the interests of the Company's
long-term Shareholders through stock options and other stock-based awards.
The Compensation Committee believes that the most effective executive
compensation program is one that provides incentives to achieve both current and
longer-term strategic goals, with the ultimate objective of enhancing
Shareholder value. Accordingly, the Compensation Committee believes executive
compensation should be comprised of both short-term cash-based programs that
reward achievement of individual and Company-specific goals and long-term
equity-based incentives that reward executives when the Company's Common Stock
price increases for all Shareholders.
The annual compensation mix provides for base salaries, as well as the
opportunity to receive annual bonuses that are linked directly to financial
performance of the Company and, to varying extents, to individual performance.
This permits the Company to attract and retain talented executives, but makes a
substantial portion of an executive officer's annual compensation dependent on
the Company's performance.
The Company provides long-term equity-based compensation generally through
participation in the Fingerhut Companies, Inc. Stock Option Plan (the "Stock
Option Plan), the Fingerhut Companies, Inc. 1992 Long-Term Incentive and Stock
Option Plan (the "1992 Stock Option Plan") and the Fingerhut Companies, Inc.
1995 Long-Term Incentive and Stock Option Plan (the "1995 Stock Option Plan").
This assures that key employees have a meaningful stake in the Company, the
ultimate value of which is dependent on the Company's long-term stock price
appreciation, and that the interests of employees are aligned with those of the
shareholders.
The Company's compensation strategy is to: (i) target salaries at
competitive median levels, (ii) target bonus opportunities to provide total
annual cash compensation (salary plus bonus) that is aligned with relative
performance--top quartile pay for top quartile financial performance, median pay
for median financial performance and below median pay for below median financial
performance, and (iii) set annualized long-term incentive award opportunities at
market levels and tie them to shareholder value creation. The principles
established for the executive compensation program have guided the Compensation
Committee's decisions beginning in 1998.
POLICY ON DEDUCTIBILITY OF COMPENSATION
Section 162(m) of the Code limits the tax deduction to $1 million per year
for compensation paid to each of the executive officers named in the "Summary
Compensation Table" unless certain requirements
6
<PAGE>
are met. The Compensation Committee has carefully considered these requirements
and the regulations and has structured its programs so that bonus compensation
and gains from exercises of Company stock options will be exempt from the
deduction limitations. The Compensation Committee's present intention is to
structure compensation to be tax deductible; however, it retains the right to
authorize compensation that does not qualify for income tax deductibility.
SALARIES
Salaries generally are intended to be competitive with the median salaries
paid by corporations similar in size to the Company, as indicated in independent
salary surveys. The Company competes for talented executives with a wide variety
of corporations, which are not necessarily the same as those referenced in the
performance graph appearing elsewhere in this Information Statement. Recently
recruited executive officers' base salaries reflect their positions and
experience, as well as the compensation package required to attract them to the
Company in light of market factors. Executive officer salaries are not based on
the Company's performance. Annual merit increases are based on a subjective
evaluation of an officer's performance. As part of the annual budget process,
the Company sets company-wide guidelines for merit salary increases. These
guidelines provided for 4% average department-wide merit increases for exempt
employees' salary reviews effective during 1998. A majority of the executive
officers received salary increases in excess of the guidelines, including some
increases related to the assumption of additional responsibilities. The
Compensation Committee increased the Chief Executive Officer's annual 1998
salary rate to $770,000, effective April 1, 1998, from an annual salary rate of
$700,000 in 1997.
ANNUAL INCENTIVE COMPENSATION
A significant portion of the executive officers' compensation is at risk
each year in the form of variable annual incentive bonuses under the Fingerhut
Companies, Inc. and Subsidiaries 1998 Key Management Incentive Bonus Plan (the
"Bonus Plan") or the Fingerhut Companies, Inc. Annual Incentive Bonus Plan (the
"Annual Incentive Plan").
BONUS PLAN. The Bonus Plan is approved annually by the Compensation
Committee and is intended to provide incentives to management to achieve or
exceed the Company's financial goals for that year. All executive officers other
than the Chief Executive Officer, as well as all vice presidents and other
management-level employees, participate in the Bonus Plan. The Bonus Plan
formula has four components: paid base salary, targeted bonus percentage (based
on job level), Company performance factor and individual performance objectives.
In addition, the Bonus Plan allows the Chief Executive Officer to make
discretionary bonus payments over and above the defined formula for
extraordinary performance or, in other cases, upon the recommendation of the
Compensation Committee where determined to be warranted. The proportion of the
targeted bonus based on the Company's financial performance ranged from 55% for
vice presidents to 70% for executive vice presidents. The Bonus Plan established
target and maximum bonuses of 75% and 100%, respectively, of paid base salary
for vice presidents, 100% and 134%, respectively, of paid base salary for senior
vice presidents and 110% and 146%, respectively, of paid base salary for
executive vice presidents. The Company performance factor in 1998 was based on
the Company's 1998 earnings per share and the Company achieved 116% of its
target.
ANNUAL INCENTIVE PLAN. The Company wishes to ensure that bonuses paid to
executive officers satisfy the requirements for deductibility under Section
162(m) of the Code. Accordingly, the Compensation Committee adopted the Annual
Incentive Plan, which was approved by the shareholders in 1994. The Subcommittee
administers the Annual Incentive Plan, determines the annual participation and
performance targets, and approves all bonuses paid to executive officers of the
Company pursuant to such plan. All of the members of the Subcommittee are
"outside directors" as defined in the regulations promulgated under Section
162(m) of the Code. The Chief Executive Officer and each of the executive vice
presidents of the Company were the only 1998 participants. As with the Bonus
Plan, the Annual Incentive Plan used a Company performance schedule based on the
Company's 1998 earnings per share. The Chief Executive
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<PAGE>
Officer, under the Annual Incentive Plan, received a bonus that was calculated
based upon a target bonus of 125% of paid base salary and a maximum bonus of
168% of paid base salary, calculated solely on the Company's 1998 earnings per
share. Each executive vice president, under the Annual Incentive Plan, received
a bonus that was calculated based upon a target bonus of 110% of paid base
salary and a maximum bonus of 146% of paid base salary, 70% of which was
calculated on the Company's 1998 earnings per share.
LONG-TERM INCENTIVE COMPENSATION
The Company's stock-based incentive plans are designed to align a
significant portion of the executive compensation program with long-term
shareholder interests. The Compensation Committee grants stock options to
executive officers and other key employees when they commence employment with
the Company or when they are promoted. The number of Shares covered by a grant
reflects the level of job responsibility and, in some cases, subjective factors
based on recommendations of the Chief Executive Officer. The options granted
upon commencement of employment and promotion that were granted through 1998
vest over a three-year period and expire after ten years; those granted in 1999
vest over a four-year period and expire after ten years. In addition, the
Compensation Committee has had a program of annual grants; however, in 1998, the
Company determined to make such option grants biannually. The options granted
prior to adopting the biannual program vest over a three-year period and expire
after ten years; those granted under the biannual program generally vest over a
four-year period and expire after ten years.
In September 1998, the Compensation Committee granted a total of 3,151,725
incentive stock options and non-qualified stock options under the 1992 Stock
Option Plan and the 1995 Stock Option Plan to all executive officers other than
the Chief Executive Officer, all other officers and all director and manager-
level employees and certain non-manager level employees under the annual grant
program. In connection with this grant, executive officers were granted a total
of 1,190,000 options. These options had exercise prices at fair market value on
the grant date. In 1998, the Compensation Committee granted to the Chief
Executive Officer a total of 700,000 options, all under the 1992 Stock Option
Plan.
<TABLE>
<S> <C> <C> <C>
JOHN M. MORRISON EDWIN C. GAGE KENNETH A. MACKE CHRISTINA L. SHEA
CHAIRMAN MEMBER MEMBER MEMBER
COMPENSATION COMMITTEE COMPENSATION COMPENSATION COMPENSATION
COMMITTEE COMMITTEE COMMITTEE
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The current members of the Compensation Committee are Edwin C. Gage, Kenneth
A. Macke, John M. Morrison and Christina L. Shea. Mr. Gage is the Chairman and
Chief Executive Officer of Gage Marketing Group LLC ("Gage Marketing Group"),
which provides certain telemarketing services to Figi's Inc., a wholly owned
subsidiary of the Company ("Figi's"), under an agreement entered into in October
1998. Since that time, approximately $304,000 has been paid for services
provided under this agreement.
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EXECUTIVE COMPENSATION
The following table sets forth cash and noncash compensation for each of the
last three fiscal years to the Chief Executive Officer, and each of the four
other most highly compensated executive officers who were serving as executive
officers at December 25, 1998:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
AWARDS
--------------------
OTHER RESTRICTED
ANNUAL STOCK SECURITIES ALL OTHER
NAME AND SALARY COMPENSATION AWARDS UNDERLYING COMPENSATION
PRINCIPAL POSITION YEAR ($) BONUS ($) ($)(A) ($)(B) OPTIONS(#) ($)(C)
- ------------------------ --------- --------- --------- ----------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Theodore Deikel......... 1998 $ 752,500 $2,587,705 $ 552,845 $ 0 700,000 $ 20,540
Chief Executive 1997 $ 686,923 $1,154,031 $ 521,538 $ 0 776,250(d) $ 21,660
Officer 1996 $ 640,385 $ 0 $ 627,348 $ 599,995 -- $ 15,840
William J. Lansing 1998 $ 294,231 $ 700,000 $ 70,980 $1,496,875 1,088,750(d) $ 38,428
(e)................... 1997 -- -- -- -- -- --
President 1996 -- -- -- -- -- --
John D. Buck (f)........ 1998 $ 293,942 $ 435,000 $ 72,442 $ 293,125 200,000 $ 20,540
Executive Vice 1997 $ 241,539 $ 539,625 $ 61,537 $ 0 93,437(d) $ 20,815
President, Operations, 1996 $ 186,923 $ 75,000 $ 74,901 $ 206,250 273,125(d) $ 19,516
Information Services
and Human Resources
Michael P. Sherman 1998 $ 291,250 $ 396,884 $ 152,919 $ 209,375 200,000 $ 20,540
(g)................... 1997 $ 263,077 $ 365,451 $ 126,779 $ 152,344 80,449(d) $ 20,973
Executive Vice 1996 $ 163,462 $ 125,000 $ 180,486 $ 0 388,125(d) $ 181,539
President, Business
Development, General
Counsel
Gerald T. Knight (h).... 1998 $ 329,327 $ 396,884 $ 47,198 $ 167,500 150,000 $ 20,540
Executive Vice 1997 $ 175,673 $ 435,000 $ 73,595 $ 232,500 351,367(d) $ 73,595
President, Chief 1996 -- -- -- -- -- --
Financial Officer
</TABLE>
- ------------------------
(a) Amounts represent perquisites or other personal benefits, cash payments
designated as an auto allowance, tax reimbursement payments and cash
payments under the Fingerhut Corporation Profit Sharing Excess Plan. The
perquisites or other personal benefits that exceed 25% of the amounts listed
in this column for any named executive officer are: $438,139 for 1998,
$395,779 for 1997 and $415,436 for 1996 for interest paid by the Company on
Mr. Deikel's personal loan to pay the income tax liability on his 1992 stock
option exercise; and $45,533 for 1998 and $44,283 for 1997 for principal and
interest forgiven on a loan to Mr. Sherman from the Company.
(b) The Company awarded restricted stock to Messrs. Deikel and Buck on February
14, 1996, with the following vesting schedule: 25% of the shares vested on
March 31, 1996 (with additional transfer restrictions until August 1996),
25% vested on March 31, 1997 and 50% vested on August 31, 1998. The number
of shares awarded were: Mr. Deikel, 43,636 shares; and Mr. Buck, 15,000
shares. On May 12, 1997, the Company awarded 15,000 shares of restricted
stock to Mr. Knight, one-third of which vested on the date of the award, and
one-third of which vest on each of the first and second anniversaries of
that date. The Company awarded 7,500 shares of restricted stock to Mr.
Sherman on January 22, 1998, as part of his 1997 incentive compensation.
These shares vest in three equal annual
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installments. On May 1, 1998, the Company awarded 50,000 shares of
restricted stock to Mr. Lansing that vests in three equal annual
installments. The number of shares granted were adjusted pursuant to the
repricing formula approved by the Compensation Committee in connection with
the Company's spin-off of its shares of Metris Companies Inc. to the
shareholders of the Company. On October 29, 1998, the Company awarded
restricted stock to Messrs. Buck and Sherman that vests in four equal annual
installments and to Mr. Knight that vests in three equal annual
installments. The number of shares awarded in 1998 were: Mr. Buck, 35,000
shares; Mr. Sherman, 25,000 shares; and Mr. Knight, 20,000 shares. The
number of shares and value of aggregate restricted stock holdings of the
named executive officers at December 25, 1998 were: Mr. Deikel, no shares;
Mr. Lansing 143,925 shares, $2,284,809; Mr. Buck, 35,000 shares, $555,625;
Mr. Sherman, 32,500 shares, $515,938; and Mr. Knight, 25,000 shares,
$396,875. Dividends were paid on both the vested and unvested portion of
these restricted stock awards until the Company discontinued paying a
dividend in September 1998. The vesting of all shares of restricted stock is
subject to continuing employment.
(c) Except for Mr. Lansing, amounts disclosed in this column for 1998 include
discretionary profit sharing contributions of $11,200 under the Fingerhut
Corporation Profit Sharing and 401(k) Savings Plan, contributions of $6,400
under the Fingerhut Corporation Fixed Contribution Retirement Plan, a 401(k)
matching distribution and premiums paid on term life insurance of $540. For
each of Messrs Deikel, Buck and Sherman, the Company matched contributions
to the 401(k) in the amounts of $2,400; for Mr. Knight, the Company matched
contributions to the 401(k) in the amount of $2,389. In 1998, the
Compensation Committee approved a distribution equivalent to the
contribution that each of Messrs. Buck and Sherman would have received but
for the one-year waiting period under each of the Profit Sharing and 401(k)
Savings Plan and the Fixed Contribution Retirement Plan. The 1998 amount for
Mr. Lansing includes premiums paid on term life insurance of $315 and
relocation expenses of $38,113. The 1996 amount for Mr. Sherman includes
relocation expenses of $164,506.
(d) The number of securities underlying options is as adjusted by the
Compensation Committee, pursuant to the antidilution provisions of each of
the option plans under which the options were granted, in connection with
the Company's distribution, on September 25, 1998, of all of the common
stock of Metris Companies Inc. owned by the Company on a pro rata basis to
the shareholders of record as of the close of business on September 11,
1998.
(e) Mr. Lansing commenced employment with the Company in May 1998. As part of
his offer of employment, he received a hiring bonus at the time of his
employment with the Company, which is included under the Bonus heading in
the table.
(f) Mr. Buck commenced employment with the Company in March 1996. As part of his
offer of employment, he received a hiring bonus at the time of his
employment with the Company, which is included under the Bonus heading in
the table.
(g) Mr. Sherman commenced employment with the Company in May 1996. As part of
his offer of employment, he received a hiring bonus at the time of his
employment with the Company, which is included under the Bonus heading in
the table.
(h) Mr. Knight commenced employment with the Company in June 1997. As part of
his offer of employment, he received a hiring bonus at the time of his
employment with the Company, which is included under the Bonus heading in
the table.
PENSION PLAN. Fingerhut Corporation ("Fingerhut") maintains a
noncontributory defined benefit plan (the "Pension Plan") for substantially all
of its non-union employees (and the non-union employees of certain of the
Company's other subsidiaries) who have completed at least one year of service.
Under the Pension Plan, the current service pension credit of a participant for
each year is equal to the sum of 0.82% of his or her certified earnings not in
excess of Social Security covered compensation for that plan year and 1.40% of
the balance of his or her certified earnings for that year. Retirement benefits
under the Pension
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<PAGE>
Plan are the sum of the pension credits for each year of service. Participants
are 100% vested after completion of at least five years of service or if they
are at least age 65 upon termination of employment. The Pension Plan also
provides reduced early retirement benefits for participants who have attained
age 55 and have at least five years of service. In addition, the Company adopted
a non-qualified supplemental pension plan to provide certain officers the
benefits that would be payable under the Pension Plan but for the reduction in
the limitation on compensation imposed by Code section 401(a)(17) and based on
the limitation in effect under Code section 415(b)(1)(A). The estimated combined
annual benefit payable at age 65 for the named executives under the qualified
plan and the non-qualified plan is: Mr. Deikel, $68,850; Mr. Lansing, $89,139;
Mr. Buck, $66,427; Mr. Sherman, $76,246; and Mr. Knight, $57,970.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN. The Compensation Committee adopted
on February 14, 1996, a Supplemental Executive Retirement Plan (the "SERP") that
covers officers or other senior management employees of Fingerhut selected for
participation by the Compensation Committee. Under the SERP, Fingerhut will pay
a benefit to a participant whose employment relationship with Fingerhut is
completely severed either (a) at or after age 65 with five years of service or
(b) at or after age 55, if the participant has five years of service, excluding
service prior to January 1, 1996, and the sum of the participant's age and total
years of service equals at least 70. Service includes service to Fingerhut and
any other service that the Compensation Committee, in its discretion,
recognizes. The annual retirement benefit payable under the SERP equals 60% of
the average of the participant's highest three salary and bonus years with
Fingerhut, multiplied by a fraction (not greater than one) equal to (x) the
participant's years of service over (y) 30, and subtracting the offset. The
offset is the sum of (i) the participant's Social Security benefit, (ii) the
amount of the participant's benefit from the Fingerhut Corporation Pension Plan
and the Fingerhut Corporation Pension Excess Plan, (iii) 75% of the
participant's balance in the Fingerhut Corporation Profit Sharing Plan, and (iv)
the dollars credited or paid to the participant under the Fingerhut Corporation
Profit Sharing Excess Plan. Upon a change in control of the Company, a
termination of the participant's employment would be deemed to have occurred
and, for purposes of determining eligibility for benefits, a participant that is
at least 65 years old would be deemed to have completed five years of service.
If a participant dies before the participant's employment terminates, the death
will be treated as a termination of employment and the participant will be
deemed to have completed five years of service. Payments under the SERP will be
in the form of a single lump sum that is the actuarial equivalent of annual
benefits payable, to be made as soon as practicable after the end of the year in
which employment ends. The estimated annual benefits payable under the SERP upon
retirement at age 65 for the Chief Executive Officer and each of the other named
executive officers who are participants in the SERP are as follows: Mr. Deikel,
$528,292; Mr. Lansing, $0; Mr. Buck, $0; Mr. Sherman, $0; and Mr. Knight, $0.
One actuarial assumption underlying these estimates is that these officers will
remain participants in the SERP. The estimates are also based on the assumptions
that current salaries remain unchanged.
11
<PAGE>
OPTION TABLES
The following table shows information concerning stock options granted by
the Company during the fiscal year ended December 25, 1998 for the named
executives.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
----------------------------------------------
NUMBER OF
SECURITIES % OF TOTAL
UNDERLYING OPTIONS
OPTIONS GRANTED TO EXERCISE GRANT DATE
GRANTED EMPLOYEES PRICE EXPIRATION PRESENT VALUE
NAME (#) IN 1998 ($/SHARE) DATE ($)(A)
- ---------------------------------- --------- ----------- --------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Theodore Deikel................... 700,000(b) 12.6% $ 8.52 9/25/08 $ 3,849,510
William J. Lansing................ 718,750(c) 12.9% $ 10.3043 5/01/08 $ 4,963,472
370,000(b) 6.6% $ 8.52 9/25/08 $ 2,034,741
John D. Buck...................... 200,000(d) 3.6% $ 8.52 9/25/08 $ 1,099,860
Michael P. Sherman................ 200,000(d) 3.6% $ 8.52 9/25/08 $ 1,099,860
Gerald T. Knight.................. 150,000(e) 2.7% $ 8.52 9/25/08 $ 824,895
</TABLE>
- ------------------------
(a) These dollar amounts are the result of calculations of the present value of
the grant at the date of grant using the Black-Scholes option pricing
method. The actual gains, if any, on stock option exercises will depend on
the future performance of the Common Stock.
(b) These options were granted on September 25, 1998, under the 1992 Stock
Option Plan and vest in four equal annual installments. For the grant date
present value, the following assumptions were used: 0% dividend yield,
63.9549% expected volatility, 4.64% risk-free interest rate and 5.4993 years
expected lives.
(c) These options were granted on May 1, 1998, under the 1995 Stock Option Plan
and vest in three equal annual installments. The original grant was for
250,000 shares at an exercise price of $29.625. The number of shares
granted, and the option exercise price, were adjusted pursuant to the
repricing formula approved by the Compensation Committee in connection with
the Company's spin-off of its shares of Metris Companies Inc., the Company's
former 83% owned indirect subsidiary, to the Shareholders of the Company.
For the grant date present value, the following assumptions were used: 0%
dividend yield, 63.9549% expected volatility, 5.73% risk-free interest rate
and 6.5376 years expected lives.
(d) These options were granted on September 25, 1998, under the 1995 Stock
Option Plan and vest in four equal annual installments. For the grant date
present value, the following assumptions were used: 0% dividend yield,
63.9549% expected volatility, 4.64% risk-free interest rate and 5.4993 years
expected lives.
(e) These options were granted on September 25, 1998, under the 1995 Stock
Option Plan and vest in three equal annual installments. For the grant date
present value, the following assumptions were used: 0% dividend yield,
63.9549% expected volatility, 4.64% risk-free interest rate and 5.4993 years
expected lives.
The following table indicates for each of the named executives information
concerning stock options exercised during 1998 and the number and value of
exercisable and unexercisable in-the-money options granted by the Company as of
December 25, 1998.
12
<PAGE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR END OPTION VALUES
<TABLE>
<CAPTION>
VALUE OF
UNEXERCISED IN-
NUMBER OF THE-MONEY
UNEXERCISED OPTIONS
OPTIONS AT AT 12/25/98
12/25/98 (#) ($)(A)
SHARES ACQUIRED VALUE EXERCISABLE/ EXERCISABLE/
NAME ON EXERCISE (#) REALIZED ($) UNEXERCISABLE UNEXERCISABLE
- ----------------------------------------------- --------------- -------------- ------------- ----------------
<S> <C> <C> <C> <C>
Theodore Deikel................................ 4,481,534 $ 80,365,951 -- $ --
$ 1,225,170 $ 9,775,143
William J. Lansing............................. -- -- -- $ --
1,088,750 $ 6,275,291
John D. Buck................................... 67,500 $ 1,377,289 14,373 $ 126,002
358,126 $ 3,091,154
Michael P. Sherman............................. 131,267 $ 1,671,126 91,231 $ 999,909
200,000 $ 1,471,000
Gerald T. Knight............................... 110,523 $ 1,043,707 16,807 $ 147,337
166,807 $ 1,250,587
</TABLE>
- ------------------------
(a) The value of unexercised in-the-money options represents the aggregate
difference between the market value on December 25, 1998, based on the
closing price of the Shares as reported on the New York Stock Exchange, and
the applicable exercise prices.
ARRANGEMENTS WITH MANAGEMENT
In consideration of Mr. Deikel's agreement to exercise stock options in
December 1992, the Company agreed to pay Mr. Deikel additional compensation in
an amount equal to the interest incurred on the personal loan taken out by him
to fund the income tax liability incurred as a result of his exercise of the
stock options, although not to pay a "tax gross up" on the amount of the
additional compensation. The Company agreed to pay such compensation until the
earlier of December 21, 1999, or the sale of any of the Shares acquired in the
option exercise. In connection with the spin-off of its shares of Metris
Companies Inc., the Company purchased Shares from Mr. Deikel, the proceeds of
which were used to repay the loan and thereby terminated the Company's
obligation.
The Compensation Committee approved a payment of a special bonus in the
amount of $7,500,000 to Mr. Deikel in recognition of growing and spinning off
Metris Companies Inc.
EMPLOYMENT AGREEMENT. The Company is currently a party to an employment
agreement with Mr. Lansing, dated May 1, 1998, that remains in effect for
consecutive one-year terms unless terminated by either party with notice,
subject to the Company's right to terminate the agreement immediately for cause.
In consideration for services rendered to the Company, the Company agreed to pay
a salary of $450,000, subject to annual increase (but not decrease) by the
Board. Mr. Lansing is eligible for an annual bonus of up to 168% of his annual
salary. The Company also agreed to pay Mr. Lansing a starting bonus of at least
$50,000 and up to $250,000, as determined between Mr. Lansing and the Company's
Chief Executive Officer and Chairman. Mr. Lansing is also entitled to other
Company benefits under his employment agreement. In connection with his initial
employment, the Company granted to Mr. Lansing options to purchase 250,000
Shares. Mr. Lansing was also granted 50,000 shares of Company restricted stock.
The number of options and Shares granted, and the option exercise price, were
later adjusted in connection with the Company's spin-off of its shares of Metris
Companies Inc. Under his employment agreement, Mr. Lansing has agreed to
maintain the confidentiality of the Company's confidential information and has
agreed not to compete with the Company during the period of his employment. The
employment agreement provides for certain severance payments to be made to Mr.
Lansing upon his Involuntary
13
<PAGE>
Termination (as defined in the employment agreement); however, these severance
payments, as well as the compensation and benefits set out in the agreement, are
superseded by the provisions of Mr. Lansing's Severance Agreement (described
below). Mr. Lansing's employment agreement would be superseded by the terms of a
new employment agreement he has indicated an intent to enter into with Parent
after the Effective Time under the terms of his Employment Letter described
under Item 3(b) in the Schedule 14D-9. The full text of Mr. Lansing's employment
agreement is filed herewith as Exhibit 11 to the Schedule 14D-9.
RESIGNATION AGREEMENT. The Company has also entered into a letter
agreement, dated December 11, 1998 (the "Resignation Agreement"), with Thomas
Vogt, its Controller. The Resignation Agreement provides that Mr. Vogt will
resign from his position as the Company's Controller effective March 31, 1999
and will for the following year provide consulting services to the Company at a
rate commensurate with his current base salary ($121,590 per year). As a
consultant rather than an employee, Mr. Vogt will no longer be eligible to
participate in the Company's benefit plans, including stock option plans. Mr.
Vogt may exercise his vested stock options during the 90-day period following
his resignation, and his unvested stock options will expire on his resignation
date. The full text of the Resignation Agreement is filed herewith as Exhibit 12
to the Schedule 14D-9.
CHANGE OF CONTROL ARRANGEMENTS. The Company has entered into Change of
Control Severance Agreements (each, a "Severance Agreement") with each of the
executive officers of the Company, including the named executive officers, which
have a fixed term that is extended upon the occurrence of a "Change of Control"
event or an "Imminent Control Change Date" (each as defined in the Severance
Agreements) to a date that is the one-year anniversary of the Change of Control
event or Imminent Control Change Date. Each Severance Agreement provides to
eligible executive officers guaranteed salaries, bonuses, benefits and severance
payments following a Change of Control event. Each Severance Agreement states
that, during the two-year period following a Change of Control event, each
applicable executive officer will be paid an annual salary at least equal to 12
times such officer's highest monthly base salary paid during the 12-month period
prior to the Change of Control event (the "Guaranteed Base Salary"), subject to
periodic increases. In addition, each such executive officer will be entitled to
receive a bonus payment in an amount calculated as if such officer achieved all
performance goals as set forth in a Company bonus plan or arrangement or,
alternatively, a higher amount based on such officer's actual performance under
any existing Company bonus plan or arrangement (the "Guaranteed Bonus"). Such
executive officer will also be entitled to participate in all Company welfare,
benefit, incentive, savings and retirement plans and to receive other Company
fringe benefits on terms no less favorable than the most favorable terms offered
to other executive officers as in effect during the 90-day period preceding the
date of the applicable Change of Control event. All outstanding stock options
granted to the executive officer will become fully vested upon the occurrence of
a Change of Control event or, to the extent such options are not vested and are
forfeited, the executive officer will be entitled to receive a cash payment
equal to the aggregate difference between the fair market value of Company stock
underlying such forfeited options and the exercise price to purchase such stock.
Mr. Lansing's Severance Agreement provides that any and all of his undistributed
shares of restricted stock granted pursuant to his employment agreement with the
Company will become fully vested upon the occurrence of a Change of Control
event.
Each Severance Agreement provides that, if the executive officer's
employment is terminated during the two-year period following a Change of
Control event, the executive officer will be entitled to receive severance
payments in the event of (i) termination of employment by the Company for
reasons other than "Cause" or "Disability" (each as defined in the Severance
Agreements) or (ii) termination of employment by such executive officer for
"Good Reason" (as defined in the Severance Agreements). The executive officer
will be entitled to receive (a) an amount equal to the Guaranteed Base Salary
and accrued vacation through the applicable termination date, (b) a lump sum
payment in cash equal to (or, in certain cases as described below, equal to
three times) the officer's Guaranteed Base Salary plus the highest Guaranteed
Bonus paid to such officer during the preceding two years, (c) a pro rata
Guaranteed Bonus for the year of
14
<PAGE>
termination, (d) all deferred amounts under any Company nonqualified deferred
compensation or pension plan, together with accrued but unpaid earnings thereon,
(e) an amount equal to the unvested portion of the executive officer's accounts,
accrued benefits or payable amounts under any qualified plan, and certain
pension, profit sharing and retirement plans maintained by the Company and (f)
an amount equal to fees and costs charged by an outplacement firm retained by
the executive officer to provide outplacement services unless the Company has
paid such fees and costs directly to the outplacement firm. In addition, the
Company has agreed, for a one-year period (or, in certain cases as described
below, a three-year period) following the applicable executive officer's
termination date, to continue to provide to such executive officer certain
welfare benefits including, but not limited to, medical, dental, disability,
salary continuance, individual life and travel accident insurance on terms at
least as favorable as provided to other executives during the 90-day period
preceding the Change of Control event. If the Company terminates the executive
officer's employment for Cause or Disability, the officer will receive his
Guaranteed Base Salary through the termination date. If the officer terminates
his employment for other than Good Reason, he will also receive a pro rata
portion of his Guaranteed Bonus, and deferred amounts under certain Company
benefit plans. If the Company terminates his employment for Disability, the
officer will also receive disability payments.
The Severance Agreements of Messrs. Deikel, Lansing, Sherman, Knight, Buck
and one other officer also provide for severance payments to be made if the
executive officer's employment is terminated by the officer for any reason
during the thirteenth month following the applicable Change of Control event. In
addition, such Severance Agreements provide that the lump sum bonus payment
described in clause (b) in the preceding paragraph to be made to the officer as
part of his severance payment be in an amount of three times rather than one
time the sum of the officer's Guaranteed Base Salary plus the highest Guaranteed
Bonus paid to such officer during the preceding two years. The Severance
Agreements with those six executive officers also provide that the welfare
benefits to be provided to the officer following his termination be provided for
a three-year (rather than a one-year) period. Finally, such Severance Agreements
provide that the Company will make an additional "gross up payment" to the
applicable executive officer who receives payments in connection with the
Severance Agreement. These gross-up payments are intended to offset fully the
effect of any excise tax imposed under section 4999 of the Code or any similar
tax payable under federal, state or local law with respect to the severance
payment. The Company will not be able to deduct the amount of payments made by
the Company to an executive officer under a Severance Agreement that are subject
to an excise tax imposed on the officer with respect to such payments under
section 4999 of the Code. The amount subject to the excise tax (and that is
non-deductible to the Company) is the total amount (including the gross-up
payment) in excess of the average annual compensation of the officer includible
in gross income during the five most recently completed years of employment (or
such less number of years as the officer has been employed). If a Change of
Control event occurred as of the date hereof and the employment of Messrs.
Deikel, Lansing, Sherman, Knight or Buck were then immediately terminated by the
Company for other than Cause or Disability or by any of such officers for Good
Reason, the severance payment that those officers would receive (not including
the gross-up payment) would be $12,400,846, $3,583,990, $2,641,688, $2,853,390
and $3,177,066, respectively. Certain terms of the Severance Agreements of
Messrs. Lansing, Sherman, Knight and Buck will be superseded by the employment
agreements that they have indicated their intent to enter into with Parent after
the Effective Time. See Item 3(b)(2) of the Schedule 14D-9.
Each Severance Agreement contains covenants of the executive officer to
maintain the confidentiality of the Company's confidential information. Each
Severance Agreement also contains covenants of the officer (i) not to engage in
any business competitive with the Company and (ii) not to solicit or employ any
employee of the Company, for a period of one year after termination of his
employment for any reason. The two forms of Severance Agreement and the full
text of the Severance Agreement with Mr. Lansing are filed herewith as Exhibits
13 through 15 to the Schedule 14D-9.
15
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following information concerning ownership of the Company's Common Stock
is furnished as of February 16, 1999 (except as otherwise indicated) with
respect to (i) all persons known by the Company to be the beneficial owners of
more than 5% of the outstanding Common Stock, (ii) each of the current directors
of the Company; (iii) each of the named executive officers and (iv) all
directors and executive officers as a group. Beneficial ownership has been
determined for this purpose in accordance with Rule 13d-3 of the Securities
Exchange Act of 1934, under which a person is deemed to be the beneficial owner
of securities if he or she has or shares voting power or investment power in
respect of such securities or has the right to acquire beneficial ownership
within 60 days.
<TABLE>
<CAPTION>
COMMON STOCK
-------------------------------
NUMBER OF
SHARES
BENEFICIALLY PERCENT OF
NAME OWNED CLASS
- -------------------------------------------------------------- -------------- ---------------
<S> <C> <C>
NewSouth Capital.............................................. 6,352,065(1) 12.80%
Management, Inc.
1000 Ridgeway Loop Road
Suite 233
Memphis, TN 38120
Barclay's Global Investors, N.A............................... 3,022,534(2) 6.09%
45 Fremont Street
San Francisco, CA 94105
Theodore Deikel............................................... 3,246,808(3) 6.54%
4400 Baker Road
Minnetonka, MN 55343
Wendell R. Anderson........................................... 14,375(4) *
Edwin C. Gage................................................. 82,550(5) *
Stanley S. Hubbard............................................ 28,750(4) *
Robert H. Lessin.............................................. --(6) *
Kenneth A. Macke.............................................. 39,000(4) *
John M. Morrison.............................................. 114,375(4) *
Christina L. Shea............................................. 14,375(4) *
William J. Lansing............................................ 151,925 *
John D. Buck.................................................. 126,196(7) *
Michael P. Sherman............................................ 167,682(7) *
Gerald T. Knight.............................................. 105,291(7) *
All directors and executive officers as a group (20 4,492,396(8) 8.95%
persons)....................................................
</TABLE>
- ------------------------
* Less than 1% of the outstanding Common Stock.
(1) Based on a Schedule 13G dated February 11, 1999 prepared by NewSouth Capital
Management, Inc.
(2) Based on an Institutional Shareholding Update as of February 13, 1999 issued
by the Institutional Shareholdings Service.
(3) Includes 6,191 shares held by Mr. Deikel's son, as to which he disclaims
beneficial ownership.
(4) The number of shares beneficially owned by Mr. Hubbard include 28,750 shares
that he has the right to acquire within 60 days of February 16, 1999 through
the exercise of stock options. The numbers of shares beneficially owned by
each of Messrs. Anderson, Macke and Morrison and Ms. Shea include 14,375
shares that such directors have the right to acquire within 60 days of
February 16, 1999 through the exercise of stock options. The number of
shares beneficially owned by Ms. Shea does not include
16
<PAGE>
shares held in her deferred stock account pursuant to her election under the
Fingerhut Companies, Inc. Directors' Retainer Stock Deferral Plan.
(5) Share ownership shown includes 28,750 shares that Mr. Gage has the right to
acquire within 60 days of February 16, 1999 through the exercise of stock
options and 6,900 shares held by Mr. Gage's wife, as to which he disclaims
beneficial ownership.
(6) Does not include shares held in Mr. Lessin's deferred stock account plan
pursuant to his election under the Fingerhut Companies, Inc. Directors'
Retainer Stock Deferral Plan.
(7) The numbers of shares beneficially owned by each of Messrs. Buck, Sherman
and Knight include 35,936, 91,231, and 16,807 shares, respectively, that
such officers have the right to acquire within 60 days of February 16, 1999,
through the exercise of stock options.
(8) Includes 572,182 shares that the directors and executive officers have the
right to acquire within 60 days of February 16, 1999 through the exercise of
stock options.
TOTAL SHAREHOLDER RETURN INDEX
The following graph compares the cumulative total shareholder return on the
Company's Common Stock ("FHT") since December 31, 1993, with the cumulative
total return for the Standard & Poor's 500 Stock Index ("SP500") and the Dow
Jones Retailers Broadline Index ("DJRTB") over the same period, assuming the
investment of $100 on December 31, 1993 and reinvestment of all dividends.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
FINGERHUT COMPANIES, INC. S & P 500 DOW JONES RETAILERS-BROADLINE
<S> <C> <C> <C>
12/31/93 100.00000 100.00000 100.00000
12/31/94 55.48353 101.32100 84.81043
12/31/95 50.24325 139.40076 95.71417
12/31/96 44.87196 171.40707 108.88789
12/31/97 79.02149 228.59412 159.56808
12/31/98 142.47498 293.91849 259.18515
</TABLE>
SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
The Company has adopted procedures to assist its directors and executive
officers in complying with Section 16(a) of the Exchange Act, which include
assisting the director or officer in preparing forms for filing. The Company
believes that all of its executive officers and directors complied in 1998 with
all applicable stock ownership reporting requirements, except that Kenneth Macke
failed to file a Form 4 on a timely basis reporting two purchases of Shares on
the open market, John D. Buck failed to file Form 4s on a timely basis reporting
seven purchases and one sale of Common Stock, and Christina L. Shea acquired
Shares pursuant to the Fingerhut Companies, Inc. Director Retainer Stock
Deferral Plan, and such
17
<PAGE>
acquisition was not reported on a Form 5 for the fiscal year ended December 26,
1997. Appropriate Forms reporting the transactions were filed promptly after the
oversights were discovered.
