SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
SCHEDULE 13D
Under the Securities Exchange Act of 1934
BROADWAY STORES, INC.
--------------------------------------------------------------------------------
(Name of Issuer)
Common Stock, par value $.01 per share
------------------------------------------------
(Title of Class of Securities)
111572103
------------------------------------------------
(CUSIP Number)
Dennis J. Broderick, Esq.
Federated Department Stores, Inc.
7 West Seventh Street
Cincinnati, Ohio 45202
---------------------------------------------
(Name, Address and Telephone Number of Person Authorized to Receive Notices and
Communications)
With a copy to:
Robert A. Profusek, Esq.
Jones, Day, Reavis & Pogue
599 Lexington Avenue
New York, New York 10022
(212) 326-3800
August 14, 1995
--------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [ ].
Check the following box if a fee is being paid with the statement [X].
<PAGE>
CUSIP No. 111572103 13D Page 2 of 7 Pages
1 NAME OF REPORTING PERSONS
S.S. OR I.R.S. IDENTIFICATION NOS. OF ABOVE PERSONS
Federated Department Stores, Inc.
13-3324058
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP* (a) [ ]
(b) [ ]
3 SEC USE ONLY
4 SOURCE OF FUNDS*
OO
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED
PURSUANT TO ITEM 2(d) or 2(e) [ ]
6 CITIZENSHIP OR PLACE OF ORGANIZATION
Delaware
7 SOLE VOTING POWER
-0-
8 SHARED VOTING POWER
NUMBER OF
SHARES
BENEFICIALLY 24,800,866
OWNED BY
EACH REPORTING 9 SOLE DISPOSITIVE POWER
PERSON WITH
24,800,866
10 SHARED DISPOSITIVE POWER
-0-
11 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
24,800,866
12 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
[ ]
13 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
53.9%
14 TYPE OF REPORTING PERSON*
CO
*SEE INSTRUCTIONS BEFORE FILLING OUT!
-2-
<PAGE>
Item 1. Security and Issuer.
The securities to which this statement relates are the shares of
Common Stock, par value $0.01 per share ("Common Stock"), of Broadway Stores,
Inc., a Delaware corporation (the "Company"). The Company's principal offices
are located at 3880 North Mission Road, Los Angeles, California 90031.
Item 2. Identity and Background.
This Statement is filed by Federated Department Stores, Inc.
("Federated"). Federated's principal business is the operation of full-line
department stores. Federated's principal offices are located at 151 West 34th
Street, New York, New York 10001 and 7 West Seventh Street, Cincinnati, Ohio
45202.
Schedule I hereto, which is incorporated herein by this reference,
sets forth the name, the business address, the present principal occupation or
employment (and the name, principal business, and address of any corporation or
other organization in which such employment is conducted), and the citizenship
of the directors and executive officers of Federated.
Neither Federated nor, to its knowledge, any of the persons identified
in Schedule I hereto has, during the last five years, been convicted in a
criminal proceeding (excluding traffic violations or similar misdemeanors) or
been a party to a civil proceeding of a judicial or administrative body of
competent jurisdiction and as a result of such proceeding was or is subject to a
judgment, decree, or final order enjoining future violations of, or prohibiting
or mandating activities subject to, federal or state securities laws or finding
any violation with respect to such laws.
Item 3. Source and Amount of Funds or Other Consideration.
The consideration payable by Federated to purchase the shares of
Common Stock to which this statement relates is Common Stock of Federated
("Federated Common Stock"). See Item 4.
Item 4. Purpose of Transaction.
On August 14, 1995, the Company, Federated, and a wholly owned
subsidiary of Federated ("Newco") entered into an Agreement and Plan of Merger
(the "Merger Agreement"), pursuant to which, on the terms and subject to the
condition set forth therein, Newco will be merged with and into the Company (the
"Merger"). At the effective time of the Merger, among other things, each then-
outstanding share of Common Stock (other than shares of Common Stock held by
Federated or any of its wholly owned subsidiaries or by any of the Company's
wholly owned subsidiaries, which shares will be cancelled) will be converted
into the right to receive 0.27 shares of Federated Common Stock. As a result of
the Merger, the Company will become a subsidiary of Federated. The Merger is
conditioned upon, among other things: (i) adoption by the Company's
stockholders of the Merger Agreement; (ii) the waiting period pursuant to the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, having expired
or been terminated; (iii) the absence of any order or injunction which prohibits
the consummation of the transactions contemplated by the Merger Agreement; and
(iv) all consents, authorizations, orders, and approvals of any governmental
authority required in connection with the Merger Agreement having been obtained,
other than any such consents, authorizations, orders, or approvals which, if not
obtained, would not have a material adverse effect on the business, financial
condition, or results of operations of the Company.
As a condition to its willingness to enter into the Merger Agreement,
Federated required that, simultaneously with the execution thereof,
Zell/Chilmark Fund, L.P. ("Zell/Chilmark") enter into an agreement with
Federated (the "Stock Agreement") pursuant to which, among other things,
Zell/Chilmark agreed to vote all of the shares of Common Stock owned by it in
favor of the adoption of the Merger Agreement at the meeting of the Company's
stockholders to be called to vote thereon, granted to Federated the right to
purchase such shares for a purchase price payable in shares of Federated Common
Stock at the rate of 0.27 shares of Federated Common Stock for each such share
of Common Stock (the "Option"), and agreed to certain restrictions on transfer
of those shares of Common Stock. See Item 5.
-3-
<PAGE>
Federated's principal purpose in entering into the Merger Agreement is
to acquire the Company. Federated's principal purpose in entering into the
Stock Agreement is to enhance the likelihood of the Merger being consummated.
Following the Merger or, if earlier, the exercise of the Option, Federated
intends to seek to change the composition of the Company's Board of Directors
and thereby control the Company and to seek to cause one or more of the
executive officers of the Company to be replaced.
Federated believes that the Merger is in the best interests of it and
its stockholders. The Merger will permit Federated to broaden its base of
department store operations in the areas in which the Company's department
stores are operated. Federated anticipates that a number of the Company's
stores will be disposed of following the Merger. As of the date of this
statement, however, Federated had not entered into any agreements providing for
such dispositions and there can be no assurance that Federated will do so or as
to the timing or terms thereof. If the Merger is completed, Federated
anticipates that the Company's retained department stores will be converted into
Macy's, Bullock's, or Bloomingdale's stores commencing early in 1996.
The foregoing response to this Item 4 is qualified in its entirety by
reference to the Merger Agreement and the Stock Agreement, copies of which are
filed as Exhibits 1 and 2 hereto and incorporated herein by this reference.
Item 5. Interest in Securities of the Issuer.
The responses to Items 4 and 6 are incorporated herein by this
reference.
Pursuant to the Stock Agreement, Zell/Chilmark has represented to
Federated that, as of August 14, 1995, Zell/Chilmark was the record and
beneficial owner of 24,800,866 shares of Common Stock, or 53.9% of the total
number of shares of Common Stock then outstanding. As a result of the Option
and the other provisions of the Stock Agreement, Federated may be deemed to be
the beneficial owner of all of these 24,800,866 shares of Common Stock. As a
result of the Stock Agreement, Federated may be deemed to have shared power to
vote or direct the voting of the 24,800,866 shares of Common Stock owned by
Zell/Chilmark and sole power to dispose or direct the disposition of such
shares.
Except as disclosed in this Statement, neither Federated nor, to its
knowledge, any of the persons identified on Schedule I hereto have effected
transactions in shares of Common Stock during the preceding 60 days.
Item 6. Contracts, Arrangements, Understandings or Relationships With Respect
to Securities of the Issuer.
The responses to Items 4 and 5 are incorporated herein by this
reference.
Item 7. Material to be Filed as Exhibits.
Exhibit 1 -- Agreement and Plan of Merger, dated as of August 14,
1995, by and among the Company, Federated, and Newco.
Exhibit 2 -- Stock Agreement, dated as of August 14, 1995, by and
between Federated and Zell/Chilmark.
-4-
<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.
Date: August 24, 1995 FEDERATED DEPARTMENT STORES, INC.
By: /s/ Dennis J. Broderick
---------------------------------------------
Name: Dennis J. Broderick
Title: Senior Vice President
-5-
<PAGE>
SCHEDULE I
----------
Information with Respect to
Directors and Executive Officers of Federated
---------------------------------------------
Each of the individuals listed below is a United States citizen. The
business address of each such individual is 7 West Seventh Street, Cincinnati,
Ohio 45202. The address of the corporation or organization (if other than
Federated), if any, in which the principal occupation or employment of each such
individual is conducted is set forth opposite such individual's name below.
<TABLE><CAPTION>
Name Title Present Principal Occupation or Employment
--------------------- ------------------------------------ ------------------------------------------
<S> <C> <C>
Allen I. Questrom Chairman of the Board, Chief Executive Chairman of the Board and Chief Executive
Officer and Director Officer of Federated
James M. Zimmerman President, Chief Operating Officer and President and Chief Operating Officer of
Director Federated
Ronald W. Tysoe Vice Chairman, Chief Financial Officer Vice Chairman and Chief Financial Officer of
and Director Federated
Thomas G. Cody Executive Vice President - Legal and Executive Vice President - Legal and Human
Human Resources Resources of Federated
Dennis J. Broderick Senior Vice President, General Counsel Senior Vice President, General Counsel and
and Secretary Secretary of Federated
John E. Brown Senior Vice President and Controller Senior Vice President and Controller of
Federated
Karen Hoguet Senior Vice President - Planning and Senior Vice President - Planning and Treasurer
Treasurer of Federated
Robert A. Charpie Director Chairman of Ampersand Ventures
Ampersand Ventures
55 Williams Street
Suite 240
Wellesley, MA 02181
Lyle Everingham Director Retired as Chief Executive Officer and Chairman
of the Board of The Kroger Co.
Meyer Feldberg Director Dean of the Columbia Business School at
Columbia University
Columbia University School of Business
101 Uris Hall
16th and Broadway
New York, New York 10027
Earl G. Graves, Sr. Director President and Chief Executive Officer of Earl G.
Graves, Ltd. and Publisher of "Black
Enterprise" Magazine
Earl G. Graves Limited
130 5th Avenue
New York, NY 10011
George V. Grune Director Chairman of De-Witt Wallace-Reader's Digest
Fund and Lila Wallace-Reader's Digest Fund
Two Park Avenue, 23rd Floor
New York, NY 10016
Gertrude G. Michelson Director Retired as Senior Advisor to R. H. Macy & Co.,
Inc.
-6-
<PAGE>
<CAPTION>
Name Title Present Principal Occupation or Employment
--------------------- ------------------------------------ ------------------------------------------
<S> <C> <C>
Joseph Neubauer Director Chairman and Chief Executive Officer of The
ARAMARK Corporation (formerly known as The
ARA Group)
ARAMARK Corporation
1101 Market Street
Philadelphia, PA 19107
Laurence A. Tisch Director Chairman, President and Chief Executive
Officer of CBS Inc. and Chairman and Co-Chief
Executive Officer of Loews Corporation
CBS Inc.