ARRANGEMENTS AND TRANSACTIONS WITH RELATED PARTIES
Wendell Anderson, a member of the Company's Board of Directors, provides
certain governmental and regulatory affairs consulting services to the Company,
for which he was paid $144,000 in 1998.
The Company has entered into an agreement with Wit Capital Corporation ("Wit
Capital") for financial advisory services in connection with the Offer and the
Merger. Robert H. Lessin, a member of the Company's Board of Directors, is the
Chairman and Chief Executive Officer of Wit Capital. For its services as
financial advisor, the Company has agreed to pay Wit Capital a cash fee of
$500,000 in the event of completion of a business combination with Parent. The
Company has also agreed to indemnify Wit Capital against certain liabilities,
including liabilities under the federal securities laws, arising out of Wit
Capital's engagement. The full text of this agreement is filed herewith as
Exhibit 10 to the Schedule 14D-9.
The Company is also party to a letter agreement with Wit Capital for
financial advisory services in connection with developing a strategy of
identifying and structuring investments in companies in the internet market and
other general financial advisory services. For such services, the Company agreed
to pay Wit Capital a retainer fee of $100,000 and a transaction fee for any
business combination consummated by the Company that was introduced by Wit
Capital, to be negotiated between the parties on a case by case basis. The
Company also agreed to indemnify Wit Capital against certain liabilities arising
out of Wit Capital's engagement and to pay certain of its expenses. The
agreement has a term of one year from August 6, 1998. The full text of this
agreement is filed herewith as Exhibit 16 to the 14D-9.
In November 1998, Fingerhut Business Services, Inc. ("FBS"), a wholly owned
subsidiary of the Company, began providing certain outbound telemarketing
services to United States Satellite Broadcasting Company ("USSB"), a
majority-owned subsidiary of Hubbard Broadcasting Company. Stanley S. Hubbard, a
director of the Company, is the Chief Executive Officer of Hubbard Broadcasting
Company. The Company estimates that the amount of the monthly payments to be
made by USSB to FBS for such services will be approximately $1,250,000. FBS and
USSB are in the process of negotiating an agreement with respect to this
arrangement, which they anticipate will extend through July 1, 1999.
Figi's is a party to an agreement with Gage Marketing Group pursuant to
which Gage Marketing Group provides certain telemarketing services to Figi's.
Edwin C. Gage, a director of the Company and a member of the Compensation
Committee of the Board, is the Chairman and Chief Executive Officer of Gage
Marketing Group. Since the agreement was entered into in October 1998,
approximately $304,000 has been paid for services provided under this agreement.
18
<PAGE>
SCHEDULE I
DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER AND PARENT
The following table sets forth the name, present principal occupation or
employment and material occupations, positions, offices or employment for the
past five years of the directors, executive officers and employees of Parent and
Purchaser whom Parent has identified as the candidates to be Purchaser
Designees. Unless otherwise indicated below, (i) each individual has held his or
her positions for more than the past five years, (ii) the business address of
each person is 7 West Seventh Street, Cincinnati, Ohio 45202, and (iii) all
individuals listed below are citizens of the United States. Mr. Broderick and
Mr. Sims are directors and executive officers of Purchaser as well as of Parent.
In the event that additional Purchaser Designees are required in order to
constitute a majority of the Board, such additional Purchaser Designees will be
selected by Purchaser from among the directors and executive officers of Parent
contained in Schedule I of the Offer To Purchase, which is incorporated herein
by reference.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
Dennis J. Broderick Senior Vice President and General Counsel since 1990, Corporate Secretary
since 1993
Vice President and Deputy General Counsel for Parent's regional Law
Department operation from February 1987 until 1990
Served as Assistant General Counsel at The Firestone Tire & Rubber Company
John R. Sims Vice President, Deputy General Counsel since 1990
Operating Vice President and Deputy General Counsel from 1988 to 1990
Deputy Regional Counsel from 1987 to 1988
Assistant Counsel from 1975 to 1987
Thomas G. Cody Executive Vice President--Legal and Human Resources since 1988
Senior Vice President--Law and Public Affairs from 1982 to 1988
Served as Senior Vice President, General Counsel and Secretary for Pan
American World Airways, Inc.
Member of Board of Directors of CTS Corporation
Ronald W. Tysoe Vice Chairman since 1990 and Director since 1988 (member of the Finance
(Canadian citizen) Committee)
Chief Financial Officer from 1990 through 1997
Member of the board of directors of E.W. Scripps Company
Karen M. Hoguet Chief Financial Officer since 1997, Senior Vice President of Planning since
1991 and Treasurer since 1992
Served as Vice President from 1988 to 1991
Served as Operating Vice President of Financial Planning and Analysis from
1987 to 1988
Served as Manager and then Director of Capital and Business Planning from
1985 to 1988
Buyer at Shillito Rikes, a division of Parent in Cincinnati for 1984
Served as Senior Consultant in marketing and long-range planning from 1982
to 1984
Member of Board of Directors of Cincinnati Bell Inc.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR
NAME EMPLOYMENT AND FIVE-YEAR EMPLOYMENT HISTORY
- ------------------------------------ ---------------------------------------------------------------------------
<S> <C>
Joel Belsky Corporate Vice President and Controller since 1996
Served as Divisional Vice President and Deputy Controller from 1993 to 1996
Served as Vice President of Finance and Chief Financial Officer for
Parent's Atlanta-based Rich's/Goldsmith's since 1982
Terry J. Lundgren President and Chief Merchandising Officer since 1997 (151 West 34th Street,
New York, New York 10001)
Director since 1997 (member of the Public Policy Committee)
Served as Chairman of Federated Merchandising Group, a division of Parent,
from 1994 to 1998
James M. Zimmerman Chairman and Chief Executive Officer since 1997 and
Director since 1988 (member of Executive and Finance Committees)
President and Chief Operating Officer from 1988 to 1997
Member of boards of directors of The Chubb Corporation and H.J. Heinz
Company
Klaus M. Ziermaier Divisional Vice President and Assistant General Counsel since 1995
Operating Vice President and Assistant General Counsel since prior to 1993
</TABLE>
I-2
<PAGE>
Exhibit 1
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
AGREEMENT AND PLAN OF MERGER
BY AND AMONG
FINGERHUT COMPANIES, INC.
FEDERATED DEPARTMENT STORES, INC.
AND
BENGAL SUBSIDIARY CORP.
DATED AS OF FEBRUARY 10, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
I. THE TENDER OFFER..............................................................................................2
1.1. The Offer.....................................................................................2
1.2. Offer Documents...............................................................................3
1.3. Company Actions...............................................................................4
1.4. Directors.....................................................................................5
II. THE MERGER...............................................................................................6
2.1. The Merger....................................................................................6
2.2. The Closing...................................................................................7
2.3. Effective Time................................................................................7
2.4. Articles of Incorporation and Bylaws of Surviving
Corporation...................................................................................7
2.5. Directors and Officers of Surviving Corporation...............................................8
2.6. Conversion of Securities......................................................................8
2.7. Dissenting Shares.............................................................................9
2.8. Surrender of Shares; Stock Transfer Books.....................................................9
2.9. Stock Plans..................................................................................11
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............................................................12
3.1. Existence; Good Standing; Corporate Authority................................................12
3.2. Authorization, Validity and Effect of Agreement..............................................13
3.3. Capitalization...............................................................................13
3.4. Subsidiaries.................................................................................14
3.5. Other Interests..............................................................................15
3.6. No Conflict; Required Filings and Consents...................................................15
3.7. Compliance with Laws.........................................................................16
3.8. SEC Documents................................................................................16
3.9. Litigation...................................................................................17
3.10. Absence of Certain Changes...................................................................18
3.11. Taxes........................................................................................18
3.12. Property.....................................................................................20
3.13. Millennium Compliance........................................................................22
3.14. Contracts....................................................................................22
3.15. Environmental Matters........................................................................23
3.16. Employee Benefit Plans.......................................................................24
3.17. State Takeover Statutes......................................................................25
3.18. Voting Requirements..........................................................................25
3.19. No Brokers...................................................................................25
3.20. Opinion of SSB...............................................................................25
3.21. Offer Documents; Proxy Statement.............................................................26
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER......................................................26
4.1. Existence; Good Standing; Corporate Authority................................................26
4.2. Authorization, Validity and Effect of Agreement..............................................27
4.3. No Conflict; Required Filings and Consents...................................................27
4.4. No Brokers...................................................................................28
4.5. Offer Documents; Proxy Statement.............................................................28
4.6. Financing....................................................................................29
4.7. Litigation...................................................................................29
4.8. Ownership of Shares..........................................................................29
V. COVENANTS.....................................................................................................29
5.1. Conduct of Business..........................................................................29
</TABLE>
<PAGE>
<TABLE>
<S> <C>
5.2. No Solicitation..............................................................................33
5.3. Filings, Reasonable Efforts..................................................................35
5.4. Inspection of Records........................................................................35
5.5. Publicity....................................................................................36
5.6. Proxy Statement..............................................................................36
5.7. Further Actions..............................................................................37
5.8. Insurance; Indemnity.........................................................................37
5.9. Employee Benefits............................................................................38
5.10. Conveyance Taxes.............................................................................39
VI. CONDITIONS PRECEDENT........................................................................................39
6.1. Conditions to Each Party's Obligation To Effect
the Merger...................................................................................39
6.2. Conditions to Obligation of Parent and Purchaser
to Effect the Merger.........................................................................39
VII. TERMINATION.................................................................................................40
7.1. Termination by Mutual Consent................................................................40
7.2. Termination by Either Parent or Company......................................................40
7.3. Termination by Company.......................................................................40
7.4. Termination by Parent........................................................................40
7.5. Effect of Termination and Abandonment; Termination
Fee..........................................................................................41
VIII. GENERAL PROVISIONS.........................................................................................43
8.1. Nonsurvival of Representations, Warranties and
Agreements...................................................................................43
8.2. Notices......................................................................................44
8.3. Assignment; Binding Effect...................................................................45
8.4. Entire Agreement.............................................................................45
8.5. Amendment....................................................................................45
8.6. Governing Law................................................................................46
8.7. Counterparts.................................................................................46
8.8. Headings.....................................................................................46
8.10. Waivers......................................................................................47
8.11. Incorporation of Annex A.....................................................................47
8.12. Severability.................................................................................47
8.13. Enforcement of Agreement.....................................................................47
8.14. Expenses.....................................................................................48
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF MERGER
AGREEMENT AND PLAN OF MERGER (this "AGREEMENT"), dated as of February
10, 1999, by and among Fingerhut Companies, Inc., a Minnesota corporation (the
"COMPANY"), Federated Department Stores, Inc., a Delaware corporation
("PARENT"), and Bengal Subsidiary Corp., a Minnesota corporation and a wholly
owned subsidiary of Parent ("PURCHASER") (the Company and Purchaser being
sometimes hereinafter referred to as the "CONSTITUENT CORPORATIONS").
RECITALS
A. Each of the Boards of Directors of the Company, Parent and Purchaser
has determined that it is in the best interests of its respective shareholders
for Purchaser to acquire the Company on the terms and subject to the conditions
set forth herein (the "ACQUISITION");
B. As a first step in the Acquisition, the Company, Parent and
Purchaser each desire that Parent cause Purchaser to commence a cash tender
offer (the "OFFER") to purchase all of the Company's issued and outstanding
shares, par value $0.01 per share (the "SHARES") for $25.00 per Share, or such
higher price as may be paid in the Offer (the "PER SHARE AMOUNT"), on the terms
and subject to the conditions set forth in this Agreement;
C. To complete the Acquisition, each of the Boards of Directors of the
Company, Parent, on its behalf and as sole shareholder of Purchaser, and
Purchaser have approved this Agreement and the merger of Purchaser with and into
the Company (the "MERGER"), wherein any issued and outstanding Shares not
tendered and purchased by Purchaser pursuant to the Offer (other than Dissenting
Shares and Shares described in Section 2.6(b)) will be converted into the right
to receive the Per Share Amount, on the terms and subject to the conditions of
this Agreement and in accordance with the Minnesota Business Corporation Act
(the "MBCA");
D. The Board of Directors of the Company (the "COMPANY BOARD") has
unanimously (with one director being absent) resolved to recommend that holders
of Shares ("SHAREHOLDERS") accept the Offer and approve this Agreement and the
Merger and has determined that the Offer and the Merger are fair to and in the
best interests of the Company and the Shareholders; and
E. The parties desire to make certain representations, warranties and
covenants in connection with the Offer and the Merger and also to prescribe
various conditions to the Offer and the Merger.
<PAGE>
I. THE TENDER OFFER
1.1. THE OFFER. (a) Subject to the last sentence of this Section
1.1(a), as promptly as practicable (but in any event not later than five
business days after the public announcement of the execution and delivery of
this Agreement), Parent will cause Purchaser to commence (within the meaning of
Rule 14d-2 under the Securities Exchange Act of 1934, as amended (the "EXCHANGE
ACT")), the Offer whereby Purchaser will offer to purchase for cash all of the
Shares at the Per Share Amount, net to the seller in cash (subject to reduction
for any stock transfer taxes payable by the seller, if payment is to be made to
a Person other than the Person in whose name the certificate for such Shares is
registered, or any applicable federal back-up withholding), provided, however,
that Parent may designate another direct or indirect subsidiary of Parent as the
bidder thereunder (within the meaning of Rule 14d-1(e) under the Exchange Act),
in which event references herein to Purchaser will be deemed to apply to such
subsidiary, as applicable. Notwithstanding the foregoing, if between the date of
this Agreement and the Effective Time the outstanding Shares shall have been
changed into a different number of shares or a different class, by reason of any
stock dividend, subdivision, reclassification, recapitalization, split,
combination or exchange of shares, the Per Share Amount will be correspondingly
adjusted on a per-share basis to reflect such stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of shares.
The obligation of Parent to cause Purchaser to commence the Offer, to consummate
the Offer and to accept for payment and to pay for Shares validly tendered in
the Offer and not withdrawn in accordance therewith will be subject to, and only
to, those conditions set forth in Annex A hereto (the "OFFER CONDITIONS").
(b) Without the prior written consent of the Company, Purchaser will
not, and Parent will cause Purchaser not to, (i) decrease or change the form of
the Per Share Amount, (ii) decrease the number of Shares sought in the Offer,
(iii) amend or waive the Minimum Condition (as defined in Annex A hereto) or
impose conditions other than the Offer Conditions on the Offer, (iv) extend the
expiration date of the Offer (the "EXPIRATION DATE") (which will initially be 20
business days following the commencement of the Offer) except (A) as required by
Law, (B) that, in the event that any condition to the Offer is not satisfied or
waived at the time that the Expiration Date would otherwise occur, (1) Purchaser
must extend the Expiration Date for an aggregate of 10 additional business days
to the extent necessary to permit such condition to be satisfied and (2)
Purchaser may, in its sole discretion, extend the Expiration Date for such
additional period as it may determine to be appropriate (but not beyond June 30,
1999) to permit such condition to be satisfied, and (C) that, in the event that
the OCC Condition (as defined in Annex A hereto) is not satisfied, and all other
Offer Conditions have been satisfied or waived at the time that the Expiration
Date (as extended pursuant to Section 1.1(b)(iv)(A) or (B)), would have
otherwise occurred, Purchaser must either
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<PAGE>
irrevocably waive the OCC Condition or extend the Expiration Date (but not
beyond the date that is 60 calendar days from the date of the filing with the
Office of the Comptroller of the Currency (the "OCC") in respect of the OCC
Condition) to the extent necessary to permit the OCC Condition to be satisfied,
or (v) amend any term of the Offer in any manner materially adverse to
Shareholders (including without limitation to result in any extension which
would be inconsistent with the preceding provisions of this sentence), provided,
however, that (1) subject to applicable legal requirements, Parent may cause
Purchaser to waive any Offer Condition, other than the Minimum Condition, in
Parent's sole discretion and (2) the Offer may be extended in connection with an
increase in the consideration to be paid pursuant to the Offer so as to comply
with applicable rules and regulations of the Securities and Exchange Commission
(the "SEC"). Except as set forth above and subject to applicable legal
requirements, Purchaser may amend the Offer or waive any Offer Condition in its
sole discretion. Assuming the prior satisfaction or waiver of the Offer
Conditions, Parent will cause Purchaser to accept for payment, and pay for, in
accordance with the terms of the Offer, all Shares validly tendered and not
withdrawn pursuant to the Offer as soon as practicable after the Expiration Date
or any extension thereof.
1.2. OFFER DOCUMENTS. (a) As soon as practicable on the date of
commencement of the Offer, Parent and Purchaser will file or cause to be filed
with the SEC a tender offer statement on Schedule 14D-1 (the "SCHEDULE 14D-1")
which will contain an offer to purchase and related letter of transmittal and
other ancillary Offer documents and instruments pursuant to which the Offer will
be made (collectively with any supplements or amendments thereto, the "OFFER
DOCUMENTS") and which Parent and Purchaser represent, warrant and covenant will
comply in all material respects with the Exchange Act and other applicable Laws
and will contain (or will be amended in a timely manner so as to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable Laws,
provided, however, that (i) no representation, warranty or covenant hereby is
made or will be made by Parent or Purchaser with respect to information supplied
by the Company in writing expressly for inclusion in, or information extracted
from the Company's public SEC filings which is incorporated by reference or
included in, the Offer Documents ("COMPANY SEC INFORMATION") and (ii) no
representation, warranty or covenant is made or will be made herein by the
Company with respect to information contained in the Offer Documents other than
the Company SEC Information.
(b) Parent, Purchaser and the Company will each promptly correct any
information provided by them for use in the Offer Documents if and to the extent
that it becomes false or misleading in any material respect and Parent and
Purchaser will jointly and severally take all lawful action necessary to cause
the Offer Documents as so corrected to be filed promptly with the SEC and to be
disseminated to the Shareholders, in each case as
3
<PAGE>
and to the extent required by applicable Law. In conducting the Offer, Parent
and Purchaser will comply in all material respects with the provisions of the
Exchange Act and other applicable Laws. Parent and Purchaser will afford the
Company and its counsel a reasonable opportunity to review and comment on the
Offer Documents and any amendments thereto prior to the filing thereof with the
SEC and will not mail the Offer Documents to the Shareholders if the Company
reasonably asserts that the Company SEC Information is inaccurate.
(c) Parent and Purchaser will file with the Commissioner of Commerce of
the State of Minnesota any registration statement relating to the Offer required
to be filed pursuant to Chapter 80B of the Minnesota Statutes.
1.3. COMPANY ACTIONS. The Company hereby consents to the Offer and
represents that (a) the Company Board and a special committee of the Company
Board formed in accordance with Section 302A.673 of the MBCA (the "SPECIAL
COMMITTEE") (each at a meeting duly called and held) have (i) determined that
this Agreement, the Offer and the Merger are fair to and in the best interests
of the Company and the Shareholders, (ii) approved this Agreement and the
transactions contemplated hereby, including the Offer and the Merger, and,
assuming the accuracy of Parent's and Purchaser's representation in Section 4.8,
such approval is sufficient to render Sections 302A.671, 302A.673 and 302A.675
of the MBCA inapplicable to this Agreement and the transactions contemplated
hereby, including the Offer and the Merger, and (iii) resolved to recommend
acceptance of the Offer and approval of this Agreement by the Shareholders and
(b) Salomon Smith Barney Inc. ("SSB") has delivered to the Company Board the
opinion described in Section 3.20. The Company hereby consents to the inclusion
in the Offer Documents of the recommendation referred to in this Section 1.3,
provided, however, that the Company Board may withdraw, modify or change such
recommendation to the extent, and only to the extent and on the conditions,
specified in Section 5.2(b). The Company will file with the SEC simultaneously
with the filing by Parent and Purchaser of the Schedule 14D-1, a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, "SCHEDULE 14D-9") containing such
recommendations of the Company Board in favor of the Offer and the Merger,
subject to the rights of the Company Board set forth in Section 5.2(b). The
Company represents, warrants and covenants that the Schedule 14D- 9 will comply
in all material respects with the Exchange Act and any other applicable Laws and
will contain (or will be amended in a timely manner so as to contain) all
information which is required to be included therein in accordance with the
Exchange Act and the rules and regulations thereunder and other applicable Laws,
provided, however, (i) that no representation, warranty or covenant is made or
will be made herein by the Company with respect to information supplied by
Parent or Purchaser expressly for inclusion in, or information extracted from
Parent's public SEC filings which is incorporated or included in, the Schedule
14D-9 (the "PARENT SEC INFORMATION"), and (ii) no representation,
4
<PAGE>
warranty or covenant is made or will be made herein by Parent or Purchaser with
respect to information contained in the Schedule 14D-9 other than the Parent SEC
Information (which Parent SEC Information will include the information furnished
by Parent as contemplated by the next sentence). The Company will include in the
Schedule 14D-9 information furnished by Parent in writing concerning Parent's
Designees as required by Section 14(f) of the Exchange Act and Rule 14f-1
thereunder and will use its reasonable best efforts to have the Schedule 14D-9
available for inclusion in the initial mailing (and any subsequent mailing) of
the Offer Documents to the Shareholders. Each of the Company and Parent will
promptly correct any information provided by them for use in the Schedule 14D-9
if and to the extent that it becomes false or misleading in any material respect
and the Company will further take all lawful action necessary to cause the
Schedule 14D-9 as so corrected to be filed promptly with the SEC and
disseminated to the Shareholders, in each case as and to the extent required by
applicable Law. Parent and its counsel will be given a reasonable opportunity to
review the Schedule 14D-9 and any amendments thereto prior to the filing thereof
with the SEC. In connection with the Offer, the Company will promptly furnish
Parent with mailing labels, security position listings and all available
listings or computer files containing the names and addresses of the record
Shareholders as of the latest practicable date and will furnish Parent such
information and assistance (including updated lists of the Shareholders, mailing
labels and lists of security positions) as Parent or its agents may reasonably
request in communicating the Offer to the record and beneficial Shareholders.
Subject to the requirements of applicable Law, and except for such actions as
are necessary to disseminate the Offer Documents and any other documents
necessary to consummate the Offer and the Merger, Parent and Purchaser will, and
will instruct each of their respective Affiliates, associates, partners,
employees, agents and advisors to, hold in confidence the information contained
in such labels, lists and files, will use such information only in connection
with the Offer and the Merger, and, if this Agreement is terminated in
accordance with its terms, will deliver promptly to the Company all copies of
such information (and any copies, compilations or extracts thereof or based
thereon) then in their possession or under their control.
1.4. DIRECTORS. (a) Promptly upon the purchase of Shares by Purchaser
pursuant to the Offer (provided that the Minimum Condition has been satisfied),
and from time to time thereafter, (i) Parent will be entitled to designate such
number of directors ("PARENT'S DESIGNEES"), rounded down to the next whole
number, as will give Parent, subject to compliance with Section 14(f) of the
Exchange Act, representation on the Company Board equal to the product of (A)
the number of directors on the Company Board (giving effect to any increase in
the number of directors pursuant to this Section 1.4) and (B) the percentage
that such number of Shares so purchased bears to the aggregate number of Shares
outstanding (such number being, the "BOARD PERCENTAGE"), provided, however, that
the Board Percentage will in all events
5
<PAGE>
be a majority of the members of the Company Board, and (ii) the Company will,
upon request by Parent, promptly satisfy the Board Percentage by (A) increasing
the size of the Company Board or (B) using its reasonable best efforts to secure
the resignations of such number of directors as is necessary to enable Parent's
Designees to be elected to the Company Board or both and will use its reasonable
best efforts to cause Parent's Designees promptly to be so elected, subject in
all instances to compliance with Section 14(f) of the Exchange Act and Rule
14f-1 promulgated thereunder. At the request of Parent, the Company will take
all lawful action necessary to effect any such election. Parent will supply to
the Company in writing and be solely responsible for any information with
respect to itself, Parent's Designees and Parent's officers, directors and
Affiliates required by Section 14(f) of the Exchange Act and Rule 14f-1
promulgated thereunder to be included in the Schedule 14D-9. Notwithstanding the
foregoing, at all times prior to the Effective Time, the Company Board will
include at least three Continuing Directors.
(b) Notwithstanding any other provision hereof, of the articles of
incorporation or bylaws of the Company or of applicable Law to the contrary,
following the election or appointment of Parent's Designees pursuant to this
Section 1.4 and prior to the Effective Time or, if the Effective Time has not
then occurred, the Drop-Dead Date, any amendment or termination of this
Agreement or amendment of the articles of incorporation or bylaws of the Company
by the Company, extension by the Company for the performance or waiver of the
obligations or other acts of Parent or Purchaser hereunder or waiver by the
Company of any of the Company's rights hereunder will require the affirmative
vote of the majority of members of a committee comprised solely of Continuing
Directors. For purposes of this Agreement, the term the "CONTINUING DIRECTORS"
means at any time (i) those directors of the Company who are Disinterested
directors of the Company on the date hereof and who voted to approve this
Agreement and (ii) such additional directors of the Company who are
Disinterested and who are designated as "Continuing Directors" for purposes of
this Agreement by a majority of the Continuing Directors in office at the time
of such designation, provided, however, that if there are no such Continuing
Directors, the individuals who are appointed to the Company Board who are both
Disinterested and "independent" within the meaning given such term in the New
York Stock Exchange Listed Company Guide will constitute the Continuing
Directors. For purposes of this Agreement, the term "DISINTERESTED" has the
meaning assigned to it in Section 302A.673, Subd.1(d)of the MBCA.
II. THE MERGER
2.1. THE MERGER. (a) On the terms and subject to the conditions of this
Agreement, at the Effective Time, Purchaser will be merged with and into the
Company in accordance with the applicable provisions of the MBCA, and the
separate corporate existence of Purchaser will thereupon cease. The Company will
be
6
<PAGE>
the surviving corporation in the Merger (as such, the "SURVIVING CORPORATION")
in accordance with the MBCA.
(b) The Merger will have the effects specified in Section 302A.641 of
the MBCA.
2.2. THE CLOSING. The closing of the transactions contemplated by this
Agreement (the "CLOSING") will take place at the offices of Jones, Day, Reavis &
Pogue, 599 Lexington Avenue, New York, New York, at 10:00 a.m., local time, on
the second business day after the date on which the last of the conditions
(excluding conditions that by their terms cannot be satisfied until the Closing
Date) set forth in Article VI is satisfied or waived in accordance herewith, or
at such other place, time or date as the parties may agree. The date on which
the Closing occurs is hereinafter referred to as the "CLOSING DATE."
2.3. EFFECTIVE TIME. On the Closing Date or as soon as practicable
following the date on which the last of the conditions set forth in Article VI
is satisfied or waived in accordance herewith, Purchaser and the Company will
cause articles of merger to be filed with the Secretary of State of the State of
Minnesota as provided in the MBCA. Upon completion of such filing, the Merger
will become effective in accordance with the MBCA. The time and date on which
the Merger becomes effective is herein referred to as the "EFFECTIVE TIME."
Without limiting the generality of the foregoing, and subject thereto, at the
Effective Time all the property, rights, privileges, powers, immunities and
franchises of the Company and Purchaser will vest in the Surviving Corporation,
and all debts, liabilities, obligations and duties of the Company and Purchaser
will become the debts, liabilities, obligations and duties of the Surviving
Corporation.
2.4. ARTICLES OF INCORPORATION AND BYLAWS OF SURVIVING CORPORATION. (a)
The articles of incorporation of the Surviving Corporation to be in effect from
and after the Effective Time until amended in accordance with its terms and the
MBCA will be the articles of incorporation of Purchaser immediately prior to the
Effective Time (in the form attached hereto as Exhibit A), provided, however
that, at the Effective Time, by virtue of the Merger and this Agreement and
without any further action by the Constituent Corporations, Article 1 of the
Articles of Incorporation will be amended to read as follows: "The name of the
Corporation is Fingerhut Companies, Inc."
(b) The bylaws of the Surviving Corporation to be in effect from and
after the Effective Time until amended in accordance with their terms, the
articles of incorporation of the Surviving Corporation and the MBCA will be the
bylaws of Purchaser immediately prior to the Effective Time.
7
<PAGE>
2.5. DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. (a) The members
of the initial Board of Directors of the Surviving Corporation will be the
members of the Board of Directors of Purchaser immediately prior to the
Effective Time. All of the members of the Board of Directors of the Surviving
Corporation will serve until their successors are duly elected or appointed and
qualified or until their earlier death, resignation or removal in accordance
with the articles of incorporation and the bylaws of the Surviving Corporation.
(b) The officers of the Surviving Corporation will consist of the
officers of the Company immediately prior to the Effective Time. Such Persons
will continue as officers of the Surviving Corporation until their successors
have been duly elected or appointed and qualified or until their earlier death,
resignation or removal in accordance with the articles of incorporation and the
bylaws of the Surviving Corporation.
2.6. CONVERSION OF SECURITIES. The manner and basis of converting the
shares of stock of each of the Constituent Corporations is hereinafter set forth
in this Section 2.6. At the Effective Time, by virtue of the Merger and without
any action on the part of Parent, Purchaser, the Company or the holder of any of
the following securities:
(a) CONVERSION OF SHARES. Each Share issued and outstanding immediately
prior to the Effective Time (other than any Shares to be canceled pursuant to
Section 2.6(b) and any Dissenting Shares) and any Shares issuable upon exercise
of any option, conversion or other right to acquire Shares existing immediately
prior to the Effective Time (collectively, "RIGHTS") will be converted into the
right to receive the Per Share Amount in cash payable to the holder thereof,
without interest (the "MERGER CONSIDERATION"), prorated for fractional shares,
in accordance with Section 2.8. All such Shares, when so converted, will no
longer be outstanding and will automatically be canceled and will cease to
exist, and each holder of a certificate formerly representing any such Share
will cease to have any rights with respect thereto, except the right to receive
the Merger Consideration therefor upon the surrender of such certificate in
accordance with Section 2.8. Any payment made pursuant to this Section 2.6(a)
and Section 2.8 will be made net of applicable withholding taxes to the extent
such withholding is required by Law. Notwithstanding the foregoing, if between
the date of this Agreement and the Effective Time the outstanding Shares shall
have been changed into a different number of shares or a different class, by
reason of any stock dividend, subdivision, reclassification, recapitalization,
split, combination or exchange of shares, the Merger Consideration will be
correspondingly adjusted on a per-share basis to reflect such stock dividend,
subdivision, reclassification, recapitalization, split, combination or exchange
of shares.
8
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(b) CANCELLATION PARENT-OWNED SHARES. Each Share owned by Parent,
Purchaser or any other direct or indirect wholly owned subsidiary of Parent
immediately before the Effective Time (other than shares in trust accounts,
managed accounts, custodial accounts and the like that are beneficially owned by
third parties) will be automatically canceled and will cease to exist and no
payment or other consideration will be made with respect thereto.
(c) COMMON STOCK OF PURCHASER. Each share of common stock, no par
value, of Purchaser issued and outstanding immediately before the Effective Time
will be converted into and become one validly issued, fully paid and
nonassessable share of common stock, no par value, of the Surviving Corporation,
which, in accordance with this Agreement, will constitute all of the issued and
outstanding shares of capital stock of the Surviving Corporation immediately
after the Effective Time.
2.7. DISSENTING SHARES. (a) Notwithstanding any provision of this
Agreement to the contrary, any Shares held by a holder who has not voted such
Shares in favor of this Agreement and who has properly exercised dissenters'
rights with respect to such Shares in accordance with the MBCA (including
Sections 302A.471 and 302A.473 thereof) and as of the Effective Time has neither
effectively withdrawn nor lost its right to exercise such dissenters' rights
("DISSENTING SHARES"), will not be converted into or represent a right to
receive the Merger Consideration pursuant to Section 2.6(a), but the holder
thereof will be entitled to only such rights as are granted by the MBCA.
(b) Notwithstanding the provisions of Section 2.7(a), if any
Shareholder who demands dissenters' rights with respect to its Shares under the
MBCA effectively withdraws or loses (through failure to perfect or otherwise)
its dissenters' rights, then as of the Effective Time or the occurrence of such
event, whichever later occurs, such holder's Shares will automatically be
converted into and represent only the right to receive the Merger Consideration
as provided in Section 2.6(a), without interest thereon, upon surrender of the
certificate or certificates formerly representing such Shares.
(c) The Company will give Parent (i) prompt notice of any written
intent to demand payment of the fair value of any Shares, withdrawals of such
demands and any other instruments served pursuant to the MBCA received by the
Company and (ii) the opportunity to direct all negotiations and proceedings with
respect to dissenters' rights under the MBCA. The Company may not voluntarily
make any payment with respect to any exercise of dissenters' rights and may not,
except with the prior written consent of Parent, settle or offer to settle any
such dissenters' rights.
2.8. SURRENDER OF SHARES; STOCK TRANSFER BOOKS. (a) Prior to the
Effective Time, Purchaser will designate a bank or trust company selected by
it to act as agent for the Shareholders
9
<PAGE>
in connection with the Merger (the "EXCHANGE AGENT") to receive the funds
necessary to make the payments contemplated by Section 2.6 which bank or trust
company will be located in the United States and have capital surplus and
undivided profits exceeding $500,000,000. When and as needed, Parent will make
available to the Exchange Agent for the benefit of the Shareholders the
aggregate consideration to which the Shareholders will be entitled at the
Effective Time pursuant to Section 2.6(a).
(b) Each holder of a certificate or certificates representing any
Shares canceled upon the Merger pursuant to Section 2.6(a) (the "CERTIFICATES")
may thereafter surrender such Certificate or Certificates to the Exchange Agent,
as agent for such holder, to effect the surrender of such Certificate or
Certificates on such holder's behalf for a period ending one year after the
Effective Time. Parent agrees that promptly after the Effective Time it will
cause the distribution to the Shareholders as of the Effective Time of
appropriate materials to facilitate such surrender. Upon the surrender of
Certificates for cancellation, together with such materials, Parent will cause
the Exchange Agent to promptly pay the holder of such Certificates in exchange
therefor cash in an amount equal to the Merger Consideration multiplied by the
number of Shares represented by such Certificate. Until so surrendered, each
such Certificate (other than certificates representing Dissenting Shares and
certificates representing Shares to be canceled pursuant to Section 2.6(b)) will
represent solely the right to receive the aggregate Merger Consideration
relating thereto.
(c) If payment of cash in respect of canceled Shares is to be made to a
Person other than the Person in whose name a surrendered Certificate or
instrument is registered, it will be a condition to such payment that the
Certificate or instrument 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 such
payment in a name other than that of the registered holder of the Certificate or
instrument surrendered or shall have established to the satisfaction of the
Surviving Corporation or the Exchange Agent that such tax either has been paid
or is not payable.
(d) At the Effective Time, the stock transfer books of the Company will
be closed and there will not be any further registration of transfers of Shares
outstanding prior to the Effective Time or otherwise issuable pursuant to Rights
on the records of the Company. If, after the Effective Time, Certificates are
presented to the Surviving Corporation, they will be canceled and exchanged for
cash as provided in Section 2.6(a), except as provided in Sections 2.6(b) and
2.7. No interest will accrue or be paid on any cash payable upon the surrender
of a Certificate or Certificates which represented Shares outstanding prior to
the Effective Time or otherwise issuable pursuant to Rights.
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(e) Promptly following the date which is one year after the Effective
Time, the Exchange Agent will deliver to the Surviving Corporation all cash,
certificates and other documents in its possession relating to the transactions
contemplated hereby, and the Exchange Agent's duties will terminate. Thereafter,
each holder of a Certificate (other than Certificates representing Dissenting
Shares and Certificates representing Shares held by Parent, Purchaser or any
other direct or indirect wholly owned subsidiary of Parent) may surrender such
Certificate to the Surviving Corporation and (subject to applicable abandoned
property, escheat and similar laws) receive in consideration thereof, and Parent
will and will cause the Surviving Corporation to promptly pay, the aggregate
Merger Consideration relating thereto without any interest or dividends thereon.
(f) The Merger Consideration will be net to the holder of Shares in
cash, subject to reduction only for any applicable federal back-up withholding
or, as set forth in Section 2.8(c), stock transfer taxes payable by such holder.
(g) In the event any Certificate has been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed, the Exchange Agent will issue in
exchange for such lost, stolen or destroyed Certificate the Merger Consideration
deliverable in respect thereof as determined in accordance with Section 2.6,
provided that the Person to whom the Merger Consideration is paid shall, as a
condition precedent to the payment thereof, give the Surviving Corporation a
written indemnity agreement in form and substance reasonably satisfactory to the
Surviving Corporation and, if reasonably deemed advisable by the Surviving
Corporation, a bond in such sum as the Surviving Corporation may reasonably
direct to indemnify the Surviving Corporation in a manner reasonably
satisfactory to it against any claim that may be made against the Surviving
Corporation with respect to the Certificate claimed to have been lost, stolen or
destroyed.
2.9. STOCK PLANS. (a) Without limiting the generality or effect of
Sections 2.6 or 2.8 and notwithstanding the provisions hereof applicable to the
Rights, the Company will use its reasonable best efforts (which include
satisfying the requirements of Rule 16b-3(e) promulgated under Section 16 of the
Exchange Act, without incurring any liability in connection therewith) to
provide that, at the Effective Time, each holder of a then-outstanding option to
purchase Shares under the Company's stock option plans set forth or required to
be set forth in Section 2.9 of the Company Disclosure Letter (collectively, the
"STOCK OPTION PLANS") (true and correct copies of which have been delivered or
made available by Company to Parent), whether or not then exercisable (the
"OPTIONS"), will, in settlement thereof, receive from the Company for each Share
subject to such Option an amount (subject to any applicable withholding tax) in
cash equal to the difference between the Merger Consideration and the per Share
exercise price of such Option to the extent such difference is a positive number
(such amount being hereinafter referred to
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as, the "OPTION CONSIDERATION"). Notwithstanding anything herein stated, no
Option Consideration will be paid with respect to any Option unless, at or prior
to the time of such payment, such Option is canceled and the holder of such
Option has executed and delivered a release of any and all rights the holder had
or may have had in respect of such Option.
(b) Without limiting the generality or effect of Sections 2.6 or
2.8 and notwithstanding the provisions hereof applicable to the Rights, prior to
the Effective Time, Company will use its reasonable best efforts to obtain all
necessary consents or releases from holders of Options under the Stock Option
Plans and take all such other lawful action as may be necessary to give effect
to the transactions contemplated by this Section 2.9. Except as otherwise agreed
to by the parties, (i) the Stock Option Plans will terminate as of the Effective
Time and the provisions in any other plan, program or arrangement providing for
the issuance or grant of any other interest in respect of the capital stock of
Company or any Subsidiary thereof, including the Directors' Retainer Stock
Deferral Plan, will be canceled as of the Effective Time and (ii) the Company
will use its reasonable best efforts to assure that following the Effective Time
no participant in the Stock Option Plans or such other plans, programs or
arrangements will have any right thereunder to acquire any equity securities of
the Company, the Surviving Corporation or any Subsidiary thereof and to
terminate all such plans and any Options or other Rights thereunder.
Notwithstanding the foregoing, as requested by Parent, the Company will use its
reasonable best efforts to assure that following the date of this Agreement, no
participant in the 1994 Employee Stock Purchase Plan will have any right to
change any election or increase his contribution thereunder, and the Company
will take all such actions as may be available to it to cause such plan to be
suspended in respect of equity securities of the Company or the Surviving
Corporation(other than as to Shares payment for which was deducted from
employees' payroll at or prior to the date hereof).
III. REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to each of Parent and
Purchaser, except as set forth in the letter, dated the date hereof, from the
Company to Parent initialed by those parties (the "COMPANY DISCLOSURE LETTER"),
as follows:
3.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. The Company is a
corporation duly incorporated, validly existing and in good standing under the
laws of Minnesota. The Company is duly licensed or qualified to do business as a
foreign corporation and is in good standing under the laws of any other state of
the United States in which the character of the properties owned or leased by it
or in which the transaction of its business makes such qualification necessary,
except where the failure to be so qualified or to be in good standing could not
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reasonably be expected to have a Company Material Adverse Effect. The Company
has all requisite corporate power and authority to own, operate and lease its
properties and carry on its business as now conducted. Each of the Company's
Subsidiaries is a corporation, partnership or national bank duly organized,
validly existing and in good standing under the laws of its jurisdiction of
incorporation or organization, has the corporate or partnership power and
authority to own its properties and to carry on its business as it is now being
conducted, and is duly qualified to do business and is in good standing in each
jurisdiction in which the ownership of its property or the conduct of its
business requires such qualification, except for jurisdictions in which such
failure to be so qualified or to be in good standing could not reasonably be
expected to have a Company Material Adverse Effect. The copies of the Company's
articles of incorporation and bylaws previously made available to Parent are
true and correct. As used in this Agreement, (a) the term "COMPANY MATERIAL
ADVERSE EFFECT" means any change, effect, event or condition that has had or
could reasonably be expected to (i) have a material adverse effect on the
business, results of operations or financial condition of the Company and its
Subsidiaries, taken as a whole (other than any change, effect, event or
condition generally applicable to the industry in which the Company and its
Subsidiaries operate or changes in general economic conditions, except to the
extent such changes, effects, events or conditions disproportionately affect the
Company and its Subsidiaries, taken as a whole), or (ii) prevent or materially
delay the Company's ability to consummate the transactions contemplated hereby
and (b) the term "SUBSIDIARY" when used with respect to any party means any
corporation or other organization, whether incorporated or unincorporated, of
which such party directly or indirectly owns or controls at least a majority of
the securities or other interests having by their terms ordinary voting power to
elect a majority of the board of directors or others performing similar
functions.
3.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. The Company has
the requisite corporate power and authority to execute and deliver this
Agreement and all agreements and documents contemplated hereby to be executed
and delivered by it. Subject only to the approval of this Agreement, the Merger
and the transactions contemplated hereby by the holders of a majority of the
outstanding Shares, this Agreement, the Offer, the Merger and the consummation
by the Company of the transactions contemplated hereby have been duly authorized
by all requisite corporate action. This Agreement constitutes, and all
agreements and documents contemplated hereby to be executed and delivered by the
Company (when executed and delivered pursuant hereto) will constitute, the valid
and binding obligations of the Company, enforceable against the Company in
accordance with their respective terms.
3.3. CAPITALIZATION. The authorized capital stock of the Company
consists of 100,000,000 shares of common stock, par value $0.01 per share,
and 5,000,000 shares of preferred stock, par
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value $0.01 per share. As of the close of business on February 8, 1999 (the
"MEASUREMENT DATE"),(a) 49,644,364 Shares were issued and outstanding, each of
which was duly authorized, validly issued, fully paid and nonassessable, (b) no
shares of preferred stock of the Company had been designated or issued, (c) no
Shares were held in treasury of the Company, (d) 10,847,549 Shares were reserved
for issuance under the Stock Option Plans, the Directors' Retainer Stock
Deferral Plan and the 1994 Employee Stock Purchase Plan, (e) Options had been
granted and remain outstanding under the Stock Option Plans to purchase
9,622,746 Shares in the aggregate as more particularly described in Section 3.3
of the Company Disclosure Letter at the exercise prices set forth therein, and
(f) except for the Options and rights to the issuance of 7,391.85 Shares in the
aggregate under the Directors' Retainer Stock Deferral Plan and the 1994
Employee Stock Purchase Plan, there are no outstanding Rights. Since the
Measurement Date, no additional shares of capital stock of the Company have been
issued, except pursuant to the exercise of options listed in Section 3.3 of the
Company Disclosure Letter, the Directors' Retainer Stock Deferral Plan and the
1994 Employee Stock Purchase Plan, and no Rights have been granted. Except as
described in the preceding sentence or as set forth in Section 3.3 of the
Company Disclosure Letter, the Company has no outstanding bonds, debentures,
notes or other securities or obligations the holders of which have the right to
vote or which are convertible into or exercisable for securities having the
right to vote on any matter on which any Shareholder of the Company has a right
to vote. All issued and outstanding Shares are duly authorized, validly issued,
fully paid, nonassessable and free of preemptive rights. There are not at the
date of this Agreement any existing options, warrants, calls, subscriptions,
convertible securities or other Rights which obligate the Company or any of its
Subsidiaries to issue, exchange, transfer or sell any shares of capital stock of
the Company or any of its Subsidiaries other than Shares issuable under the
Stock Option Plans, the Directors' Retainer Stock Deferral Plan and the 1994
Employee Stock Purchase Plan, or awards granted pursuant thereto. As of the
Measurement Date, there were no outstanding contractual obligations of the
Company or any of its Subsidiaries to repurchase, redeem or otherwise acquire
any shares of capital stock of the Company or any of its Subsidiaries. As of the
Measurement Date, there were no outstanding contractual obligations of the
Company to vote or to dispose of any shares of the capital stock of any of its
Subsidiaries.
3.4. SUBSIDIARIES. Section 3.4 of the Company Disclosure Letter lists
all of the Subsidiaries of the Company. The Company owns, directly or
indirectly, all of the outstanding shares of capital stock (or other ownership
interests having by their terms ordinary voting power to elect a majority of
directors or others performing similar functions with respect to such
Subsidiary) of each of the Company's Subsidiaries free and clear of all liens,
pledges, security interests, claims or other encumbrances (collectively,
"LIENS"). Each of the outstanding shares of capital stock (or such other
ownership interests) of each of the
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Company's Subsidiaries is duly authorized, validly issued, fully paid and
nonassessable. The following information for each Subsidiary of the Company has
been previously made available to Parent, if applicable: (i) its jurisdiction of
incorporation or organization; (ii) its authorized capital stock or share
capital; and (iii) the number of issued and outstanding shares of capital stock,
share capital or other equity interests.
3.5. OTHER INTERESTS. Except for interests in the Company's
Subsidiaries and except as disclosed in Section 3.5 of the Company Disclosure
Letter, neither the Company nor any of the Company's Subsidiaries owns, directly
or indirectly, any interest or investment (whether equity or debt) in any
corporation, partnership, joint venture, business, trust or entity (other than
(a) non-controlling investments in the ordinary course of business and corporate
partnering, development, cooperative marketing and similar undertakings and
arrangements entered into in the ordinary course of business and (b) other
investments of less than $1.0 million in the aggregate).
3.6. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution and
delivery of this Agreement by the Company do not, and the consummation by the
Company of the transactions contemplated hereby will not, (i) conflict with or
violate the articles of incorporation or bylaws or equivalent organizational
documents of the Company or any of its Subsidiaries, (ii) subject to making the
filings and obtaining the approvals identified in Section 3.6(b), conflict with
or violate any statute, rule, regulation or other legal requirement ("LAW") or
temporary, preliminary or permanent order, judgment or decree ("ORDER") or any
memorandum of understanding with any Governmental Entity ("MOU") applicable to
the Company or any of its Subsidiaries or by which any property or asset of the
Company or any of its Subsidiaries is bound or affected, or (iii) subject to
making the filings, obtaining the approvals and effecting any other matters
identified in Section 3.6 of the Company Disclosure Letter, result in any breach
of or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, result in the loss of a material benefit
under, or give to others any right of purchase or sale, or any right of
termination, amendment, acceleration, increased payments or cancellation of, or
result in the creation of a Lien on any property or asset 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 any property or asset of the Company or
any of its Subsidiaries is bound or affected, except, in the case of clauses
(ii) and (iii) for any such conflicts, violations, breaches, defaults, events,
losses, rights, payments, cancellations, encumbrances or other occurrences that
could not either (i) result in a default or event of default or accelerate or
require that the Company or any of its Subsidiaries pay prior to the scheduled
maturity date or repurchase or offer to repurchase indebtedness owed to any
Person
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that is in excess of $5.0 million or indebtedness in excess of $20.0 million in
the aggregate or (ii) with respect to any other obligation, document or
instrument, individually or in the aggregate, be reasonably expected to have a
Company Material Adverse Effect.
(b) The execution and delivery of this Agreement by the Company does
not, and the performance of this Agreement and the consummation by the Company
of the transactions contemplated hereby will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any governmental
or regulatory authority, domestic or foreign (each a "GOVERNMENTAL ENTITY"),
except (i) for (A) applicable requirements, if any, of the Exchange Act, (B) the
pre-merger notification requirements of the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended, and the rules and regulations thereunder
(the "HSR ACT"), (C) Chapter 80B of the Minnesota Statutes and similar Laws of
other states, (D) the requirements of the Change in Bank Control Act, as
amended, and the rules and regulations thereunder (the "CIBC ACT"), and (E) the
filing of articles of merger pursuant to the MBCA or (ii) where the failure to
obtain any such consents, approvals, authorizations or permits, or to make such
filings or notifications, could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect.
3.7. COMPLIANCE WITH LAWS. Neither the Company nor any of its
Subsidiaries is in conflict with, or in default or violation of, any Law, Order
or MOU applicable to the Company or any of its Subsidiaries or by which any
property or asset of the Company or any of its Subsidiaries is bound or affected
except for such conflicts, defaults or violations that could not, individually
or in the aggregate, reasonably be expected to have a Company Material Adverse
Effect. The Company and its Subsidiaries have obtained all licenses, permits and
other authorizations and have taken all actions required by applicable Law or
government regulations in connection with their business as now conducted,
except where the failure to obtain any such item or to take any such action
could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect.
3.8. SEC DOCUMENTS. (a) The Company has filed all forms, reports and
documents required to be filed by it with the SEC since January 1, 1996
(collectively, the "COMPANY REPORTS"). As of their respective dates, the Company
Reports and any such reports, forms and other documents filed by the Company
with the SEC after the date of this Agreement (i) complied, or will comply, in
all material respects with the applicable requirements of the Securities Act of
1933, as amended (the "SECURITIES ACT"), the Exchange Act and the rules and
regulations thereunder and (ii) did not, or will not, contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary to make the statements made therein, in the light of
the circumstances under which they were made, not misleading. The representation
in clause (ii) of the preceding
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sentence does not apply to any misstatement or omission in any Company Report
filed prior to the date of this Agreement which was superseded by a subsequent
Company Report filed prior to the date of this Agreement. Except as disclosed in
Section 3.8 of the Company Disclosure Letter, no Subsidiary of the Company is
required to file any report, form or other document with the SEC.
(b) Each of the financial statements included in or incorporated by
reference into the Company Reports (including the related notes and schedules)
presents fairly, in all material respects, the consolidated financial position
of the Company and its Subsidiaries as of its date or, if applicable, the
consolidated results of operations, retained earnings or cash flows, as the case
may be, of the Company and its Subsidiaries for the periods set forth therein,
in each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted therein
(subject, in the case of unaudited statements, to normal year-end audit
adjustments, none of which is material in kind or amount except as noted therein
and except to the extent that generally accepted accounting principles do not
require footnote disclosure in unaudited financial statements).
(c) Neither the Company nor any of its Subsidiaries has any liabilities
or obligations of any nature (whether accrued, absolute, contingent or
otherwise) that would be required to be reflected on, or reserved against in, a
consolidated balance sheet of the Company or described or referred to in the
notes thereto, prepared in accordance with generally accepted accounting
principles consistently applied based upon facts known to the Company as at the
date of this Agreement, except for (i) liabilities or obligations that were so
reserved on, or reflected in (including the notes to), the consolidated balance
sheet of the Company as of September 25, 1998 or any Company Filed Report or
disclosed in Section 3.8 of the Company Disclosure Letter, (ii) liabilities or
obligations arising in the ordinary course of business (including trade
indebtedness) since September 25, 1998, and (iii) liabilities or obligations
which could not, individually or in the aggregate, reasonably be expected to
have a Company Material Adverse Effect.
(d) Set forth in Section 3.8 of the Company Disclosure Letter is a
listing of all of the Company's indebtedness for borrowed money outstanding as
of the Measurement Date setting forth in each case the principal amount thereof.
No payment defaults have occurred and are continuing under the agreements and
instruments governing the terms of such indebtedness.
3.9. LITIGATION. Except as described in Section 3.9 of the Company
Disclosure Letter, there are no actions, suits or proceedings pending or, to the
Knowledge of the Company, threatened against or affecting the Company or any of
its Subsidiaries and there are no Orders of any Governmental Entity or
arbitrator outstanding against the Company or any of its Subsidiaries, except
actions, suits, proceedings or Orders that,
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individually or in the aggregate, are not reasonably likely to have a Company
Material Adverse Effect.
3.10. ABSENCE OF CERTAIN CHANGES. Except as described in the Company
Reports or other reports filed by the Company with the SEC and publicly
available prior to the date hereof (the "COMPANY FILED REPORTS") or disclosed in
Section 3.10 of the Company Disclosure Letter, from January 1, 1998 to the date
of this Agreement, there has not been (a) any Company Material Adverse Effect,
(b) any declaration, setting aside or payment of any dividend or other
distribution with respect to its capital stock other than customary quarterly
cash dividends paid through August, 1998, (c) any stock dividend, subdivision,
reclassification, recapitalization, split, combination or exchange of any of the
Company's capital stock or any issuance or the authorization of any issuance of
any other securities in respect of, in lieu of or in substitution for any shares
of the Company's capital stock, (d) any granting of any increase in compensation
by the Company or any of its Subsidiaries to any director, executive officer or
any other key employee of the Company, other than in the ordinary course of
business or in connection with a promotion, (e) any granting by the Company or
any of its Subsidiaries to any such director, executive officer or key employee
of any increase in severance or termination pay, except as was required under
any employment, severance or termination agreements in effect as of the date of
the most recent financial statements included in the Company Filed Reports or
referred to in Section 3.10 of the Company Disclosure Letter, (f) any entry by
the Company or any of its Subsidiaries into any employment, severance or
termination agreement with any such director, executive officer or key employee,
or (g) except insofar as may be required by a change in generally accepted
accounting principles, any change in accounting methods, principles or practices
by the Company. For purposes of this Agreement, "KEY EMPLOYEE" means any
employee whose current salary and targeted bonus exceeds $200,000 per annum.
Section 3.10 of the Company Disclosure Letter contains a true and complete list
of all agreements or plans providing for termination or severance pay to any
officer, director or key employee of the Company.
3.11. TAXES. (a) Except as could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (i) the
Company has timely filed with the appropriate governmental authorities all Tax
Returns required to be filed by or with respect to the Company, (ii) all Taxes
shown to be due on such Tax Returns, all Taxes required to be paid on an
estimated or installment basis, and all Taxes required to be withheld with
respect to the Company have been timely paid or, if applicable, withheld and
paid, to the appropriate taxing authority in the manner provided by Law, (iii)
the reserve for Taxes set forth on the consolidated balance sheet of the Company
and its Subsidiaries as of September 25, 1998 is adequate for the payment of all
Taxes through the date thereof and no Taxes have been incurred after September
25, 1998 which were not incurred in the ordinary course of business, (iv) no
Federal, state, local or
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foreign audits, administrative proceedings or court proceedings are pending with
regard to any Taxes or Tax Returns of the Company and there are no outstanding
deficiencies or assessments asserted or proposed, and (v) there are no
outstanding agreements, consents or waivers extending the statutory period of
limitations applicable to the assessment of any Taxes or deficiencies against
the Company except as disclosed in Section 3.11 of the Company Disclosure
Letter, and the Company is not a party to any agreement providing for the
allocation or sharing of Taxes.
(b) The Company has not filed a consent to the application of Section
341(f) of the Internal Revenue Code of 1986, as amended (the "CODE").
(c) The Company is not and has not been a United States real property
holding company (as defined in Section 897(c)(2) of the Code) during the
applicable period specified in Section 897(c)(1)(ii) of the Code.
(d) No indebtedness of the Company is "corporate acquisition
indebtedness" within the meaning of Section 279(b) of the Code.
(e) Since January 1, 1993, the Company has not been a member of an
affiliated group filing consolidated Tax Returns other than a federal income tax
group the common parent of which is the Company.
(f) For purposes of this Agreement, "TAXES" means all taxes, charges,
fees, levies or other assessments imposed by any United States Federal, state,
or local taxing authority or by any non-U.S. taxing authority, including but not
limited to, income, gross receipts, excise, property, sales, use, transfer,
payroll, license, ad valorem, value added, withholding, social security,
national insurance (or other similar contributions or payments), franchise,
estimated, severance, stamp and other taxes (including any interest, fines,
penalties or additions attributable to or imposed on or with respect to any such
taxes, charges, fees, levies or other assessments).
(g) For purposes of this Agreement, "TAX RETURN" means any return,
report, information return or other document (including any related or
supporting information and, where applicable, profit and loss accounts and
balance sheets) with respect to Taxes.
(h) Purchaser and the Company will cooperate in the preparation,
execution and filing of all returns, applications or other documents regarding
any real property, transfer, stamp, recording, documentary (including any New
York State Real Estate Transfer Tax) and any other similar fees and taxes which
become payable in connection with the Offer or the Merger (collectively,
"TRANSFER TAXES"). From and after the Effective Time, except as contemplated by
Section 1.1, 2.8(c) and 2.8(f), the Surviving
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Corporation will pay or cause to be paid, without deduction or withholding from
any amounts payable to the holders of Shares, all Transfer Taxes.
(i) The Company received a private letter ruling (the "RULING") from
the Internal Revenue Service ("IRS"), dated August 17, 1998 (Reference
CC:DOM:CORP:2, PLR-119863-97), a copy of which has been provided to Parent, as
to United States federal income tax consequences of the spinoff of Metris
Companies Inc. ("METRIS") and the certain transactions related thereto (the
"SPINOFF"), and the Ruling has not been modified, supplemented or revoked. To
the Knowledge of the Company, there are no considerations on the part of the IRS
to modify, supplement or revoke the Ruling. The representations of the Company
in (j), (v) and (x) of the Ruling, were true, correct and complete from the date
submitted through and including the date of the Spinoff.
3.12. PROPERTY. (a) Section 3.12(a) of the Company Disclosure Letter
contains a true and complete list of all (i) patents and patent applications in
the name of the Company or any of its Subsidiaries, (ii) trademark and service
mark registrations and applications in the name of the Company or any of its
Subsidiaries, and (iii) all material licenses related to the foregoing.
(b) Except as set forth in Section 3.12(b) of the Company Disclosure
Letter, the Company or one of its Subsidiaries owns or has the valid right to
use all intellectual property used by it in connection with its business,
including without limitation (i) trademarks and service marks (registered or
unregistered) and trade names, and all goodwill associated therewith, (ii)
patents, patentable inventions, discoveries, improvements, ideas, know-how,
processes and Computer Software, (iii) trade secrets and the right to limit the
use or disclosure thereof, (iv) copyrights in all works, including software
programs and mask works, and (v) domain names (collectively, "INTELLECTUAL
PROPERTY"), except where the failure to own or have the valid right to use the
Intellectual Property could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. For purposes of this
Agreement, the term "COMPUTER SOFTWARE" means (A) any and all computer programs
and applications consisting of sets of statements and instructions to be used
directly or indirectly in computer software or firmware whether in source code
or object code form, (B) databases and compilations, including without
limitation any and all data and collections of data, whether machine readable or
otherwise, (C) all versions of the foregoing including, without limitation, all
screen displays and designs thereof, and all component modules of source code or
object code or natural language code therefor, and whether recorded on papers,
magnetic media or other electronic or non-electronic device, (D) all
descriptions, flowcharts and other work product used to design, plan, organize
and develop any of the foregoing, and (E) all documentation, including without
limitation all technical and user manuals and training materials, relating to
the foregoing. Except as could not, individually or
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in the aggregate, be reasonably expected to have a Company Material Adverse
Effect, (1) all grants, registrations and applications for Intellectual Property
that are used in and are material to the conduct of the businesses of the
Company as currently conducted (x) are valid, subsisting, in proper form and
have been duly maintained, including the submission of all necessary filings and
fees in accordance with the legal and administrative requirements of the
appropriate jurisdictions and (y) have not lapsed, expired or been abandoned,
(2) to the Knowledge of the Company, (x) there are no conflicts with or
infringements of any Intellectual Property by any third party and (y) the
conduct of the businesses of the Company as currently conducted does not
conflict with or infringe any proprietary right of any third party, (3) there is
no claim, suit, action or proceeding pending or, to the Knowledge of the
Company, threatened against the Company (x) alleging any such conflict or
infringement with any third party's proprietary rights or (y) challenging the
ownership, use, validity or enforceability of the Intellectual Property, (4) all
consents, filings and authorizations by or with third parties necessary with
respect to the consummation of the transactions contemplated hereby as they may
affect the Intellectual Property have been obtained, (5) the Company is not, nor
will it be as a result of the execution and delivery of this Agreement or the
performance of its obligations under this Agreement, in breach of any license,
sublicense or other agreement relating to the Intellectual Property, and (6) no
former or present employees, officers or directors of the Company hold any
right, title or interest directly or indirectly, in whole or in part, in or to
any Intellectual Property.
(c) Section 3.12(c) of the Company Disclosure Letter sets forth all of
the real property owned in fee by the Company or any of its Subsidiaries (the
"OWNED REAL PROPERTY"). The Company or one of its Subsidiaries has good and
valid title to each parcel of Owned Real Property (other than as disclosed in
the Company Filed Reports) free and clear of all Liens except (i) those
specified in Section 3.12(c) of the Company Disclosure Letter or reflected or
reserved against in the latest balance sheet of the Company included in the
Company Filed Reports, (ii) taxes and general and special assessments not in
default and payable without penalty and interest, (iii) inchoate mechanics',
materialmen's, warehouse and similar Liens securing obligations that are
incurred in the ordinary course and are not delinquent, and (iv) other Liens
that could not, individually or in the aggregate, reasonably be expected to have
a Company Material Adverse Effect (collectively, "PERMITTED LIENS").
(d) The Company has heretofore made available to Parent true, correct
and complete copies of all leases, subleases and other agreements (the "REAL
PROPERTY LEASES") under which the Company or any of its Subsidiaries uses or
occupies or has the right to use or occupy, now or in the future, any real
property or facility and base rent exceeds $1.0 million annually (the "LEASED
REAL PROPERTY"), including without limitation all modifications, amendments and
supplements thereto. Except in
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each case where the failure could not, individually or in the aggregate,
reasonably be expected to have a Company Material Adverse Effect, (i) the
Company or one of its Subsidiaries has a valid leasehold interest in each parcel
of Leased Real Property free and clear of all Liens except Permitted Liens and
each Real Property Lease is in full force and effect, (ii) all rent and other
sums and charges due and payable by the Company or its Subsidiaries as tenants
thereunder are current in all material respects, (iii) no termination event or
condition or uncured default of a material nature on the part of the Company or
any such Subsidiary or, to the Knowledge of the Company, the landlord, exists
under any Real Property Lease, and (iv) the Company or one of its Subsidiaries
is in actual possession of each Leased Real Property and is entitled to quiet
enjoyment thereof in accordance with the terms of the applicable Real Property
Lease.
3.13. MILLENNIUM COMPLIANCE. The Company has adopted and implemented a
plan to investigate and correct "year 2000 problems" associated with the
operation of the Company's and its Subsidiaries' businesses. The Company has
provided to Parent a complete and correct copy of such plan, an accurate written
explanation of the costs that the Company and its Subsidiaries have incurred to
investigate and correct the "year 2000 problem," as well as a written report of
its estimates of the costs to be incurred in the future to investigate and
correct the "year 2000 problem." Neither the Company nor any of its Subsidiaries
has received written notice from the OCC that any Subsidiary of the Company that
is a national bank fails to comply with the guidelines of the OCC with respect
to "year 2000 problems."
3.14. CONTRACTS. (a) There have been made available to Parent true,
correct and complete copies of all of the following contracts to which Company
or any of its Subsidiaries is a party or by which any of them is bound as of the
date of this Agreement (collectively, the "MATERIAL CONTRACTS"): (i) contracts
with any director of the Company, material contracts (other than those
terminable at will without penalty) with any current officer of the Company or
any of its Subsidiaries and employment, severance or termination agreements with
any executive officer of the Company or any of its Subsidiaries; (ii) contracts
(A) for the sale (other than completed sales) of material assets of the Company
or any of its Subsidiaries, other than contracts entered into in the ordinary
course of business or (B) for the grant to any person of any preferential rights
to purchase any of its assets; (iii) contracts which restrict the Company or any
of its Subsidiaries from competing in any line of business or with any person in
any geographical area, other than those the performance or breach of which could
not, individually or in the aggregate, be reasonably likely to have a Company
Material Adverse Effect; and (iv) indentures, credit agreements, security
agreements, mortgages, guarantees, promissory notes and other contracts relating
to the borrowing of money, other than (A) any of the foregoing with respect to
indebtedness to any Person of less than $5.0 million, (B) intercompany loans or
guarantees between the
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Company and any of its Subsidiaries or between any such Subsidiaries or for the
benefit of, or guaranteeing or securing obligations of, the Company or a
Subsidiary of the Company and (C) security agreements covering personal property
that are not individually or in the aggregate material to the Company and its
Subsidiaries, taken as a whole.
(b) Except as specified in Section 3.14 of the Company Disclosure
Letter, all of the Material Contracts are in full force and effect and are the
legal, valid and binding obligations of the Company and/or its Subsidiaries,
enforceable against them in accordance with their respective terms, subject to
applicable bankruptcy, insolvency, reorganization, moratorium and similar laws
affecting creditors' rights and remedies generally and subject, as to
enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity), except where the
failure of such Material Contracts to be in full force and effect or to be
legal, valid, binding or enforceable against the Company and/or its Subsidiaries
has not had and could not, individually or in the aggregate, reasonably be
expected to have a Company Material Adverse Effect. Except as specified in
Section 3.14 of the Company Disclosure Letter, neither the Company nor any of
its Subsidiaries is in breach or default in any material respect under any
Material Contract nor, to the Knowledge of the Company, is any other party to
any Material Contract in breach or default thereunder in any material respect,
except for such breaches or defaults that have not had and could not,
individually or in the aggregate, reasonably be expected to have a Company
Material Adverse Effect.
3.15. ENVIRONMENTAL MATTERS. (a) Except as disclosed in the Company
Filed Reports, as specified in Section 3.15 of the Company Disclosure Letter or
as could not, individually or in the aggregate, reasonably be expected to have a
Company Material Adverse Effect: (i) neither the Company nor any of its
Subsidiaries has violated or is in violation of any Environmental Law; (ii) none
of the Owned Real Property or Leased Real Property (including without limitation
soils and surface and ground waters) are contaminated with any Hazardous
Substance in quantities which require investigation or remediation under
Environmental Laws; (iii) neither the Company nor any of its Subsidiaries is
liable for any off-site contamination; (iv) neither the Company nor any of its
Subsidiaries has any liability or remediation obligation under any Environmental
Law; (v) no assets of the Company or any of its Subsidiaries are subject to
pending or, to the Knowledge of the Company, threatened Liens under any
Environmental Law; (vi) the Company and its Subsidiaries have all Permits
required under any Environmental Law ("ENVIRONMENTAL PERMITS"); and (vii) the
Company and its Subsidiaries are in compliance with their respective
Environmental Permits.
(b) For purposes of this Agreement, the term (i) "ENVIRONMENTAL LAWS"
means any federal, state or local Law
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relating to: (A) releases or threatened releases of Hazardous Substances or
materials containing Hazardous Substances; (B) the manufacture, handling,
transport, use, treatment, storage or disposal of Hazardous Substances or
materials containing Hazardous Substances; or (C) otherwise relating to
pollution of the environment or the protection of human health, and (ii)
"HAZARDOUS SUBSTANCES" means: (A) those materials, pollutants and/or substances
defined in or regulated under the following federal statutes and their state
counterparts, as each may be amended from time to time, and all regulations
thereunder: the Hazardous Materials Transportation Act, the Resource
Conservation and Recovery Act, the Comprehensive Environmental Response,
Compensation and Liability Act, the Clean Water Act, the Safe Drinking Water
Act, the Atomic Energy Act, the Toxic Substance Control Act, the Federal
Insecticide, Fungicide and Rodenticide Act and the Clean Air Act; (B) petroleum
and petroleum products including crude oil and any fractions thereof; (C)
natural gas, synthetic gas and any mixtures thereof; (D) radon; (E) any other
contaminant; and (F) any materials, pollutants and/or substance with respect to
which any Governmental Entity requires environmental investigation, monitoring,
reporting or remediation.
3.16. EMPLOYEE BENEFIT PLANS. Except as described in the Company Filed
Reports (and subsequent financial and actuarial statements and reports furnished
to Parent or its agents prior to the date hereof), as described in Section 3.16
of the Company Disclosure Letter or as could not, individually or in the
aggregate, reasonably be expected to have a Company Material Adverse Effect, (a)
all employee benefit plans or programs maintained for the benefit of the current
or former employees or directors of the Company or any of its Subsidiaries that
are sponsored, maintained or contributed to by the Company or any of its
Subsidiaries, or with respect to which the Company or any of its Subsidiaries
has any liability, including without limitation any such plan that is an
"employee benefit plan" as defined in Section 3(3) of the Employee Retirement
Income Security Act of 1974 ("ERISA")(the "COMPANY BENEFIT PLANS"), are in
compliance with all applicable requirements of Law, including ERISA and the
Code, (b) neither the Company nor any of its Subsidiaries has any liabilities or
obligations with respect to any such employee benefit plans or programs, whether
accrued, contingent or otherwise, other than the obligations arising in the
ordinary course of the operation or administration of such plans or routine
claims for benefits under such plans, nor to the Knowledge of the Company are
any such liabilities or obligations expected to be incurred, and (c) neither the
Company nor any of its Subsidiaries is a party to any contract or other
arrangement under which, after giving effect to the Offer or the Merger, Parent
or the Surviving Corporation would be obligated to make any "parachute" payment
within the meaning of the Code. Except as described in Section 3.16 of the
Company Disclosure Letter, the execution of, and performance of the transactions
contemplated by, this Agreement will not (either alone or upon the occurrence of
any additional or subsequent events) constitute
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an event under any benefit plan, program, policy, arrangement or agreement or
any trust, loan or funding arrangement that will or may result in any payment
(whether of severance pay or otherwise), acceleration, forgiveness of
indebtedness, vesting, distribution, increase in benefits or obligation to fund
benefits with respect to any employee. The Company has made available to Parent
true, complete and correct copies of the plan documents for the Company Benefit
Plans.
3.17. STATE TAKEOVER STATUTES. The Company Board and the Special
Committee have approved the Offer, the Merger, this Agreement and the
transactions contemplated hereby and, assuming the accuracy of Parent's and
Purchaser's representation in Section 4.8, such approval is sufficient to render
inapplicable to the Offer, the Merger, this Agreement and the transactions
contemplated hereby, the provisions of Sections 302A.671, 302A.673 and 302A.675
of the MBCA and the super-majority voting requirements of Article VII of the
Company's articles of incorporation. No other "fair price," "merger moratorium,"
"control share acquisition" or other anti-takeover statute or similar statute or
regulation (other than Chapter 80B of the Minnesota Statutes) applies or
purports to apply to the Merger, this Agreement, the Offer or any of the
transactions contemplated hereby or thereby.
3.18. VOTING REQUIREMENTS. The affirmative vote of the holders of a
majority of the issued and outstanding Shares, voting as a single class at the
Company Shareholders' Meeting to adopt this Agreement, is the only vote of the
holders of any class or series of the Company's capital stock necessary to
approve and adopt this Agreement and the transactions contemplated hereby.
3.19. NO BROKERS. The Company has not entered into any contract,
arrangement or understanding with any Person or firm which may result in the
obligation of the Company or Parent to pay any investment banker's or finder's
fees, brokerage or agent's commissions or other like payments in connection with
the negotiations leading to this Agreement or the consummation of the
transactions contemplated hereby, except that the Company has retained SSB as
its financial advisor and, in addition, has agreed to make a $500,000 payment,
in each case pursuant to arrangements which have been disclosed to Parent prior
to the date hereof. Other than the foregoing arrangements, to the Knowledge of
the Company, there is no claim for payment by the Company of any investment
banker's or finder's fees, brokerage or agent's commissions or other like
payments in connection with the negotiations leading to this Agreement or the
consummation of the transactions contemplated hereby. The Company or, if the
Effective Time occurs, the Surviving Corporation, will pay all amounts owed
pursuant to the foregoing arrangements.
3.20. OPINION OF SSB. The Company Board has received the opinion of SSB
to the effect that, as of the date of this Agreement, the cash consideration to
be received by the
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Shareholders (other than Parent and its Affiliates) in the Offer and the Merger
is fair to such Shareholders from a financial point of view.
3.21. OFFER DOCUMENTS; PROXY STATEMENT. (a) The proxy statement to be
sent to the Shareholders in connection with a meeting of the Shareholders to
consider the Merger (the "COMPANY SHAREHOLDERS' MEETING") or the information
statement to be sent to Shareholders, as appropriate (such proxy statement or
information statement, as amended or supplemented, is herein referred to as the
"PROXY STATEMENT"), at the date mailed to the Shareholders and at the time of
the Company Shareholders' Meeting (i) will comply in all material respects with
the applicable requirements of the Exchange Act and the rules and regulations
thereunder and (ii) will not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary in
order to make the statements therein, in light of the circumstances under which
they were made, not misleading. Neither the Schedule 14D-9 nor any of the
information relating to the Company or its Affiliates provided by or on behalf
of the Company specifically for inclusion in the Schedule 14D-1 or the other
Offer Documents will, at the respective times the Schedule 14D-9, the Schedule
14D-1 and the other Offer Documents or any amendments or supplements thereto are
filed with the SEC and are first published, sent or given to the Shareholders,
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
made therein, in light of the circumstances under which they were made, not
misleading. No representation or warranty is made by the Company with respect to
any information supplied by Parent or Purchaser or their counsel or other
authorized representatives specifically for inclusion in the Proxy Statement or
the Schedule 14D-9.