51 West 52nd Street, 35th Floor
New York, NY 10019
Loews Corporation
667 Madison Avenue
New York, NY 10021
Paul W. Van Orden Director Executive in Residence, Columbia University,
Graduate School of Business
Columbia University
Graduate School of Business
Uris Hall #214
116th Street & Broadway
New York, NY 10027
Karl M. von der Heyden Director Senior Advisor to The Clipper Group
The Clipper Group
12 E. 49th Street
30th Floor
New York, NY 10017
Marna C. Whittington Director Partner with Miller, Anderson & Sherrerd, LLP
Miller, Anderson & Sherrerd, LLP
100 Front Street
West Conshohocken, PA 10428
-7-
</TABLE>
Exhibit 1
===========================================================================
AGREEMENT AND PLAN OF MERGER
by and among
BROADWAY STORES, INC.
FEDERATED DEPARTMENT STORES, INC.
and
NOMO COMPANY, INC.
---------------------------------
Dated as of August 14, 1995
---------------------------------
===========================================================================
1
<PAGE>
Table of Contents
Page
----
1. The Merger . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.1 The Merger . . . . . . . . . . . . . . . . . . . . . . . . 5
1.2 The Closing . . . . . . . . . . . . . . . . . . . . . . . . 5
1.3 Effective Time . . . . . . . . . . . . . . . . . . . . . . 6
1.4 Certificate of Incorporation and By-Laws of Surviving
Corporation . . . . . . . . . . . . . . . . . . . . . . . . 6
1.5 Directors and Officers of Surviving Corporation . . . . . . 6
2. Conversion of Securities . . . . . . . . . . . . . . . . . . . . . 6
2.1 Conversion of Securities . . . . . . . . . . . . . . . . . 6
2.2 Payment for Company Common Shares . . . . . . . . . . . . . 8
2.3 Fractional Shares . . . . . . . . . . . . . . . . . . . . . 9
2.4 Payment for Company Series A Preferred Shares . . . . . . . 9
2.5 Dissenting Company Series A Preferred Shares . . . . . . 10
2.6 No Transfer after the Effective Time . . . . . . . . . . 10
3. Representations and Warranties of the Company . . . . . . . . . . 10
3.1 Existence; Good Standing; Corporate Authority . . . . . . 10
3.2 Authorization, Validity and Effect of Agreement . . . . . 11
3.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 11
3.4 Subsidiaries . . . . . . . . . . . . . . . . . . . . . . 12
3.5 Other Interests . . . . . . . . . . . . . . . . . . . . . 12
3.6 No Conflict; Required Filings and Consents . . . . . . . 12
3.7 Compliance . . . . . . . . . . . . . . . . . . . . . . . 13
3.8 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 13
3.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . 15
3.10 Absence of Certain Changes . . . . . . . . . . . . . . . 15
3.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 15
3.12 Employee Benefit Plans . . . . . . . . . . . . . . . . . 15
3.13 State Takeover Statutes . . . . . . . . . . . . . . . . . 16
3.14 No Brokers . . . . . . . . . . . . . . . . . . . . . . . 16
3.15 Opinion of Financial Advisor . . . . . . . . . . . . . . 16
4. Representations and Warranties of Parent and Merger Sub . . . . . 17
4.1 Existence; Good Standing; Corporate Authority . . . . . . 17
4.2 Authorization, Validity and Effect of Agreement . . . . . 17
4.3 Capitalization . . . . . . . . . . . . . . . . . . . . . 17
4.4 No Conflict; Required Filings and Consents . . . . . . . 18
4.5 Compliance . . . . . . . . . . . . . . . . . . . . . . . 19
4.6 SEC Documents . . . . . . . . . . . . . . . . . . . . . . 19
4.7 Litigation . . . . . . . . . . . . . . . . . . . . . . . 20
4.8 Absence of Certain Changes . . . . . . . . . . . . . . . 20
4.9 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . 20
4.10 Employee Benefit Plans . . . . . . . . . . . . . . . . . 21
2
<PAGE>
Table of Contents (Cont'd)
Page
----
4.11 No Brokers . . . . . . . . . . . . . . . . . . . . . . . 21
4.12 Merger Sub . . . . . . . . . . . . . . . . . . . . . . . 21
4.13 Issuance of Parent Common Shares . . . . . . . . . . . . 21
5. Covenants . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.1 Alternative Proposals . . . . . . . . . . . . . . . . . . 21
5.2 Interim Operations . . . . . . . . . . . . . . . . . . . 22
5.3 Meeting of Stockholders . . . . . . . . . . . . . . . . . 24
5.4 Filings, Other Action . . . . . . . . . . . . . . . . . . 24
5.5 Inspection of Records . . . . . . . . . . . . . . . . . . 24
5.6 Publicity . . . . . . . . . . . . . . . . . . . . . . . . 25
5.7 Registration Statement . . . . . . . . . . . . . . . . . 25
5.8 Listing Application . . . . . . . . . . . . . . . . . . . 26
5.9 Further Action . . . . . . . . . . . . . . . . . . . . . 26
5.10 Affiliate Letters . . . . . . . . . . . . . . . . . . . . 26
5.11 Expenses . . . . . . . . . . . . . . . . . . . . . . . . 26
5.12 Insurance; Indemnity . . . . . . . . . . . . . . . . . . 26
5.13 Employee Benefits . . . . . . . . . . . . . . . . . . . . 28
5.14 Conveyance Taxes . . . . . . . . . . . . . . . . . . . . 28
5.15 Consents . . . . . . . . . . . . . . . . . . . . . . . . 29
5.16 No Extraordinary Dividends by Parent . . . . . . . . . . 29
5.17 Delivery of Parent Company Shares under the Company POR . 29
6. Conditions . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
6.1 Conditions to Each Party's Obligation To Effect the Merger
29
6.2 Conditions to Obligation of Company To Effect the Merger 30
6.3 Conditions to Obligation of Parent and Merger Sub to
Effect the Merger . . . . . . . . . . . . . . . . . . . . 30
7. Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
7.1 Termination by Mutual Consent . . . . . . . . . . . . . . 32
7.2 Termination by Either Parent or Company . . . . . . . . . 32
7.3 Termination by Company . . . . . . . . . . . . . . . . . 32
7.4 Termination by Parent and Merger Sub . . . . . . . . . . 32
7.5 Effect of Termination and Abandonment . . . . . . . . . . 33
8. General Provisions . . . . . . . . . . . . . . . . . . . . . . . 33
8.1 Nonsurvival of Representations, Warranties and Agreements 33
8.2 Notices . . . . . . . . . . . . . . . . . . . . . . . . . 33
8.3 Assignment; Binding Effect . . . . . . . . . . . . . . . 35
8.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . 35
8.5 Amendment . . . . . . . . . . . . . . . . . . . . . . . . 35
8.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . 35
3
<PAGE>
Table of Contents (Cont'd)
Page
----
8.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . 35
8.8 Headings . . . . . . . . . . . . . . . . . . . . . . . . 36
8.9 Interpretation . . . . . . . . . . . . . . . . . . . . . 36
8.10 Waivers . . . . . . . . . . . . . . . . . . . . . . . . . 36
8.11 Incorporation of Schedules . . . . . . . . . . . . . . . 36
8.12 Severability . . . . . . . . . . . . . . . . . . . . . . 36
8.13 Enforcement of Agreement . . . . . . . . . . . . . . . . 36
8.14 Prudential Loan . . . . . . . . . . . . . . . . . . . . . 36
8.15 Effect of Exercise of Option . . . . . . . . . . . . . . 37
8.16 Absence of Certain Knowledge . . . . . . . . . . . . . . 38
List of Schedules
Schedule 2.1(f) - Options
Schedule 3.6(a) - Certain Conflicts of the Company
Schedule 3.8(d) - Indebtedness of the Company
Schedule 4.4(a) - Certain Conflicts of Parent
Schedule 5.13 - Employee Agreements and Arrangements
Schedule 6.3(d) - Certain Actions by the Company and its Board of Directors
List of Exhibits
Exhibit A - Form of Amended and Restated Certificate of Incorporation
Exhibit B - Form of Amended and Restated By-Laws
Exhibit C - Form of Affiliate Letter
Exhibit D - Form of Registration Rights Agreement
4
<PAGE>
Agreement and Plan of Merger
Agreement and Plan of Merger (this "Agreement"), dated as of
August 14, 1995, by and among Broadway Stores, Inc., a Delaware corporation
(the "Company"), Federated Department Stores, Inc., a Delaware corporation
("Parent"), and Nomo Company, Inc., a Delaware corporation and a wholly
owned subsidiary of Parent ("Merger Sub").
Recitals
A. Each of the Boards of Directors of the Company, Parent and
Merger Sub has determined it is in the best interests of its respective
stockholders for Merger Sub to merge with and into the Company (the
"Merger"), on the terms and subject to the conditions set forth herein.
B. Each of the Company, Parent and Merger Sub desires to
provide for the consummation of the Merger and certain other transactions
relating thereto, on the terms and subject to the conditions set forth
herein.
C. As a condition to its willingness to enter into this
Agreement, Parent has required that, simultaneously with the execution
hereof, [Cub], a Delaware limited partnership and stockholder of the
Company ("Stockholder"), enter into the Stock Agreement, dated as of even
date herewith (the "Stock Agreement"), with Parent, pursuant to which
Stockholder is granting to Parent the option (the "Option") to purchase all
of the Company Common Shares (as defined below) owned by Stockholder.
1. The Merger
1.1 The Merger. (a) On the terms and subject to the conditions
----------
of this Agreement, at the Effective Time (as defined below), Merger Sub
will be merged with and into the Company in accordance with the applicable
provisions of the General Corporation Law of the State of Delaware (the
"DGCL"), and the separate corporate existence of Merger Sub will thereupon
cease. The Company will be the surviving corporation in the Merger (as
such, the "Surviving Corporation").
(b) At the Effective Time, the corporate existence of the
Company with all its rights, privileges, powers and franchises will
continue unaffected and unimpaired by the Merger. The Merger will have the
effects specified in the DGCL.
1.2 The Closing. The closing (the "Closing") of the
-----------
transactions contemplated by this Agreement 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 first business day following the date on
which the last of the conditions (excluding conditions that by their terms
cannot be satisfied until the Closing Date (as defined below)) set forth in
Article 6 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".
5
<PAGE>
1.3 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 6 is satisfied or waived in accordance herewith, Merger
Sub and the Company will cause a certificate of merger to be filed with the
Secretary of State of the State of Delaware as provided in Section 251 of
the DGCL. Upon completion of such filing, the Merger will become effective
in accordance with the DGCL. The time and date on which the Merger becomes
effective is herein referred to as the "Effective Time."
1.4 Certificate of Incorporation and By-Laws of Surviving
-----------------------------------------------------
Corporation. (a) The certificate 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 DGCL will be the certificate of
incorporation of the Company immediately prior to the Effective Time, as
amended and restated in the form of Exhibit A.
(b) The by-laws of the Surviving Corporation to be in effect
from and after the Effective Time until amended in accordance with their
terms and the DGCL will be the by-laws of the Company immediately prior to
the Effective Time, as amended and restated in the form of Exhibit B.
1.5 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 Merger Sub 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 certificate of incorporation and the by-laws
of the Surviving Corporation.
(b) The officers of the Surviving Corporation will consist of
the officers of Merger Sub 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 certificate of
incorporation and the by-laws of the Surviving Corporation.
2. Conversion of Securities
2.1 Conversion of Securities. (a) At the Effective Time, each
------------------------
share of Common Stock, par value $0.01 per share, of the Company (each a
"Company Common Share") issued and outstanding immediately prior to the
Effective Time (other than Company Common Shares owned by Parent or any
direct or indirect wholly owned subsidiary of Parent (collectively, the
"Parent Companies") or any of the Company's direct or indirect wholly owned
subsidiaries) will, by virtue of the Merger and without any action on the
part of the holder thereof, be converted into 0.27 shares (the "Conversion
Rate") of Common Stock, par value $0.01 per share, of Parent and the
associated share purchase rights (collectively, the "Parent Common
Shares").
6
<PAGE>
(b) All Company Common Shares to be converted into Parent Common
Shares pursuant to this Section 2.1 will, by virtue of the Merger and
without any action on the part of the holders thereof, cease to be
outstanding, be cancelled and retired and cease to exist, and each holder
of a certificate previously representing any such Company Common Shares
will thereafter cease to have any rights with respect to such Company
Common Shares, except the right to receive for each of the Company Common
Shares, upon the surrender of such certificate in accordance with Section
2.2, the number of Parent Common Shares specified above and cash in lieu of
fractional Parent Common Shares as contemplated by Section 2.3
(collectively, the "Consideration").
(c) At the Effective Time, each Company Common Share issued and
outstanding and owned by any of the Parent Companies or any of the
Company's direct or indirect wholly owned subsidiaries immediately prior to
the Effective Time will, by virtue of the Merger and without any action on
the part of the holder thereof, cease to be outstanding, be cancelled and
retired without payment of any consideration therefor and cease to exist.
(d) At the Effective Time, each share of Series A Preferred
Stock, par value $0.01 per share, of the Company (each, a "Company Series A
Preferred Share") issued and outstanding immediately prior to the Effective
Time will, by virtue of the Merger and without any action on the part of
the holders thereof, be converted into one one-thousandth of a share of
Series A Preferred Stock, par value $0.01 per share, of the Surviving
Corporation (each a "Surviving Corporation Series A Preferred Share"),
having the powers, preferences and relative, participating, optional or
other special rights set forth in Exhibit A.
(e) At the Effective Time, each share of Common Stock, par value
$0.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time will, by virtue of the Merger and without any action on
the part of Merger Sub or the holder thereof, be converted into 370.44
shares of common stock, par value $0.01 per share, of the Surviving
Corporation, with the result that the Surviving Corporation will be a
wholly owned subsidiary of Parent.
(f) Subject to the satisfaction of the obligations of the
Company with respect thereto in Schedule 6.3(d), at the Effective Time,
each outstanding option to purchase Company Common Shares (each, an
"Option") listed on Schedule 2.1(f) and each outstanding Option issued in
accordance with Section 5.2(f) will become an option to acquire, on
substantially the same terms and conditions as were applicable under such
Option immediately prior to the Effective Time, a number of Parent Common
Shares equal to the product of the Conversion Rate and the number of
Company Common Shares subject to such Option immediately prior to the
Effective Time, at a price per share equal to the aggregate exercise price
for the Company Common Shares subject to such Option divided by the number
of Parent Common Shares deemed to be purchasable pursuant to such Option;
provided, however, that Parent will not issue any fractional Parent Common
Share upon any exercise of any Option and any right in respect thereof
will, without further action, be forfeited. Subject to the satisfaction of
the obligations of the Company with respect thereto in Schedule 6.3(d),
following the Effective Time Parent will issue the Parent Common Shares
required to be issued upon the exercise of any Option as provided in the
immediately preceding sentence.
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<PAGE>
(g) At or promptly following the Effective Time, Parent will,
and will cause the Surviving Corporation to, execute an agreement providing
that any holder of a Company Warrant (as defined below) will have the right
until the expiration date thereof to exercise such Company Warrant for the
number of Parent Common Shares receivable pursuant to Section 2.1(a) by a
holder of the number of Company Common Shares for which such Company
Warrant might have been exercised immediately prior to the Effective Time.
2.2 Payment for Company Common Shares. (a) At the Effective
---------------------------------
Time, Parent will make available to The Bank of New York or such other
exchange agent as may be selected by Parent and reasonably acceptable to
the Company (the "Exchange Agent"), for the benefit of the holders of
Company Common Shares, a sufficient number of certificates representing
Parent Common Shares required to effect the delivery of the aggregate
Consideration pursuant to Section 2.1(a) (the certificates representing
Parent Common Shares and any cash delivered to the Exchange Agent pursuant
to Section 2.3 comprising such aggregate Consideration being hereinafter
referred to as the "Exchange Fund"). The Exchange Agent will, pursuant to
irrevocable instructions, deliver the Parent Common Shares contemplated to
be issued pursuant to Section 2.1(a) out of the Exchange Fund, and, except
as provided in Section 2.3, the Exchange Fund will not be used for any
other purpose.
(b) Promptly after the Effective Time, the Exchange Agent will
mail to each holder of record (other than holders of certificates for
Company Common Shares referred to in Section 2.1(c)) of a certificate or
certificates which immediately prior to the Effective Time represented
outstanding Company Common Shares (the "Certificates") (i) a form of letter
of transmittal (which will specify that delivery will be effected, and risk
of loss and title to the Certificates will pass, only upon proper delivery
of the Certificates to the Exchange Agent) and (ii) instructions for use in
effecting the surrender of the Certificates for payment therefor. Upon
surrender of Certificates for cancellation to the Exchange Agent, together
with such letter of transmittal duly executed and any other required
documents, the holder of such Certificates will be entitled to receive for
each of the Company Common Shares represented by such Certificates the
Consideration and the Certificates so surrendered will promptly be
cancelled. Until so surrendered, Certificates will represent solely the
right to receive the Consideration. No dividends or other distributions
that are declared after the Effective Time on Parent Common Shares and
payable to the holders of record thereof after the Effective Time will be
paid to persons entitled by reason of the Merger to receive Parent Common
Shares until such persons surrender their Certificates. Upon such
surrender, there will be paid to the person in whose name the Parent Common
Shares are issued any dividends or other distributions on such Parent
Common Shares which will have a record date after the Effective Time and
prior to such surrender and a payment date after such surrender and such
payment will be made on such payment date. In no event will the persons
entitled to receive such dividends or other distributions be entitled to
receive interest on such dividends or other distributions. If any cash or
certificate representing Parent Common Shares is to be paid to or issued in
a name other than that in which the Certificate surrendered in exchange
therefor is registered, it will be a condition of such exchange that the
Certificate so surrendered be properly endorsed and otherwise in proper
form for transfer and that the person requesting such exchange pay to the
Exchange Agent any transfer or other taxes required by reason of the
issuance of certificates for such Parent Common Shares in a name other than
that of the registered holder of the Certificate surrendered, or establish
8
<PAGE>
to the satisfaction of the Exchange Agent that such tax has been paid or is
not applicable. Notwithstanding the foregoing, neither the Exchange Agent
nor any party hereto will be liable to a holder of Company Common Shares
for any Parent Common Shares or dividends thereon or, in accordance with
Section 2.3, cash in lieu of fractional Parent Common Shares, delivered to
a public official pursuant to applicable escheat law. The Exchange Agent
will not be entitled to vote or exercise any rights of ownership with
respect to such Parent Common Shares for the account of the persons
entitled thereto.
(c) Any portion of the Exchange Fund or the cash made available
to the Exchange Agent pursuant to Section 2.3 which remains unclaimed by
the former stockholders of the Company for one year after the Effective
Time will be delivered to Parent and any former stockholders of the Company
will thereafter look only to Parent for payment of their claim for the
Consideration for the Company Common Shares.
2.3 Fractional Shares. No fractional Parent Common Shares will
-----------------
be issued in the Merger. In lieu of any such fractional securities, each
holder of Company Common Shares who would otherwise have been entitled to a
fraction of a Parent Common Share upon surrender of Certificates for
exchange pursuant to this Article 2 will be paid an amount in cash (without
interest), rounded to the nearest cent, determined by multiplying (a) the
per share closing price on the New York Stock Exchange, Inc. (the "NYSE")
of Parent Common Shares (as reported on the NYSE Composite Transactions) on
the date of the Effective Time (or, if Parent Common Shares do not trade on
the NYSE on such date, the first date of trading of Parent Common Shares on
the NYSE after the Effective Time) by (b) the fractional interest to which
such holder otherwise would be entitled. Promptly upon request from the
Exchange Agent, Parent will make available to the Exchange Agent the cash
necessary for this purpose.
2.4 Payment for Company Series A Preferred Shares. At the
---------------------------------------------
Effective Time, Parent and the Surviving Corporation will make available to
the Exchange Agent, for the benefit of the holders of Company Series A
Preferred Shares, a sufficient number of certificates representing
Surviving Corporation Series A Preferred Shares required to effect the
delivery of Surviving Corporation Series A Preferred Shares pursuant to
Section 2.1(d). Promptly after the Effective Time, the Exchange Agent will
mail to each holder of record of a certificate or certificates which
immediately prior to the Effective Time represented outstanding Company
Series A Preferred Shares (the "Preferred Certificates") (a) a form of
letter of transmittal (which will specify that delivery will be effected,
and risk of loss and title to the Preferred Certificates will pass, only
upon proper delivery of the Preferred Certificates to the Exchange Agent)
and (b) instructions for use in effecting the surrender of the Preferred
Certificates for payment therefor. Upon surrender of Preferred
Certificates for cancellation to the Exchange Agent, together with such
letter of transmittal duly executed and any other required documents, the
holder of such Preferred Certificates will be entitled to receive for each
of the Company Series A Preferred Shares represented by such Preferred
Certificates one Surviving Corporation Series A Preferred Share and the
Preferred Certificates so surrendered will promptly be cancelled. Until so
surrendered, Preferred Certificates will represent solely the right to
receive Surviving Corporation Series A Preferred Shares.
9
<PAGE>
2.5 Dissenting Company Series A Preferred Shares.
--------------------------------------------
(a) Notwithstanding the provisions of Section 2.1 or any other provision
of this Agreement to the contrary, the Company Series A Preferred Shares
that are issued and outstanding immediately prior to the Effective Date and
are held by stockholders who have not voted such Company Series A Preferred
Shares in favor of the adoption of this Agreement and who properly demand
appraisal of such Company Series A Preferred Shares in accordance with
Section 262 of the DGCL (the "Dissenting Shares") will not be converted as
provided in Section 2.1(d) at or after the Effective Date unless and until
the holder of such Dissenting Shares fails to perfect or effectively
withdraws or loses such right to appraisal and payment under the DGCL. If
a holder of Dissenting Shares so fails to perfect or effectively withdraws
or loses such right to appraisal and payment, then, as of the Effective
Time or the occurrence of such event, whichever last occurs, such holder's
Dissenting Shares will be converted into and represent solely the right
provided in Section 2.1(d).
(b) The Company will give Parent (i) prompt written notice of
any written demands for appraisal, withdrawals of demands for appraisal and
any other instruments served pursuant to Section 262 of the DGCL and
received by the Company and (ii) the opportunity to direct all negotiations
and proceedings with respect to demands for appraisal under Section 262 of
the DGCL. The Company will not voluntarily make any payment with respect
to any demands for appraisal and will not, except with the prior written
consent of Parent, settle or offer to settle any such demands.