IV. REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Each of Parent and Purchaser represents and warrants to the Company,
except as set forth in the letter, dated the date hereof, from Parent to the
Company initialed by those parties (the "PARENT DISCLOSURE LETTER"), as follows:
4.1. EXISTENCE; GOOD STANDING; CORPORATE AUTHORITY. Each of Parent and
Purchaser is a corporation duly incorporated, validly existing and in good
standing under the laws of Delaware and Minnesota, respectively. Parent is duly
licensed or qualified to do business as a foreign corporation and is in good
standing under the laws of any other state of the United States in which the
character of the properties owned or leased by it or in which the transaction of
its business makes such qualification necessary, except where the failure to be
so qualified or to be in good standing could not reasonably be expected to
prevent or materially delay Parent's or Purchaser's ability to consummate the
transactions contemplated hereby (a "PARENT MATERIAL ADVERSE EFFECT"). Parent
has all requisite corporate power and authority
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to own, operate and lease its properties and carry on its business as now
conducted. The copies of the certificate of incorporation and bylaws of Parent
and the articles of incorporation and bylaws of Purchaser previously made
available to the Company are true and correct.
4.2. AUTHORIZATION, VALIDITY AND EFFECT OF AGREEMENT. Each of Parent
and Purchaser has the requisite corporate power and authority to execute and
deliver this Agreement, and all agreements and documents contemplated hereby to
be executed by it. This Agreement, the Offer, the Merger and the consummation by
Parent and Purchaser of the transactions contemplated hereby have been duly and
validly authorized by the respective Boards of Directors of Parent and Purchaser
and by Parent as sole shareholder of Purchaser, and no other corporate action on
the part of Parent and Purchaser is necessary to authorize this Agreement, the
Offer and the Merger or to consummate the transactions contemplated hereby. This
Agreement constitutes, and all agreements and documents contemplated hereby to
be executed and delivered by Parent or Purchaser (when executed and delivered
pursuant hereto) will constitute, the valid and binding obligations of Parent or
Purchaser, as the case may be, enforceable respectively against them in
accordance with their respective terms.
4.3. NO CONFLICT; REQUIRED FILINGS AND CONSENTS. (a) The execution and
delivery of this Agreement by Parent and Purchaser do not, and the consummation
by Parent and Purchaser of the transactions contemplated hereby will not, (i)
conflict with or violate the certificate of incorporation, articles of
incorporation or bylaws of Parent or Purchaser, (ii) subject to making the
filings and obtaining the approvals identified in Section 4.3(b), conflict with
or violate any Law, Order or MOU applicable to Parent or any of its Subsidiaries
or by which any property or asset of Parent or any of its Subsidiaries is bound
or affected, or (iii) subject to making the filings, obtaining the approvals and
effecting any other matters identified in Section 4.3 of the Parent Disclosure
Letter, result in any breach of or constitute a default (or an event which with
notice or lapse of time or both would become a default) under, result in the
loss of a material benefit under, or give to others any right of termination,
amendment, acceleration, increased payments or cancellation of, or result in the
creation of a Lien on any property or asset of Parent 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 Parent or
any of its Subsidiaries is a party or by which Parent or any of its Subsidiaries
or any property or asset of Parent or any of its Subsidiaries is bound or
affected, except, in the case of clauses (ii) and (iii), for any such conflicts,
violations, breaches, defaults, events, losses, rights, payments, cancellations,
encumbrances or other occurrences that could not, individually or in the
aggregate, reasonably be expected to have a Parent Material Adverse Effect.
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(b) The execution and delivery of this Agreement by Parent and
Purchaser do not, and the performance of this Agreement and the consummation of
the transactions contemplated hereby by either of them will not, require any
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Entity, except (i) for (A) applicable requirements, if any,
of the Exchange Act, (B) the pre-merger notification requirements of the HSR
Act, (C) under Chapter 80B of the Minnesota Statutes and similar laws of other
states, (D) the requirements of the CIBC Act, and (E) the filing of articles of
merger pursuant to the MBCA, or (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or notifications
could not, individually or in the aggregate, reasonably be expected to have a
Parent Material Adverse Effect.
4.4. NO BROKERS. Except for arrangements with Credit Suisse First
Boston, neither Parent nor Purchaser has entered into any contract, arrangement
or understanding with any Person or firm which may result in the obligation of
the Company to pay any investment banker's or finder's fees, brokerage or
agent's commissions or other like payments in connection with the negotiations
leading to this Agreement or the consummation of the transactions contemplated
hereby. Parent will pay all amounts owed to Credit Suisse First Boston pursuant
to the foregoing arrangements.
4.5. OFFER DOCUMENTS; PROXY STATEMENT. None of the information supplied
by Parent, Purchaser or their respective officers, directors, representatives,
agents or employees, for inclusion in the Proxy Statement, or in any amendments
thereof or supplements thereto, will, on the date the Proxy Statement is first
mailed to Shareholders or at the time of the Company Shareholders' Meeting,
contain any statement which, at such time and in light of the circumstances
under which it will be made, will be false or misleading with respect to any
material fact, or will omit to state any material fact 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 Company Shareholders' Meeting which has become false or
misleading. Neither the Offer Documents nor any amendments thereof or
supplements thereto, nor any information supplied by Parent or Purchaser
specifically for inclusion in the Schedule 14D-9 nor any amendments thereof or
supplements thereto, will, at any time the Offer Documents or the Schedule 14D-9
or any such amendments or supplements are filed with the SEC or first published,
sent or given to the Shareholders, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in light of the circumstances
under which they were made, not misleading. Notwithstanding the foregoing,
Parent and Purchaser do not make any representation or warranty with respect to
any Company SEC Information. The Offer Documents and any amendments or
supplements thereto will comply as to form in all material
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respects with the provisions of the Exchange Act and the rules and
regulations thereunder.
4.6. FINANCING. Parent and Purchaser have, or will have, available all
of the funds or have the borrowing capacity necessary for the acquisition of the
outstanding Shares pursuant to the Offer and the Merger and to perform their
respective obligations under this Agreement.
4.7. LITIGATION. There are no actions, suits or proceedings pending or,
to the Knowledge of Parent, threatened against or affecting Parent or any of its
Subsidiaries as of the date of this Agreement and there are no Orders of any
Governmental Entity or arbitrator outstanding against Parent or any of its
Subsidiaries, that could, individually or in the aggregate, reasonably be likely
to have a Parent Material Adverse Effect.
4.8. OWNERSHIP OF SHARES. Except for Shares owned by employment benefit
plans maintained or contributed to by Parent or any of its Subsidiaries (the
"PARENT BENEFIT PLANS") or as set forth in the Parent Disclosure Letter, neither
Parent nor, to its Knowledge, any of its Affiliates or Associates, each as
defined in the Exchange Act (excluding for purposes hereof any outside director
of Parent, provided that such directors do not hold in the aggregate more than
1% of the Shares), (i) beneficially owns (as such term is defined in Rule 13d-3
under the Exchange Act), directly or indirectly or (ii) is party to any
agreement, arrangement or understanding for the purpose of acquiring, holding,
voting or disposing of, in each case, shares of capital stock of the Company.
V. COVENANTS
5.1. CONDUCT OF BUSINESS.
(a) CONDUCT OF BUSINESS BY THE COMPANY. During the period from the date
of this Agreement to the Effective Time, except as expressly provided by this
Agreement or Section 5.1 of the Company Disclosure Letter, the Company will, and
will cause its Subsidiaries to, carry on their respective businesses in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted and, to the extent consistent therewith, use their
reasonable efforts to preserve intact their current business organizations, use
their reasonable efforts to keep available the services of their current
officers and other key employees and preserve their relationships with those
Persons having business dealings with them to the end that their goodwill and
ongoing businesses will be unimpaired at the Effective Time. Without limiting
the generality or effect of the foregoing, except as expressly and specifically
described in Section 5.1 of the Company Disclosure Letter or as expressly
provided by this Agreement, during the period from the date of this Agreement to
the Effective Time, the Company will not, and will not permit any
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of its Subsidiaries to, without the consent of Parent or Purchaser:
(i) other than dividends and distributions (including liquidating
distributions) by a direct or indirect wholly owned Subsidiary of the
Company to its parent, or by a Subsidiary that is partially owned by
the Company or any of its Subsidiaries, provided that the Company or
any such Subsidiary receives or is to receive its proportionate share
thereof, (A) declare, set aside or pay any dividends on, or make any
other distributions in respect of, any of its capital stock, (B) split,
combine or reclassify any of its capital stock or issue or authorize
the issuance of any other securities in respect of, in lieu of or in
substitution for shares of its capital stock, or (C) purchase, redeem
or otherwise acquire any shares of capital stock of the Company or any
of its Subsidiaries or any other securities thereof or any rights,
warrants or options to acquire any such shares or other securities
provided that nothing herein stated will limit the Company's right to
cancel the Options in exchange for the Option Consideration;
(ii) issue, deliver, sell, pledge or otherwise encumber any
shares of its capital stock, any other voting securities or any
securities convertible into, or any rights, warrants or options to
acquire, any such shares, voting securities or convertible securities
except for the issuance of Shares pursuant to the exercise of Options
that are outstanding on the Measurement Date, or pursuant to the
Directors' Retainer Stock Deferral Plan or the 1994 Employee Stock
Purchase Plan (to the extent Shares have been paid for with payroll
deductions at or prior to the date of this Agreement), provided that
nothing herein stated will limit the Company's right to cancel the
Options in exchange for the Option Consideration;
(iii) amend its articles of incorporation, bylaws or other
comparable organizational documents;
(iv) acquire by merging or consolidating with, or by purchasing a
substantial portion of the assets of, or by any other manner, any
business or any corporation, limited liability company, partnership,
joint venture, association or other business organization or division
thereof;
(v) sell, lease, license, mortgage or otherwise encumber or
subject to any Lien or otherwise dispose of any of its properties or
assets, other than (x) in the ordinary course of business consistent
with past practice and (y) sales of assets which do not individually or
in the aggregate exceed $5.0 million;
(vi) (A) incur any indebtedness for borrowed money (other than
indebtedness of the Company to any Subsidiary
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of the Company or of any Subsidiary of the Company to the Company or to
any other Subsidiary of the Company) or guarantee any such indebtedness
of another Person other than the Company or a Subsidiary of the
Company, issue or sell any debt securities or warrants or other rights
to acquire any debt securities of the Company or any of its
Subsidiaries, guarantee any debt securities of another Person other
than the Company or a Subsidiary of the Company, enter into any "keep
well" or other agreement to maintain any financial statement condition
of another Person other than the Company or a Subsidiary of the Company
or enter into any arrangement having the economic effect of any of the
foregoing, except for short-term borrowings incurred in the ordinary
course of business consistent with past practice, or (B) make any
loans, advances or capital contributions to, or investments in, any
other Person, other than to the Company or any Subsidiary of the
Company or to officers and employees of the Company or any of its
Subsidiaries for travel, business or relocation expenses in the
ordinary course of business;
(vii) make or agree to make any capital expenditure or capital
expenditures other than capital expenditures set forth in the operating
budget of the Company previously furnished to Parent and additional
capital expenditures not to exceed $5.0 million in the aggregate;
(viii) any change to its accounting methods, principles or
practices, except as may be required by generally accepted accounting
principles;
(ix) except as required by Law or contemplated hereby, enter
into, adopt or amend in any material respect or terminate any Company
Stock Plan or any other agreement, plan or policy involving the Company
or any of its Subsidiaries and one or more of their directors, officers
or employees, or materially change any actuarial or other assumption
used to calculate funding obligations with respect to any Company
pension plans, or change the manner in which contributions to any
Company pension plans are made or the basis on which such contributions
are determined;
(x) increase the compensation of any director, executive officer
or, except in the ordinary course of business, any other key employee
of the Company or pay any benefit or amount not required by a plan or
arrangement as in effect on the date of this Agreement to any such
Person;
(xi) enter into or amend in any material respect any Material
Contract or enter into any contract or agreement, written or oral, with
any Affiliate, associate or relative of the Company (other than the
Company or any Subsidiary of the Company) or make any payment to or for
the benefit of, directly or indirectly, any of the foregoing other than
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payments to directors and officers in the ordinary course of business
or pursuant to agreements or arrangements in effect prior to the date
of this Agreement that are disclosed in Section 5.1 of the Company
Disclosure Letter; or
(xii) authorize, or commit or agree to take, any of the foregoing
actions.
(b) OTHER ACTIONS. Except as required by Law, neither the Company, on
the one hand, nor Parent or Purchaser, on the other hand, will, and will not
permit any of their respective Subsidiaries to, voluntarily take any action that
would, or that could reasonably be expected to, result in (i) any of the
conditions to the Merger set forth in Article VI not being satisfied or (ii)
prior to the completion of the Offer, the condition set forth in subparagraph
(iii) of Annex A not being satisfied.
(c) ADVICE OF CHANGES. Each of the Company and Parent will use
reasonable efforts to promptly advise the other party orally and in writing if
it obtains Knowledge and, to its Knowledge, the other party does not also have
Knowledge of (i) any representation or warranty set forth in this Agreement
becoming untrue or inaccurate in any respect that could reasonably be expected
to have a Company Material Adverse Effect or a Parent Material Adverse Effect,
as the case may be, or (ii) a failure by it to comply with or satisfy any
covenant, condition or agreement to be complied with or satisfied by it under
this Agreement which failure to comply or satisfy could reasonably be expected
to have a Company Material Adverse Effect or a Parent Material Adverse Effect,
as the case may be.
(d) MEETING OF SHAREHOLDERS. (i) The Company will take all action
necessary in accordance with applicable Law and its articles of incorporation
and bylaws to convene a meeting of the Shareholders as promptly as practicable
after the Offer Completion Date to consider and vote upon the approval of this
Agreement. The Company Board will recommend such approval and the Company will
take all lawful action to solicit such approval, including without limitation
timely mailing any Proxy Statement, provided, however, that such recommendation
or solicitation (but not such actions to convene the Company Shareholders'
Meeting) is subject to any action, including any withdrawal or change of its
recommendation, taken by, or upon authority of, the Company Board, as the case
may be, in the exercise of its good faith judgment and in conformity with the
advice of outside counsel (notice of which will be promptly given to Parent and
Purchaser) that such action is required in order to satisfy the fiduciary duties
of the members of the Company Board to Shareholders imposed by Law. Without
limiting the generality or effect of any other provision hereof, the Company's
obligations pursuant to the first sentence of this Section 5.1(d) will not be
affected by the commencement, public proposal, public disclosure or
communication to the Company of any Company Takeover Proposal.
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(ii) Notwithstanding Section 5.1(d)(i) hereof, in the event that
Parent, Purchaser or any other Subsidiary of Parent acquires at least 90% of the
outstanding Shares pursuant to the Offer or otherwise, the parties hereto will
take all necessary and appropriate action to cause the Merger to become
effective in accordance with Section 302A.621 of the MBCA without a meeting of
the Shareholders as soon as practicable after the acceptance for payment and
purchase of Shares by Purchaser pursuant to the Offer.
5.2. NO SOLICITATION. (a) The Company, its affiliates and their
respective officers, directors, employees, representatives and agents will
immediately cease any existing discussions or negotiations, if any, with any
parties conducted heretofore with respect to any Company Takeover Proposal. The
Company will not, nor will it permit any of its Subsidiaries to, nor will it
authorize or permit any of its officers, directors or employees or any
investment banker, financial advisor, attorney, accountant or other
representative retained by it or any of its Subsidiaries to, directly or
indirectly, (i) solicit or initiate (including without limitation by way of
furnishing information), or take any other action (other than as required by
Law) designed or reasonably likely to facilitate, any inquiries or the making of
any proposal which constitutes or reasonably may give rise to any Company
Takeover Proposal or (ii) participate in any discussions or negotiations
regarding any Company Takeover Proposal, provided, however, that if, at any time
prior to the date on which Purchaser purchases Shares in the Offer (the "OFFER
COMPLETION DATE"), the Company Board determines in good faith and in conformity
with the advice of outside counsel, that failure to do so would result in a
breach of its fiduciary duties to the Shareholders under applicable Law, the
Company may, in response to a Company Takeover Proposal which was not solicited
by it and did not otherwise result from a breach of any provision of this
Agreement, (A) furnish information with respect to the Company and each of its
Subsidiaries and access to the Company and its Subsidiaries and their personnel
to any Person pursuant to a customary confidentiality agreement not more
favorable to the recipient of such information than the Confidentiality
Agreement and (B) participate in discussions and negotiations regarding such
Company Takeover Proposal. For purposes of this Agreement, "COMPANY TAKEOVER
PROPOSAL" means any inquiry, proposal or offer from any Person relating to any
direct or indirect acquisition or purchase of 20% or more of the assets of the
Company and its Subsidiaries, taken as a whole, or 20% or more of any class of
equity securities of the Company or any of its Subsidiaries, any tender offer or
exchange offer for Shares of any class of equity securities of the Company or
any of its Subsidiaries, or any merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction involving the
Company or any of its Subsidiaries, other than the transactions contemplated by
this Agreement, or any other transaction that is intended or could reasonably be
expected to prevent the completion of the transactions contemplated hereby.
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(b) Except as expressly permitted by this Section 5.2(b), neither the
Company Board nor any committee thereof may (i) withdraw or modify, or propose
publicly to withdraw or modify, in a manner adverse to Parent or Purchaser, the
approval or recommendation by the Company Board or such committee of the Offer,
the Merger or this Agreement, (ii) approve or recommend, or propose publicly to
approve or recommend, any Company Takeover Proposal, or (iii) cause or authorize
the Company to enter into any letter of intent, agreement in principle,
acquisition agreement or other similar agreement related to any Company Takeover
Proposal (each, a "COMPANY ACQUISITION AGREEMENT"). Notwithstanding the
foregoing, in the event that prior to the Offer Completion Date, the Company
Board determines in good faith, after the Company has received a Superior
Proposal and in conformity with the advice of outside counsel, that failure to
do so would result in a breach of its fiduciary duties to the Shareholders under
applicable Law, the Company Board may upon not less than three business days
notice to Parent of its intention to do so withdraw or modify or propose
publicly to withdraw or modify its approval or recommendation of the Offer, the
Merger or this Agreement, or approve or recommend, or propose publicly to
approve or recommend a Superior Proposal or, subject to Section 7.5, enter into
a Company Acquisition Agreement, provided, however, that in connection
therewith, the Company simultaneously terminates this Agreement pursuant to
Section 7.3(c). For purposes of this Agreement, "SUPERIOR PROPOSAL" means a
Company Takeover Proposal that (x) involves the direct or indirect acquisition
or purchase of 50% or more of the assets of the Company and its Subsidiaries or
50% or more of any class of equity securities of the Company or any of its
Subsidiaries, (y) involves payment of consideration to the Shareholders and
other terms and conditions that, taken as a whole, are superior to the Offer and
the Merger, and (z) is made by a Person reasonably capable of completing such
Company Takeover Proposal, taking into account the legal, financial, regulatory
and other aspects of such Company Takeover Proposal and the Person making such
Company Takeover Proposal.
(c) In addition to the obligations of the Company set forth in Section
5.2(a) and (b), the Company will (i) immediately advise Parent orally and in
writing of any request for information or of any Company Takeover Proposal and
the material terms and conditions of such request or Company Takeover Proposal
and (ii) keep Parent reasonably informed of the status and details (including
amendments or proposed amendments) of any such request or Company Takeover
Proposal.
(d) Nothing contained in this Section 5.2 will prohibit the Company
from taking and disclosing to the Shareholders a position contemplated by Rule
14e-2(a) promulgated under the Exchange Act or from making any disclosure to the
Shareholders if the Company Board determines in good faith in conformity with
the advice of outside counsel that failure to do so would result in a breach of
its fiduciary duties to Shareholders under applicable Law, provided, however,
that neither the Company nor the Company
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Board nor any committee thereof may, except as expressly permitted by Section
5.2 or required by Rule 14e-2(a) promulgated under the Exchange Act, withdraw or
modify, or propose publicly to withdraw or modify, its position with respect to
the Offer, this Agreement or the Merger or approve or recommend, or propose
publicly to approve or recommend, a Company Takeover Proposal.
5.3. FILINGS, REASONABLE EFFORTS. (a) Upon the terms and subject to the
conditions set forth in this Agreement, each of the parties will use all
reasonable efforts to take, or cause to be taken, all actions, and to do, or
cause to be done, and to assist and cooperate with the other parties in doing,
all things, necessary, proper or advisable to consummate and make effective, in
the most expeditious manner practicable, the Merger and the other transactions
contemplated by this Agreement, including all reasonable efforts to (i) obtain
all necessary actions or nonactions, waivers, consents and approvals from
Governmental Entities and make all necessary registrations and filings
(including filings with Governmental Entities) and take all reasonable steps as
may be necessary to obtain an approval or waiver from, or to avoid an action or
proceeding by, any Governmental Entity, (ii) obtain all necessary material
consents, approvals or waivers from third parties, (iii) defend any lawsuits or
other legal proceedings, whether judicial or administrative, challenging this
Agreement or the consummation of the transactions contemplated hereby, including
seeking to have any adverse Order entered by any court or other Governmental
Entity vacated or reversed, and (iv) execute and deliver any additional
instruments necessary to consummate the transactions contemplated by, and to
fully carry out the purposes of, this Agreement. Nothing set forth in this
Section 5.3 will limit or affect actions permitted to be taken pursuant to
Section 5.2.
(b) In connection with, and without limiting the foregoing, the Company
and Parent will, and Parent will cause Purchaser to, (i) take all action
necessary to ensure that no state takeover statute or similar statute or
regulation (other than Chapter 80B of the Minnesota Statutes) is or becomes
applicable to the Offer, the Merger or any of the other transactions
contemplated hereby and (ii) if any state takeover statute or similar statute or
regulation becomes applicable thereto, take all action necessary to ensure that
the Offer and the Merger and such other transactions may be consummated as
promptly as practicable on the terms contemplated hereby and otherwise to
minimize the effect of such statute or regulation thereon.
(c) Notwithstanding any other provision hereof, in no event will Parent
be required to agree to any divestiture, hold- separate or other requirement in
connection with this Agreement or any of the transactions contemplated thereby.
5.4. INSPECTION OF RECORDS. (a) From the date hereof to the
Effective Time, upon reasonable notice, the Company will (i) allow all
designated officers, attorneys, accountants and other
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representatives of Parent reasonable access at all reasonable times to the
offices, records and files, correspondence, audits and properties, as well as to
all information relating to commitments, contracts, titles and financial
position, or otherwise pertaining to the business and affairs, of the parties
and their respective Subsidiaries, as the case may be and (ii) furnish to Parent
and its counsel, financial advisors, auditors and other authorized
representatives such financial and operating data and other information as such
Persons may reasonably request. Parent and Purchaser will make all reasonable
efforts to minimize any disruption to the business of the Company and its
Subsidiaries that may result from such access and from the requests for data and
information hereunder.
(b) Subject to the requirements of applicable Law, and except for such
actions as are necessary to disseminate the Offer Documents and any other
documents necessary to consummate the Offer and the Merger, the parties will,
and will instruct each of their respective Affiliates, associates, partners,
employees, agents and advisors to, hold in confidence all such information as is
confidential or proprietary, will use such information only in connection with
the Offer and the Merger and, if this Agreement is terminated in accordance with
its terms, will deliver promptly to the other all copies of such information
(and any copies, compilations or extracts thereof or based thereon) then in
their possession or under their control.
5.5. PUBLICITY. The initial press release relating to this Agreement
will be a joint press release and thereafter the Company and Parent will,
subject to their respective legal obligations (including requirements of stock
exchanges and other similar regulatory bodies), consult with each other, and use
reasonable efforts to agree upon the text of any press release, before issuing
any such press release or otherwise making public statements with respect to the
transactions contemplated hereby and in making any filings with any Governmental
Entity or with any national securities exchange with respect thereto.
5.6. PROXY STATEMENT. If required by applicable Law, Parent and the
Company will cooperate and promptly prepare, and Parent will file with the SEC
as soon as practicable after the Offer Completion Date, the Proxy Statement, and
as promptly as practicable thereafter as permitted by applicable Law, will mail
the Proxy Statement to the Shareholders. The Proxy Statement will contain the
recommendation of the Company Board that the Shareholders approve and adopt this
Agreement and approve the Merger and the other transactions contemplated hereby.
The Company agrees not to mail the Proxy Statement to the Shareholders until
Parent confirms that the information provided by Parent and Purchaser continues
to be accurate. If at any time prior to the Company Shareholders' Meeting any
event or circumstance relating to the Company or any of its Subsidiaries or
Affiliates, or its or their respective officers or directors, should be
discovered by the Company that is required to be set forth in a supplement to
any Proxy Statement, the Company will
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promptly inform Parent and Purchaser to supplement such Proxy Statement and mail
such supplement to the Shareholders.
5.7. FURTHER ACTIONS. (a) Each party hereto will, subject to the
fulfillment at or before the Effective Time of each of the conditions of
performance set forth herein or the waiver thereof, perform such further acts
and execute such documents as may be reasonably required to effect the Merger.
(b) If, at any time after the Effective Time, the Surviving Corporation
considers or is advised that any deeds, bills of sale, assignments, assurances
or any other actions or things are necessary or desirable to vest, perfect or
confirm of record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of Purchaser or
the Company or otherwise to carry out this Agreement, the officers and directors
of the Surviving Corporation will be authorized to execute and deliver, in the
name and on behalf of Purchaser or the Company, all such deeds, bills of sale,
assignments and assurances and to take and do, in the name and on behalf of
Purchaser or the Company, all such other actions and things as may be necessary
or desirable to vest, perfect or confirm any and all right, title and interest
in, to and under such rights, properties or assets in the Surviving Corporation
or otherwise to carry out this Agreement.
5.8. INSURANCE; INDEMNITY. (a) All rights to indemnification and
exculpation from liabilities for acts or omissions occurring at or prior to the
Effective Time existing in favor of the current or former directors or officers
of the Company or each of its Subsidiaries as provided in their respective
articles of incorporation or bylaws (or comparable organizational documents)
will be assumed by Parent and Parent will be directly responsible for such
indemnification, without further action, as of the Effective Time and will
continue in full force and effect in accordance with their respective terms. In
addition, from and after the Effective Time, directors and officers of the
Company who become or remain directors or officers of Parent or the Surviving
Corporation will be entitled to the same indemnity rights and protections
(including those provided by directors' and officers' liability insurance) of
Parent. Notwithstanding any other provision hereof, the provisions of this
Section 5.8 (i) are intended to be for the benefit of, and will be enforceable
by, each indemnified party, his or her heirs and his or her representatives and
(ii) are in addition to, and not in substitution for, any other rights to
indemnification or contribution that any such Person may have by contract or
otherwise.
(b) Parent will, and will cause the Surviving Corporation to, maintain
in effect for not less than six years after the Effective Time policies of
directors' and officers' liability insurance equivalent in all material respects
to those maintained by or on behalf of the Company and its Subsidiaries on the
date hereof (and having at least the same coverage and containing
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terms and conditions which are no less advantageous to the Persons currently
covered by such policies as insured) with respect to matters existing or
occurring at or prior to the Effective Time, provided, however, that if the
aggregate annual premiums for such insurance at any time during such period
exceed 200% of the per annum rate of premium currently paid by the Company and
its Subsidiaries for such insurance on the date of this Agreement, then Parent
will cause the Surviving Corporation to, and the Surviving Corporation will,
provide the maximum coverage that is then available at an annual premium equal
to 200% of such rate.
5.9. EMPLOYEE BENEFITS. Notwithstanding anything to the contrary
contained herein, from and after the Effective Time, the Surviving Corporation
will have sole discretion over the hiring, promotion, retention, firing and
(except for employee benefit plans to the extent set forth below) other terms
and conditions of the employment of employees of the Surviving Corporation.
Subject to the immediately preceding sentence, Parent will provide, or will
cause the Surviving Corporation or its Subsidiaries to provide, for the benefit
of employees of the Surviving Corporation or its Subsidiaries, as the case may
be, who were employees of the Company or its Subsidiaries immediately prior to
the Effective Time, recognizing all prior service for eligibility and vesting
purposes (including for purposes of determining entitlement to vacation,
severance and other benefits) of the officers, directors or employees with the
Company and any of its Subsidiaries as service thereunder, the existing
qualified pension plans of the Company or its Subsidiaries listed in Section 5.9
of the Company Disclosure Letter until the expiration of two years after the
Effective Time, and, in addition, will provide for such two-year period other
"employee benefit plans," within the meaning of Section 3(3) of ERISA, that,
together with such existing qualified pension plans, are in the aggregate at
least substantially comparable to the "employee benefit plans," within the
meaning of Section 3(3) of ERISA, provided to such individuals by the Company or
its Subsidiaries on the date of this Agreement, provided, however, that
notwithstanding the foregoing (i) nothing herein will be deemed to require
Parent to modify the benefit formulas under any pension plan of the Company or
any of its Subsidiaries in a manner that increases the aggregate expenses
thereof as of the date hereof in order to comply with the requirements of ERISA,
the Code or the Tax Reform Act of 1986, (ii) employee stock ownership, stock
option and similar equity- based plans, programs and arrangements of the Company
or any of its Subsidiaries are not encompassed within the meaning of the term
"employee benefit plans" hereunder, (iii) nothing herein will obligate Parent or
the Surviving Corporation to continue any particular employee benefit plan,
other than the existing qualified pension plans, for any period after the
Effective Time, and (iv) without limiting the generality or effect of Section
8.3, no employee of the Company or any Subsidiary of the Company will have any
claim or right by reason of this Section 5.9. Parent will cause the Surviving
Corporation to
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honor (subject to any withholdings under applicable Law) all employment,
consulting and severance agreements or arrangements to which the Company or any
of its Subsidiaries is presently a party, which are specifically disclosed in
the Company Disclosure Letter except to the extent such agreement or arrangement
is superseded or amended by any subsequent arrangements or agreements agreed to
by the parties thereto in writing.
5.10. CONVEYANCE TAXES. The Company and Parent will cooperate in the
preparation, execution and filing of all returns, questionnaires, applications
or other documents regarding any real property transfer or gains, sales, use,
transfer, value added, stock transfer and stamp taxes, any transfer, recording
or registration and other fees and any similar taxes which become payable in
connection with the transactions contemplated by this Agreement that are
required or permitted to be filed on or before the Effective Time and each party
will pay any such tax or fee which becomes payable by it on or before the
Effective Time.
VI. CONDITIONS PRECEDENT
6.1. CONDITIONS TO EACH PARTY'S OBLIGATION TO EFFECT THE MERGER. The
respective obligations of each party to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date of the following conditions:
(a) Purchaser shall have made, or caused to be made, the Offer and
shall have purchased, or caused to be purchased, the Shares validly tendered and
not withdrawn pursuant to the Offer, provided, that this condition shall be
deemed to have been satisfied with respect to the obligation of Parent and
Purchaser to effect the Merger if Purchaser fails to accept for payment or pay
for Shares pursuant to the Offer in violation of the terms of the Offer or of
this Agreement;
(b) If so required by Law, this Agreement and the transactions
contemplated hereby shall have been approved in the manner required by
applicable Law by the holders of the issued and outstanding shares of capital
stock of the Company; and
(c) No Order or Law enacted, entered, promulgated, enforced or issued
by any court of competent jurisdiction or other Governmental Entity or other
legal restraint or prohibition (collectively, "RESTRAINTS") preventing the
consummation of the Merger shall be in effect.
6.2. CONDITIONS TO OBLIGATION OF PARENT AND PURCHASER TO EFFECT THE
MERGER. The obligation of Parent and Purchaser to effect the Merger will be
subject to the fulfillment at or prior to the Closing Date (or such other date
as may be specified below) of the additional condition that the Company shall
have performed in all material respects its covenants contained in Section
1.4(a) of this Agreement required to be performed on or prior to the Closing
Date.
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VII. TERMINATION
7.1. TERMINATION BY MUTUAL CONSENT. This Agreement may be terminated
and the Merger and other transactions contemplated by this Agreement may be
abandoned at any time prior to the Effective Time, before or after the approval
of this Agreement by the Shareholders, by mutual consent of Parent and the
Company.
7.2. TERMINATION BY EITHER PARENT OR COMPANY. This Agreement may be
terminated and the Merger and other transactions contemplated by this Agreement
may be abandoned, by action of the Board of Directors of either Parent or the
Company, if (a) the Offer Completion Date shall not have occurred by June 30,
1999 (the "OUTSIDE DATE") or if the Offer Completion Date occurs but the
Effective Time shall not have occurred by February 10, 2000 (the "DROP-DEAD
DATE"), provided, that no party may terminate this Agreement pursuant to this
Section 7.2(a) if such party's failure to fulfill any of its obligations under
this Agreement shall have been the reason that the Offer Completion Date or the
Effective Time, as the case may be, shall not have occurred on or before the
applicable date, (b) any Governmental Entity shall have issued a Restraint or
taken any other action permanently enjoining, restraining or otherwise
prohibiting the consummation of the Offer, the Merger or any of the other
transactions contemplated by this Agreement and such Restraint or other action
shall have become final and nonappealable, or (c) the Offer expires or is
terminated or withdrawn pursuant to its terms without any Shares being purchased
thereunder by Purchaser as a result of the failure of any of the Offer
Conditions to be satisfied or waived prior to the Expiration Date or any
extension thereof.
7.3. TERMINATION BY COMPANY. This Agreement may be terminated and the
Merger and other transactions contemplated by this Agreement may be abandoned at
any time prior to the Offer Completion Date, by action of the Company Board, if
(a) there has been a material breach by Parent or Purchaser of any
representation or warranty contained in this Agreement which is not curable or,
if curable, is not cured by the Outside Date and such breach had or could
reasonably be likely to have a Parent Material Adverse Effect, (b) there has
been a material breach of any of the covenants set forth in this Agreement on
the part of Parent or Purchaser, which breach is not curable or, if curable, is
not cured within 15 calendar days after written notice of such breach is given
by the Company to Parent, or (c) in accordance with the proviso to the
penultimate sentence of Section 5.2(b).
7.4. TERMINATION BY PARENT. This Agreement may be terminated and the
Merger and other transactions contemplated by this Agreement may be abandoned at
any time prior to the Offer Completion Date, by Parent, if (a) the Company Board
shall have (i) withdrawn or modified in a manner adverse to Parent or Purchaser
its approval or recommendation of this Agreement, the Offer or the Merger, (ii)
approved or recommended, or proposed publicly to approve or recommend, a
third-party Company Takeover
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Proposal, (iii) caused or authorized the Company or any of its Subsidiaries to
enter into a Company Acquisition Agreement, (iv) approved the breach of the
Company's obligation under Section 5.2(b), or (v) resolved or publicly disclosed
any intention to take any of the foregoing actions, (b) there has been a
material breach by the Company of any representation or warranty contained in
this Agreement which is not curable or, if curable, is not cured by the Outside
Date and such breach had or could reasonably be likely to have a Company
Material Adverse Effect, or (c) there has been a material breach of any of the
covenants set forth in this Agreement on the part of the Company, which breach
is not curable or, if curable, is not cured within 15 days after written notice
of such breach is given by Parent to the Company.
7.5. EFFECT OF TERMINATION AND ABANDONMENT; TERMINATION FEE. (a) In the
event of termination of this Agreement and the abandonment of the Merger and the
other transactions contemplated by this Agreement pursuant to this Article VII,
all obligations of the parties hereto will terminate, except the obligations of
the parties pursuant to this Section 7.5, the last sentence of Section 1.3, and
Sections 5.4(b), 8.4 and 8.14. Notwithstanding the foregoing or any other
provision of this Agreement, in the event of termination of this Agreement
pursuant to this Article VII, nothing herein will prejudice the ability of the
non- breaching party to seek damages from any other party for any prior willful
and material breach of this Agreement, including without limitation attorneys'
fees and the right to pursue any remedy at law or in equity, and such
termination will not affect the parties' rights and obligations under the
Confidentiality Agreement, as amended.
(b) (i) The Company will pay to Purchaser an amount equal to $40.0
million (the "TERMINATION FEE") in any of the following circumstances:
(A) This Agreement is terminated at such time that this
Agreement is terminable pursuant to Sections 7.3(c) or 7.4(a);
(B) This Agreement is terminated by either Parent or the
Company pursuant to Section 7.2(a), and
(1) at the time of such termination the Minimum
Condition shall not have been satisfied,
(2) at the time of such termination the Company shall
not have the right to terminate this Agreement pursuant to
Sections 7.3(a) or 7.3(b),
(3) prior to such termination, a Company Takeover
Proposal involving at least 50% of the assets of the Company and
its Subsidiaries, taken as a whole, or 50% of any class of equity
securities of the Company (any such Company Takeover Proposal, a
"COMPETING PROPOSAL"), is (x) publicly disclosed or has been made
directly to
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Shareholders generally or (y) any Person (including without
limitation the Company or any of its Subsidiaries) publicly
announces an intention (whether or not conditional) to make such
a Competing Proposal, and
(4) prior to the termination of this Agreement or
within 12 months after the termination of this Agreement, the
Company or a Subsidiary thereof enters into a Company Acquisition
Agreement providing for a Competing Proposal (any such agreement,
a "COMPETING PROPOSAL AGREEMENT");
(C) This Agreement is terminated by either Parent or the
Company pursuant to Section 7.2(c), and
(1) at the time of such termination the Minimum
Condition shall not have been satisfied,
(2) at the time of such termination the Company shall
not have the right to terminate this Agreement pursuant to
Sections 7.3(a) or 7.3(b),
(3) prior to such termination an event referred to in
Section 7.5(b)(i)(B)(3)(a "TAKEOVER PROPOSAL EVENT") shall have
occurred, and
(4) prior to the termination of this Agreement or
within 12 months after the termination of this Agreement, the
Company or a Subsidiary thereof enters into a Competing Proposal
Agreement; or
(D) This Agreement is terminated by Parent pursuant to
Sections 7.4(b) or 7.4(c), and
(1) prior to such termination a Takeover Proposal
Event shall have occurred, and
(2) prior to the termination of this Agreement or
within 12 months after the termination of this Agreement, the
Company or a Subsidiary thereof enters into a Competing Proposal
Agreement.