2.6 No Transfer after the Effective Time. No transfers of
------------------------------------
Company Common Shares or Company Series A Preferred Shares will be made on
the stock transfer books of the Company after the close of business on the
day prior to the date of the Effective Time.
3. Representations and Warranties of the Company
The Company hereby represents and warrants to each of Parent and
Merger Sub 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 Delaware. 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 would not have a material adverse
effect on the business, results of operations or financial condition of the
Company and its Subsidiaries (as defined below) taken as a whole (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 or partnership 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
10
<PAGE>
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 would not have a Company Material
Adverse Effect. The copies of the Company's certificate of incorporation
and by-laws previously made available to Parent are true and correct. As
used in this Agreement, the word "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 Company Common Shares and the
outstanding Company Series A Preferred Shares, voting together as one
class, this Agreement, 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 Company Common Shares and 25,000,000 shares of
preferred stock, par value $0.01 per Share (the "Company Preferred
Shares"). As of August 10, 1995, there were 46,052,006 Company Common
Shares, and 755,424 Company Preferred Shares (comprised solely of Company
Series A Preferred Shares) issued and outstanding. Since such date, (a) no
additional shares of capital stock of the Company have been issued, except
pursuant to the Company's stock option and stock purchase plans and other
similar employee benefit plans (the "Company Stock Plans") or pursuant to
the instruments and securities described in the last sentence of this
Section 3.3, and (b) no options, warrants or other rights to acquire shares
of the Company's capital stock (collectively, the "Company Rights") have
been granted. Except as described in the last sentence of this Section
3.3, the Company has no outstanding bonds, debentures, notes or other
obligations the holders of which have the right to vote or which are
convertible into or exercisable for securities having the right to vote
with the stockholders of the Company on any matter. All issued and
outstanding Company Common Shares and Company Preferred 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 Company Rights which obligate the Company or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of the Company or
any of its Subsidiaries other than (i) the Company's 6-1/4% Convertible
Senior Subordinated Notes due 2000, which as of the date hereof were
convertible into an aggregate of 11,792,453 Company Common Shares (the
"Company Convertible Notes"), (ii) the Company's warrants to purchase
Company Common Shares (the "Company Warrants"), which as of the date hereof
were exercisable to purchase
11
<PAGE>
an aggregate of 1,579,668 Company Common Shares, (iii) 958,558 Company
Common Shares reserved for issuance under the Company's Plan of
Reorganization (the "Company POR"), (iv) 80,878 Company Warrants reserved
for issuance and issuable under the Company POR, (v) 60,163 Company
Series A Preferred Shares reserved for issuance and issuable under the
Company POR, (vi) Company Warrants issuable upon the exchange of Company
Series A Preferred Shares, and (vii) Company Common Shares issuable under
the Company Stock Plans or awards granted pursuant thereto.
3.4 Subsidiaries. The Company owns, directly or indirectly,
------------
each 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. Each of the outstanding
shares of capital stock of each of the Company's Subsidiaries is duly
authorized, validly issued, fully paid and nonassessable, and is owned,
directly or indirectly, by the Company. Each of the outstanding shares of
capital stock of each Subsidiary of the Company is owned, directly or
indirectly, by the Company free and clear of all liens, pledges, security
interests, claims or other encumbrances other than (a) liens granted to
secure the Company's indebtedness under its working capital facility with
General Electric Capital Corporation or (b) liens imposed by local law
which are not material. The following information for each Subsidiary of
the Company has been previously provided to Parent, if applicable: (i) its
name and 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 or share capital.
3.5 Other Interests. Except for interests in the Company's
---------------
Subsidiaries, 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 $5,000,000 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 certificate of incorporation or by-
laws 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 law,
rule, regulation, order, judgment or decree 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 Schedule 3.6(a), 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 or other encumbrance 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
12
<PAGE>
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 or other occurrences which would
not prevent or delay consummation of any of the transactions contemplated
hereby in any material respect, or otherwise prevent the Company from
performing its obligations under this Agreement in any material respect,
and would not, individually or in the aggregate, have a Company Material
Adverse Effect.
(b) The execution and delivery of this Agreement by the Company
do 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 Securities Exchange Act of 1934, as amended
(the "Exchange Act"), the Securities Act of 1933, as amended (the
"Securities Act"), and state securities or "blue sky" laws ("Blue Sky
Laws"), (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) the filing of a certificate of
merger pursuant to the DGCL, (D) filings and consents as may be required
under any environmental, health or safety law or regulation pertaining to
any notification, disclosure or required approval, triggered by the Merger
or the other transactions contemplated by this Agreement, and
(E) applicable requirements, if any, of the Internal Revenue Code of 1986,
as amended (the "Code"), and state, local and foreign tax laws, and
(ii) where failure to obtain such consents, approvals, authorizations or
permits, or to make such filings or notifications, would not prevent the
Company from performing its obligations under this Agreement in any
material respect, and would not, individually or in the aggregate, have a
Company Material Adverse Effect.
3.7 Compliance. Neither the Company nor any of its Subsidiaries
----------
is in conflict with, or in default or violation of, (a) any law, rule,
regulation, order, judgment or decree 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 (b) 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, in
each case except for such conflicts, defaults or violations that have
previously been disclosed by the Company to Parent and such other
conflicts, defaults or violations that would not, individually or in the
aggregate, 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 would
not, individually or in the aggregate, 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 Securities and
Exchange Commission (the "SEC") since January 30, 1993 (collectively, the
"Company Reports"). As of their
13
<PAGE>
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, as to form in all material respects
with the applicable requirements of 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 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. No Subsidiary of
the Company is required to file any report, form or other document with the
SEC.
(b) Each of the consolidated balance sheets of the Company
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, and each of the consolidated statements of
income, retained earnings and cash flows of the Company included in or
incorporated by reference into the Company Reports (including any related
notes and schedules) presents fairly, in all material respects, the 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 (subject, in
the case of unaudited statements, to normal year-end audit adjustments), in
each case in accordance with generally accepted accounting principles
consistently applied during the periods involved, except as may be noted
therein.
(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 balance sheet of the Company or in the notes
thereto, prepared in accordance with generally accepted accounting
principles consistently applied, 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 January 28, 1995 or
April 29, 1995, (ii) liabilities or obligations arising in the ordinary
course of business (including trade indebtedness) since April 29, 1995, and
(iii) liabilities or obligations which would not, individually or in the
aggregate, have a Company Material Adverse Effect.
(d) Set forth on Schedule 3.8(d) is a listing of all of the
Company's indebtedness for borrowed money outstanding as of the date
hereof, setting forth in each case the principal amount thereof.
(e) No payment default has occurred and is continuing under
(i) the Loan Modification Implementation Agreement and Amendment to Loan
Agreement, dated as of October 8, 1992, between the Company and The
Prudential Insurance Company of America, (ii) the Amended and Restated Term
Loan Agreement, dated as of October 8, 1992, by and between the Company and
Bank of America, N.T. & S.A., or (iii) the Company's 6 1/4% Convertible Senior
Subordinated Notes due 2000.
14
<PAGE>
3.9 Litigation. Except as described in the Company Reports,
----------
there are no actions, suits or proceedings resulting from, arising out of
or related to (a) debt (including trade payables), contractual obligations
or other liabilities or obligations relating to the financial condition of
the Company or (b) all other matters, in either case pending against the
Company or any of its Subsidiaries or, to the actual knowledge of the
executive officers of the Company, threatened against the Company or any of
its Subsidiaries, at law or in equity, or before or by any Governmental
Entity, that, individually or in the aggregate, are reasonably likely to
have a Company Material Adverse Effect.
3.10 Absence of Certain Changes. Except as described in the
--------------------------
Company Reports or previously disclosed by the Company to Parent, since
January 28, 1995, there has not been (a) any Company Material Adverse
Effect, (b) any declaration, setting aside or payment of any dividend of
other distribution with respect to its capital stock, or (c) any material
change in its accounting principles, practices or methods.
3.11 Taxes. (a) The Company and each of its Subsidiaries has
-----
filed all tax returns and reports required to be filed by it, or requests
for extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are complete
and accurate in all respects, except to the extent that such failures to
file or be complete and accurate in all respects, as applicable,
individually or in the aggregate, would not have a Company Material Adverse
Effect. The Company and each of its Subsidiaries has paid (or the Company
has paid on its behalf) or made provision for all taxes shown as due on
such tax returns and reports. The most recent financial statements
contained in the Company Reports reflect adequate reserves for all taxes
payable by the Company and its Subsidiaries for all taxable periods and
portions thereof accrued through the date of such financial statements, and
no deficiencies for any taxes have been proposed, asserted or assessed
against the Company or any of its Subsidiaries that are not adequately
reserved for, except for inadequately reserved taxes and inadequately
reserved deficiencies that would not, individually or in the aggregate,
have a Company Material Adverse Effect. No requests for waivers of the
time to assess any taxes against the Company or any of its Subsidiaries
have been granted or are pending, except for requests with respect to such
taxes that have been adequately reserved for in the most recent financial
statements contained in the Company Reports, or, to the extent not
adequately reserved, the assessment of which would not, individually or in
the aggregate, have a Company Material Adverse Effect. As used in this
Agreement the term "taxes" includes all federal, state, local and foreign
income, franchise, property, sales, use, excise and other taxes, including
without limitation obligations for withholding taxes from payments due or
made to any other person and any interest, penalties or additions to tax.
(b) The consummation of the Merger and the other transactions
contemplated hereby will not result in any taxes being imposed by any state
of the United States on the stockholders of the Company as a result of the
ownership by the Company or any Subsidiary of the Company of any interest
in real property.
3.12 Employee Benefit Plans. Except as described in the Company
----------------------
Reports (and subsequent financial and actuarial statements and reports
furnished to Parent or its agents prior to the date hereof) or as would not
have a Company Material Adverse Effect,
15
<PAGE>
(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"), 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, nor to the knowledge
of the executive officers 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 Merger, Parent or the Surviving
Corporation would be obligated to make any "parachute" payment within the
meaning of Section 280G of the Code. Except as described in Schedule
3.6(a), 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 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.
3.13 State Takeover Statutes. The Board of Directors of the
-----------------------
Company has (a) approved the Merger, this Agreement, the transactions
contemplated hereby, and the grant of the Option and the purchase of
Company Common Shares pursuant thereto (collectively, the "Stock Agreement
Transaction") and such approval is sufficient to render inapplicable to the
Merger, this Agreement, the transactions contemplated hereby and the Stock
Agreement Transaction, the provisions of Section 203 of the DGCL. To the
knowledge of the executive officers of the Company after due inquiry, no
other "fair price", "merger moratorium", "control share acquisition" or
other anti-takeover statute or similar statute or regulation applies or
purports to apply to the Merger, this Agreement, the Stock Agreement or any
of the transactions contemplated hereby or thereby.
3.14 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 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
Merrill Lynch, Pierce, Fenner & Smith and Salomon Brothers Inc as its
financial advisors, the arrangements with which have been disclosed to
Parent prior to the date hereof. Other than the foregoing arrangements,
none of the executive officers of the Company is aware of any claim for
payment of any 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.
3.15 Opinion of Financial Advisor. The Company has received the
----------------------------
opinions of Merrill Lynch, Pierce, Fenner & Smith and Salomon Brothers Inc
to the effect that, as of
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the date hereof, the consideration to be received by the holders of Company
Common Shares in the Merger is fair to such holders from a financial point
of view.
4. Representations and Warranties of Parent and Merger Sub
Each of Parent and Merger Sub represents and warrants to the
Company as of the date of this Agreement as follows:
4.1 Existence; Good Standing; Corporate Authority. Each of
---------------------------------------------
Parent and Merger Sub is a corporation duly incorporated, validly existing
and in good standing under the laws of Delaware. 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 would not
have a material adverse effect on the business, results of operations or
financial condition of Parent and its Subsidiaries taken as a whole (a
"Parent Material Adverse Effect"). Parent has all requisite corporate
power and authority to own, operate and lease its properties and carry on
its business as now conducted. The copies of the certificate of
incorporation and by-laws of Parent and the articles of incorporation and
code of regulation of Merger Sub previously made available to the Company
are true and correct.
4.2 Authorization, Validity and Effect of Agreement. Each of
-----------------------------------------------
Parent and Merger Sub has the requisite corporate power and authority to
execute and deliver this Agreement and all agreements and documents
contemplated hereby to be executed respectively by it. This Agreement, the
Merger and the consummation by Parent and Merger Sub of the transactions
contemplated hereby have been duly and validly authorized by the respective
Boards of Directors of Parent and Merger Sub and by Parent as sole
stockholder of Merger Sub, and no other corporate action on the part of
Parent and Merger Sub is necessary to authorize this Agreement or 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 Merger Sub (when executed and
delivered pursuant hereto) will constitute, the valid and binding
obligations of Parent or Merger Sub, as the case may be, enforceable
respectively against them in accordance with their respective terms.
4.3 Capitalization. The authorized capital stock of Parent
--------------
consists of 500,000,000 Parent Common Shares, and 125,000,000 shares of
Preferred Stock, par value $0.01 per Share (the "Parent Preferred Shares").
As of July 29, 1995, there were 182,931,302 Parent Common Shares and no
Parent Preferred Shares issued and outstanding (excluding 29,474,155 Parent
Common Shares held by wholly owned subsidiaries of Parent). Since such
date, no additional shares of capital stock of Parent have been issued
except pursuant to Parent's stock option and employee stock purchase plans
(the "Parent Stock Plans") or pursuant to the instruments and securities
described in the last sentence of this Section 4.3. All such issued and
outstanding Parent Common Shares are duly authorized, validly issued, fully
paid, nonassessable and free of preemptive rights. Except as
17
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contemplated by this Agreement, there are not at the date of this Agreement
any existing options, warrants, calls, subscriptions, convertible
securities or other Rights which obligate Parent or any of its Subsidiaries
to issue, transfer or sell any shares of capital stock of Parent or any of
its Subsidiaries other than (a) Parent's Senior Convertible Discount Notes
due 2004 (which as of the date hereof were convertible into an aggregate of
8,563,691 Parent Common Shares), (b) Parent's Series A Warrants (which as
of the date hereof were exercisable to purchase an aggregate of 4,187,790
Parent Common Shares), (c) Parent's Series B Warrants (which as of the
date hereof were exercisable to purchase an aggregate of 1,047,000 Parent
Common Shares), (d) Parent's Series C Warrants (which as of the date
hereof were exercisable to purchase an aggregate of 9,000,000 Parent Common
Shares), (e) Parent's Series D Warrants (which as of the date hereof were
exercisable to purchase an aggregate of 9,000,000 Parent Common Shares),
(f) 81,600 shares of Common Stock issuable to the U.S. Treasury under the
Joint Plan of Reorganization of Federated Department Stores, Inc., Allied
Stores Corporation and certain of their Subsidiaries, (g) the share
purchase rights issued pursuant to the Rights Agreement, dated as of
December 19, 1994, between Parent and the Bank of New York, as rights agent
(which as of the date hereof were not exercisable), and (h) under the
Parent Stock Plans or awards granted pursuant thereto.
4.4 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by Parent and Merger Sub do not,
and the consummation by Parent and Merger Sub of the transactions
contemplated hereby will not, (i) conflict with or violate the certificate
of incorporation or by-laws or equivalent organizational documents of
Parent or Merger sub, (ii) subject to making the filings and obtaining the
approvals identified in Section 4.4(b), conflict with or violate any law,
rule, regulation, order, judgment or decree 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
Schedule 4.4(a), 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 or other encumbrance
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 or other occurrences which
would not prevent or delay consummation of any of the transactions
contemplated hereby in any material respect, or otherwise prevent Parent or
Merger Sub from performing its obligations under this Agreement in any
material respect, and would not, individually or in the aggregate, have a
Parent Material Adverse Effect.
(b) The execution and delivery of this Agreement by Parent and
Merger Sub 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, the Securities
Act and Blue Sky Laws, (B) the pre-merger notification requirements of the
HSR Act, (C) the filing of a
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certificate of merger pursuant to the DGCL, (D) such filings and consents
as may be required under any environmental, health or safety law or
regulation pertaining to any notification, disclosure or required approval
triggered by the Merger or the transactions contemplated by this Agreement,
and (E) applicable requirements, if any, of the Code and state, local and
foreign tax laws, and (ii) where failure to obtain such consents,
approvals, authorizations or permits, or to make such filings or
notifications, would not prevent or delay consummation of any of the
transactions contemplated hereby in any material respect, or otherwise
prevent Parent or Merger Sub from performing its obligations under this
Agreement in any material respect, and would not, individually or in the
aggregate, have a Parent Material Adverse Effect.
4.5 Compliance. Neither Parent nor any of its Subsidiaries is
----------
in conflict with, or in default or violation of, (a) any law, rule,
regulation, order, judgment or decree 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 (b) any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which Parent or any of its Subsidiaries or any
property or asset of Parent or any of its Subsidiaries is bound or
affected, in each case except for any such conflicts, defaults or
violations that would not, individually or in the aggregate, have a Parent
Material Adverse Effect. Parent and its Subsidiaries have obtained all
licenses, permits and other authorizations and have taken all actions
required by applicable law or governmental regulations in connection with
their business as now conducted, except where the failure to obtain any
such item or to take any such action would have, individually or in the
aggregate, a Parent Material Adverse Effect.
4.6 SEC Documents. (a) Parent has filed all forms, reports and
-------------
documents required to be filed by it with the SEC since January 28, 1995
(collectively, the "Parent Reports"). As of their respective dates, the
Parent Reports, and any such reports, forms and other documents filed by
Parent with the SEC after the date of this Agreement (i) complied, or will
comply, as to form in all material respects with the applicable
requirements of 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 sentence will not apply to
any misstatement or omission in any Parent Report filed prior to the date
of this Agreement which was superseded by a subsequent Parent Report filed
prior to the date of this Agreement. No Subsidiary of Parent is required
to file any report, form or other document with the SEC other than Prime
Receivables Corporation.
(b) Each of the consolidated balance sheets included in or
incorporated by reference into the Parent Reports (including the related
notes and schedules) presents fairly, in all material respects, the
consolidated financial position of Parent and its Subsidiaries as of its
date, and each of the consolidated statements of income, retained earnings
and cash flows included in or incorporated by reference into the Parent
Reports (including any related notes and schedules) presents fairly, in all
material respects, the results of operations, retained earnings or cash
flows, as the case may be, of Parent and its Subsidiaries for the periods
set
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<PAGE>
forth therein (subject, in the case of unaudited statements, to normal
year-end audit adjustments which would not be material in amount or
effect), in each case in accordance with generally accepted accounting
principles consistently applied during the periods involved, except as may
be noted therein.
(c) Neither Parent 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 balance sheet of Parent or in the notes thereto,
prepared in accordance with generally accepted accounting principles
consistently applied, except for (i) liabilities or obligations that were
so reserved on, or reflected in (including the notes to), the consolidated
balance sheet of Parent as of January 28, 1995 or April 29, 1995,
(ii) liabilities or obligations arising in the ordinary course of business
since April 29, 1995, and (iii) liabilities or obligations which would not,
individually or in the aggregate, have a Parent Material Adverse Effect.
4.7 Litigation. Except as described in the Parent Reports,
----------
there are no actions, suits or proceedings pending against Parent or its
Subsidiaries or, to the knowledge of the executive officers of Parent,
threatened against Parent or any of its Subsidiaries, at law or in equity,
or before or by any Government Entity that, individually or in the
aggregate, are reasonably likely to have a Parent Material Adverse Effect.
4.8 Absence of Certain Changes. Except as described in the
--------------------------
Parent Reports, since April 29, 1995, there has not been (a) any Parent
Material Adverse Effect, (b) any declaration, setting aside or payment of
any dividend of other distribution with respect to its capital stock, or
(c) any material change in its accounting principles, practices or methods.
4.9 Taxes. Each of Parent and its Subsidiaries has filed all
-----
tax returns and reports required to be filed by it, or requests for
extensions to file such returns or reports have been timely filed and
granted and have not expired, and all tax returns and reports are complete
and accurate in all respects, except to the extent that such failures to
file or be complete and accurate, as applicable, individually or in the
aggregate, would not have a Parent Material Adverse Effect. Parent and
each of its Subsidiaries has paid (or Parent has paid on its behalf) all
taxes shown as due on such tax returns and reports. The most recent
financial statements contained in the Reports reflect adequate reserves for
all taxes payable by Parent and its Subsidiaries for all taxable periods
and portions thereof accrued through the date of such financial statements,
and no deficiencies for any taxes have been proposed, asserted or assessed
against Parent or any of its Subsidiaries that are not adequately reserved
for, except for inadequately reserved taxes and inadequately reserved
deficiencies that would not, individually or in the aggregate, have a
Parent Material Adverse Effect. No requests for waivers of the time to
assess any taxes against Parent or any Parent Subsidiary have been granted
or are pending, except for requests with respect to such taxes that have
been adequately reserved for in the most recent financial statements
contained in the Parent Reports, or, to the extent not adequately reserved,
the assessment of which would not, individually or in the aggregate, have a
Parent Material Adverse Effect.
20
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4.10 Employee Benefit Plans. Except as described in the Parent
----------------------
Reports or as would not have a Parent Material Adverse Effect, (a) all
employee benefit plans or programs maintained for the benefit of the
current or former employees or directors of Parent or any of its
Subsidiaries that are sponsored, maintained or contributed to by Parent or
any of its Subsidiaries, or with respect to which Parent 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 ERISA, are
in compliance with all applicable requirements of law, including ERISA and
the Code, and (b) neither Parent 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, nor to the knowledge
of the executive officers of Parent are any such liabilities or obligations
expected to be incurred. 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 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.
4.11 No Brokers. Neither Parent nor Merger Sub 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 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.
4.12 Merger Sub. Merger Sub was formed solely for the purpose of
----------
engaging in the transactions contemplated hereby. Except for obligations
or liabilities incurred in connection with its incorporation or
organization and the transactions contemplated hereby, Merger Sub has not
incurred any obligations or liabilities or engaged in any business or
activities of any type or kind whatsoever or entered into any agreements or
arrangements with any person or entity.