(ii) If this Agreement is terminated in circumstances where a
Termination Fee is then payable, then in any such case the Company will
promptly, but in no event later than two business days after submission of a
request therefor, pay Parent up to $4.0 million of Parent's documented Expenses.
(iii) If a Termination Fee is payable pursuant to Section 7.5(b)(i)(B),
7.5(b)(i)(C) or 7.5(b)(i)(D), then the Company will pay the Termination Fee to
Parent upon the signing of a Competing Proposal Agreement or, if no Competing
Proposal Agreement is signed, then at the closing (and as a condition to the
closing) of a Competing Proposal. Notwithstanding any other provision hereof,
(A) in no event may the Company enter into a Competing
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Proposal Agreement unless, prior thereto, the Company has paid any amount due
under Section 7.5(b) or which will become due under Section 7.5(b), (B) the
Company may not terminate this Agreement under Sections 5.2(b) or 7.3(c) unless
prior thereto it has paid all amounts due under Section 7.5(b) to Parent, (C)
all amounts due in the event that this Agreement is terminated under Section
7.3(c) or 7.4(a) and in circumstances in which the Company has not entered into
a Competing Proposal Agreement will be payable promptly, but in no event more
than two business days after request therefor is made, and (D) all amounts due
under this Section 7.5(b) will be paid on the date due in immediately available
funds wire transferred to the account designated by the Person entitled to such
payment.
(iv) This Section 7.5 will survive any termination of this Agreement.
For purposes of this Agreement, the term "EXPENSES" means all actual
out-of-pocket fees, costs and other expenses incurred or assumed by Parent or
Purchaser or incurred on their behalf in connection with this Agreement or any
of the transactions contemplated hereby, including but not limited to in
connection with the negotiation, preparation, execution and performance of this
Agreement, the structuring and financing of the Merger and the other
transactions contemplated hereby, or any commitments or agreements relating to
such financing, including without limitation fees and expenses payable to all
banks, investment banking firms, other financial institutions and other Persons
and their respective agents and counsel for arranging, committing to provide or
providing any financing for the Merger and any other transactions contemplated
hereby or structuring, negotiating or advising with respect to such transactions
or financing, and all fees and expenses of counsel, accountants, experts and
computer, environmental, actuarial, insurance and other consultants to Parent or
Purchaser.
(v) The Company acknowledges that the agreements contained in this
Section 7.5(b) are an integral part of the transactions contemplated by this
Agreement, and that, without these agreements, Parent and Purchaser would not
enter into this Agreement; accordingly, if the Company fails promptly to pay the
amount due pursuant to this Section 7.5(b), and, in order to obtain such
payment, Parent or Purchaser commences a suit which results in a judgment
against the Company for a fee set forth in this Section 7.5(b), the Company will
pay to Parent and Purchaser their documented Expenses (including attorneys' fees
and expenses) in connection with such suit, together with interest on the amount
of the fee at the prime rate of Citibank N.A. in effect on the date such payment
was required to be made.
VIII. GENERAL PROVISIONS
8.1. NONSURVIVAL OF REPRESENTATIONS, WARRANTIES AND AGREEMENTS. All
representations, warranties and agreements in this Agreement or in any
instrument delivered pursuant to this Agreement will terminate at the Effective
Time or the termination of this Agreement pursuant to Article VII, as the case
may be,
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except that the covenants set forth in Article II and Sections 5.3, 5.8, 5.9 and
5.10 will survive the Effective Time indefinitely or, if applicable, for the
period therein specified and those set forth in the last sentence of Section 1.3
and in Sections 5.4(b), 7.5 and 8.14 will survive termination indefinitely or,
if applicable, for the period therein specified.
8.2. NOTICES. Any notice or other communication required to be given
hereunder will be sufficient if in writing, and sent by facsimile transmission
and by courier service (with proof of service), hand delivery or certified or
registered mail (return receipt requested and first-class postage prepaid),
addressed as follows:
If to Parent or Purchaser:
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
Attn: Dennis J. Broderick, Esq.
Fax No.: 513-579-7555
With copies to:
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
Attn: Robert A. Profusek, Esq.
Fax No.: 212-755-7306
If to the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Attn: Michael P. Sherman, Esq.
Fax No.: 612-936-5412
With copies to:
Faegre & Benson LLP
2200 Norwest Center
90 South Seventh Street
Minneapolis, Minnesota 55402
Attn: Philip S. Garon, Esq.
Fax No.: 612-336-3026
or to such other address as any party will specify by written notice so given,
and such notice will be deemed to have been delivered as of the date so
telecommunicated, personally delivered or mailed.
44
<PAGE>
8.3. ASSIGNMENT; BINDING EFFECT. Neither this Agreement nor any of the
rights, interests or obligations hereunder will be assigned by any of the
parties hereto (whether by operation of law or otherwise) without the prior
written consent of the other parties. Subject to the preceding sentence, this
Agreement will be binding upon and will inure to the benefit of the parties
hereto and their respective successors and assigns. Notwithstanding anything
contained in this Agreement to the contrary, except for the provisions of
Section 5.8, nothing in this Agreement, expressed or implied, is intended to
confer on any Person other than the parties hereto or their respective heirs,
successors, executors, administrators and assigns any rights, remedies,
obligations or liabilities under or by reason of this Agreement.
8.4. ENTIRE AGREEMENT. This Agreement, Annex A, the Company Disclosure
Letter and the Parent Disclosure Letter, together with the Confidentiality
Agreement, dated November 11, 1998, among Parent, Purchaser and the Company (the
"CONFIDENTIALITY AGREEMENT"), which will survive the execution and delivery of
this Agreement, constitute the entire agreement among the parties with respect
to the subject matter hereof and supersede all prior agreements and
understandings among the parties with respect thereto. No addition to or
modification of any provision of this Agreement will be binding upon any party
hereto unless made in writing and signed by all parties hereto. Notwithstanding
the foregoing, the eighth paragraph of the Confidentiality Agreement is hereby
amended so as to permit Parent, Purchaser or any of the respective Affiliates or
Representatives (as defined thereby) to (a) effect any transaction permitted
hereby or (b) to take any action otherwise prohibited thereby involving a
transaction pursuant to which Parent offers to acquire all of the Shares at not
less than the Per Share Amount, in the event that (i) the Company terminates
this Agreement pursuant to Section 7.3(c) or takes any action referred to in
Section 5.2(b) that would have constituted a breach of Section 5.2(b) but for
the exceptions therein in respect of fiduciary duties of the Company Board, (ii)
except following a termination of this Agreement by the Company pursuant to
Section 7.3(a) or 7.3(b), the Company enters into a Competing Proposal
Agreement, or (iii) following any termination of this Agreement, if prior to or
after such termination (other than a termination of this Agreement by the
Company pursuant to Section 7.3(a) or 7.3(b)) another Person publicly announces
a Company Takeover Proposal or Takeover Proposal Event.
8.5. AMENDMENT. This Agreement may be amended by the parties hereto, by
action taken by their respective Boards of Directors, at any time before or
after approval of matters presented in connection with the Merger by
Shareholders but after any such Shareholder approval, no amendment will be made
which by Law requires the further approval of Shareholders without obtaining
such further approval. This Agreement may not be amended except by an instrument
in writing signed on behalf of each of the parties hereto.
45
<PAGE>
8.6. GOVERNING LAW. Except to the extent that the laws of Minnesota are
mandatorily applicable to the Merger, this Agreement will be governed by and
construed in accordance with the laws of the State of Delaware without regard to
its conflict of laws principles.
8.7. COUNTERPARTS. This Agreement may be executed by the parties hereto
in separate counterparts, each of which when so executed and delivered will be
an original, but all such counterparts will together constitute one and the same
instrument. Each counterpart may consist of a number of copies hereof each
signed by less than all, but together signed by all of the parties hereto.
8.8. HEADINGS. Headings of the Articles and Sections of this Agreement
are for the convenience of the parties only, and will be given no substantive or
interpretive effect whatsoever.
8.9. CERTAIN DEFINITIONS/INTERPRETATIONS. (a) For purposes of this
Agreement:
(i) An "AFFILIATE" of any Person means another Person that
directly or indirectly, through one or more intermediaries, controls,
is controlled by, or is under common control with, such first Person;
(ii) "PERSON" means an individual, corporation, partnership,
limited liability company, joint venture, association, trust,
unincorporated organization or other entity; and
(iii) "KNOWLEDGE" of any Person which is not an individual means
the actual knowledge of any of such Person's executive officers.
(b) When a reference is made in this Agreement to an Article, Section
or Annex, such reference will be to an Article or Section of, or Annex to, this
Agreement unless otherwise indicated. The table of contents and headings
contained in this Agreement are for reference purposes only and will not affect
in any way the meaning or interpretation of this Agreement. Whenever the words
"include," "includes" or "including" are used in this Agreement, they will be
deemed to be followed by the words "without limitation." The words "hereof,"
"herein" and "hereunder" and words of similar import when used in this Agreement
will refer to this Agreement as a whole and not to any particular provision of
this Agreement. All terms used herein with initial capital letters have the
meanings ascribed to them herein and all terms defined in this Agreement will
have such defined meanings when used in any certificate or other document made
or delivered pursuant hereto unless otherwise defined therein. The definitions
contained in this Agreement are applicable to the singular as well as the plural
forms of such terms and to the masculine as well as to the feminine and neuter
genders of such term. Any agreement, instrument or statute
46
<PAGE>
defined or referred to herein or in any agreement or instrument that is referred
to herein means such agreement, instrument or statute as from time to time
amended, modified or supplemented, including (in the case of agreements or
instruments) by waiver or consent and (in the case of statutes) by succession of
comparable successor statutes and references to all attachments thereto and
instruments incorporated therein. References to a Person are also to its
permitted successors and assigns. Matters reflected in the Company Disclosure
Letter are not necessarily limited to matters required by this Agreement to be
reflected in the Company Disclosure Letter. Such additional matters are set
forth for informational purposes and do not necessarily include other matters of
a similar nature. Except for Sections 2.9, 5.1 and 5.9 of the Company Disclosure
Letter, which relate only to the corresponding Sections of this Agreement,
matters disclosed by the Company pursuant to any Section of this Agreement or
the Company Disclosure Letter will be deemed to be disclosed with respect to all
Sections of this Agreement and the Company Disclosure Letter to the extent this
Agreement requires such disclosure provided that the relevance of such matters
to other Sections in the Company Disclosure Letter is reasonably apparent on the
face thereof.
8.10. WAIVERS. Except as provided in this Agreement, no action taken
pursuant to this Agreement, including without limitation any investigation by or
on behalf of any party, will be deemed to constitute a waiver by the party
taking such action of compliance with any representations, warranties, covenants
or agreements contained in this Agreement. The waiver by any party hereto of a
breach of any provision hereunder will not operate or be construed as a waiver
of any prior or subsequent breach of the same or any other provision hereunder.
8.11. INCORPORATION OF ANNEX A. Annex A attached hereto is hereby
incorporated herein and made a part hereof for all purposes as if fully set
forth herein.
8.12. SEVERABILITY. Any term or provision of this Agreement which is
invalid or unenforceable in any jurisdiction will, as to that jurisdiction, be
ineffective to the extent of such invalidity or unenforceability without
rendering invalid or unenforceable the remaining terms and provisions of this
Agreement or affecting the validity or enforceability of any of the terms or
provisions of this Agreement in any other jurisdiction. If any provision of this
Agreement is so broad as to be unenforceable, the provision will be interpreted
to be only so broad as is enforceable.
8.13. ENFORCEMENT OF AGREEMENT. The parties hereto agree that
irreparable damage would occur in the event that any of the provisions of this
Agreement was not performed in accordance with its specific terms or was
otherwise breached. It is accordingly agreed that the parties will be entitled
to an injunction or injunctions to prevent breaches of this Agreement and to
enforce specifically the terms and provisions hereof, this being in
47
<PAGE>
addition to any other remedy to which they are entitled at law or
in equity.
8.14. EXPENSES. Except as set forth in Section 7.5, all fees and
expenses (including SEC filing fees) incurred in connection with the Offer, the
Merger, this Agreement and the transactions contemplated thereby will be paid by
the party incurring such fees or expenses, whether or not the Merger is
consummated, except that each of Parent and the Company will bear and pay
one-half of the costs and expenses incurred in connection with the printing and
mailing of the Offer Documents, the Schedule 14D-9 and Proxy Statement.
48
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement and caused
the same to be duly delivered on their behalf on the day and year first written
above.
FINGERHUT COMPANIES, INC.
By:
--------------------------
Theodore Deikel
Chief Executive Officer
FEDERATED DEPARTMENT STORES, INC.
By:
--------------------------
Ronald W. Tysoe
Vice Chairman, Finance and
Real Estate
BENGAL SUBSIDIARY CORP.
By:
--------------------------
Dennis J. Broderick
President
49
<PAGE>
ANNEX A
CONDITIONS TO COMPLETION OF THE OFFER
Notwithstanding any other provision of the Offer, Purchaser will 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
expiration or termination of the Offer), to pay for any Shares, and (subject to
any such rules or regulations) may postpone the acceptance for payment or
payment for any Shares tendered, and may amend or terminate (if, when and as
permitted by this Agreement) the Offer (whether or not any Shares have
theretofore been purchased or paid for pursuant to the Offer), (a) unless the
following conditions have been satisfied: (1) there have been validly tendered
and not withdrawn prior to the Expiration Date a number of Shares which
represents at least a majority of the total voting power of the outstanding
securities of the Company entitled to vote in the election of directors or in a
merger ("VOTING SECURITIES"), calculated on a fully diluted basis, on the date
of purchase (the "MINIMUM CONDITION") ("on a fully diluted basis" having the
following meaning, as of any date: the number of Shares outstanding, together
with the number of Shares the Company is then required to issue pursuant to
obligations outstanding at that date under employee stock option or other
benefit plans or otherwise), (2) any applicable waiting periods under the HSR
Act shall have expired or been terminated prior to the expiration of the Offer,
and (3) the OCC shall have consented in writing to, or stated in writing that it
would not disapprove of, the Offer and the Merger or all applicable filing,
approval or waiting periods or extensions thereof under the CIBC Act shall have
expired without the OCC providing notice of objection to the Offer or the Merger
(the "OCC CONDITION") or (b) if at any time on or after the date of this
Agreement and before the Expiration Date (whether or not any Shares have
theretofore been accepted for payment or paid for pursuant to the Offer), any of
the following shall have occurred:
(i) any governmental entity or authority or any court shall have
enacted, issued, promulgated, enforced or entered any statute, rule,
regulation, executive order, decree, temporary or preliminary
injunction that shall not have been lifted prior to the Expiration Date
or permanent injunction or other order which is in effect and which (a)
restricts, prevents or prohibits consummation of the transactions
contemplated by this Agreement, including the Offer or the Merger, (b)
prohibits, limits or otherwise adversely affects the ownership or
operation by Parent or any of its Subsidiaries of all or any material
portion of the business or assets of the Company and its Subsidiaries
or compels the Company, Parent or any of their Subsidiaries to dispose
of or hold separate all or any portion of the business or assets of the
Company and its Subsidiaries as a result of the completion of the Offer
or the Merger, or (c) imposes limitations on the ability of Parent,
Purchaser or any other subsidiary of Parent to exercise effectively
full rights of ownership of any Shares, including without limitation
the right
50
<PAGE>
to vote any Shares acquired by Purchaser pursuant to the Offer or
otherwise on all matters properly presented to the Shareholders,
including without limitation the approval and adoption of this
Agreement and the transactions contemplated thereby;
(ii) there shall be instituted or pending any action or
proceeding before any United States or foreign court or governmental
entity or authority by any United States or foreign governmental entity
or authority seeking any order, decree or injunction having any effect
set forth in paragraph (i) above;
(iii) the representations and warranties of the Company contained
in this Agreement (without giving effect to the materiality, material
adverse effect or knowledge limitations contained therein) shall not be
true and correct as of the Expiration Date (as the same may be extended
from time to time) as though made anew on and as of such date (except
for representations and warranties made as of a specified date, unless
they shall not be true and correct as of the specified date), except
for any breach or breaches of any representations or warranties in
Section 3.1 (except the first sentence) and Sections 3.4 through 3.20
of this Agreement which, individually or in the aggregate, could not be
reasonably expected to have a Company Material Adverse Effect;
(iv) the Company shall not have performed or complied in all
material respects with its covenants under this Agreement to which it
is a party and such failure continues until the later of (a) 15
calendar days after actual receipt by it of written notice from Parent
setting forth in reasonable detail the nature of such failure or (b)
the Expiration Date;
(v) there shall have occurred any material adverse change, or any
development that is reasonably likely to result in a material adverse
change, in the business, financial condition or results of operations
of the Company and its Subsidiaries, taken as a whole;
(vi) this Agreement shall have been terminated in accordance with
its terms;
(vii) the Company Board shall have (a) withdrawn or materially
modified or changed (including by amendment of the Schedule 14D-9) its
recommendation of the Offer, the Merger or this Agreement in a manner
adverse to Purchaser or Parent, (b) taken a position inconsistent with
its recommendation of the Offer, the Merger of this Agreement in a
manner adverse to Purchaser or Parent, (c) approved or recommended any
Company Takeover Proposal, (d) taken any action referred to in Section
5.2(b) of this Agreement that is prohibited thereby or would be so
prohibited but for the exceptions thereto, or (e) resolved or publicly
disclosed any intention to do any of the foregoing; or
51
<PAGE>
(viii) the U.S. Federal Reserve Board or any other federal
governmental authority shall have declared a general banking moratorium
or general suspension or material limitation on the extension of credit
or in respect of payments in respect of credit by banks or other
lending institutions in the United States.
The foregoing conditions are for the sole benefit of Purchaser and its
affiliates and may be asserted by Purchaser, or Parent on behalf of Purchaser,
regardless of the circumstances (including without limitation any action or
inaction by Purchaser or any of its affiliates other than a material breach by
Purchaser or Parent of the Agreement) giving rise to any such condition or may
be waived by Purchaser, in whole or in part, from time to time in its sole
discretion, except as otherwise provided in the Agreement. The failure by
Purchaser at any time to exercise any of the foregoing rights will not be deemed
a waiver of any such right and each such right will be deemed an ongoing right
and may be asserted at any time and from time to time.
52
<PAGE>
TABLE OF DEFINED TERMS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Acquisition......................................................................................................1
Affiliate.......................................................................................................46
Agreement........................................................................................................1
Board Percentage.................................................................................................5
Certificates....................................................................................................10
CIBC Act........................................................................................................16
Closing..........................................................................................................7
Closing Date.....................................................................................................7
Code............................................................................................................19
Company..........................................................................................................1
Company Acquisition Agreement...................................................................................34
Company Benefit Plans...........................................................................................24
Company Board....................................................................................................1
Company Disclosure Letter.......................................................................................12
Company Filed Reports...........................................................................................18
Company Material Adverse Effect.................................................................................13
Company Reports.................................................................................................16
Company SEC Information..........................................................................................3
Company Shareholders' Meeting...................................................................................26
Company Takeover Proposal.......................................................................................33
Competing Proposal..............................................................................................41
Competing Proposal Agreement....................................................................................42
Computer Software...............................................................................................20
Confidentiality Agreement.......................................................................................45
Constituent Corporations.........................................................................................1
Continuing Directors.............................................................................................6
Disinterested....................................................................................................6
Dissenting Shares................................................................................................9
Drop-Dead Date..................................................................................................40
Effective Time...................................................................................................7
Environmental Laws..............................................................................................23
Environmental Permits...........................................................................................23
ERISA...........................................................................................................24
Exchange Act.....................................................................................................2
Exchange Agent..................................................................................................10
Expenses........................................................................................................43
Expiration Date..................................................................................................2
Governmental Entity.............................................................................................16
Hazardous Substances............................................................................................24
HSR Act.........................................................................................................16
Intellectual Property...........................................................................................20
IRS.............................................................................................................20
key employee....................................................................................................18
Knowledge.......................................................................................................46
Law.............................................................................................................15
Leased Real Property............................................................................................21
Liens...........................................................................................................14
Material Contracts..............................................................................................22
MBCA.............................................................................................................1
Measurement Date................................................................................................14
Merger...........................................................................................................1
</TABLE>
53
<PAGE>
<TABLE>
<S> <C>
Merger Consideration.............................................................................................8
Metris..........................................................................................................20
Minimum Condition...............................................................................................50
MOU.............................................................................................................15
OCC..............................................................................................................3
OCC Condition...................................................................................................50
Offer............................................................................................................1
Offer Completion Date...........................................................................................33
Offer Conditions.................................................................................................2
Offer Documents..................................................................................................3
Option Consideration............................................................................................12
Options.........................................................................................................11
Order...........................................................................................................15
Outside Date....................................................................................................40
Owned Real Property.............................................................................................21
Parent...........................................................................................................1
Parent Benefit Plans............................................................................................29
Parent Disclosure Letter........................................................................................26
Parent Material Adverse Effect..................................................................................26
Parent SEC Information...........................................................................................4
Parent's Designees...............................................................................................5
Per Share Amount.................................................................................................1
Permitted Liens.................................................................................................21
Person..........................................................................................................46
Proxy Statement.................................................................................................26
Purchaser........................................................................................................1
Real Property Leases............................................................................................21
Restraints......................................................................................................39
Rights...........................................................................................................8
Ruling..........................................................................................................20
Schedule 14D-1...................................................................................................3
Schedule 14D-9...................................................................................................4
SEC..............................................................................................................3
Securities Act..................................................................................................16
Shareholders.....................................................................................................1
Shares...........................................................................................................1
Special Committee................................................................................................4
Spinoff.........................................................................................................20
SSB..............................................................................................................4
Stock Option Plans..............................................................................................11
Subsidiary......................................................................................................13
Superior Proposal...............................................................................................34
Surviving Corporation............................................................................................7
Takeover Proposal Event.........................................................................................42
Tax Return......................................................................................................19
Taxes...........................................................................................................19
Termination Fee.................................................................................................41
Transfer Taxes..................................................................................................19
Voting Securities...............................................................................................50
</TABLE>
54
<PAGE>
Exhibit 2
November 11, 1998
Mr. Ronald W. Tysoe
Vice Chairman
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, OH 45202
Attention: Mr. Ronald W. Tysoe
Ladies and Gentlemen:
In connection with your consideration of a possible transaction with
Fingerhut Companies, Inc. (the "Company") regarding your possible purchase
of the Company by way of merger, a sale of assets or stock, or otherwise, you
have requested information concerning the Company.
As a condition to your being furnished with such information, you agree
to treat any information concerning the Company which is furnished to you by
or on behalf of the Company, whether furnished before or after the date of
this letter and regardless of the manner in which it is furnished, together
with analyses, compilations, studies or other documents or records prepared
by you or any of your directors, officers, employees, agents or advisors
(including, without limitation, attorneys, accountants, consultants,
bankers, financial advisors and any representatives of your advisors)
(collectively, "Representatives") to the extent that such analyses,
compilations, studies, documents or records contain or otherwise reflect or
are generated from such information (hereinafter collectively referred to as
the "Evaluation Material"), in accordance with the provisions of this
agreement. The term "Evaluation Material" does not include information
which (i) was or becomes generally available to the public other than as a
result of a disclosure by you or your Representatives, (ii) was or becomes
available to you on a non-confidential basis from a source other than the
Company or its advisors provided that such source is not known to you to be
bound by a confidentiality agreement with the Company, or otherwise
prohibited from transmitting the information to you by a contractual, legal
or fiduciary obligation or (iii) was within your possession prior to its
being furnished to you by or on behalf of the Company, provided that the
source of such information was not bound by a confidentiality agreement with
the Company or otherwise prohibited from transmitting the information to you
by a contractual, legal or fiduciary obligation.
You hereby agree that the Evaluation Material will be used solely for
the purpose of evaluating a possible transaction between the Company and you,
and that such information will be kept confidential by you and your
Representatives; provided, however, that (a) any of such information may be
disclosed to your Representatives who need to know such information for the
purpose of evaluating any such possible transaction between the Company and
you (it being
<PAGE>
understood that such Representatives shall have been advised of this
agreement and shall have agreed to be bound by the provisions hereof), and
(b) any disclosure of such information may be made to which the Company
consents in writing. In any event, you shall be responsible for any breach of
this agreement by any of your Representatives and you agree, at your sole
expense, to take all reasonable measures (including but not limited to court
proceedings) to restrain your Representatives from prohibited or unauthorized
disclosure or use of the Evaluation Material. You further agree that the
Evaluation Material which is in written form shall not be copied or
reproduced at any time without the prior written consent of the Company.
In addition, without the prior written consent of the Company, you will
not, and will direct your Representatives not to, disclose to any person (i)
that the Evaluation Material has been made available to you or your
Representatives, (ii) that discussions or negotiations are taking place
concerning a possible transaction between the Company and you or (iii) any
terms, conditions or other facts with respect to any such possible
transaction, including the status thereof.
In the event that you are requested or required (by oral questions,
interrogatories, request for information or documents, subpoena, civil
investigative demand or other process) to disclose any Evaluation Material,
it is agreed that you will provide the Company with prompt notice of any such
request or requirement (written if practical) so that the Company may seek an
appropriate protective order or waive your compliance with the provisions of
this agreement. If, failing the entry of a protective order or the receipt
of a waiver hereunder, you are, in the opinion of your counsel, compelled to
disclose Evaluation Material, you may disclose that portion of the Evaluation
Material, which the Company's counsel advises that you are compelled to
disclose and will exercise reasonable efforts to obtain assurance that
confidential treatment will be accorded to that portion of the Evaluation
Material which is being disclosed. In any event, you will not oppose action
by the Company to obtain an appropriate protective order or other reliable
assurance that confidential treatment will be accorded the Evaluation
Material.
Until the earliest of (i) the execution by you of a definitive agreement
regarding the acquisition of the Company; (ii) an acquisition of the Company
by a third party; or (iii) one year from the date of this agreement, you
agree not to initiate or maintain contact (except for those contacts made in
the ordinary course of business) with any officer, director or employee of
the Company regarding the Company's business, operation, prospects or
finances, except with the express permission of the Company. Additionally,
you agree not to solicit for employment any of the current employees of the
Company at the general merchandise manager or equivalent level and above so
long as they are employed by the Company or solicit any customers, clients,
or accounts, of the Company during the period in which there are discussions
conducted pursuant hereto and for a period of one year thereafter, without
the prior written consent of the Company, provided that foregoing
prohibition shall not apply to any such employee who voluntarily and
independently solicits an offer of employment from you. It is understood that
Salomon Smith Barney Inc. ("Salomon Smith Barney"), in its capacity as
investment advisor to the Company, will arrange for appropriate contacts for
due diligence purposes. All (i) communications regarding this transaction,
(ii) request for additional information, (iii) requests for facility tours or
management
2
<PAGE>
meetings, and (iv) discussions or questions regarding procedures, will be
submitted or directed to Salomon Smith Barney.
You understand and acknowledge that any and all information contained in
the Evaluation Material is being provided without any representation or
warranty, express or implied, as to the accuracy or completeness of the
Evaluation Material, on the part of the Company or Salomon Smith Barney. You
agree that none of the Company, Salomon Smith Barney or any of their
respective affiliates or representatives shall have any liability to you or
any of your Representatives. It is understood that the scope of any
representations and warranties to be given by the Company will be negotiated
along with other terms and conditions in arriving at a mutually acceptable
form of definitive agreement should discussions between you and the Company
progress to such a point.
In consideration of the Evaluation Material being furnished to you, you
hereby further agree that, without the prior written consent of the Board of
Directors of the Company, for a period of one year from the date hereof,
neither you nor any of your affiliates (as such term is defined in Rule 12b-2
of the Securities and Exchange Act of 1934, as amended), acting alone or as
part of a group, will acquire or offer or agree to acquire, directly or
indirectly, by purchase or otherwise, any voting securities or securities
convertible into voting securities of the Company, or otherwise seek to
influence or control, in any manner whatsoever (including proxy solicitation
or otherwise), the management or policies of the Company.
All Evaluation Material disclosed by the Company shall be and shall
remain the property of the Company. In the event that the parties do not
proceed with the transaction which is the subject of this letter within a
reasonable time or within five days after being so requested by the Company,
you shall return or destroy all documents thereof furnished to you by the
Company. Except to the extent a party is advised in writing by counsel such
destruction is prohibited by law, you will also destroy all written material,
memoranda, notes, copies, excerpts and other writings or recordings
whatsoever prepared by you or your Representatives based upon, containing or
otherwise reflecting any Evaluation Material. Any destruction of materials
shall be verified by you in writing and signed by one of your officers. Any
Evaluation Material that is not returned or destroyed, including without
limitation, any oral Evaluation Material, shall remain subject to the
confidentiality obligations set forth in this agreement.
You agree that unless and until a definitive agreement regarding a
transaction between the Company and you has been executed, neither the
Company nor you will be under any legal obligation of any kind whatsoever
with respect to such a transaction by virtue of this agreement except for the
matters specifically agreed to herein. You further acknowledge and agree that
the Company reserves the right, in its sole discretion, to reject any and all
proposals made by you or any of your Representatives with regard to a
transaction between the Company and you, and to terminate discussions and
negotiations with you at any time.
It is understood and agreed that money damages would not be a sufficient
remedy for any breach of this agreement and that the Company shall be
entitled to specific performance
3
<PAGE>
and injunctive or other equitable relief as a remedy for any such breach and
you further agree to waive any requirement for the security or posting of any
bond in connection with such remedy. Such remedy shall not be deemed to be
the exclusive remedy for breach of this agreement but shall be in addition to
all other remedies available at law or equity to the Company.
In the event of litigation relating to this agreement, if a court of
competent jurisdiction determines in a final, non-appealable order that a
party has breached this agreement, then such party shall be liable and pay to
the non-breaching party the reasonable legal fees such non-breaking party has
inccurred in connection with such litigation, including any appeal therefrom.
This agreement is for the benefit of the Company and Salomon Smith
Barney and shall be governed and construed in accordance with the laws of the
State of New York, regardless of the laws that might otherwise govern under
applicable principles of conflicts of law thereof. Your obligations under
this agreement shall expire there years from the date hereof, except as
otherwise explicitly stated as above.
This agreement may be executed in two or more counterparts, each of
which shall be deemed to be an original, but all of which shall constitute
one and the same agreement, Please confirm that the foregoing is in
accordance with your understanding of out agreement by signing and returning
to us a copy of this letter.
Very truly yours,
SALOMON SMITH BARNEY INC. on behalf of
Fingerhut Companies, Inc.
By: Robert B. Womsley
----------------------------------
Robert B. Womsley
Director
Confirmed and Agreed:
Federated Department Stores, Inc.
By: Ronald W. Tysoe
------------------------------------
Ronald W. Tysoe
Vice Chairman
4
<PAGE>
Exhibit 3
February 10, 1999
Mr. William J. Lansing
President
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Dear Will:
Federated Department Stores, Inc. ("Federated") and you have
discussed entering into an employment contract providing you with the economics
set forth in the attached term sheet. You have told Federated that you intend to
remain with Fingerhut after its acquisition. You and we have agreed that the
economic terms of the attached term sheet are those under which you would,
subject to the balance of this letter, enter into an employment agreement with
Federated. This letter is intended to be a NON-BINDING letter of intent setting
forth your confirmation that you have agreed to negotiate, in good faith, an
employment agreement with Federated consistent with the economic terms outlined
in the attached term sheet. Your entering into the employment agreement remains
subject to you, with advice of your legal, tax and financial advisors, agreeing
to all of the terms and conditions therein.
Please sign and return the enclosed acknowledgement copy
confirming your agreement.
Sincerely,
Federated Department Stores, Inc.
By: /s/ RON TYSOE
------------------------------------
Confirmed and acknowledged
this 10th day of February, 1999:
/s/ WILLIAM J. LANSING
- ----------------------------------
<PAGE>
<TABLE>
<S> <C>
WILLIAM LANSING
Current Title: President, Fingerhut
New Title: President and CEO, Fingerhut, effective 5/1/99
Chairman and CEO, Fingerhut, effective 1/1/00
Current Salary: $450,000
New Salary: $600,000 effective upon closing
$800,000 effective 5/1/99
Current Annual Bonus: Target of 125%, maximum of 168%
New Annual Bonus: Target of 125%, maximum of 168%.
For FY '99, bonus will be calculated at $700,000
base salary and cannot be less than $300,000.
Option Award: 300,000 options granted effective on merger
closing date at closing price of FDS Common Stock
on February 10, 1999. 10 year term with 4 year
vesting, 25% on each of first, second, third and
fourth anniversaries of the grant. In the event
that the Company terminates the executive without
cause, Management will request Board approval to
permit continued vesting of options following
termination of employment.
Restricted Stock: 25,000 shares granted effective on merger closing
date. Additional shares will be granted effective
on merger closing date equal to the number
determined by dividing $1,585,769 by the closing
price of FDS Common Stock on last trading day
immediately preceding merger closing date. FDS to
provide tax indemnity to executive. Restrictions
for both grants to lapse 25% on each of first,
second, third and fourth anniversaries of the
grant. In the event that the Company terminates
the executive without cause, Management will
request Board approval to permit continued vesting
of restricted stock following termination of
employment.
Additional Investment: The September 1998 option (370,000 shares) will be
exchanged into FDS options with the exercise price
to be determined in relation to the closing price
of FDS Common Stock on February 10, 1999. (See
Exhibit A.) These new options will retain the
original vesting schedule. In the event of
termination by the Company without cause, any
unvested options that resulted from rolling
previous options will vest immediately and may be
exercised.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
The May 1998 restricted share grant will be
exchanged into FDS restricted shares based upon
the closing price of FDS Common Stock on February
10, 1999. These new restricted shares will retain
the original vesting schedule. (See Exhibit A.) In
the event of termination by the Company without
cause, restrictions on any shares that resulted
from rolling previous shares will lapse
immediately and the shares will be owned
unconditionally.
Employment Contract: Three year contract (which will include a
modification to the existing severance agreement
waiving the right to leave during the 13th month
after closing; payout as provided under Retention
Arrangements to be paid on first anniversary of
the merger closing date.)
Retention Arrangements: On the first anniversary of the merger closing
date, unless executive has terminated employment
for other than Good Reason (as defined in the
severance agreement) before that date, payout of
an amount equal to $1,350,000 (3x FY '98 base
salary) plus the greater of (i) $1,650,000 (3x FY
'98 bonus) or (ii) 3x actual bonus earned for FY
'99 calculated on $450,000 base salary in lieu of
any and all rights under Article V of the
severance agreement (subject to termination terms
and conditions to be agreed to).
Compensation package will be reexamined in Spring
2001.
Benefits: Additional benefits:
40% discount at all Federated divisions with
gross-up (currently 47%).
Eligible to participate in Federated Matching
Aid Program.
Miscellaneous: The foregoing and the entitlements in Merger
Agreement in lieu of any and all rights under
Article III of severance agreement.
</TABLE>
<PAGE>
EXHIBIT A - LANSING
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
370,000 shares divided by $44/$25 = 210,227 shares
Exercise price: $8.52 x $44/$25 = $15
New options: 210,227 FDS shares, vesting 25% per year, commencing on September
25, 1999
RESTRICTED SHARES
Assume $44 FDS Common Stock closing price on February 10, 1999.
Restricted shares value = $3,598,125
$3,598,125 divided by $44 = 81,776 shares
New restricted shares: 81,776 FDS shares vesting 25% per year commencing on May
1, 1999
<PAGE>
Exhibit 4
February 10, 1999
Mr. Michael P. Sherman
Executive Vice President - Business Development,
General Counsel and Secretary
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Dear Mike:
Federated Department Stores, Inc. ("Federated") and you have discussed
entering into an employment contract providing you with the economics set forth
in the attached term sheet. You have told Federated that you intend to remain
with Fingerhut after its acquisition. You and we have agreed that the economic
terms of the attached term sheet are those under which you would, subject to the
balance of this letter, enter into an employment agreement with Federated. This
letter is intended to be a NON-BINDING letter of intent setting forth your
confirmation that you have agreed to negotiate, in good faith, an employment
agreement with Federated consistent with the economic terms outlined in the
attached term sheet. Your entering into the employment agreement remains subject
to you, with advice of your legal, tax and financial advisors, agreeing to all
of the terms and conditions therein.
Please sign and return the enclosed acknowledgement copy confirming
your agreement.
Sincerely,
Federated Department Stores, Inc.
By: /s/ RON TYSOE
-----------------------------------
Confirmed and acknowledged
this 10th day of February, 1999:
/s/ MICHAEL P. SHERMAN
- ----------------------------------
<PAGE>
<TABLE>
<S> <C>
MICHAEL SHERMAN
Current Title: EVP, Business Development, General Counsel,
Fingerhut
New Title: Same
Current Salary: $350,000
New Salary: $400,000 effective upon closing
Current Annual Bonus: Target of 110%, maximum of 146%
New Annual Bonus: For FY '99, bonus will be calculated on $387,500
base salary and cannot be less than $347,500. For
FY '00 and FY '01, target of 110%, maximum of
146%.
Option Award: 125,000 options granted effective on merger
closing date at closing price of FDS Common Stock
on February 10, 1999. 10 year term with 4 year
vesting, 25% on each of first, second, third and
fourth anniversaries of the grant. In the event
that the Company terminates the executive without
cause, Management will request Board approval to
permit continued vesting of options following
termination of employment.