4.13 Issuance of Parent Common Shares. The Parent Common Shares
--------------------------------
required to be issued pursuant to Article 2 will, when issued in accordance
with Article 2, be duly authorized, validly issued, fully paid and
nonassessable, and no stockholder of Parent will have any preemptive right
of subscription or purchase in respect thereof.
5. Covenants
5.1 Alternative Proposals. Prior to the Effective Time, the
---------------------
Company agrees (a) that neither it nor any of its Subsidiaries will, nor
will it or any of its Subsidiaries permit their respective officers,
directors, employees, agents and representatives (including, without
limitation, any investment banker, attorney or accountant retained by it or
any of its Subsidiaries) to, initiate, solicit or encourage, directly or
indirectly, any inquiries or the making or implementation of any proposal
or offer (including without limitation any proposal or offer to its
stockholders) with respect to a merger, acquisition, consolidation or
similar transaction involving any purchase of all or any significant
portion of the assets of the
21
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Company and its Subsidiaries or any equity interest in the Company or any
of its Subsidiaries other than the transactions contemplated hereby and by
the Stock Agreement and transactions permitted under Section 5.2(h) (any
such proposal or offer being hereinafter referred to as an "Alternative
Proposal") or engage in any negotiations concerning, or provide any
confidential information or data to, or have any discussions with, any
person relating to an Alternative Proposal, or otherwise facilitate any
effort or attempt to make or implement an Alternative Proposal; and
(b) that it will notify Parent immediately if any such inquiries or
proposals are received by, any such information is requested from, or any
such negotiations or discussions are sought to be initiated or continued
with, it; provided, however, that nothing contained in this Section 5.1
will prohibit the Board of Directors of the Company from, to the extent
applicable, complying with Rule 14e-2 promulgated under the Exchange Act
with regard to an Alternative Proposal. Nothing in this Section 5.1 will
(x) permit the Company to terminate this Agreement, (y) permit the Company
to enter into any agreement with respect to an Alternative Proposal for as
long as this Agreement remains in effect (it being agreed that for as long
as this Agreement remains in effect, the Company will not enter into any
agreement with any person that provides for, or in any way facilitates, an
Alternative Proposal), or (z) affect any other obligation of the Company
under this Agreement.
5.2 Interim Operations. Prior to the Effective Time, except as
------------------
contemplated by any other provision of this Agreement, unless Parent has
previously consented in writing thereto, the Company:
(a) Will, and will cause each of its Subsidiaries to, conduct
its operations in the ordinary and normal course, consistent with past
practice;
(b) Will use its reasonable best efforts, and will cause each of
its Subsidiaries to use its reasonable best efforts, to preserve intact
their business organizations and goodwill, keep available the services of
their respective officers and employees and maintain satisfactory
relationships with those persons having business relationships with them;
(c) Will not amend its certificate of incorporation or by-laws
or comparable governing instruments (other than by-law amendments which are
not material to the Company or to the consummation of the transactions
contemplated by this Agreement and as contemplated by Section 1.5);
(d) Will, upon the occurrence of any event or change in
circumstances as a result of which any representation or warranty of the
Company contained in Article 3 would be untrue or incorrect if such
representation or warranty were made immediately following the occurrence
of such event or change in circumstance, promptly (and in any event within
two business days of an executive officer of the Company obtaining
knowledge thereof) notify Parent thereof;
(e) Will promptly deliver to Parent true and correct copies of
any report, statement or schedule filed with the SEC subsequent to the date
of this Agreement;
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(f) Will not (i) except pursuant to the exercise of options,
warrants, conversion rights and other contractual rights existing on the
date hereof and disclosed pursuant to this Agreement, issue any shares of
its capital stock, effect any stock split or otherwise change its
capitalization as it existed on the date hereof, (ii) grant, confer or
award any option, warrant, conversion right or other right not existing on
the date hereof to acquire any shares of its capital stock or grant, confer
or award any bonuses or other forms of cash incentive to any officer,
director or key employee except consistent with past practice or grant or
confer any awards (other than pursuant to any of the foregoing granted
prior to the date hereof and disclosed in the Company Reports filed prior
to the date hereof or in a Schedule hereto), (iii) increase any
compensation under any employment agreement with any of its present or
future officers, directors or employees, except for normal increases for
employees consistent with past practice, grant any severance or termination
pay to, or enter into any employment or severance agreement with any
officer, director or employee or amend any such agreement in any material
respect other than severance arrangements which are consistent with past
practice with respect to employees terminated by the Company, or (iv) adopt
any new employee benefit plan or program (including any stock option, stock
benefit or stock purchase plan) or amend any existing employee benefit plan
or program in any material respect (nothing in this subsection (f) will
prevent the payment or other performance of any award or grant made prior
to the date hereof and disclosed in the Company Reports or pursuant to this
Agreement);
(g) Will not (i) declare, set aside or pay any dividend or make
any other distribution or payment with respect to any shares of its capital
stock or other ownership interests or (ii) directly or indirectly redeem,
purchase or otherwise acquire any shares of its capital stock or capital
stock of any of its Subsidiaries, or make any commitment for any such
action;
(h) Will not, and will not permit any of its Subsidiaries to,
sell, lease or otherwise dispose of any of its assets (including capital
stock of Subsidiaries) or to acquire any business or assets, except (i) in
the ordinary course of business, in each case for an amount not exceeding
$5,000,000 and (ii) that the Company may sell its store in Westminster,
Colorado to an unaffiliated third party for such cash consideration as the
Board of Directors of the Company determines in good faith to be fair to
the Company;
(i) Will not incur any material amount of indebtedness for
borrowed money or make any loans, advances or capital contributions to, or
investments (other than non-controlling investments in the ordinary course
of business) in, any other person other than a wholly owned Subsidiary of
the Company, or issue or sell any debt securities, other than borrowings
under existing lines of credit in the ordinary course of business;
(j) Will not, except pursuant to and in accordance with the
capital budget previously disclosed to Parent, authorize, commit to or make
capital expenditures;
(k) Will not mortgage or otherwise encumber or subject to any
lien any properties or assets except for such of the foregoing as are in
the normal course of business and would not be reasonably likely to have,
individually or in the aggregate, a Company Material Adverse Effect; and
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<PAGE>
(1) Will not make any change to its accounting (including tax
accounting) methods, principles or practices, except as may be required by
generally accepted accounting principles and except, in the case of tax
accounting methods, principles or practices, in the ordinary course of
business of the Company or any of its Subsidiaries.
5.3 Meeting of Stockholders. The Company will take all action
-----------------------
necessary in accordance with applicable law and its certificate of
incorporation and by-laws to convene a meeting of its stockholders as
promptly as practicable to consider and vote upon the adoption of this
Agreement. The Board of Directors of the Company will recommend such
adoption and the Company will each take all lawful action to solicit such
approval, including, without limitation, timely mailing the Proxy
Statement/Prospectus (as defined below); provided, however, that such
recommendation or solicitation is subject to any action (including any
withdrawal or change of its recommendation) taken by, or upon authority of,
the Board of Directors of the Company, as the case may be, in the exercise
of its good faith judgment based upon the advice of outside counsel (notice
of which will be promptly given to Parent and Merger Sub) as to its
fiduciary duties to its stockholders imposed by law.
5.4 Filings, Other Action. Subject to the terms and conditions
---------------------
herein provided, the parties will: (a) promptly make their respective
filings and thereafter make any other required submissions under the HSR
Act; (b) use all reasonable efforts to cooperate with one another in
(i) determining which filings are required to be made prior to the
Effective Time with, and which consents, approvals, permits or
authorizations are required to be obtained prior to the Effective Time
from, governmental or regulatory authorities of the United States, the
several states and foreign jurisdictions in connection with the execution
and delivery of this Agreement and the consummation of the transactions
contemplated hereby and (ii) timely making all such filings and timely
seeking all such consents, approvals, permits or authorizations; and
(c) use all reasonable efforts to take, or cause to be taken, all other
action and do, or cause to be done, all other things necessary, proper or
appropriate to consummate and make effective the transactions contemplated
by this Agreement. If, at any time after the Effective Time, any further
action is necessary or desirable to carry out the purpose of this
Agreement, the proper officers and directors of parties will take all such
necessary action. In the case of any consents, approvals, permits or
authorizations of any Governmental Entity required for consummation of the
Merger and the other transactions contemplated hereby under the HSR Act or
any federal or state antitrust or similar law ("Antitrust Authorizations"),
the reasonable efforts of Parent will be deemed to include divesting or
otherwise holding separate, or taking such other action (or otherwise
agreeing to do any thereof) with respect to, the Surviving Corporation's
assets and properties necessary to obtain such Antitrust Authorizations,
except to the extent that Parent reasonably determines in good faith that
such actions would, in the aggregate, require Parent to compromise
fundamentally its business interests in consummating the transactions
contemplated by this Agreement.
5.5 Inspection of Records. From the date hereof to the
---------------------
Effective Time, each of the parties will (a) allow all designated officers,
attorneys, accountants and other representatives of the other 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
24
<PAGE>
and affairs, of the parties and their respective Subsidiaries, as the case
may be, (b) furnish to the other, the other's counsel, financial advisors,
auditors and other authorized representatives such financial and operating
data and other information as such persons may reasonably request, and
(c) instruct the employees, counsel and financial advisors of the parties,
as the case may be, to cooperate with the other in the other's
investigation of the business of it and its Subsidiaries.
5.6 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.
5.7 Registration Statement. Parent and the Company will
----------------------
cooperate and promptly prepare and Parent will file with the SEC as soon as
practicable a Registration Statement on Form S-4 (the "Form S-4") under the
Securities Act, which will contain a proxy statement/prospectus and a form
of proxy in connection with the vote of the Company's stockholders with
respect to the Merger and the offer to such stockholders of the securities
to be issued pursuant to the Merger (the "Proxy Statement/Prospectus").
The respective parties will cause the Form S-4 to comply as to form in all
material respects with the applicable provisions of the Securities Act, the
Exchange Act and the rules and regulations thereunder. Parent will use all
reasonable efforts, and the Company will cooperate with Parent, to have the
Form S-4 declared effective by the SEC as promptly as practicable and to
keep the Form S-4 effective as long as is necessary to consummate the
Merger. Parent will, as promptly as practicable, provide copies of any
written comments received from the SEC with respect to the Form S-4 to the
Company and advise the Company of any verbal comments with respect to the
Form S-4 received from the SEC. Parent will use its reasonable efforts to
obtain, prior to the effective date of the Form S-4, all necessary state
securities law or "Blue Sky" permits or approvals required to carry out the
transactions contemplated by this Agreement and will pay all expenses
incident thereto. Parent agrees that the Proxy Statement/Prospectus and
each amendment or supplement thereto at the time of mailing thereof and at
the time of the respective meetings of stockholders of the Company, or, in
the case of the Form S-4 and each amendment or supplement thereto, at the
time it is filed or becomes effective, will not include an untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; provided,
however, that the foregoing will not apply to the extent that any such
untrue statement of a material fact or omission to state a material fact
was made by Parent in reliance upon and in conformity with written
information concerning the Company furnished to Parent by the Company
specifically for use in the Form S-4. The Company agrees that the written
information concerning the Company provided by it for inclusion in the
Proxy Statement/Prospectus and each amendment or supplement thereto, at the
time of mailing thereof and at the time of the meeting of stockholders of
the Company, or, in the case of written information concerning the Company
provided by the Company for inclusion in the Form S-4 or any amendment or
supplement thereto, at the time it is filed or
25
<PAGE>
becomes effective, will not include an untrue statement of a material fact
or omit to state a material fact required to be stated therein or necessary
to make the statements therein, in light of the circumstances under which
they were made, not misleading. No amendment or supplement to the Form S-4
or the Proxy Statement/Prospectus will be made by Parent or the Company
without the approval of the other party, such approval not to be
unreasonably withheld or delayed. Parent will advise the Company, promptly
after it receives notice thereof, of the time when the Form S-4 has become
effective or any supplement or amendment has been filed, the issuance of
any stop order, the denial or suspension of the qualification of Parent
Common Shares issuable in connection with the Merger for offering or sale
in any jurisdiction, or any request by the SEC for any amendment or
supplement to the Form S-4 or the Proxy Statement/Prospectus or comments
thereon and responses thereto or requests by the SEC for additional
information.