Restricted Stock: 10,000 shares granted effective on merger closing
date. Additional shares will be granted effective
on merger closing date equal to the number
determined by dividing $290,902 by the closing
price of FDS Common Stock on last trading day
immediately preceding merger closing date. FDS to
provide tax indemnity to executive. Restrictions
for both grants to lapse 25% on each of first,
second, third and fourth anniversaries of the
grant. In the event that the Company terminates
the executive without cause, Management will
request Board approval to permit continued vesting
of restricted stock following termination of
employment.
Additional Investment: 100,000 Fingerhut options will be exchanged into
FDS options with the exercise price to be
determined in relation to the closing price of FDS
Common Stock on February 10, 1999. (See Exhibit
A.) These new options will retain the original
vesting schedule. In the event of termination by
the Company without cause, any unvested options
that resulted from rolling previous options will
vest immediately and may be exercised.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Employment Contract: Three year contract (which will include a
modification to the existing severance agreement
waiving the right to leave during the 13th month
after closing; payout as provided under Retention
Arrangements to be paid on first anniversary of
the merger closing date.)
Retention Arrangements: On the first anniversary of the merger closing
date, unless Executive has terminated employment
for other than Good Reason (as defined in the
severance agreement) before that date, payout of
an award equal to 3x the higher of (i) the
aggregate base salary and bonus paid in respect of
FY '98 performance or (ii) the aggregate of
$350,000 and the bonus payable in respect of FY
'99 performance applying the applicable bonus
percentage to an assumed $350,000 base salary in
lieu of any and all rights under Article V of the
severance agreement (subject to termination terms
and conditions to be agreed to).
Benefits: Additional benefits:
40% discount at all Federated divisions with
gross-up (currently 47%).
Eligible to participate in Federated Matching
Aid Program.
Miscellaneous: The foregoing and the entitlements in Merger
Agreement in lieu of any and all rights under
Article III of severance agreement.
</TABLE>
<PAGE>
EXHIBIT A - SHERMAN
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
100,000 shares divided by $44/$25 = 56,818 shares
Exercise price: $8.52 x $44/$25 = $15
New options: 56,818 FDS shares, vesting on original schedule
<PAGE>
Exhibit 5
February 10, 1999
Mr. John D. Buck
Executive Vice President - Human Resources,
Operations and Information Systems
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Dear John:
Federated Department Stores, Inc. ("Federated") and you have discussed
entering into an employment contract providing you with the economics set forth
in the attached term sheet. You have told Federated that you intend to remain
with Fingerhut after its acquisition. You and we have agreed that the economic
terms of the attached term sheet are those under which you would, subject to the
balance of this letter, enter into an employment agreement with Federated. This
letter is intended to be a NON-BINDING letter of intent setting forth your
confirmation that you have agreed to negotiate, in good faith, an employment
agreement with Federated consistent with the economic terms outlined in the
attached term sheet. Your entering into the employment agreement remains subject
to you, with advice of your legal, tax and financial advisors, agreeing to all
of the terms and conditions therein.
Please sign and return the enclosed acknowledgement copy confirming
your agreement.
Sincerely,
Federated Department Stores, Inc.
By: /s/ RON TYSOE
----------------------------------
Confirmed and acknowledged
this 10th day of February, 1999:
/s/ JOHN D. BUCK
- ----------------------------------
<PAGE>
<TABLE>
<S> <C>
JOHN BUCK
Current Title: EVP, Operations, Mdse. Information Systems and HR,
Fingerhut
New Title: Same
Current Salary: $350,000
New Salary: $400,000 effective upon closing
Current Annual Bonus: Target of 110%, maximum of 146%
New Annual Bonus: For FY '99, bonus will be calculated on $387,500
base salary and cannot be less than $347,500. For
FY '00 and FY '01, target of 110%, maximum of
146%.
Option Award: 125,000 options granted effective on merger
closing date at closing price of FDS Common Stock
on February 10, 1999. 10 year term with 4 year
vesting, 25% on each of first, second, third and
fourth anniversaries of the grant. In the event
that the Company terminates the executive without
cause, Management will request Board approval to
permit continued vesting of options following
termination of employment.
Restricted Stock: 10,000 shares granted effective on merger closing
date. Additional shares will be granted effective
on merger closing date equal to the number
determined by dividing $290,902 by the closing
price of FDS Common Stock on last trading day
immediately preceding merger closing date. FDS to
provide tax indemnity to executive. Restrictions
for both grants to lapse 25% on each of first,
second, third and fourth anniversaries of the
grant. In the event that the Company terminates
the executive without cause, Management will
request Board approval to permit continued vesting
of restricted stock following termination of
employment.
Additional Investment: 100,000 Fingerhut options will be exchanged into
FDS options with the exercise price to be
determined in relation to the closing price of FDS
Common Stock on February 10, 1999. (See Exhibit
A.) These new options will retain the original
vesting schedule. In the event of termination by
the Company without cause, any unvested options
that resulted from rolling previous options will
vest immediately and may be exercised.
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Employment Contract: Three year contract (which will include a
modification to the existing severance agreement
waiving the right to leave during the 13th month
after closing; payout as provided under Retention
Arrangements to be paid on first anniversary of
the merger closing date.)
Retention Arrangements: On first anniversary of the merger closing date,
unless Executive has terminated employment for
other than Good Reason (as defined in the
severance agreement) before that date, payout of
an award equal to 3x the higher of (i) the
aggregate base salary and bonus paid in respect of
FY '98 performance or (ii) the aggregate of
$350,000 and the bonus payable in respect of FY
'99 performance applying the applicable bonus to
an assumed $350,000 base salary in lieu of any and
all rights under Article V of the severance
agreement (subject to termination terms and
conditions to be agreed to).
Benefits: Additional benefits:
40% discount at all Federated divisions with
gross-up (currently 47%).
Eligible to participate in Federated Matching
Aid Program.
Miscellaneous: The foregoing and the entitlements in Merger
Agreement in lieu of any and all rights under
Article III of severance agreement.
</TABLE>
<PAGE>
EXHIBIT A - BUCK
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
100,000 shares divided by $44/$25 = 56,818 shares
Exercise price: $8.52 x $44/$25 = $15
New options: 56,818 FDS shares, vesting on original schedule
<PAGE>
Exhibit 6
February 10, 1999
Mr. Andrew V. Johnson
Senior Vice President of Market Development
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Dear Andy:
Federated Department Stores, Inc. ("Federated") and you have discussed
entering into an employment contract providing you with the economics set forth
in the attached term sheet. You have told Federated that you intend to remain
with Fingerhut after its acquisition. You and we have agreed that the economic
terms of the attached term sheet are those under which you would, subject to the
balance of this letter, enter into an employment agreement with Federated. This
letter is intended to be a NON-BINDING letter of intent setting forth your
confirmation that you have agreed to negotiate, in good faith, an employment
agreement with Federated consistent with the economic terms outlined in the
attached term sheet. Your entering into the employment agreement remains subject
to you, with advice of your legal, tax and financial advisors, agreeing to all
of the terms and conditions therein.
Please sign and return the enclosed acknowledgement copy confirming
your agreement.
Sincerely,
Federated Department Stores, Inc.
By: /S/ RON TYSOE
----------------------------------
Confirmed and acknowledged
this 11th day of February, 1999:
/S/ ANDREW V. JOHNSON
- ----------------------------------
<PAGE>
<TABLE>
<CAPTION>
ANDY JOHNSON
<S> <C>
Current title: SVP, Marketing
New title: Same
Current salary: $285,000
New salary: $325,000 effective upon closing
Current annual bonus: Target of 100%, maximum of 134%
New annual bonus: Same
Option award: 50,000 options granted effective on merger closing
date at closing price of FDS Common Stock on
February 10, 1999. 10 year term with 4 year
vesting, 25% on each of first, second, third and
fourth anniversaries of the grant. In the event
that the Company terminates the executive without
cause, Management will request Board approval to
permit continued vesting of options following
termination of employment.
Restricted stock: 5,000 shares granted effective on merger closing
date.
Additional Investment
(Optional): 65,000 Fingerhut options will be exchanged into
FDS options with the exercise price to be
determined in relation to the closing price of FDS
Common Stock on February 10, 1999. (See Exhibit
A.) These new options will retain the original
vesting schedule.
Employment contract: Three year contract
Benefits: Additional benefits:
40% discount at all Federated divisions with
gross-up (currently 47%).
Eligible to participate in Federated Matching Aid
Program.
</TABLE>
<PAGE>
EXHIBIT A - JOHNSON
OPTIONS
Assume $44 FDS Common Stock closing price on February 10, 1999.
65,000 shares divided by $44/$25 = 36,932
Exercise price: $8.52 x $44/$25 = $15
New options: 36,932 FDS shares, vesting on original schedule
<PAGE>
Exhibit 7
[LOGO]
February 18, 1999
Dear Shareholders:
We are very pleased to inform you that on February 10, 1999 Fingerhut
entered into an Agreement and Plan of Merger with Federated Department Stores,
Inc. pursuant to which Bengal Subsidiary Corp., a wholly owned subsidiary of
Federated Department Stores, today commenced a cash tender offer for all
outstanding shares of Fingerhut's common stock at a price of $25.00 per share.
Following completion of this offer, upon the terms and subject to the conditions
of the Agreement and Plan of Merger, Bengal Subsidiary Corp. will be merged with
and into Fingerhut, and each of the shares of Fingerhut's common stock not owned
by Federated Department Stores or any of its subsidiaries or by dissenting
shareholders will be converted into the right to receive $25.00, the same price
paid pursuant to the tender offer.
Your Board of Directors (with one director absent) has unanimously approved
the Agreement and Plan of Merger, has determined that the Federated Department
Stores offer is fair and in the best interests of Fingerhut and its shareholders
and recommends that shareholders accept the offer and tender their shares
pursuant to the offer.
In arriving at its determination, your Board of Directors considered a
number of factors described in the attached Schedule 14D-9, which is being filed
today with the Securities and Exchange Commission. Your Board of Directors has
received a written opinion, dated February 10, 1999, of Fingerhut's financial
advisor, Salomon Smith Barney Inc., to the effect that, as of such date and
based upon and subject to certain matters stated in such opinion, the $25.00 per
share cash consideration to be received by the holders of Fingerhut's common
stock (other than Federated Department Stores and its affiliates) pursuant to
the Agreement and Plan of Merger was fair, from a financial point of view, to
such shareholders. The full text of the written opinion of Salomon Smith Barney
Inc. is included as an exhibit to the attached Schedule 14D-9 and should be read
carefully in its entirety.
Accompanying this letter is the Federated Department Stores Offer To
Purchase, dated February 18, 1999, together with related materials including a
Letter of Transmittal to be used for tendering your shares. These documents set
forth the terms and conditions of the Federated Department Stores offer and
provide instructions as to how to tender your shares. I urge you to read the
enclosed materials carefully in making your decision with respect to tendering
your shares pursuant to the Federated Department Stores offer.
I, personally, along with your Board of Directors, management and the
employees of Fingerhut, thank you most sincerely for your support over the
years.
Sincerely,
[SIG.]
Theodore Deikel
Chairman and Chief Executive Officer
<PAGE>
FINGERHUT COMPANIES, INC. 4400 Baker Road, Minnetonka, MN 55343 (612) 936-5408
Fax (612) 936-5412
<PAGE>
Exhibit 8
CONTACTS:
FEDERATED FINGERHUT
CAROL SANGER - MEDIA LYNDA NORDEEN - MEDIA
513/579-7764 612/936-5015
SUSAN ROBINSON - INVESTOR GERALD KNIGHT - INVESTOR
513/579-7780 612/936-5507
FEDERATED TO ACQUIRE FINGERHUT
ACQUISITION TO STRENGTHEN/COMPLEMENT CATALOG AND INTERNET BUSINESSES
CINCINNATI, OHIO, February 11, 1999 - Federated Department Stores, Inc.
(NYSE: FD) and Fingerhut Companies, Inc. (NYSE: FHT) today jointly announced a
definitive merger agreement under which Federated will acquire Fingerhut, a
leading direct marketing company. Fingerhut will operate as a wholly owned
subsidiary of Federated, with its headquarters remaining in Minneapolis, MN.
In the transaction, Fingerhut shareholders will receive $25 per share in
cash under a tender offer expected to commence within a week. The transaction,
valued at approximately $1.7 billion (including net debt of Fingerhut), is
subject to regulatory approvals and other conditions. The transaction has been
approved by the boards of directors of both companies.
Federated said Fingerhut's state-of-the-art infrastructure for catalog and
Internet order fulfillment, coupled with its prowess in database management and
direct marketing, provides an excellent platform for further growth of
Federated's strong retail brands and non-store retailing operations -
Bloomingdale's By Mail and Macy's By Mail direct mail catalogs and the Macys.Com
e-commerce website.
"Joining forces with a company such as Fingerhut allows us to capitalize on
and leverage our own retailing strengths and infrastructure in new, rapidly
expanding channels. The acquisition, therefore, will help fuel Federated's
potential for continued growth," said James M. Zimmerman, Federated's chairman
and chief executive officer. "This is an excellent opportunity for Federated and
Fingerhut because our businesses and core competencies complement each other so
well. One of the reasons we are attracted to Fingerhut is its exceptionally
strong management team and workforce. We regard both as tremendous resources."
( more )
<PAGE>
- 2 -
"This is an excellent transaction for our shareholders and a natural fit
that will benefit both organizations," said Ted Deikel, chairman and chief
executive officer of Fingerhut. "This relationship will provide Fingerhut with
the capital to more rapidly expand our e-commerce efforts, as well as Fingerhut
Business Services, our fulfillment and marketing services operation."
While the near-term financial effects of the acquisition will depend on
numerous factors, Federated expects the acquisition to be dilutive initially. On
a longer-term basis, Federated expects that this transaction will accelerate its
future growth and increase its return on investment.
The Fingerhut core catalog represents a majority of the company's
approximately $2 billion annual sales, but the company also operates catalogs
under the names of Figi's, a food and gift catalog; Arizona Mail Order and
Bedford Fair, both apparel catalogs; and Popular Club, a membership-based
general merchandise catalog. In addition to its own e-commerce websites,
Fingerhut also owns minority equity interests in four e-commerce companies - PC
Flowers & Gifts, an on-line provider of flowers, gift baskets and gourmet food;
The Zone Network, parent company of MOUNTAINZONE.COM; FreeShop.Com, an online
provider of free merchandise and links to other e-commerce sites; and Roxy
Systems, Inc., an Internet marketer of digital communications and entertainment
services.
Beyond catalog and Internet selling, Fingerhut's range of business services
include telemarketing, direct marketing, information management, warehousing,
product fulfillment and distribution, order and returns processing and customer
service. Fingerhut and its subsidiaries employ about 10,000 people.
Credit Suisse First Boston and Jones, Day, Reavis & Pogue are advising
Federated on the transaction, and Fingerhut is being advised by Salomon Smith
Barney and Faegre & Benson.
Federated, with corporate offices in Cincinnati and New York, is one of the
nation's leading department store retailers, with annual sales of more than
$15.8 billion. Federated currently operates more than 400 department stores in
33 states under the names of Bloomingdale's, The Bon Marche, Burdines,
Goldsmith's, Lazarus, Macy's, Rich's and Stern's. Federated also operates direct
mail catalog and electronic commerce subsidiaries under the names of
Bloomingdale's By Mail, Macy's By Mail and Macys.Com.
Forward-looking statements contained in this release involve risks and
uncertainties that could cause actual results to differ materially from those
contemplated. Factors that could cause such differences include the risks
associated with retailing generally, transactional effects, integration risks
and other investment considerations described from time to time by the companies
in their filings with the Securities and Exchange Commission.
# # #
<PAGE>
Exhibit 9
February 10, 1999
The Board of Directors
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, Minnesota 55343
Members of the Board:
You have requested our opinion as to the fairness, from a financial point of
view, to the holders of the common stock of Fingerhut Companies, Inc.
("Fingerhut") of the consideration to be received by such holders pursuant to
the terms and subject to the conditions set forth in the Agreement and Plan of
Merger, dated as of February 10, 1999 (the "Merger Agreement"), by and among
Fingerhut, Federated Department Stores, Inc. ("Federated") and Bengal Subsidiary
Corp., a wholly owned subsidiary of Federated ("Sub"). As more fully described
in the Merger Agreement, (i) Federated will cause Sub to commence a tender offer
to purchase all outstanding shares of the common stock, par value $0.01 per
share, of Fingerhut ("Fingerhut Common Stock") at a purchase price of $25.00 per
share in cash (the "Cash Consideration" and, such tender offer, the "Tender
Offer") and (ii) subsequent to the Tender Offer, Sub will be merged with and
into Fingerhut (the "Merger" and, together with the Tender Offer, the
"Transaction") and each outstanding share of Fingerhut Common Stock not
previously tendered will be converted into the right to receive the Cash
Consideration.
In arriving at our opinion, we reviewed the Merger Agreement and held
discussions with certain senior officers, directors and other representatives
and advisors of Fingerhut and certain senior officers and other representatives
and advisors of Federated concerning the business, operations and prospects of
Fingerhut. We examined certain publicly available business and financial
information relating to Fingerhut as well as certain financial forecasts and
other information and data for Fingerhut which were provided to or otherwise
discussed with us by the management of Fingerhut. We reviewed the financial
terms of the Transaction as set forth in the Merger Agreement in relation to,
among other things: current and historical market prices and trading volumes of
Fingerhut Common Stock; the historical and projected earnings and other
operating data of Fingerhut; and the capitalization and financial condition of
Fingerhut. We considered, to the extent publicly available, the financial terms
of certain other similar transactions recently effected which we considered
relevant in evaluating the Transaction and analyzed certain financial, stock
market and other publicly available information relating to the businesses of
other companies whose operations we considered relevant in evaluating those of
Fingerhut. In addition to the foregoing, we conducted such other analyses and
examinations and considered such other information and financial, economic and
market criteria as we deemed appropriate in arriving at our opinion.
In rendering our opinion, we have assumed and relied, without independent
verification, upon the accuracy and completeness of all financial and other
information and data publicly available or furnished to or otherwise reviewed by
or discussed with us. With respect to financial forecasts and other information
and data provided to or otherwise reviewed by or discussed with us, we have been
advised by the management of Fingerhut that such forecasts and other information
and data were reasonably prepared on bases reflecting the best currently
available estimates and judgments of the management of Fingerhut as to the
future financial performance of Fingerhut. We have not made or been provided
with an independent evaluation or appraisal of the assets or liabilities
(contingent or otherwise) of Fingerhut nor have we made any physical inspection
of the properties or assets of Fingerhut. In connection with our engagement, we
were not requested to, and we did not, solicit third party indications of
interest in the acquisition of all or a part of Fingerhut. We express no view as
to, and our opinion does not address, the relative merits of the Transaction as
compared to any alternative business strategies that might exist for Fingerhut
or the effect of any other transaction in which Fingerhut
<PAGE>
The Board of Directors
Fingerhut Companies, Inc.
February 10, 1999
Page 2
might engage. Our opinion is necessarily based upon information available to us,
and financial, stock market and other conditions and circumstances existing and
disclosed to us, as of the date hereof.
Salomon Smith Barney Inc. has acted as financial advisor to Fingerhut in
connection with the proposed Transaction and will receive a fee for such
services, a significant portion of which is contingent upon the consummation of
the Transaction. We also will receive a fee upon the delivery of this opinion.
We have in the past provided investment banking services to Fingerhut and
Federated unrelated to the proposed Transaction, for which services we have
received compensation. In the ordinary course of our business, we and our
affiliates may actively trade or hold the securities of Fingerhut and Federated
for our own account or for the account of our customers and, accordingly, may at
any time hold a long or short position in such securities. In addition, we and
our affiliates (including Citigroup Inc. and its affiliates) may maintain
relationships with Fingerhut, Federated and their respective affiliates.
Our advisory services and the opinion expressed herein are provided for the
information of the Board of Directors of Fingerhut in its evaluation of the
proposed Transaction, and our opinion is not intended to be and does not
constitute a recommendation to any shareholder as to whether such shareholder
should tender shares of Fingerhut Common Stock in the Tender Offer or how such
shareholder should vote on any matters relating to the proposed Transaction. Our
opinion may not be published or otherwise used or referred to, nor shall any
public reference to Salomon Smith Barney Inc. be made, without our prior written
consent.
Based upon and subject to the foregoing, our experience as investment bankers,
our work as described above and other factors we deemed relevant, we are of the
opinion that, as of the date hereof, the Cash Consideration to be received in
the Transaction by the holders of Fingerhut Common Stock (other than Federated
and its affiliates) is fair, from a financial point of view, to such holders.
Very truly yours,
/s/
SALOMON SMITH BARNEY INC.
<PAGE>
Exhibit 10
February 2, 1999
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: Mr. Michael Sherman
Re: ENGAGEMENT LETTER
Mr. Sherman:
This is to confirm our agreement (the "Agreement"), pursuant to which
Fingerhut Companies, Inc. (the "Company") has agreed to engage Wit Capital
Corporation ("Wit"), a New York corporation, an NASD registered broker-dealer,
and an affiliate of Robert H. Lessin, to act as a financial advisor to assist
the Company in connection with the proposed merger, exchange of capital stock,
asset acquisition or other similar business combination relating to the Company
and Federated Department Stores (the "Transaction").
The Company agrees that in the event of completion of the Transaction
within 12 months after the date hereof, Wit shall be entitled to a cash fee (the
"Fee") equal to $500,000, payable at the closing of such Transaction.
Wit's engagement for the Company under this Agreement shall expire upon
payment of the Fee. Since Wit shall be acting on behalf of the Company, the
Company agrees to indemnify Wit in accordance with the provisions of Annex A
hereto, which is incorporated by reference and made a part hereof. Wit shall
make no agreement or commitment for the Company with respect to the proposed
Transaction without the prior authorization of the Company, and nothing shall
constitute an obligation of the Company to Wit to accept the proposal relating
to the proposed Transaction or to complete the proposed Transaction. Wit agrees
to keep confidential the proposed Transaction and all material non-public
information concerning the Company which it receives in connection with its
engagement hereunder.
This Agreement sets forth the entire understanding of the parties with
respect to the subject matter hereof, supersedes all existing agreements between
us concerning such subject matter, and may be modified only by a written
instrument duly executed by each party. This Agreement shall be binding upon and
inure to the benefit of the Company and Wit and their respective successors and
assigns. This Agreement shall be interpreted in accordance with the laws of the
State of New York, without giving effect to such state's conflict of laws
doctrine. The provisions of Annex A hereto shall survive any termination of this
Agreement.
<PAGE>
Fingerhut Companies, Inc.
February 2, 1999
Page 2
If the foregoing terms correctly set forth our agreement, please confirm
this by signing and returning to us the duplicate copy of this Agreement. We
look forward to working with you in connection with the proposed Transaction.
Sincerely,
WIT CAPITAL CORPORATION
By:
Name: Robert H. Lessin
Title: Chairman
Agreed to and Accepted
this __ day of ______________, 1999
FINGERHUT COMPANIES, INC.
By:
Name: Michael Sherman
Title:
<PAGE>
Fingerhut Companies, Inc.
February 2, 1999
Page 3
ANNEX A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation and that Wit Capital Corporation ("Wit") role is
advisory, the Company agrees to indemnify and hold harmless Wit, its affiliates
and their respective officers, directors, employees, agents and controlling
persons (collectively, the "Indemnified Parties"), from and against any losses,
claims, damages and liabilities, joint or several, related to or arising in any
manner out of any transaction, proposal or any other matter (collectively, the
"Matters") contemplated by the engagement of Wit hereunder, and will promptly
reimburse the Indemnified Parties for all expenses (including reasonable fees
and expenses of legal counsel), as and when incurred, in connection with the
investigation of, preparation for or defense of any pending or threatened claim
related to or arising in any manner out of any Matter contemplated by the
engagement of Wit hereunder, or any action or proceeding arising therefrom
(collectively, "Proceedings"), whether or not such Indemnified Party is a formal
party to any such Proceedings. Notwithstanding the foregoing, the Company shall
not be liable to the extent of any losses, claims, damages, liabilities or
expenses that a court of competent jurisdiction shall have determined by final
judgment resulted from the gross negligence or willful misconduct of an
Indemnified Party. The Company further agrees that it will not, without the
prior written consent of Wit, settle, compromise or consent to the entry of any
judgment in any pending or threatened Proceeding in respect of which
indemnification may be sought hereunder (whether or not Wit or any Indemnified
Party is an actual or potential party to such Proceeding), unless such
settlement, compromise or consent includes an unconditional release of Wit and
each other Indemnified Party hereunder from all liability arising out of such
Proceeding.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this letter were for any reason (other than the application of the
second sentence of the preceding paragraph) not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this letter, then the Company shall contribute to the amount
paid or payable by such Indemnified Party in respect of losses, claims, damages
and liabilities in such proportion as is appropriate to reflect the relative
benefits to the Company and its stockholders on the one hand, and Wit on the
other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to Wit with respect
to Wit's engagement shall be deemed to be in the same proportion as (i) the
total value paid or received or to be paid or received by the Company and/or its
stockholders pursuant to the Matters (whether or not consummated) for which Wit
is engaged to render financial advisory
<PAGE>
Fingerhut Companies, Inc.
February 2, 1999
Page 4
services bears to (ii) the fees paid to Wit in connection with such engagement.
In no event shall the Indemnified Parties contribute an amount in excess of the
aggregate amount of fees actually received by Wit pursuant to such engagement
(excluding amounts received by Wit as reimbursement of the expenses).
The Company further agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with Wit's engagement hereunder to the extent of
losses, claims, damages, liabilities or expenses that a court of competent
jurisdiction shall have determined by final judgment resulted from the gross
negligence or willful misconduct of such Indemnified Party. The indemnity,
reimbursement and contribution obligations of the Company shall be in addition
to any liability which the Company may otherwise have and shall be binding upon
and inure to the benefit of any successors, assigns, heirs and personal
representatives of the Company or an Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act of 1933, as amended, or Section 20 of the Securities Exchange
Act of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of this letter of Wit's engagement and (iv) whether or
not Wit shall, or shall not be called upon to, render any formal or informal
advice in the course of such engagement.
<PAGE>
Exhibit 11
EXECUTIVE EMPLOYMENT AGREEMENT
This Executive Employment Agreement, dated May 1, 1998 (the "Agreement"),
is entered into by and between Fingerhut Companies, Inc., a Minnesota
corporation with its principal place of business in Minnetonka, Minnesota (the
"Company"), and William J. Lansing (the "Executive").
WHEREAS, the Company has offered the Executive the position of President of
the Company effective on the date of the Executive's resignation from his
current position and on such date commences employment with the Company (the
"Start Date"), and the Executive has accepted this offer; and
WHEREAS, the Executive will be resigning an officer position with a
prominent multinational corporation and, in connection with his resignation,
foregoing significant compensation, including salary, bonus and stock options,
in order to accept the Company's offer; and
WHEREAS, the Executive will be relocating his residence and family from
Connecticut in order to work out of the Company's corporate headquarters; and
WHEREAS, the parties wish to formalize the terms of the Executive's
employment with the Company; and
WHEREAS, the Executive will gain an intimate knowledge of the business and
affairs of the Company and its policies, procedures, methods and personnel; and
WHEREAS, the Company and the Executive have determined that it is in their
respective best interest to enter into this Agreement on the terms and
conditions as set forth herein;
NOW, THEREFORE, in consideration of the promises and of the mutual
covenants contained herein, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
1.0 EMPLOYMENT.
1.1 TERM; DUTIES.
(a) The Company hereby employs the Executive, and the Executive
hereby accepts continued employment by the Company, upon the terms and
conditions set forth in this Agreement for a period of one (1) year, commencing
on the Start Date and shall continue in effect for one year (the "Employment
Term"). The Employment Term shall be extended for successive one year terms
unless either party gives written notice to the other at least sixty (60) days
prior to the end of the Employment Term, or at least sixty (60) days prior to
the end of any of the successive one year terms.
<PAGE>
(b) During the Employment Term, the Executive shall devote his
full business time, attention and skill to and shall perform faithfully, loyally
and efficiently his duties as President and to the exercise of such powers, the
performance of such duties and the fulfillment of such services and
responsibilities as may be duly assigned to or vested in him by the Company. As
President, the Executive will be responsible for overseeing all aspects of the
Company's business with the exception of its Metris subsidiary. During the
Employment Term, the Executive shall use his reasonable best efforts to promote
the interests of the Company and will not, without the prior written approval of
the Chief Executive Officer and Chairman of the Board of Directors of the
Company (the "CEO and Chairman"), engage in any other business activity which
would interfere with the performance of his duties, services and
responsibilities hereunder or which is in violation of either of the terms of
this Agreement or the policies established from time to time by the Company;
provided, however, the Executive may serve as a director of other business
organizations with the approval of the CEO and Chairman, which approval shall
not be unreasonably withheld. The Executive shall report to the CEO and
Chairman. Any change in this reporting relationship shall be considered a
material change in the Executive's duties and responsibilities. The offices of
CEO and Chairman are currently occupied by the same individual. In the event
that the offices of CEO and Chairman are occupied by different individuals, then
the Executive shall report to the Chairman.
1.2 COMPENSATION; BENEFITS.
(a) In consideration of the services rendered to the Company
hereunder by the Executive during the Employment Term, the Company shall, during
the Employment Term, pay the Executive a salary at the annual rate of four
hundred and fifty thousand dollars ($450,000) (the "Salary"). The Salary shall
be subject to annual review and increase (but not decrease) thereafter as
determined by the Board of Directors (the "Board"). The Salary shall be payable
in accordance with the normal payroll practices of the Company then in effect.
The Executive shall be eligible for an annual bonus in accordance with the
Management Incentive Plans as determined by the compensation committee of the
Board. The current Plan provides that the Executive shall be eligible for an
annual bonus in an amount of up to one hundred sixty eight percent (168%) of the
Salary.
(b) Within thirty (30) days after the Start Date, the Company
shall also pay the Executive a starting bonus in an amount of fifty thousand
dollars ($50,000), plus any additional amount to be agreed upon by the Executive
and the CEO and Chairman up to a total of two hundred fifty thousand dollars
($250,000).
(c) In addition to the Salary, during the Employment Term, the
Executive shall be entitled to all group health, dental, vision, life insurance,
paid vacation and other benefits provided to executives at the Company. The
Executive shall also be reimbursed for normal and reasonable business expenses
incurred by him during the course of his duties and in accordance with Company
policies and procedures regarding expense reimbursements and shall be provided a
car allowance of at least $25,000 per year, or any greater amount provided for
under the policies of the Company applying to executives.
2
<PAGE>
(d) The Company shall reimburse the Executive in accordance with
the Company's Executive Relocation Policy in connection with the relocation of
the Executive and his family to the Twin Cities area.
(e) The Company maintains a profit sharing plan for its
employees in which employees generally begin participating after a specified
period of service. As a means of compensating the Executive for the absence of
any contributions during the waiting period, the Company shall contribute to the
profit sharing plan, in addition to its normal contribution, an amount equal to
the contribution that would have been made were the Executive to begin
participation immediately upon the commencement of his employment with the
Company. This additional contribution shall be made by the Company when the
Executive begins to participate in the profit sharing plan.
1.3 STOCK OPTIONS AND RESTRICTED STOCK.
(a) The Company hereby grants the Executive an option to
purchase two hundred and fifty thousand (250,000) shares of the Company's common
stock (the "Option Shares") at a purchase price per share based on the market
price of the stock at the time of the meeting of the Board at which the Board
votes to ratify this Agreement, which meeting shall be held prior to any public
announcement ("Option Grant Date"). These options shall vest annually over a
period of four (4) years beginning on the first anniversary of the Option Grant
Date at a rate of twenty-five percent (25%) per year, unless vesting is
accelerated as provided for in Section 1.6(a) below.
(b) The Executive shall also receive fifty thousand (50,000)
shares of the Company's registered stock (the "Restricted Stock"), to be
distributed to the Executive over a four (4) year period, in four (4) equal
annual installments on the anniversary of the Option Grant Date, unless
accelerated as provided for in Section 1.6(a) below.
(c) In the event that a material portion of the value of the
Company's stock is spun off to shareholders prior to the vesting of all of the
Executive's options and/or prior to the distribution of all of the Restricted
Stock, then (i) the number of options granted to the Executive shall be adjusted
to compensate for the diminution of value of the Company's stock in accordance
with a modification of the Company's stock option plan; and (ii) the amount of
Restricted Stock distributed to the Executive shall be adjusted to compensate
for the diminution of value of the Company's stock.
(d) In anticipation of a spin off of Metris Companies Inc., the
Company's 83% owned subsidiary, the Board may replace Executive's Restricted
Stock with phantom stock, provided however that such phantom stock shall have
the same economic value as the Restricted Stock.
1.4 TERMINATION FOR DEATH.
(a) The Agreement shall terminate upon the death of the
Executive.
3
<PAGE>
1.5 TERMINATION FOR CAUSE.
(a) The Company reserves the right to terminate this Agreement
if the Executive willfully breaches or habitually neglects the duties which he
is required to perform under the terms of this Agreement, or commits such acts
of dishonesty, fraud, misrepresentation or other acts of moral turpitude as
would prevent the effective performance of his duties.
(b) The Company may terminate this Agreement upon the grounds
stated in Section 1.5(a) above by giving written notice of termination to the
Executive. The notice of termination required by this section shall specify the
grounds for the termination and shall be supported by a statement of relevant
facts.
(c) Termination under this section shall be considered "for
Cause" for the purposes of this Agreement.
1.6 PAYMENT ON TERMINATION.
(a) If the Executive's employment terminates under circumstances
that constitute an "Involuntary Termination" as defined below, then all unvested
stock options for the Option Shares shall vest immediately and in full, and the
Restricted Stock shall be distributed to the Executive immediately, and the
Company shall pay the Executive severance payments in an amount equal to the
annual compensation described in Section 1.2(a).
(b) "Involuntary Termination" shall mean the Executive's
voluntary resignation within three (3) months of the occurrence of any of the
following events: without the Executive's consent, the significant reduction of
the Executive's duties or the removal of the Executive from his position and
responsibilities as set forth in this Agreement; a change in the Executive's
reporting relationship so that he no longer reports to the CEO and Chairman of
the Board (unless the two offices are occupied by different people, in which
case an Involuntary Termination shall include any reporting relationship wherein
the Executive does not report exclusively to the chairman); a material reduction
by the Company in the compensation of the Executive and/or the kind or level of
employee benefits to which the Executive is entitled as in effect immediately
prior to such reduction unless substantially all of the Company's other
executives of rank and responsibilities substantially similar to those of the
Executive undergo substantially similar reductions, an Involuntary Termination
will also include any purported termination of the Executive's employment by the
Company, including a failure to renew this Agreement which is not effected by
death or for Cause, as those terms are defined herein, or any purported
termination for which the grounds relied upon are not valid under this
Agreement.
(c) The parties will execute, concurrent with this agreement, a
"Change in Control Severance Agreement," which will be effective upon the Start
Date, which provides for certain benefits to be paid to the Executive upon a
"Change in Control," as defined therein.
4
<PAGE>
2.0 EXECUTIVE COVENANTS.
2.1 UNAUTHORIZED DISCLOSURE. The Executive agrees and understands
that due to the Executive's position with the Company, the Executive will be
exposed to, and will receive confidential and proprietary information of the
Company or relating to the Company's business or affairs (collectively, the
"Trade Secrets"), including but not limited to technical information, product
information and formulae, processes, business and marketing plans, strategies,
customer information, other information concerning the Company's products,
promotions, development, financing, expansion plans, business policies and
practices and other forms of information considered by the Company to be
proprietary and confidential and in the nature of trade secrets. Except to the
extent that the proper performance of the Executive's duties, services and
responsibilities hereunder may require disclosure, and except as such
information (i) was known to the Executive prior to his employment by the
Company or (ii) was or becomes generally available to the public other than as a
result of a disclosure by the Executive in violation of the provisions of this
Section, the Executive agrees that during the balance of his employment and at
all times thereafter the Executive will keep such Trade Secrets confidential and
will not use or disclose such information, either directly or indirectly, to any
third person or entity without the prior written consent of the Company. This
confidentiality covenant has no temporal, geographical or territorial
restriction. At the end of the Employment Term, the Executive will promptly
supply to the Company all property, keys, notes, memoranda, writings, lists,
files, reports, customer lists, correspondence, tapes, disks, cards, surveys,
maps, logs, machines, technical data, formulae or any other tangible product or
document which has been produced by, received by or otherwise submitted to the
Executive in the course of his employment with the Company.
2.2 NON-COMPETITION. The Executive will not, during his employment
with the Company, compete with the Company as owner, director, employee or
consultant of any retail catalogue business or other business which is a direct
and material competitor of the Company; provided, however, that the Executive
may serve as director under the conditions specified in Section 1.1 above, and
the Executive shall not be considered to be in competition with the Company
should he purchase or own equity or debt interests in a competitor that are
publicly traded and represent no more than 5% of the particular class of
interests outstanding.