5.8 Listing Application. Parent will promptly prepare and
-------------------
submit to the NYSE a supplemental listing application covering Parent
Common Shares issuable in the Merger, and will use reasonable efforts to
obtain, prior to the Effective Time, approval for the listing of such
Parent Common Shares, subject to official notice of issuance.
5.9 Further Action. 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.
5.10 Affiliate Letters. At least 15 days prior to the Closing
-----------------
Date, the Company will deliver to Parent a list of names and addresses of
those persons who were, in the Company's reasonable judgment, at the record
date for its stockholders' meeting to approve the Merger, "affiliates"
(each such person, an "Affiliate") of the Company within the meaning of
Rule 145 of the rules and regulations promulgated under the Securities Act.
The Company will use all reasonable efforts to deliver or cause to be
delivered to Parent, prior to the Closing Date, from each of the Affiliates
of the Company identified in the foregoing list, an Affiliate Letter in the
form attached hereto as Exhibit C. Parent will be entitled to place
legends as specified in such Affiliate Letters on the certificates
evidencing any Parent Common Stock to be received by such Affiliates
pursuant to the terms of this Agreement, and to issue appropriate stop-
transfer instructions to the transfer agent for Parent Common Stock,
consistent with the terms of such Affiliate Letters.
5.11 Expenses. Whether or not the Merger is consummated, all
--------
costs and expenses incurred in connection with this Agreement and the
transactions contemplated hereby will be paid by the party incurring such
expenses except as expressly provided herein and except that (a) the filing
fee in connection with the HSR Act filing, (b) the filing fee in connection
with the filing of the Form S-4 or Proxy Statement/Prospectus with the SEC,
and (c) the expenses incurred in connection with printing and mailing the
Form S-4 and the Proxy Statement/Prospectus, will be shared equally by the
Company and Parent.
5.12 Insurance; Indemnity. (a) From and after the Effective
--------------------
Time, Parent will cause the Surviving Corporation to indemnify, defend and
hold harmless, to the fullest extent that the Company would be required
under its certificate of incorporation, by-laws and
26
<PAGE>
applicable law, each person who is now, or has been at any time prior to
the date hereof, an officer or director of the Company (individually, an
"Indemnified Party" and collectively, the "Indemnified Parties"), against
all losses, claims, damages, liabilities, costs or expenses (including
attorneys' fees), judgments, fines, penalties and amounts paid in
settlement in connection with any claim, action, suit, proceeding or
investigation arising out of or pertaining to acts or omissions, or alleged
acts or omissions, by them in their capacities as such occurring at or
prior to the Effective Time. In the event of any such claim, action, suit,
proceeding or investigation (an "Action"), any Indemnified Party wishing to
claim indemnification will promptly notify the Surviving Corporation
thereof (provided that failure to so notify the Surviving Corporation will
not affect the obligations of the Surviving Corporation to provide
indemnification except to the extent that the Surviving Corporation shall
have been prejudiced as a result of such failure). With respect to any
Action for which indemnification is requested, the Surviving Corporation
will be entitled to participate therein at its own expense and, except as
otherwise provided below, to the extent that it may wish, the Company may
assume the defense thereof, with counsel reasonably satisfactory to the
Indemnified Party. After notice from the Surviving Corporation to the
Indemnified Party of its election to assume the defense of an Action, the
Surviving Corporation will not be liable to the Indemnified Party for any
legal or other expenses subsequently incurred by the Indemnified Party in
connection with the defense thereof, other than as provided below. The
Surviving Corporation will not settle any Action without the Indemnified
Party's written consent (which consent will not be unreasonably withheld).
The Indemnified Party will have the right to employ counsel in any Action,
but the fees and expenses of such counsel incurred after notice from the
Surviving Corporation of its assumption of the defense thereof will be at
the expense of the Indemnified Party, unless (i) the employment of counsel
by the Indemnified Party has been authorized by the Surviving Corporation,
(ii) the Indemnified Party will have reasonably concluded upon the advice
of counsel that there may be a conflict of interest between the Indemnified
Party and the Surviving Corporation in the conduct of the defense of an
Action, or (iii) the Surviving Corporation shall not in fact have employed
counsel to assume the defense of an Action, in each of which cases the
reasonable fees and expenses of counsel selected by the Indemnified Party
will be at the expense of the Surviving Corporation. Notwithstanding the
foregoing, the Surviving Corporation will not be liable for any settlement
effected without its written consent and the Surviving Corporation will not
be obligated pursuant to this Section 5.12(a) to pay the fees and
disbursements of more than one counsel for all Indemnified Parties in any
single Action, except to the extent two or more of such Indemnified Parties
have conflicting interests in the outcome of such action.
(b) Parent will cause the Surviving Corporation to keep in
effect provisions in its certificate of incorporation and by-laws providing
for exculpation of director and officer liability and its indemnification
of the Indemnified Parties to the fullest extent permitted under the DGCL,
which provisions will not be amended except as required by applicable law
or except to make changes permitted by law that would enlarge the
Indemnified Parties' right of indemnification.
(c) For a period of five years after the Effective Time, Parent
will cause to be maintained officers' and directors' liability insurance
covering the Indemnified Parties who are currently covered, in their
capacities as officers and directors, by the Company's existing officers'
and directors' liability insurance policies on terms substantially no less
27
<PAGE>
advantageous to the Indemnified Parties than such existing insurance;
provided, however, that Parent will not be required in order to maintain or
procure such coverage to pay premiums on an annualized basis in excess of
two times the current annual premium paid by the Company for its existing
overage (the "Cap") (which current annual premium the Company represents
and warrants to be approximately $835,000); and provided, further, that if
equivalent coverage cannot be obtained, or can be obtained only by paying
an annual premium in excess of the Cap, Parent will only be required to
obtain as much coverage as can be obtained by paying premiums on an
annualized basis equal to the Cap.
(d) The provisions of this Section 5.12 will survive the
consummation of the Merger and expressly are intended to benefit each of
the Indemnified Parties.
5.13 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 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 to provide, for the benefit of employees of the Surviving
Corporation who were employees of the Company immediately prior to the
Effective Time, recognizing all prior service for eligibility and vesting
purposes of the officers, directors or employees with the Company and any
of its Subsidiaries as service thereunder, "employee benefit plans" within
the meaning of Section 3(3) of ERISA (a) until January 1, 1996, that are,
in the aggregate, substantially comparable to the "employee benefit plans"
provided to such individuals by the Company on the date hereof, and
(b) thereafter until the expiration of one year after the Effective Time,
at the election of Parent, that are either (i) in the aggregate,
substantially comparable to the "employee benefit plans" provided to such
individuals by the Company on the date hereof or (ii) in the aggregate,
substantially comparable to the "employee benefit plans" provided to
similarly situated employees of Parent or its Subsidiaries who were not
employees of the Company immediately prior to the Effective Time; provided,
however, that notwithstanding the foregoing (A) nothing herein will be
deemed to require Parent to modify the benefit formulas under any pension
plan of the Company 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," (B) 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,
(C) nothing herein will obligate Parent or the Surviving Corporation to
continue any particular employee benefit plan for any period after the
Effective Time, and (D) 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 5.13. 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, all of which are disclosed in the Company Reports or in
Schedule 5.13.
5.14 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,
28
<PAGE>
stock transfer and stamp taxes, any transfer, recording, registration and
other fees and any similar taxes which become payable in connection with
the transactions contemplated by this Agreement that are required or
permitted to be filed on or before the Effective Time and each party will
pay any such tax or fee which becomes payable by it on or before the
Effective Time.
5.15 Consents. The Company will use all reasonable efforts to
--------
obtain each of the consents identified in Schedule 3.6(a).
5.16 No Extraordinary Dividends by Parent. Prior to the
------------------------------------
Effective Time, Parent will not declare, set aside or pay any extraordinary
dividend or make any other extraordinary distribution or payment with
respect to shares of its capital stock.
5.17 Delivery of Parent Company Shares under the Company POR.
-------------------------------------------------------
Subject to the satisfaction of Section 6.3(g), after the Effective Time,
Parent will contribute or otherwise make available to the Surviving
Corporation Parent Common Shares to enable it to issue, distribute or
release such Parent Common Shares in accordance with the Company POR.
6. Conditions
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) 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.
(b) The waiting period applicable to the consummation of the
Merger under the HSR Act shall have expired or been terminated.
(c) Neither of the parties hereto shall be subject to any order
or injunction of a court of competent jurisdiction which prohibits the
consummation of the transactions contemplated by this Agreement. In the
event any such order or injunction shall have been issued, each party
agrees to use its reasonable best efforts to have any such injunction
lifted.
(d) The Form S-4 shall have become effective and shall be
effective at the Effective Time, and no stop order suspending effectiveness
of the Form S-4 shall have been issued, no action, suit, proceeding or
investigation by the SEC to suspend the effectiveness thereof shall have
been initiated and be continuing or, to the knowledge of Parent or the
Company, be threatened in writing, and all necessary approvals under state
securities laws relating to the issuance or trading of Parent Common Shares
to be issued to the Company stockholders in connection with the Merger
shall have been received.
29
<PAGE>
(e) All consents, authorizations, orders and approvals of (or
filings or registrations with) any Governmental Entity required in
connection with the execution, delivery and performance of this Agreement
shall have been obtained or made, except for filings in connection with the
Merger and any other documents required to be filed after the Effective
Time and except where the failure to have obtained or made any such
consent, authorization, order, approval, filing or registration would not
have a material adverse effect on the business, financial condition or
results of operations of the Surviving Corporation following the Effective
Time.
(f) Parent Common Shares to be issued to the Company
stockholders in connection with the Merger shall have been approved for
listing on the NYSE, subject only to official notice of issuance.
(g) General Electric Capital Corporation, the Company and Parent
shall have executed the 10th Amendment to the Credit Agreement dated
October 8, 1992 between GECC and the Company containing the terms and
conditions substantially identical to those set forth in the term sheet,
dated August 14, 1995, initialled by each of the parties.