3.0 MISCELLANEOUS.
3.1 BINDING EFFECT; ASSIGNMENT. This Agreement shall inure to the
benefit of and be binding upon the parties hereto and their respective heirs,
executors, representatives, estates, successors and assigns, including any
successor or assign to all or substantially all of the business and/or assets of
the Company, whether direct or indirect, by purchase, merger, consolidation,
acquisition of stock, or otherwise; PROVIDED, HOWEVER, that the Executive, or
any beneficiary or legal representative of the Executive, shall not assign all
or any portion of the Executive's rights or obligations under this Agreement
without the prior written consent of the Company.
5
<PAGE>
3.2 NOTICES. Whenever notice is required to be given under the terms
of this Agreement, such notice shall be in writing and delivered by hand or by
registered or certified mail, postage prepaid, or transmitted by telex, telegram
or telecopier, addressed as follows:
(a) If to the Company, to it at:
4400 Baker Road
Minnetonka, MN 55343
(b) If to the Executive, to him at an address that he shall
provide to the Company as soon as practicable after he has changed his residence
address, or to such other address as either party shall have specified for
itself from time to time to the other party in writing. All such notices shall
be conclusively deemed to be received and shall be effective, if sent by hand
delivery, upon receipt, or if sent by registered or certified mail, upon
receipt, or if transmitted by telex, telegram or telecopier (which shall be
followed promptly by hand delivery), upon confirmation of such transmission.
3.3 GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereto shall be construed and enforced in accordance with and
governed by the laws of the State of Minnesota without giving effect to the
conflict of law principles thereof.
3.4 ENTIRE AGREEMENT. This Agreement contains the entire
understanding of the parties hereto with respect to its subject matter hereof
and supersedes all prior agreements and understandings, oral or written, between
them as to such subject matter, including, but not limited to, any and all
employment agreements, whether written, oral or implied.
3.5 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one instrument.
3.6 AMENDMENT AND MODIFICATION. This Agreement may not be amended,
nor may any provision hereof be modified or waived, except by an instrument in
writing duly signed by the party to be charged.
3.7 ARBITRATION. Any disputes arising out of this Agreement shall be
resolved exclusively through arbitration in Minneapolis, Minnesota, under the
rules of the American Arbitration Association.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
dates provided below.
FINGERHUT COMPANIES, INC.
Date: 5/1/98 By: /s/ Theodore Deikel
----------------- -----------------------------
NAME: Theodore Deikel
TITLE: Chief Executive Officer and
Chairman of the Board
WILLIAM J. LANSING
Date: 5/1/98 By: /s/ William J. Lansing
----------------- -----------------------------
<PAGE>
Exhibit 12
December 11, 1998
Thomas Vogt
120 Mallard Lane
Loretto, Minnesota 55439
Dear Tom:
This letter will confirm our understanding that you will be retiring from your
position as Controller of Fingerhut Corporation, Inc. (the "Company") effective
March 31, 1999. ("Resignation Date"). The Company is prepared to offer you
certain benefits in exchange for your execution of this Separation Agreement and
General Release ("Agreement"). The terms of the Company' separation offer to you
are outlined below.
AGREEMENTS AND UNDERSTANDINGS:
1. RETIREMENT. You hereby agree to retire from your position as
Controller effective March 31, 1999. You agree and understand that effective
March 31, 1999, you will no longer be an employee of the Company and your
consulting arrangement, which will begin on April 1, 1999, will be governed by
the terms set forth below.
You acknowledge that all benefits and privileges of employment with the
Company end as of the close of business on March 31, 1999 except for those
payments and benefits described in this Agreement, (provided that you do not
rescind this Agreement in accordance with Section 11) and those to which you are
otherwise entitled by operation of law.
2. CONSULTING SERVICES. Upon retirement from your employment, you will
begin providing consulting services to the Company. Provided that you do not
rescind this Agreement in accordance with Section 11 of this Agreement and you
satisfy the terms of your consulting agreement, you will continue as a
consultant until March 31, 2000 and the Company will continue to compensate you
at your current base rate of compensation of $121,590.56. Your compensation will
be paid bi-weekly in accordance with the Company's normal payroll periods.
The Company will issue a Form 1099 for these amounts.
As a consultant, you will report to Michael Sherman and John Manning
and you will be available to spend 10 hours per month providing consulting
services on the Walker litigation, any other current or potential litigation
exposure and financial matters.
<PAGE>
You agree to make yourself available upon reasonable notice to discuss with the
Company and its counsel issues related to the Walker litigation, any other
litigation or potential litigation exposure and any financial matters. You also
agree to appear without subpoena for deposition or testimony and to meet with
the Company's (not plaintiffs') attorneys for deposition preparation and trial
preparation. You agree to be available in excess of the 10 hours per month
should you be deposed in the Walker litigation or if the case goes to trial. The
Company agrees that, when its requests require travel, it will pay your
reasonable expenses, including all "out of pocket" expenses, consistent with the
Company' policy governing reimbursement.
It is expressly understood and agreed that you will be an independent
contractor and not an employee of the Company with respect to this consulting
arrangement. You shall be responsible for paying any and all payroll and income
taxes of any nature whatsoever, including, without limitation, FICA and/or
self-employment taxes, imposed upon the compensation paid to you as a
consultant.
In the event that you breach any provision of this Agreement, your
services as a consultant will terminate upon 30 days notice of termination by
the Company to you. The Company also can terminate the consulting arrangement
based upon your failure to provide the services described in this Section. In
the event of such termination prior to March 31, 2000 (whether by you or the
Company), you understand and agree that the Company will have no further
obligations under this Section 2.
3. BENEFITS OF SEPARATION AGREEMENT.
(a) Except as otherwise provided herein, you will not be eligible to
receive any additional contribution under the Fingerhut Companies,
Inc. Stock Option Plan, the 1995 Long-Term Incentive and Stock
Option Plan, the Key Management Incentive Bonus Plan, the Fingerhut
Corporation Profit Sharing and 401(K) Savings Plan or any other plan
(excluding your rights to benefits under the medical, dental and
vision plans, life insurance and disability insurance and the
Fingerhut Corporation Pension Plan. Your rights in these plans are
described in your Separation Related Benefits and Insurance
Information)
(b) 1998 Profit Sharing Contribution
Your profit-sharing contribution for fiscal year 1998 will be
calculated and paid contemporaneously with awards made to other
participants in the plan. This Agreement does not create any
independent right to receive an award under the Fingerhut
Corporation Profit Sharing and 401(K) Savings Plan.
(c) Pro-Rated Payment in Lieu of 1999 Profit Sharing Contribution
Page 2
<PAGE>
You will receive a pro-rated payment in lieu of your
profit-sharing payment for 1999. This payment will be paid at a
level of 10% of the compensation paid or owed for consulting
services as of your termination date of March 31, 1999 or a total of
$3,180. This payment will be made on or around April 15, 1999 and
will be calculated exclusive of any Key Management Incentive Bonus
payments received in 1999.
(d) 1998 Key Management Incentive Bonus
Your Key Management Incentive Bonus for fiscal year 1998 will
be calculated and paid contemporaneously with awards made to other
participants in the Plan. This Agreement does not create any
independent right to receive an award under the Key Management
Incentive Bonus Plan.
(e) Pro-Rated Payment in Lieu of Key Management Incentive Bonus
You will receive a pro-rated payment in lieu of your 1999 Key
Management Incentive Bonus, which will be in the amount of $10,812.
This payment will be calculated based upon your termination date of
March 31, 1999 and will be made on or around April 15, 1999. A copy
of the KMIB calculation will be provided to you.
(f) Effective as of March 31, 1999, you will be paid for unused
accrued vacation, if any, in accordance with the agreement you
reached with John Manning (which is incorporated herein by
reference) and in accordance with Company policy. You will be
permitted to take one week of vacation during February of 1999 in
order to use an additional week of vacation which will accrue in
January of 1999.
(g) You acknowledge and agree that all items of remuneration and/or
benefits, not specifically mentioned in Sections (a) through (f)
above, including, but not limited to bonuses and incentive pay have
been resolved and included in the payment referenced in Section 2
and you have no additional claim to any other items of remuneration
or benefit, except those benefits included in the Company's
retirement policy which are applicable to you, including but not
limited to medical insurance and pension benefits.
Page 3
<PAGE>
4. STOCK OPTIONS.
(a) Effective as of your Termination Date, your participation in the
Fingerhut Companies, Inc. 1995 Long-Term Incentive and Stock Option
Plan (the "1995 Plan") will cease. Based on the terms of the 1995
Plan and the stock options granted to you on July 28, 1997, before
the expiration of ninety (90) days after your Termination Date you
will be able to exercise your vested option to purchase 5,586 shares
at the price of $7.1086 per share; this option shall terminate and
may no longer be exercised on the 91st day following your
Termination Date.
(b) Other than those options specifically set forth above, all
unvested options that you have will expire and be of no further
legal effect on March 31, 1999.
(c) You shall not have any rights as a shareholder of the Company
with respect to the options referred to in this Section until you
pay the full consideration for the shares covered by such options,
and a stock certificate evidencing such shares shall be issued to
you.
(d) The options referred to in this Section 4 shall not be
transferable (notwithstanding the terms and provisions set forth in
the Plan), and shall not be pledged or hypothecated in any way or
subject to execution, attachment or similar process.
5. NON-DISCLOSURE. You acknowledge that in the course of employment
with the Company, you have had access to confidential information and trade
secrets relating to the business affairs of the Company and/or related companies
and entities and that through March 31, 2000, you will continue to have access
to confidential information and trade secrets relating to the business affairs
of the Company and/or related companies and entities. You agree that you are
obligated to not, at any time, without the prior written consent of the
Company's General Counsel, disclose or otherwise make available to any person,
company or other party confidential information or trade secrets.
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For the purposes of this Section 5 (Non-Disclosure), the terms
Confidential Information shall mean all Company information: (1) which has been
designated by the Company as confidential and is protected by the Company as
such; (2) which is known only to you or others in a confidential relationship
with the Company or any subsidiary or affiliate thereof; (3) which is related to
matters such as trade secrets, customer or mailing lists, pricing or credit
techniques, research or development activities, suppliers, books or records or
private processes of the Company or any subsidiary or affiliate of the Company;
or (4) which is not known to others, readily available to others from sources
other than you; provided, however, that the foregoing shall not prevent you from
using your learned skills, know-how or business experience to pursue a
livelihood.
Any company business documents that have come into your possession as
an employee of the Company will be subject to the Non-Disclosure provision of
this Section and will remain with the Company with the exception of your
performance reviews, PCR's, KMIB assessments and calculations, stock option
summaries, SEC Form 4's, and any other documents pertinent to your own employee
development or benefits.
You will be given a copy of the Fingerhut Companies, Inc. Directors and
Officers Liability Insurance binder.
You acknowledge your continuing agreement to abide by the terms of the
Standards of Ethical Conduct, including the Confidentiality Agreement you
executed. The covenants and undertakings of this Section 5 will survive the
termination of this Agreement.
You also agree that during your employment and until the conclusion of
your consulting arrangement, if you are contacted and asked to cooperate and
assist any individual who is pursuing or considering whether to pursue any
claims, demands, charges, suits or causes of action of any kind against the
Company, you will notify the Company's General Counsel.
6. NON-SOLICITATION. You further agree that you will not, for a period
of one (1) year following the termination of your employment with the Company
for whatever reason, on your behalf or on behalf of any person or entity,
directly or indirectly, solicit, place or recruit (1) any employee who has been
employed by the Company or any affiliate of the Company at any time during the
one (1) year immediately preceding such solicitation, and (2) any person or
entity who or which is a client or customer of the Company or any Company
affiliate or any supplier, lender, lessor any other person or entity which has a
business relationship with the Company or any Company affiliate, in order to
influence or induce such employee, client or customer to terminate or lessen by
50% his, her or its relationship with the Company or any Company affiliate, or
to develop relationships with you or any other person which would have the same
effect.
The restrictions in this Section 6, will apply regardless of whether
you act directly, indirectly or whether you act personally or as an executive,
agent, partner,
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consultant or otherwise. However, this does not prohibit fair
competition without the intent to solicit, place, recruit, influence or induce.
7. CONFIDENTIALITY AND NON-DISPARAGEMENT. You agree to keep the terms
and conditions under which this Agreement has been reached, including the terms
and conditions of this Agreement, forever confidential. This means you will not
disclose the terms and conditions of this Agreement, or the facts and
circumstances leading up to this Agreement to any individual or entity, except
your spouse, your attorneys, accountants, tax consultants, state and federal tax
authorities, as may be required by law or to enable you to pursue your legal
rights as a shareholder in the Company or in your legal defense as it relates to
duties undertaken as an officer of the Company. You agree to advise your spouse,
attorneys, accountants and tax consultants about the confidentiality of this
Agreement. If compelled by the judicial process to disclose any terms of this
Agreement, you agree to notify the Company before the information is revealed,
of the information you wish to reveal, the reason therefore and the identity of
the entity seeking the information. You agree that in the event that Fingerhut
proves either in a court of law or in arbitration that you have disclosed any of
the terms of this Agreement, you shall be liable to the Company for any and all
injuries or damages sustained by the Company, including costs, disbursements and
attorneys' fees incurred by the Company as a result of your disclosure.
You agree that you will not at any time, disparage, demean or criticize
the products, services, or management of the Company or do or say anything to
cause injury to the reputation of the Company or its Officers, executives or
products except to the extent you are pursuing your legal rights as a
shareholder in the Company or in your legal defense as it relates to your duties
as an officer of the Company.
8. RETURN OF PROPERTY. You agree that prior to March 31, 1999, you will
return all company property in your possession including, but not limited to,
your company credit card (or any credit card on which the company is a
guarantor). Further, you agree to repay to the Company the amount of any
permanent or temporary advances and balance owing on any credit cards of any
monies due and owing the Company or for which the Company is a guarantor. The
Company agrees to reimburse you for expenses incurred on behalf of the Company
before March 31, 1999 and properly submitted in accordance with Company policy
by April 15, 1999.
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9. RELEASE. For the consideration expressed herein, exclusive of
benefits received pursuant to the Company's retirement policy, you hereby
release and discharge the Company and its predecessors, successors, assigns,
subsidiaries and affiliates, counsel and insurers and all of their Officers,
executives, agents, assigns, insurers, representatives, counsel, administrators,
successors, shareholders, and/or directors (hereafter collectively referred to
as the "Released Parties") from any and all claims, demands, actions,
liabilities, damages, or rights of any kind, other than future claims that may
arise by reason of your status as a shareholder, whether known or unknown,
arising out of or resulting from any act or omission by the Company up through
the date of your signature on this Agreement.
You further understand that you are giving up any and all claims,
whether developed or undeveloped, whether known or unknown, including, but not
limited to, all claims, complaints, causes of action or demands which you have
or may have against the Released Parties relating in any way to the terms,
conditions or circumstances of your employment and your retirement from
employment including, but not limited to, statutory or common law claims for
employment discrimination based upon age, sex, sexual orientation, sexual
harassment, religion, race, national origin, disability or other claims arising
under or based upon the Minnesota Human Rights Act, the Minnesota Age
Discrimination Law, Title VII of the Civil Rights Act of 1964, the Employee
Retirement Income Security Act of 1973, the Rehabilitation Act of 1973, the Age
Discrimination in Employment Act, the Americans With Disabilities Act, the Older
Worker Benefit Protection Act, the Equal Pay Act, the Fair Labor Standards Act,
and any other federal, state or local statute or law. You also understands that
you are giving up all claims, including those in contract, quasi-contract or
tort, including but not limited to, claims based on statutory or common law
claims for negligence or other breach of duty, violation of Minn. Stat. Section
176.82, wrongful discharge, breach of express or implied contract, sexual
harassment, promissory estoppel, breach of any express or implied promise,
misrepresentation, fraud, retaliation, assault, battery, negligent or
intentional infliction of emotional distress, defamation, invasion of privacy,
tortious interference with contract, negligent hiring, retention or supervision,
retaliatory discharge contrary to public policy or any other theory whether
legal or equitable.
You understand that this Release will not and does not impair or apply
to any existing vested rights you have under the written terms of any presently
existing employee benefit plans of the Company or which you may have under
worker's compensation and unemployment compensation laws, or by reason of
entering into this Agreement and Release itself.
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Except as is otherwise prohibited by law, you agree that you will not
institute any claim for damages, by charge or otherwise, nor otherwise authorize
any other party to institute any claim for damages via administrative or legal
proceedings against the Company, its Officers, executives, agents, assigns,
insurers, representatives, counsel, administrators, successors, shareholders,
and/or directors. You also waive the right to money damages or other legal or
equitable relief awarded by any governmental agency related to any such claim.
Except as may be prohibited by law, you agree that if you violate this covenant
not to sue, you will pay the Company' attorney's fees.
This Release does not prohibit claims arising out of the breach of this
agreement.
10. REVIEW OR CONSIDERATION PERIOD. You are advised to consult with
legal counsel before signing this Agreement. You understand that you may take
twenty-one (21) days to consider the terms of this Agreement before you sign it.
You further understand that you may sign the Agreement prior to the expiration
of the twenty-one day (21) day period without prejudice to yourself or to the
Company. You agree that any changes to this Agreement, whether material or
immaterial, do not restart the twenty-one (21) day consideration period. You
further represent that you have carefully read and fully understand all
provisions of this Agreement and that you have had a full opportunity to have
all the terms of this Agreement explained to you by counsel. You understand that
by signing this Agreement, you are giving up all rights to assert any claims
against the Company arising up through the date of your signature on this
Agreement. By your signature, you acknowledge that you fully understand and
accept the terms of this Agreement and you represent and agree that your
signature is freely, voluntarily and knowingly given. You agree that the
promises of the Company in this Agreement are fair and adequate consideration
for the promises and releases you are giving. No payments or benefits pursuant
to this Agreement shall become due and payable until Agreement has become
effective as outlined in Section 12.
11. RESCISSION PERIOD. You understand that you may rescind (that is,
cancel) this Agreement within fifteen (15) calendar days following your
execution of this Agreement with respect to claims under the Minnesota Human
Rights Act. You understand that you may rescind this Agreement within seven (7)
calendar days following your execution of this Agreement with respect to claims
under the Age Discrimination in Employment Act. You have been further informed
and understand that the rescission must be in writing and delivered to the
Company, or, if sent by mail, postmarked within the applicable time period, sent
by certified mail, return receipt requested, and addressed as follows: General
Counsel, Fingerhut Companies, Inc., 4400 Baker Road, Minnetonka, MN 55343. You
understand that the Company will have no obligations under this Agreement in the
event such notice is timely delivered.
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If you exercise your right of rescission under Section 11 of this
Agreement, the Company shall have the right, exercisable by written notice
delivered to the Employee, to terminate this Agreement in its entirety, in which
event the Company shall have no obligation whatsoever to the you hereunder. You
understand that if you rescind this Agreement in accordance with the provisions
of Section 11, this Agreement is null and void; however, any rescission does not
affect your resignation as an employee of the Company effective March 31, 1999.
12. EFFECTIVE DATE. This Agreement does not become effective until the
sixteenth day after you sign it and then only if you have not rescinded it by
following the procedures of Section 11.
13. ARBITRATION OF DISPUTES. Any and all claims or disputes of any
nature between the parties arising from or related to any event, act, claim,
demand, commission or omission by the Company following the date on which this
Agreement is signed shall be resolved exclusively by arbitration before the
American Arbitration Association in Minneapolis, Minnesota pursuant to the
Association's rules for commercial arbitration. The decision of the
arbitrator(s) shall be final and binding upon both parties. Judgment upon the
award rendered by the arbitrator(s) may be entered in any court having
jurisdiction thereof. In the event of submission of any dispute to arbitration,
each party shall, not later than thirty (30) days prior to the date set for
hearing, provide to the other party and to the Arbitrator(s) a copy of all
exhibits upon which the party intends to rely at the hearing and a list of all
persons whom the party intends to call as witnesses at the hearing. You and the
Company agree that all documents used in the Arbitration shall be considered
"Confidential" and shall be subject to a Protective Order. You and the Company
further agree that all matters relating to the Arbitration shall be treated as
confidential and that you shall not disclose any information relating to the
Arbitration to any individual or entity other than you, your spouse, counsel,
and the arbitrator. The prevailing party shall be awarded reasonable attorneys'
fees and out-of-pocket costs.
14. NOTICES. All notices and other communications thereunder or in
connection herewith shall be deemed to have been duly given if they are in
writing and delivered personally or sent by registered or certified mail, return
receipt requested and first-class postage prepaid. They shall be addressed:
(a) If to the Company: 4400 Baker Road, Minnetonka, MN 55343,
Attention: General Counsel, and
(b) If to Tom Vogt: 120 Mallard Lane, Lorretto, Minnesota 55437
unless notice of a change of address is given to either party by the
other pursuant to the provisions of this Section 15.
15. NON-ADMISSION. This Agreement shall not in any way be construed as
an admission by the Company that it has acted wrongfully against you or violated
any law or
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statute or that you have any right whatsoever against the Company and the
Company specifically disclaims any liability to, or wrongful acts against you,
on the part of itself, its directors, its employees, its representatives or its
agents.
16. BREACH OF AGREEMENT. If you breach any of the provisions of this
Agreement, your entitlement to compensation under this Agreement shall
immediately cease and you shall be required to repay all amounts paid under the
Agreement except for amounts paid for consulting services actually performed up
until the date of the breach which services shall be compensated at the level of
$300 per hour.
17. MISCELLANEOUS.
(a) This Agreement and the rights and obligations of the parties
hereunder shall not be assignable, in whole or in part, by either
party without the prior written consent of the other party.
(b) The various headings or captions in this Agreement are for
convenience only and shall not affect the meaning or interpretation
of this Agreement.
(c) This Agreement shall be construed and enforced in accordance
with the laws of the State of Minnesota, both as to interpretation
and performance, without regard to Minnesota's choice of law rules,
it being the intent of the parties that the internal laws and forum
of the State of Minnesota shall govern any and all disputes arising
out of or relating to this Agreement. By the execution of this
Agreement, the parties hereto consent to the jurisdiction of the
state and federal courts of the State of Minnesota, and further
consent to service of process by mail for purpose of instituting
legal proceedings.
(d) Any provision of this Agreement which is prohibited or
unenforceable shall be ineffective only to the extent of such
portion without invalidating the remaining provisions of this
Agreement or affecting the validity or enforceability of such
provisions however, if Section 7 of this Agreement is held invalid,
illegal or unenforceable, in its entirety, this Agreement will be
considered voidable, and, if you seek to void this Agreement, you
agree that you will immediately repay to the Company the total
amount of consideration paid to you under this Agreement less the
amount to be paid to you at the rate of $300 per hour for consulting
services actually performed.
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(e) This Agreement contains the entire understanding between the
parties with respect to your resignation from employment and it
supersedes all discussions, representations, oral agreements and
negotiations between the parties on this subject. Any amendments,
modifications or waivers of the provisions of this Agreement shall
be valid only if they have been reduced to writing and signed by the
parties. The terms of this Section shall not be deemed to have been
waived by oral agreement, course of performance or by any other
means other than a written agreement expressly providing for such
waiver.
(f) You hereby affirm and acknowledge that you have read the
foregoing Agreement and that you have been advised to consult with
an attorney prior to signing this Agreement. You agree that the
provisions set forth in this Agreement are written in language
understandable to you and further affirm that you understand the
meaning of the terms of this Agreement and their effect. You
represent that you entered into this Agreement freely and
voluntarily.
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If you are in agreement with the terms set forth in this letter, please
sign both copies and return one to Fingerhut Corporation. The offer made by the
Company in this letter shall be null and void if Fingerhut Company does not
receive an executed acceptance on or before the close of business on January 4,
1999.
IN WITNESS WHEREOF, the parties have executed this Agreement by their
signatures below.
ACCEPTANCE
Accepted this 4TH day of January, 1999.
/s/ THOMAS C. VOGT
---------------------------------------
SUBSCRIBED AND SWORN
to before me this ____ day
Of ___________, 1999
/s/
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FINGERHUT CORPORATION
By /s/ MICHAEL P. SHERMAN
------------------------------------
Its EXECUTIVE VICE PRESIDENT
-------------------------------
SUBSCRIBED AND SWORN
To before me this ____ day
Of _____________, 1999
/s/
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Exhibit 15
FINGERHUT COMPANIES, INC.
CHANGE OF CONTROL AGREEMENT
THIS AGREEMENT dated as of May 1, 1998 is made between FINGERHUT
COMPANIES, INC., a Minnesota corporation having its principal place of
business in Minnetonka, Minnesota (the "Company"), and William J. Lansing
(the "Executive"), a resident of Wilton, Connecticut.
ARTICLE I.
PURPOSES
The Board of Directors of the Company (the "Board") has determined that
it is in the best interests of the Company and its stockholders to assure that
the Company will have the continued service of the Executive, despite the
possibility or occurrence of a change of control of the Company. The Board
believes it is imperative to reduce the distraction of the Executive that would
result from the personal uncertainties caused by a pending or threatened change
of control, to encourage the Executive's full attention and dedication to the
Company, and to provide the Executive with compensation and benefits
arrangements upon a change of control which ensure that the expectations of the
Executive will be satisfied and are competitive with those of similarly-situated
corporations. This Agreement is intended to accomplish these objectives.
ARTICLE II.
CERTAIN DEFINITIONS
When used in this Agreement, the terms specified below shall have the
following meanings:
2.1 "Accrued Obligations" -- see Section 5.3.
2.2 "Agreement Term" means the period commencing on the date of this
Agreement and ending on May 31, 2000 (the "Expiration Date"); provided, however,
that if a Change of Control or an Imminent Control Change Date occurs before the
Expiration Date, then (a) the Agreement Term shall automatically extend to a
date which is twelve (12) months after the date of the Change of Control or
Imminent Change of Control, as further extended under the terms of this sentence
should any Change of Control or Imminent Change of Control occur prior to the
expiration of the Agreement Term as from time to time so extended.
2.3 "Article" means an article of this Agreement.
2.4 "Beneficial owner" means such term as defined in Rule 13d-3 of the
SEC under the 1934 Act.
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2.5 "Cause" -- see Section 4.3(b).
2.6 "Change of Control" means, except as otherwise provided below, the
occurrence of any of the following:
a. any person (as such term is used in Rule 13d-5 of the SEC
under the 1934 Act) or group (as such term is defined in Section 13(d)
of the 1934 Act), other than a Subsidiary or any employee benefit plan
(or any related trust) of the Company or a Subsidiary, becomes the
beneficial owner of 25% or more of the common stock of the Company or
of Voting Securities representing 25% or more of the combined voting
power of all Voting Securities of the Company, except that no Change of
Control shall be deemed to have occurred solely by reason of any such
acquisition by a corporation with respect to which, after such
acquisition, more than 80% of both the common stock of such corporation
and the combined voting power of the Voting Securities of such
corporation are then beneficially owned, directly or indirectly, by the
persons who were the beneficial owners of the common stock and Voting
Securities of the Company immediately before such acquisition in
substantially the same proportion as their ownership, immediately
before such acquisition, of the common stock and Voting Securities of
the Company, as the case may be;
b. individuals who, as of the Effective Date, constitute the
Board (the "Incumbent Directors") cease for any reason to constitute at
least a majority of the Board; provided that any individual who becomes
a director after the Effective Date whose election, or nomination for
election by the Company's stockholders, was approved by a vote or
written consent of at least two-thirds of the directors then comprising
the Incumbent Directors shall be considered an Incumbent Director, but
excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of the
Company (as such terms are used in Rule 14a-11 of the SEC under the
1934 Act); or
c. approval by the stockholders of the Company of any of
the following:
(1) a merger, reorganization or consolidation
("Merger") with respect to which the individuals and
entities who were the respective beneficial owners of the
stock and Voting Securities of the Company immediately
before such Merger do not, after such Merger, beneficially
own, directly or indirectly, more than 80% of, respectively,
the common stock and the combined voting power of the Voting
Securities of the corporation resulting from such Merger in
substantially the same proportion as their ownership
immediately before such Merger, or
(2) the sale or other disposition of all or
substantially all of the assets of the Company.
Despite clauses (a), (b) and (c) of this definition, a Change of Control shall
not occur with respect to the Executive if the Executive is, by written
agreement executed before such Change of Control, a participant on such
Executive's own behalf in a transaction in which the persons or
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entities (or their affiliates) with whom the Executive has the written agreement
Acquire the Company (as defined below) and, pursuant to the written agreement,
the Executive has an equity interest in the resulting entity or a right to
acquire such an equity interest. "Acquire the Company" means the acquisition of
beneficial ownership by purchase, merger, or otherwise, of either more than 50%
of the stock (such percentage to be computed in accordance with Rule
13d-3(d)(1)(i) of the SEC under the 1934 Act) or substantially all of the assets
of the Company or its successors.
2.7 "Code" means the Internal Revenue Code of 1986, as amended.
2.8 "Disability" -- see Section 4.1(b).
2.9 "Effective Date" means the first date on which a Change of Control
occurs during the Agreement Term. Despite anything in this Agreement to the
contrary, if the Company terminates the Executive's employment before the date
of a Change of Control, and if the Executive reasonably demonstrates that such
termination of employment (a) was at the request of a third party who had taken
steps reasonably calculated to effect the Change of Control or (b) otherwise
arose in connection with or anticipation of the Change of Control, then
"Effective Date" shall mean the date immediately before the date of such
termination of employment.
2.10 "Good Reason" -- see Section 4.4(b).
2.11 "Gross-up Payment" -- see Section 7.1.
2.12 "Imminent Control Change Date" means any date on which occurs (a)
a presentation to the Company's stockholders generally or any of the Company's
directors or executive officers of a proposal or offer for a Change of Control,
or (b) the public announcement (whether by advertisement, press release, press
interview, public statement, SEC filing or otherwise) of a proposal or offer for
a Change of Control, or (c) such proposal or offer remains effective and
unrevoked.
2.13 "IRS" means the Internal Revenue Service.
2.14 "1934 Act" means the Securities Exchange Act of 1934.
2.15 "Notice of Termination" means a written notice given in accordance
with Section 11.7 which sets forth (a) the specific termination provision in
this Agreement relied upon by the party giving such notice, (b) in reasonable
detail the facts and circumstances claimed to provide a basis for termination of
the Executive's employment under such termination provision and (c) if the
Termination Date is other than the date of receipt of such Notice of
Termination, the Termination Date.
2.16 "Plans" means plans, programs, policies or practices of the
Company.
2.17 "Policies" means policies, practices or procedures of the Company.
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2.18 "Post-Change Period" means the period commencing on the Effective
Date and ending on the second anniversary of such date.
2.19 "SEC" means the Securities and Exchange Commission.
2.20 "Section" means, unless the context otherwise requires, a section
of this Agreement.
2.21 "Subsidiary" means a corporation as defined in Section 424(f) of
the Code with the Company being treated as the employer corporation for purposes
of this definition.
2.22 "Termination Date" means the date of receipt of the Notice of
Termination or any later date specified in such notice (which date shall be not
more than 15 days after the giving of such notice), as the case may be;
provided, however, that (a) if the Company terminates the Executive's employment
other than for Cause or Disability, then the Termination Date shall be the date
of receipt of such Notice of Termination and (b) if the Executive's employment
is terminated by reason of death or Disability, then the Termination Date shall
be the date of death of the Executive or the Disability Effective Date, as the
case may be.
2.23 "Termination Performance Period" -- see Section 3.2(b)(2)(B).
2.24 "Voting Securities" of a corporation means securities of such
corporation that are entitled to vote generally in the election of directors of
such corporation.
ARTICLE III.
POST-CHANGE PERIOD PROTECTIONS
3.1 Position and Duties.
a. During the Post-Change Period, (1) the Executive's
position (including offices, titles, reporting requirements and
responsibilities), authority and duties shall be at least commensurate
in all material respects with the most significant of those held,
exercised and assigned at any time during the 90-day period immediately
before the Effective Date and (2) the Executive's services shall be
performed at the location where the Executive was employed immediately
before the Effective Date or any other location less than 40 miles from
such former location.
b. During the Post-Change Period (other than any periods of
vacation, sick leave or disability to which the Executive is entitled),
the Executive agrees to devote the Executive's full attention and time
to the business and affairs of the Company and, to the extent necessary
to discharge the duties assigned to the Executive in accordance with
this Agreement, to use the Executive's best efforts to perform
faithfully and efficiently such duties. During the Post-Change Period,
the Executive may (1) serve on corporate, civic or charitable boards or
committees, (2) deliver lectures, fulfill speaking engagements or teach
at educational institutions and (3) manage personal investments, so
long as such activities are consistent with the Policies of the Company
at the Effective Date and do not
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significantly interfere with the performance of the Executive's duties
under this Agreement. To the extent that any such activities have been
conducted by the Executive before the Effective Date and were
consistent with the Policies of the Company at the Effective Date, the
continued conduct of such activities (or activities similar in nature
and scope) after the Effective Date shall not be deemed to interfere
with the performance of the Executive's duties under this Agreement.
3.2 Compensation.
a. Base Salary. During the Post-Change Period, the Company
shall pay or cause to be paid to the Executive an annual base salary in
cash ("Guaranteed Base Salary"), which shall be paid in a manner
consistent with the Company's payroll practices in effect immediately
before the Effective Date at a rate at least equal to 12 times the
highest monthly base salary paid or payable to the Executive by the
Company in respect of the 12-month period immediately before the
Effective Date. During the Post-Change Period, the Guaranteed Base
Salary shall be reviewed at least annually and shall be increased at
any time and from time to time as shall be substantially consistent
with increases in base salary awarded to other peer executives of the
Company. Any increase in Guaranteed Base Salary shall not limit or
reduce any other obligation of the Company to the Executive under this
Agreement. After any such increase, the Guaranteed Base Salary shall
not be reduced and the term "Guaranteed Base Salary" shall thereafter
refer to the increased amount.
b. Target Bonus.
(1) In addition to Guaranteed Base Salary, the
Company shall pay or cause to be paid to the Executive a
bonus (the "Guaranteed Bonus") for each Performance Period
which ends during the Post-Change Period. "Performance
Period" means each period of time designated in accordance
with any bonus arrangement ("Bonus Plan") which is based
upon performance and approved by the Board or any committee
of the Board. The Guaranteed Bonus shall be at least equal
to the product of
(A) the greatest of (i) the On Plan Percentage (as
defined below), or (ii) the Actual Bonus Percentage
(as defined below), multiplied by
(B) the Guaranteed Annual Salary.
(2) For purposes of this Section 3.2(b):
(A) "On Plan Percentage" means the percentage of
Guaranteed Base Salary to which the Executive would
have been entitled under any Bonus Plan for the
Performance Period for which the Guaranteed Bonus
is awarded ("Current Performance Period") as if the
performance achieved 100% of performance goals
established pursuant to such Bonus Plan.
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(B) "Actual Bonus Percentage" means the percentage
of the rate of Guaranteed Base Salary for the
Current Performance Period which the Executive
would accrue as a bonus under any Bonus Plan if the
performance during the Current Performance Period
were measured by the actual performance during the
Current Performance Period; provided, however, that
for purposes of calculating the Guaranteed Bonus,
"Actual Bonus Percentage" means the percentage of
the rate of Guaranteed Base Salary for the
Performance Period during which the Termination
Date occurred (the "Termination Performance
Period") which the Executive would accrue as a
bonus under any Bonus Plan if the performance
during such Termination Performance Period were
measured by the actual performance during the
Termination Performance Period before the
Termination Date projected to the last day of such
Performance Period.
c. Incentive, Savings and Retirement Plans. In addition to
Guaranteed Base Salary and Guaranteed Bonus payable as provided in this
Section, the Executive shall be entitled to participate during the
Post-Change Period in all incentive (including long-term incentives),
savings and retirement Plans applicable to other peer executives of the
Company, but in no event shall such Plans provide the Executive with
incentive (including long-term incentives), savings and retirement
benefits which, in any case, are less favorable, in the aggregate, than
the most favorable of those provided by the Company for the Executive
under such Plans as in effect at any time during the 90-day period
immediately before the Effective Date.
d. Welfare Benefit Plans. During the Post-Change Period, the
Executive and the Executive's family shall be eligible to participate
in, and receive all benefits under, welfare benefit Plans provided by
the Company (including, without limitation, medical, prescription,
dental, disability, salary continuance, individual life, group life,
dependent life, accidental death and travel accident insurance Plans)
and applicable to other peer executives of the Company and their
families, but in no event shall such Plans provide benefits which in
any case are less favorable, in the aggregate, than the most favorable
of those provided to the Executive under such Plans as in effect at any
time during the 90-day period immediately before the Effective Date.
e. Fringe Benefits. During the Post-Change Period, the
Executive shall be entitled to fringe benefits in accordance with the
most favorable Plans applicable to peer executives of the Company, but
in no event shall such Plans provide fringe benefits which in any case
are less favorable, in the aggregate, than the most favorable of those
provided by the Company to peer executives under such Plans in effect
at any time during the 90-day period immediately before the Effective
Date.
f. Expenses. During the Post-Change Period, the Executive
shall be entitled to prompt reimbursement of all reasonable
employment-related expenses incurred by the Executive upon the
Company's receipt of accountings in accordance with the most favorable
Policies applicable to peer executives of the Company, but in no event
shall such Policies be less favorable, in the aggregate, than the most
favorable of those
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provided by the Company for the Executive under such Policies in effect
at any time during the 90-day period immediately before the Effective
Date.
g. Office and Support Staff. During the Post-Change Period,
the Executive shall be entitled to an office or offices of a size and
with furnishings and other appointments, and to exclusive personal
secretarial and other assistance in accordance with the most favorable
Policies applicable to peer executives of the Company, but in no event
shall such Policies be less favorable, in the aggregate, than the most
favorable of those provided by the Company for the Executive under such
Policies in effect at any time during the 90-day period immediately
before the Effective Date.
h. Vacation. During the Post-Change Period, the Executive
shall be entitled to paid vacation in accordance with the most
favorable Policies applicable to peer executives of the Company, but in
no event shall such Policies be less favorable, in the aggregate, than
the most favorable of those provided by the Company for the Executive
under such Policies in effect at any time during the 90-day period
immediately before the Effective Date.
3.3 Stock Options and Restricted Stock.
a. Stock Options. In addition to the other benefits provided
in this Section, on the Effective Date, the Executive shall become
fully vested in any and all outstanding stock options granted to
Executive for shares of common stock of the Company or to the extent
that such options are not vested, shall receive a lump-sum cash payment
equal to the spread of all non-vested, forfeited options as of the date
such options are forfeited.
b. Restricted Stock. On the Effective Date, the Executive
shall become fully vested in any and all undistributed shares of
Restricted Stock granted pursuant to the employment agreement between
the Company and the Executive dated on or about May 1, 1998.
ARTICLE IV.
TERMINATION OF EMPLOYMENT
4.1 Disability.
a. During the Post-Change Period, the Company may terminate
the Executive's employment upon the Executive's Disability (as defined
in Section 4.1(b))) by giving the Executive or his legal
representative, as applicable, (1) written notice in accordance with
Section 11.7 of the Company's intention to terminate the Executive's
employment pursuant to this Section and (2) a certification of the
Executive's Disability by a physician selected by the Company or its
insurers and reasonably acceptable to the Executive or the Executive's
legal representative. The Executive's employment shall terminate
effective on the 30th day (the "Disability Effective Date") after the
Executive's receipt of such notice unless, before the Disability
Effective Date, the Executive shall have resumed the full-time
performance of the Executive's duties.
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b. "Disability" means any medically determinable physical or
mental impairment that has lasted for a continuous period of not less
than six months and can be expected to be permanent or of indefinite
duration, and that renders the Executive unable to perform the duties
required under this Agreement.
4.2 Death. The Executive's employment shall terminate automatically
upon the Executive's death during the Post-Change Period.
4.3 Cause.
a. During the Post-Change Period, the Company may terminate
the Executive's employment for Cause.
b. "Cause" means any of the following: commission by the
Executive of any felony; or willful breach of duty by the Executive in
the course of the Executive's employment; except that Cause shall not
mean:
(1) bad judgment or negligence;
(2) any act or omission believed by the Executive
in good faith to have been in or not opposed to the interest of the
Company (without intent of the Executive to gain, directly or
indirectly, a profit to which the Executive was not legally entitled);
(3) any act or omission with respect to which a
determination could properly have been made by the Board that the
Executive met the applicable standard of conduct for indemnification or
reimbursement under the Company's by-laws, any applicable
indemnification agreement, or applicable law, in each case in effect at
the time of such act or omission; or
(4) any act or omission with respect to which
notice of termination of employment of the Executive is given more than
12 months after the earliest date on which any member of the Board, not
a party to the act or omission, knew or should have known of such act
or omission.
c. Any termination of the Executive's employment by the
Company for Cause shall be communicated to the Executive by Notice of
Termination.
4.4 Good Reason.
a. During the Post-Change Period, the Executive may
terminate his or her employment for Good Reason.
b. "Good Reason" means any of the following:
(1) the assignment to the Executive of any duties
inconsistent in any respect with the Executive's position
(including offices, titles, reporting requirements or
responsibilities), authority or duties as contemplated by
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Section 3.1(a)(1), or any other action by the Company which
results in a diminution or other material adverse change in
such position, authority or duties;
(2) any failure by the Company to comply with any
of the provisions of Article III;
(3) the Company's requiring the Executive to be
based at any office or location other than the location
described in Section 3.1(a)(2);
(4) any other material adverse change to the terms
and conditions of the Executive's employment;
(5) any purported termination by the Company of the
Executive's employment other than as expressly permitted by
this Agreement (any such purported termination shall not be
effective for any other purpose under this Agreement); or
(6) a termination of employment by the Executive
for any reason during the 30-day period immediately
following the first anniversary of the Effective Date.
Any reasonable determination of "Good Reason" made in good
faith by the Executive shall be conclusive.
c. Any termination of employment by the Executive for Good
Reason shall be communicated to the Company by Notice of Termination. A
passage of time prior to delivery of Notice of Termination or a failure
by the Executive to include in the Notice of Termination any fact or
circumstance which contributes to a showing of Good Reason shall not
waive any right of the Executive under this Agreement or preclude the
Executive from asserting such fact or circumstance in enforcing rights
under this Agreement.
ARTICLE V.
OBLIGATIONS OF THE COMPANY UPON TERMINATION
5.1 If by the Executive for Good Reason or by the Company Other Than
for Cause or Disability. If, during the Post-Change Period, the Company shall
terminate Executive's employment other than for Cause or Disability, or if the
Executive shall terminate employment for Good Reason, the Company shall
immediately pay the Executive, in addition to all vested rights arising from the
Executive's employment as specified in Article III, a cash amount equal to the
sum of the following amounts:
a. to the extent not previously paid, the Guaranteed Base
Salary and any accrued vacation pay through the Termination Date;
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b. the difference between (1) the product of (A) the
Guaranteed Bonus, multiplied by (B) a fraction, the numerator of which
is the number of days in the Termination Performance Period which
elapsed before the Termination Date, and the denominator of which is
the total number of days in the Termination Performance Period, and (2)
the amount of any Guaranteed Bonus paid to the Executive with respect
to the Termination Performance Period;
c. all amounts previously deferred by or an accrual to the
benefit of the Executive under any nonqualified deferred compensation
or pension plan, together with any accrued earnings thereon, and not
yet paid by the Company;
d. an amount equal to the product of (1) three (3.0)
multiplied by (2) the sum of (A) Guaranteed Base Salary and (B) the
highest Guaranteed Bonus paid (or payable regardless of whether earned)
to the Executive in the two prior years provided that if within sixty
60 days after Executive commences employment with the Company, the
Company enters into a merger or similar agreement with that company or
any affiliate thereof which has been in merger or similar negotiations
with the Company within thirty (30) days prior to the date of this
Agreement, which later results in a transaction between the Company and
that company or any affiliate thereof, in lieu of the benefit provided
in this 5.1(d), Executive shall receive an amount equal to the product
of one (1.0) multiplied by the sum of (A) $450,000 (annual base salary)
and (B) the maximum annual bonus payable to Executive with respect to
his first year of employment;
e. an amount equal to the sum of the value of the unvested
portion of the Executive's accounts or accrued benefits under any
qualified plan maintained by the Company as of the Termination Date;
f. an amount equal to the value (determined using actuarial
assumptions consistent with those used by the Company for financial
reporting purposes) of the Executive's accrued benefits under (1) the
Fingerhut Corporation Pension Excess Plan and (2) the Fingerhut
Companies, Inc. Nonqualified Supplemental Executive Retirement Plan (or
any such successor or similar plans as may be in effect as of the
Termination Date) (the "Excess/Supplemental Plans" calculated as though
the Executive (A) continued to accrue benefits under the
Excess/Supplemental Plans for a period of three years after the
Termination Date, and (B) received compensation during each year of
such three-year period equal to the sum of the Guaranteed Base Salary
and the highest Guaranteed Bonus paid (or payable) to the Executive in
the two years preceding the Termination Date; and
g. an amount equal to the payment to which the Executive
would be entitled under the Fingerhut Corporation Profit Sharing Excess
Plan (or any such successor or similar plan as may be in effect as of
the Termination Date) for the plan year in which the Termination Date
occurs as if the Executive were eligible to share in the Company's
contribution to the Fingerhut Corporation Profit Sharing Plan for such
plan years; and
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h. pay on behalf of Executive all fees and costs charged by
the outplacement firm selected by the Executive to provide outplacement
services or at the election of the Executive, cash equal to the fees
and expenses such outplacement firm would charge.
Until the third anniversary of the Termination Date or such later date as any
Plan of the Company may specify, the Company shall continue to provide to the
Executive and the Executive's family welfare benefits (including, without
limitation, medical, prescription, dental, disability, salary continuance,
individual life, group life, accidental death and travel accident insurance
plans and programs) which are at least as favorable as the most favorable Plans
of the Company applicable to other peer executives and their families as of the
Termination Date, but which are in no event less favorable than the most
favorable Plans of the Company applicable to other peer executives and their
families during the 90-day period immediately before the Effective Date. The
cost of such welfare benefits shall not exceed the cost of such benefits to the
Executive immediately before the Termination Date or, if less, the Effective
Date. Notwithstanding the foregoing, if the Executive is covered under any
medical, life, or disability insurance plan(s) provided by a subsequent
employer, then the amount of coverage required to be provided by the Employer
hereunder shall be reduced by the amount of coverage provided by the subsequent
employer's medical, life, or disability insurance plan(s). The Executive's
rights under this Section shall be in addition to, and not in lieu of, any
post-termination continuation coverage or conversion rights the Executive may
have pursuant to applicable law, including without limitation continuation
coverage required by Section 4980 of the Code.
5.2 If by the Company for Cause. If the Company terminates the
Executive's employment for Cause during the Post-Change Period, this Agreement
shall terminate without further obligation by the Company to the Executive,
other than the obligation immediately to pay the Executive in cash the
Executive's Guaranteed Base Salary through the Termination Date, plus the amount
of any compensation previously deferred by the Executive, plus any accrued
vacation pay, in each case to the extent not previously paid.
5.3 If by the Executive Other Than for Good Reason. If the Executive
terminates employment during the Post-Change Period other than for Good Reason,
Disability or death, this Agreement shall terminate without further obligations
by the Company, other than the obligation immediately to pay the Executive in
cash all amounts specified in clauses (a), (b) and (c) of the first sentence of
Section 5.1 (such amounts collectively, the "Accrued Obligations").
5.4 If by the Company for Disability. If the Company terminates the
Executive's employment by reason of the Executive's Disability during the
Post-Change Period, this Agreement shall terminate without further obligations
to the Executive, other than
(a) the Company's obligation immediately to pay the
Executive in cash all Accrued Obligations, and
(b) the Executive's right after the Disability Effective
Date to receive disability and other benefits at least equal to the
greater of (1) those provided under the most favorable disability Plans
applicable to disabled peer executives of the Company in effect
immediately before the Termination Date or (2) those provided under the
most
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favorable disability Plans of the Company in effect at any time
during the 90-day period immediately before the Effective Date.
5.5 If upon Death. If the Executive's employment is terminated by
reason of the Executive's death during the Post-Change Period, this Agreement
shall terminate without further obligations to the Executive's legal
representatives under this Agreement, other than the obligation immediately to
pay the Executive's estate or beneficiary in cash all Accrued Obligations.
Despite anything in this Agreement to the contrary, the Executive's family shall
be entitled to receive benefits at least equal to the most favorable benefits
provided by the Company to the surviving families of peer executives of the
Company under such Plans, but in no event shall such Plans provide benefits
which in each case are less favorable, in the aggregate, than the most favorable
of those provided by the Company to the Executive under such Plans in effect at
any time during the 90-day period immediately before the Effective Date.
ARTICLE VI.
NON-EXCLUSIVITY OF RIGHTS
6.1 Waiver of Other Severance Rights. To the extent that payments are
made to the Executive pursuant to Section 5.1, the Executive hereby waives the
right to receive severance payments under any other Plan or agreement of the
Company.
6.2 Other Rights. Except as provided in Section 6.1, this Agreement
shall not prevent or limit the Executive's continuing or future participation in
any benefit, bonus, incentive or other Plans, provided by the Company or any of
its Subsidiaries and for which the Executive may qualify, nor shall this
Agreement limit or otherwise affect such rights as the Executive may have under
any other agreements with the Company or any of its Subsidiaries. Amounts which
are vested benefits or which the Executive is otherwise entitled to receive
under any Plan of the Company or any of its Subsidiaries and any other payment
or benefit required by law at or after the Termination Date shall be payable in
accordance with such Plan or applicable law except as expressly modified by this
Agreement.
ARTICLE VII.
CERTAIN ADDITIONAL PAYMENTS BY THE COMPANY
7.1 Gross-up for Certain Taxes. If it is determined (by the reasonable
computation of the Company's independent auditors, which determinations shall be
certified to by such auditors and set forth in a written certificate
("Certificate") delivered to the Executive) that any benefit received or deemed
received by the Executive from the Company pursuant to this Agreement or
otherwise (collectively, the "Payments") is or will become subject to any excise
tax under Section 4999 of the Code or any similar tax payable under any United
States federal, state, local or other law (such excise tax and all such similar
taxes collectively, "Excise Taxes"), then the Company shall, immediately after
such determination, pay the Executive an amount (the "Gross-up Payment") equal
to the product of
(a) the amount of such Excise Taxes
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multiplied by
(b) the Gross-up Multiple (as defined in Section 7.4).
The Gross-up Payment is intended to compensate the Executive for the Excise
Taxes and any federal, state, local or other income or excise taxes or other
taxes payable by the Executive with respect to the Gross-up Payment.
The Executive or the Company may at any time request the preparation
and delivery to the Executive of a Certificate. The Company shall, in addition
to complying with Section 7.2, cause all determinations and certifications under
the Article to be made as soon as reasonably possible and in adequate time to
permit the Executive to prepare and file the Executive's individual tax returns
on a timely basis.
7.2 Determination by the Executive.
a. If the Company shall fail to deliver a Certificate to the
Executive (and to pay to the Executive the amount of the Gross-up
Payment, if any) within 14 days after receipt from the Executive of a
written request for a Certificate, or if at any time following receipt
of a Certificate the Executive disputes the amount of the Gross-up
Payment set forth therein, the Executive may elect to demand the
payment of the amount which the Executive, in accordance with an
opinion of counsel to the Executive ("Executive Counsel Opinion"),
determines to be the Gross-up Payment. Any such demand by the Executive
shall be made by delivery to the Company of a written notice which
specifies the Gross-up Payment determined by the Executive and an
Executive Counsel Opinion regarding such Gross-up Payment (such written
notice and opinion collectively, the "Executive's Determination").
Within 14 days after delivery of the Executive's Determination to the
Company, the Company shall either (1) pay the Executive the Gross-up
Payment set forth in the Executive's Determination (less the portion of
such amount, if any, previously paid to the Executive by the Company)
or (2) deliver to the Executive a Certificate specifying the Gross-up
Payment determined by the Company's independent auditors, together with
an opinion of the Company's counsel ("Company Counsel Opinion"), and
pay the Executive the Gross-up Payment specified in such Certificate.
If for any reason the Company fails to comply with clause (2) of the
preceding sentence, the Gross-up Payment specified in the Executive's
Determination shall be controlling for all purposes.
b. If the Executive does not make a request for, and the
Company does not deliver to the Executive, a Certificate, the Company
shall, for purposes of Section 7.3, be deemed to have determined that
no Gross-up Payment is due.
7.3 Additional Gross-up Amounts. If, despite the initial conclusion of
the Company and/or the Executive that certain Payments are neither subject to
Excise Taxes nor to be counted in determining whether other Payments are subject
to Excise Taxes (any such item, a "Non-Parachute Item"), it is later determined
(pursuant to the subsequently-enacted provisions of the Code, final regulations
or published rulings of the IRS, final judgment of a court of competent
jurisdiction or the Company's independent auditors that any of the Non-Parachute
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Items are subject to Excise Taxes, or are to be counted in determining whether
any Payments are subject to Excise Taxes, with the result that the amount of
Excise Taxes payable by the Executive is greater than the amount determined by
the Company or the Executive pursuant to Section 7.1 or 7.2, as applicable, then
the Company shall pay the Executive an amount (which shall also be deemed a
Gross-up Payment) equal to the product of
(a) the sum of (1) such additional Excise Taxes and (2) any
interest, fines, penalties, expenses or other costs incurred by the
Executive as a result of having taken a position in accordance with a
determination made pursuant to Section 7.1
multiplied by
(b) the Gross-up Multiple.
7.4 Gross-up Multiple. The Gross-up Multiple shall equal a fraction,
the numerator of which is one (1.0), and the denominator of which is one (1.0)
minus the sum, expressed as a decimal fraction, of the rates of all federal,
state, local and other income and other taxes and any Excise Taxes applicable to
the Gross-up Payment; provided that, if such sum exceeds 0.8, it shall be deemed
equal to 0.8 for purposes of this computation. (If different rates of tax are
applicable to various portions of a Gross-up Payment, the weighted average of
such rates shall be used.)
7.5 Opinion of Counsel. "Executive Counsel Opinion" means a legal
opinion of nationally recognized executive compensation counsel that there is a
reasonable basis to support a conclusion that the Gross-up Payment determined by
the Executive has been calculated in accord with this Article and applicable
law. "Company Counsel Opinion" means a legal opinion of nationally recognized
executive compensation counsel that (a) there is a reasonable basis to support a
conclusion that the Gross-up Payment set forth of the Certificate of Company's
independent auditors has been calculated in accord with this Article and
applicable law, and (b) there is no reasonable basis for the calculation of the
Gross-up Payment determined by the Executive.
7.6 Amount Increased or Contested. The Executive shall notify the
Company in writing of any claim by the IRS or other taxing authority that, if
successful, would require the payment by the Company of a Gross-up Payment. Such
notice shall include the nature of such claim and the date on which such claim
is due to be paid. The Executive shall give such notice as soon as practicable,
but no later than 10 business days, after the Executive first obtains actual
knowledge of such claim; provided, however, that any failure to give or delay in
giving such notice shall affect the Company's obligations under this Article
only if and to the extent that such failure results in actual prejudice to the
Company. The Executive shall not pay such claim less than 30 days after the
Executive gives such notice to the Company (or, if sooner, the date on which
payment of such claim is due). If the Company notifies the Executive in writing
before the expiration of such period that it desires to contest such claim, the
Executive shall:
a. give the Company any information that it reasonably
requests relating to such claim,
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b. take such action in connection with contesting such claim
as the Company reasonably requests in writing from time to time,
including, without limitation, accepting legal representation with
respect to such claim by an attorney reasonably selected by the
Company,
c. cooperate with the Company in good faith to contest such
claim, and
d. permit the Company to participate in any proceedings
relating to such claim;
provided, however, that the Company shall bear and pay directly all costs and
expenses (including additional interest and penalties) incurred in connection
with such contest and shall indemnify and hold the Executive harmless, on an
after-tax basis, for any Excise Tax or income tax, including related interest
and penalties, imposed as a result of such representation and payment of costs
and expenses. Without limiting the foregoing, the Company shall control all
proceedings in connection with such contest and, at its sole option, may pursue
or forego any and all administrative appeals, proceedings, hearings and
conferences with the taxing authority in respect of such claim and may, at its
sole option, either direct the Executive to pay the tax claimed and sue for a
refund or contest the claim in any permissible manner. The Executive agrees to
prosecute such contest to a determination before any administrative tribunal, in
a court of initial jurisdiction and in one or more appellate courts, as the
Company shall determine; provided, however, that if the Company directs the
Executive to pay such claim and sue for a refund, the Company shall advance the
amount of such payment to the Executive, on an interest-free basis and shall
indemnify the Executive, on an after-tax basis, for any Excise Tax or income
tax, including related interest or penalties, imposed with respect to such
advance; and further provided that any extension of the statute of limitations
relating to payment of taxes for the taxable year of the Executive with respect
to which such contested amount is claimed to be due is limited solely to such
contested amount. The Company's control of the contest shall be limited to
issues with respect to which a Gross-up Payment would be payable. The Executive
shall be entitled to settle or contest, as the case may be, any other issue
raised by the IRS or other taxing authority.
7.7 Refunds. If, after the receipt by the Executive of an amount
advanced by the Company pursuant to Section 7.6, the Executive becomes entitled
to receive any refund with respect to such claim, the Executive shall (subject
to the Company's complying with the requirements of Section 7.6) promptly pay
the Company the amount of such refund (together with any interest paid or
credited thereon after taxes applicable thereto). If, after the receipt by the
Executive of an amount advanced by the Company pursuant to Section 7.6, a
determination is made that the Executive shall not be entitled to any refund
with respect to such claim and the Company does not notify the Executive in
writing of its intent to contest such determination before the expiration of 30
days after such determination, then such advance shall be forgiven and shall not
be required to be repaid and the amount of such advance shall offset, to the
extent thereof, the amount of Gross-up Payment required to be paid.
Any contest of a denial of refund shall be controlled by Section 7.6.
ARTICLE VIII.
EXPENSES AND INTEREST
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8.1 Legal Fees and Other Expenses.
a. If the Executive incurs legal fees or other expenses in a
good faith effort to obtain benefits under this Agreement (including,
without limitation, the fees and other expenses of the Executive's
legal counsel in connection with the delivery of the Opinion referred
to in Section 7.5), regardless of whether the Executive ultimately
prevails, the Company shall reimburse the Executive on a current basis
for such fees and expenses to the extent not reimbursed under the
Company's officers and directors liability insurance policy, if any.
The existence of any controlling case or regulatory law which is
directly inconsistent with the position taken by the Executive shall be
evidence that the Executive did not act in good faith.
b. Reimbursement of legal fees and expenses shall be made
monthly upon the written submission of a request for reimbursement
together with evidence that such fees and expenses are due and payable
or were paid by the Executive. If the Company shall have reimbursed the
Executive for legal fees and expenses and it is later determined that
the Executive was not acting in good faith, all amounts paid on behalf
of, or reimbursed to, the Executive shall be promptly refunded to the
Company.
8.2 Interest. If the Company does not pay any amount due to the
Executive under this Agreement within three days after such amount became due
and owing, interest shall accrue on such amount from the date it became due and
owing until the date of payment at a annual rate equal to two percent (2.0%)
above the base commercial lending rate announced by Harris Trust and Savings
Bank in effect from time to time during the period of such nonpayment.
ARTICLE IX.
NO SET-OFF OR MITIGATION
9.1 No Set-off by Company. The Executive's right to receive when due
the payments and other benefits provided for under this Agreement is absolute,
unconditional and subject to no set-off, counterclaim or legal or equitable
defense. Time is of the essence in the performance by the Company of its
obligations under this Agreement. Any claim which the Company may have against
the Executive, whether for a breach of this Agreement or otherwise, shall be
brought in a separate action or proceeding and not as part of any action or
proceeding brought by the Executive to enforce any rights against the Company
under this Agreement.
9.2 No Mitigation. The Executive shall not have any duty to mitigate
the amounts payable by the Company under this Agreement by seeking new
employment following termination. Except as specifically otherwise provided in
this Agreement, all amounts payable pursuant to this Agreement shall be paid
without reduction regardless of any amounts of salary, compensation or other
amounts which may be paid or payable to the Executive as the result of the
Executive's employment by another employer.
ARTICLE X.
CONFIDENTIALITY AND NONCOMPETITION
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10.1 Confidentiality. Executive acknowledges that it is the policy of
the Company and its subsidiaries to maintain as secret and confidential all
valuable and unique information and techniques acquired, developed or used by
the Company and its subsidiaries relating to their business, operations,
employees and customers, which gives the Company and its subsidiaries a
competitive advantage in the retail catalogue industry and other businesses in
which the Company and its subsidiaries are engaged ("Confidential Information").
Executive recognizes that all such Confidential Information is the sole and
exclusive property of the Company and its subsidiaries, and that disclosure of
Confidential Information would cause damage to the Company and its subsidiaries.
Executive agrees that, except as required by the duties of his employment with
the Company and/or its subsidiaries and except in connection with enforcing the
Executive's rights under this Agreement or if compelled by a court or
governmental agency, he will not, without the consent of the Company,
disseminate or otherwise disclose any Confidential Information obtained during
his employment with the Company and/or its subsidiaries for so long as such
information is valuable and unique.
10.2 Noncompetition/Nonsolicitation.
a. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive will not at any time directly or indirectly, in any
capacity, engage or participate in, or become employed by or render
advisory or consulting or other services in connection with any
Prohibited Business as defined in Section 10.2(d).
b. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive shall not make any financial investment, whether in
the form of equity or debt, or own any interest, directly or
indirectly, in any Prohibited Business. Nothing in this Section 10.2(b)
shall, however, restrict Executive from making any investment in any
company whose stock is listed on a national securities exchange or
actively traded in the over-the-counter market; provided that (1) such
investment does not give Executive the right or ability to control or
influence the policy decisions of any Prohibited Business, and (2) such
investment does not create a conflict of interest between Executive's
duties hereunder and Executive's interest in such investment.
c. Executive agrees that, during the period of his
employment with the Company and/or its subsidiaries and, if Executive's
employment is terminated for any reason, thereafter for a period of one
(1) year, Executive shall not (1) employ any employee of the Company
and/or its subsidiaries or (2) interfere with the Company's or any of
its subsidiaries' relationship with, or endeavor to entice away from
the Company and/or its subsidiaries any person, firm, corporation, or
other business organization who or which at any time (whether before or
after the date of Executive's termination of employment), was an
employee, customer, vendor or supplier of, or maintained a business
relationship with, any business of the Company and/or its subsidiaries
which
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was conducted at any time during the period commencing one year prior
to the termination of employment.
d. For the purpose of this Section 10.2, "Prohibited
Business" shall be defined as any retail catalogue business or any
other type of business, entity and any branch, office or operation
thereof, which is a direct and material competitor of the Company
wherever the Company does business, in the United States or abroad.
10.3 Remedy. Executive and the Company specifically agree that, in the
event that Executive shall breach his obligations under this Article X, the
Company and its subsidiaries will suffer irreparable injury and no adequate
remedy for such breach, and shall be entitled to injunctive relief therefor, and
in particular, without limiting the generality of the foregoing, the Company
shall not be precluded from pursuing any and all remedies it may have at law or
in equity for breach of such obligations; provided, however, that such breach
shall not in any manner or degree whatsoever limit, reduce or otherwise affect
the obligations of the Company under this Agreement, and in no event shall an
asserted breach of the Executive's obligations under this Article X constitute a
basis for deferring or withholding any amounts otherwise payable to the
Executive under this Agreement.
ARTICLE XI.
MISCELLANEOUS
11.1 No Assignability. This Agreement is personal to the Executive and
without the prior written consent of the Company shall not be assignable by the
Executive otherwise than by will or the laws of descent and distribution. This
Agreement shall inure to the benefit of and be enforceable by the Executive's
legal representatives.
11.2 Successors. This Agreement shall inure to the benefit of and be
binding upon the Company and its successors and assigns. The Company will
require any successor (whether direct or indirect, by purchase, merger,
consolidation or otherwise) to all or substantially all of the business or
assets of the Company to assume expressly and agree to perform this Agreement in
the same manner and to the same extent that the Company would be required to
perform it if no such succession had taken place. Any successor to the business
and/or assets of the Company which assumes or agrees to perform this Agreement
by operation of law, contract, or otherwise shall be jointly and severally
liable with the Company under this Agreement as if such successor were the
Company.
11.3 Payments to Beneficiary. If the Executive dies before receiving
amounts to which the Executive is entitled under this Agreement, such amounts
shall be paid in a lump sum to the beneficiary designated in writing by the
Executive, or if none is so designated, to the Executive's estate.
11.4 Non-alienation of Benefits. Benefits payable under this Agreement
shall not be subject in any manner to anticipation, alienation, sale, transfer,
assignment, pledge, encumbrance, charge, garnishment, execution or levy of any
kind, either voluntary or
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involuntary, before actually being received by the Executive, and any such
attempt to dispose of any right to benefits payable under this Agreement shall
be void.
11.5 Severability. If any one or more articles, sections or other
portions of this Agreement are declared by any court or governmental authority
to be unlawful or invalid, such unlawfulness or invalidity shall not serve to
invalidate any article, section or other portion not so declared to be unlawful
or invalid. Any article, section or other portion so declared to be unlawful or
invalid shall be construed so as to effectuate the terms of such article,
section or other portion to the fullest extent possible while remaining lawful
and valid.
11.6 Amendments. Except as provided in Section 2.2 hereof, this
Agreement shall not be altered, amended or modified except by written instrument
executed by the Company and Executive.
11.7 Notices. All notices and other communications under this Agreement
shall be in writing and delivered by hand or by first class registered or
certified mail, return receipt requested, postage prepaid, addressed as follows:
If to the Executive:
William J. Lansing
address to be provided to Company by Executive in writing
upon his relocation.
If to the Company:
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: General Counsel
or to such other address as either party shall have furnished to the other in
writing. Notice and communications shall be effective when actually received by
the addressee.
11.8 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original, but all of which
together constitute one and the same instrument.
11.9 Governing Law. This Agreement shall be interpreted and construed
in accordance with the laws of the State of Minnesota, without regard to its
choice of law principles.
11.10 Captions. The captions of this Agreement are not a part of the
provisions hereof and shall have no force or effect.
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<PAGE>
11.11 Tax Withholding. The Company may withhold from any amounts
payable under this Agreement any federal, state or local taxes that are required
to be withheld pursuant to any applicable law or regulation.
11.12 No Waiver. The Executive's failure to insist upon strict
compliance with any provision of this Agreement shall not be deemed a waiver of
such provision or any other provision of this Agreement. A waiver of any
provision of this Agreement shall not be deemed a waiver of any other provision,
and any waiver of any default in any such provision shall not be deemed a waiver
of any later default thereof or of any other provision.
11.13 Entire Agreement. This Agreement contains the entire
understanding of the Company and the Executive with respect to its subject
matter. The parties have also entered into an employment agreement which sets
forth certain terms and conditions of Executive's employment with the Company
and to the extent any of the terms of such employment agreement conflict with
any provision herein, the provision most favorable to the Executive shall
control.
IN WITNESS WHEREOF, the Executive and the Company have
executed this Agreement as of the date first above written.
/s/ William J. Lansing
----------------------------------
William J. Lansing
FINGERHUT COMPANIES, INC.
By: /s/ Michael Sherman
-------------------------------
Title: SVP
-------------------------------
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Exhibit 16
August 6, 1998
Fingerhut Companies, Inc.
4400 Baker Road
Minnetonka, MN 55343
Attention: Ted Deikel, Chairman & CEO
Will Lansing, President
Re: ENGAGEMENT LETTER
This letter ("Letter Agreement") shall serve to confirm our understanding
pursuant to which Fingerhut Companies, Inc. (the "Company") has agreed to engage
Wit Capital Corporation ("Wit") to act as its financial advisor to assist the
Company as described below for a period commencing as of the date hereof and
ending on the twelve month anniversary hereof (the "Engagement Period").
1. FINANCIAL ADVISORY SERVICES. Wit will assist the company in connection
with developing an Internet strategy and identifying and structuring
Internet investments, which leverage off the core competencies of
Fingerhut. If requested by the company, Wit will also be available to
assist the company in connection with other general financial advisory
services.
2. BASE COMPENSATION. In consideration of the services to be rendered by
Wit, the Company agrees to pay Wit or its permitted designee the
following base compensation:
(a) A retainer of $100,000.00 payable upon execution of this Letter
Agreement.
(b) Reimbursement of all reasonable travel and other out-of-pocket
expenses incurred by Wit in connection with its services rendered
hereunder. Notwithstanding the foregoing, Wit shall not, without the
prior written consent of the Company, incur other reimbursable
expenses such as expenses of consultants, legal, accounting, and
financial experts, and other agents that may be retained by Wit in
connection with its services to be rendered to the Company.
3. TRANSACTIONAL FEES. If during the Engagement Period, Wit introduces an
investment opportunity to Fingerhut which is consummated by Fingerhut or
provides consulting services with respect to a financing, merger,
acquisition, or business combination that is consummated (a
"Transaction"), then in addition to the retainer and other compensation
referred to in Paragraph 2 above, the Company, at its discretion, shall
pay to Wit a fee (a "Transaction Fee"). Such Transaction Fee shall be
negotiated in good faith and mutually agreed upon by the parties prior to
the closing of the Transaction and shall be based upon customary fees
charged by full service
<PAGE>
investment banks for providing similar services in connection with such
Transactions. Any Transaction Fee shall be payable upon the closing of
such Transaction.
4. INTERNET INVESTMENTS. Robert H. Lessin, or one of his designees, will
have the right to invest in Internet companies that Wit Capital
introduces to Fingerhut at the same value at which Fingerhut makes such
investments.
5. INDEMNITY. Since Wit shall be acting on behalf of the Company, the
Company agrees to indemnify Wit in accordance with the provisions of
Annex A hereto, which is incorporated by reference and made a part
hereof.
6. MISCELLANEOUS. This Letter Agreement sets forth the entire understanding
of the parties with respect to the subject matter hereof, supersedes all
existing agreements between Wit and the Company concerning such subject
matter, and may be modified only by a written instrument duly executed by
each party. Wit and its permitted designees shall, except with the prior
written consent of the Company, hold strictly confidential all other
information relating to the Company and its affiliates received or
developed in connection with the services contemplated by this Letter
Agreement. This Letter Agreement shall be binding upon and inure to the
benefit of the Company and Wit and their respective successors and
assigns. This Letter Agreement shall be governed by, and construed in
accordance with, the laws of the State of New York, without reference to
the rules governing the conflicts of laws. The provisions of Annex A
hereto shall survive any termination of this Letter Agreement.
If the foregoing terms correctly set forth our understanding, please
confirm this by signing and returning the duplicate copy of this letter.
I am pleased to have this opportunity to work with you.
Very truly yours,
/s/ Robert H. Lessin
Robert H. Lessin
Chairman & CEO
Agreed to and Accepted
this 11th day of August, 1998
- -------------------------------------
By: /s/ Michael P. Sherman
----------------------------------
Name: Michael P. Sherman
Title: EVP
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<PAGE>
ANNEX A
INDEMNIFICATION
Recognizing that transactions of the type contemplated in this engagement
sometimes result in litigation and that Wit's and its affiliated companies'
(collectively, "Wit") role is advisory, the Company agrees to indemnify and hold
harmless Wit, its affiliates and their respective officers, directors,
employees, agents and controlling persons (collectively, the "Indemnified
Parties"), from and against any losses, claims, damages and liabilities, joint
or several, related to or arising in any manner out of any transaction, proposal
or any other matter (collectively, the "Matters") contemplated by the engagement
of Wit hereunder, and will promptly reimburse the Indemnified Parties for all
expenses (including, reasonable fees and expenses of legal counsel), as and when
incurred, in connection with the investigation of, preparation for or defense of
any pending or threatened claim related to or arising in any manner out of any
Matter contemplated by the engagement of Wit hereunder, or any action or
proceeding arising therefrom (collectively, "Proceedings"), whether or not such
Indemnified Party is a formal party to any such Proceeding. Notwithstanding the
foregoing, the Company shall not be liable in respect of any losses, claims,
damages, liabilities or expenses that a court of competent jurisdiction shall
have resulted primarily from the gross negligence or willful misconduct of an
Indemnified Party. The Company further agrees that it will not, without the
prior written consent of Wit, which shall not be unreasonably withheld, settle
compromise or consent to the entry of any judgment in any pending or threatened
Proceeding in respect of which indemnification may be sought hereunder (whether
or not Wit or any Indemnified Party is an actual or potential party to such
Proceeding), unless such settlement, compromise or consent includes an
unconditional release of Wit and each other Indemnified Party hereunder from all
liability arising out of such Proceeding.
The Company agrees that if any indemnification or reimbursement sought
pursuant to this Letter Agreement were for any reason not to be available to any
Indemnified Party or insufficient to hold it harmless as and to the extent
contemplated by this Letter Agreement, then the Company shall contribute to the
amount paid or payable by such Indemnified Party in respect of losses, claims,
damages and liabilities in such proportion as is appropriate to reflect the
relative benefits to the Company and its stockholders on the one hand, and Wit
on the other, in connection with the Matters to which such indemnification or
reimbursement relates or, if such allocation is not permitted by applicable law,
not only such relative benefits but also the relative faults of such parties as
well as any other equitable considerations. It is hereby agreed that the
relative benefits to the Company and/or its stockholders and to Wit with respect
to Wit's engagement shall be deemed to be in the same proportion as (i) the
total value paid or received or to be paid or received by the Company and/or its
stockholders pursuant to the Matters (whether or not consummated) for which Wit
is engaged to render financial advisory services bears to (ii) the fees paid to
Wit in connection with such engagement. In no event shall the Indemnified
Parties contribute or otherwise be liable for an amount in excess of the
aggregate amount of fees actually received
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<PAGE>
by Wit pursuant to such engagement (excluding amounts received by Wit as
reimbursement of the expenses).
The Company further agrees that no Indemnified Party shall have any
liability (whether direct or indirect, in contract or tort or otherwise) to the
Company for or in connection with Wit's engagement hereunder except for losses,
claims, damages, liabilities or expenses that a court of competent jurisdiction
shall have determined resulted primarily from the gross negligence or willful
misconduct of such Indemnified Party.
The indemnity, reimbursement and contribution provisions set forth herein
shall remain operative and in full force and effect regardless of (i) any
withdrawal, termination or consummation of or failure to initiate or consummate
any Matter referred to herein, (ii) any investigation made by or on behalf of
any party hereto or any person controlling (within the meaning of Section 15 of
the Securities Act of 1933 as amended, or Section 20 of the Securities Exchange
Act of 1934, as amended) any party hereto, (iii) any termination or the
completion or expiration of this Letter Agreement relating to Wit's engagement
and (iv) whether or not Wit shall, or shall not be called upon to, render any
formal or informal advice in the course of such engagement.
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