6.2 Conditions to Obligation of Company To Effect the Merger.
--------------------------------------------------------
The obligation of the Company to effect the Merger will be subject to the
fulfillment at or prior to the Closing Date of the following additional
conditions:
(a) Each of Parent and Merger Sub shall have performed in all
material respects its agreements contained in this Agreement required to be
performed by it on or prior to the Closing Date, (i) all of the
representations and warranties of Parent and Merger Sub contained in this
Agreement shall have been true and correct in all material respects as of
the date hereof and (ii) the representations and warranties of Parent and
Merger Sub contained in this Agreement (other than those contained in
Sections 4.5(b), 4.6(c), 4.8(a) and 4.10(b)) shall be true and correct in
all material respects as of the Closing Date, except (A) for changes
specifically permitted by this Agreement and (B) that those representations
and warranties which address matters only as of a particular date shall
remain true and correct in all material respects as of such date, and the
Company shall have received a certificate of the Chairman, the President or
a Vice President of Parent, dated the Closing Date, certifying to such
effect.
(b) From the date of this Agreement through the Effective Time,
there shall not have occurred any material adverse change in the business
or properties of Parent excluding changes resulting from, arising out of or
related to (i) Parent's operations, (ii) Parent's results of operations,
(iii) the department store or retail business generally or (iv) general
economic or financial conditions.
(c) Parent shall have executed a Registration Rights Agreement
substantially in the form of Exhibit D.
6.3 Conditions to Obligation of Parent and Merger Sub to Effect
-----------------------------------------------------------
the Merger. The obligation of Parent and Merger Sub to effect the Merger
----------
will be subject to the
30
<PAGE>
fulfillment at or prior to the Closing Date (or such other date as may be
specified below) of the following additional conditions:
(a) The Company shall have performed in all material respects
its agreements contained in this Agreement required to be performed on or
prior to the Closing Date, (i) the representations and warranties of the
Company contained in this Agreement shall have been true and correct in all
material respects as of the date hereof and (ii) the representations and
warranties of the Company contained in this Agreement (other than those
contained in Sections 3.7(b), 3.8(c), 3.9(a), 3.10(a) and 3.12(b)) shall be
true and correct in all material respects as of the Closing Date, except
(A) for changes specifically permitted by this Agreement and (B) that those
representations and warranties which address matters only as of a
particular date will remain true and correct in all material respects as of
such date, and Parent and Merger Sub shall have received a certificate of
the Chairman, the President or a Vice President of the Company, dated the
Closing Date, certifying to such effect.
(b) From the date of this Agreement through the Effective Time,
there shall not have occurred any material adverse change in the business
or properties of the Company excluding changes resulting from, arising out
of or related to (i) the Company's operations, (ii) the Company's results
of operations, (iii) the department store or retail business generally or
(iv) general economic or financial conditions.
(c) [Intentionally Left Blank]
(d) The Company or the Board of Directors of the Company or the
other persons or entities described in Schedule 6.3(d), as the case may be,
shall have taken the actions set forth in Schedule 6.3(d).
(e) Parent shall have obtained the consent or waiver set forth
in Schedule 4.4(a) by the fourteenth business day following the date hereof
and the consent or waiver set forth in Schedule 6.4 to the Purchase
Agreement, dated as of the date hereof (the "Prudential Agreement"), among
The Prudential Insurance Company of America ("Prudential"), Federated
Noteholding Corporation II ("FNC") and Parent, provided that this condition
will be deemed to be waived (without any action by the parties) in the
event Parent does not terminate this Agreement within five business days
after the date referred to above.
(f) All conditions to the obligations of FNC to consummate the
transactions contemplated by the Prudential Agreement shall have been duly
satisfied or waived in accordance with the provisions thereof.
(g) Within 30 calendar days after of the date hereof, the
Company shall have delivered to Parent either (i) an order of the
Bankruptcy Court having jurisdiction over the Company POR or (ii) a written
opinion of nationally recognized outside counsel, in either case in form
and substance reasonably satisfactory to Parent, to the effect that the
obligation of the Company to distribute any additional Company Common
Shares pursuant to the Company POR on or after the Effective Time may be
satisfied by the distribution for each such Company Common Share of Parent
Common Shares at the Conversion Rate.
31
<PAGE>
(h) After the Effective Time, no person will have any right
under any stock option plan (or any option granted thereunder) or other
plan, program or arrangement to acquire any equity securities of the
Company of any of its Subsidiaries.
7. Termination
7.1 Termination by Mutual Consent. This Agreement may be
-----------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval of this Agreement by the
stockholders of the Company, by the mutual consent of Parent and the
Company.
7.2 Termination by Either Parent or Company. This Agreement may
---------------------------------------
be terminated and the Merger may be abandoned by action of the Board of
Directors of either Parent or the Company if (a) the Merger shall not have
been consummated by February 29, 1996 (the "Outside Date"), (b) a United
States federal or state court of competent jurisdiction or United States
federal or state governmental, regulatory or administrative agency or
commission issues an order, decree or ruling or takes any other action
permanently restraining, enjoining or otherwise prohibiting the
transactions contemplated by this agreement and such order, decree, ruling
or other action becomes final and non-appealable; provided, that the party
seeking to terminate this Agreement pursuant to this clause (b) has used
all reasonable efforts to remove such injunction, order or decree, or
(c) any condition to such party's obligations to consummate the
transactions contemplated hereby is incapable of being satisfied by the
Outside Date; and provided, in the case of a termination pursuant to clause
(a) or (b) above, that the terminating party has not breached in any manner
that proximately contributes to the failure to consummate the Merger by the
Outside Date.
7.3 Termination by Company. This Agreement may be terminated
----------------------
and the Merger may be abandoned at any time prior to the Effective Time,
before or after the adoption by the stockholders of the Company referred to
in Section 6.1(a), by action of the Board of Directors of the Company, if
(a) there has been a material breach by Parent or Merger Sub 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 is
reasonably 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, which breach is not curable or, if curable, is not
cured within 60 calendar days after written notice of such breach is given
by the Company to Parent, or (c) the condition set forth in Section 6.1(g)
shall not have been satisfied on or prior to August 17, 1995.
7.4 Termination by Parent and Merger Sub. This Agreement may be
------------------------------------
terminated and the Merger may be abandoned at any time prior to the
Effective Time, before or after the approval by the stockholders of the
Company referred to in Section 6.1(a), by action of the Boards of Directors
of Parent, if (a) the Board of Directors of the Company shall have
withdrawn or modified in a manner materially adverse to Parent or Merger
Sub its approval or recommendation of this Agreement or the Merger or shall
have recommended an Alternative Proposal to the Company's stockholders,
(b) there has been a material breach by the Company of any representation
or warranty contained in this Agreement which is not
32
<PAGE>
curable or, if curable, is not cured by the Outside Date and such breach
had or is reasonably likely to have a Company Material Adverse Effect,
(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 five days after written notice of such
breach is given by Parent to the Company, (d) there has been a material
breach by Stockholder of the Stock Agreement, (e) an involuntary case under
the United States Bankruptcy Code or any applicable bankruptcy, insolvency
or other similar law is commenced against the Company or any of its
Subsidiaries, a decree or order of a court of competent jurisdiction for
the appointment of a receiver, liquidator, sequestrator, trustee, custodian
or other officer having similar powers of the Company or any of its
Subsidiaries or over a material portion of their respective assets shall
have been entered or the involuntary appointment of an interim receiver,
trustee or other custodian of the Company or any of its Subsidiaries shall
have occurred and any such event described in this clause (e) shall have
continued neither stayed nor dismissed for 60 days or (f) the Company or
any of its Subsidiaries has an order for relief entered with respect to it
or commences a voluntary case under the United States Bankruptcy Code or
any applicable bankruptcy, insolvency or other similar law, or consents to
the entry of an order for relief in an involuntary case, to the conversion
of an involuntary case to a voluntary case or to the appointment of or
taking possession by a receiver, trustee or other custodian of any part of
the Company's property, or makes any assignment for the benefit of
creditors.
7.5 Effect of Termination and Abandonment. In the event of
-------------------------------------
termination of this Agreement and the abandonment of the Merger pursuant to
this Article 7, all obligations of the parties hereto will terminate,
except the obligations of the parties pursuant to this Section 7.5 and
Section 5.11 and except for the provisions of Sections 8.3, 8.4, 8.6, 8.8,
8.9, 8.12, 8.13 and 8.14. Moreover, in the event of termination of this
Agreement pursuant to Section 7.2, 7.3 or 7.4, nothing herein will
prejudice the ability of the non-breaching party from seeking damages from
any other party for any willful breach of this Agreement, including without
limitation attorneys' fees and the right to pursue any remedy at law or in
equity.
8. 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 be deemed to the
extent expressly provided herein to be conditions to the Merger and will
not survive the Merger, provided, however, that the agreements contained in
Article 2, Sections 5.12, 5.13 and 5.17 and this Article 8 will survive the
Merger and Sections 5.11 and 7.5 will survive termination.
8.2 Notices. Any notice 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 Merger Sub: If to the Company:
33
<PAGE>
Federated Department Stores, Inc. Broadway Stores, Inc.
7 W. Seventh Street 3880 North Mission Road
Cincinnati, Ohio 45202 Los Angeles, California 90031
Attention: Dennis J. Broderick Attention: John C. Haeckel
General Counsel Exec. V.P. and
Fax No.: 513-579-7354 Chief Financial Officer
Fax No.: 213-227-3588
34
<PAGE>
With copies to: With copies to:
Jones, Day, Reavis & Pogue Cleary, Gottlieb, Steen & Hamiltion
599 Lexington Avenue One Liberty Plaza
New York, New York 10022 New York, New York 10006
Attention: Robert A. Profusek, Esq. Attention: William A. Groll, Esq.
Fax No.: 212-755-7306 Fax No.: 212-225-3999
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.
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 5.12, 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, the Exhibits, the
----------------
Schedules and any documents delivered by the parties in connection
herewith, together with the Confidentiality Agreement, dated July 25, 1995,
between Parent and the Company, 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.
8.5 Amendment. This Agreement may be amended by the parties
---------
hereto, by action taken by their respective Board of Directors, at any time
before or after approval of matters presented in connection with the Merger
by the stockholders of the Company but after any such stockholder approval,
no amendment will be made which by law requires the further approval of
such stockholders 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.
8.6 Governing Law. This Agreement will be governed by and
-------------
construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws.
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,
35
<PAGE>
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 Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number will include the
plural and vice versa, and words denoting any gender will include all
genders and words denoting natural persons will include corporations and
partnerships and vice versa.
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 actio 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 Schedules. The Schedules attached hereto
--------------------------
and referred to herein are 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 in
any Delaware Court, this being in addition to any other remedy to which
they are entitled at law or in equity.
8.14 Prudential Loan. The Company hereby acknowledges that,
---------------
simultaneously with the execution and delivery hereof, Parent and FNC are
entering into the Prudential Agreement with Prudential to acquire all of
Prudential's interest in loans previously made by Prudential to the Company
(the "PRU Loan") and the Company hereby consents to, and waives any
contractual prohibition against, such acquisition, provided that, prior to
such acquisition, (a) the Effective Time has occurred or (b) Company Common
36
<PAGE>
Shares shall have been purchased by Parent upon exercise of the Option and
the condition set forth in Section 6.1(d) shall have been satisfied.
8.15 Effect of Exercise of Option. In the event that Parent
----------------------------
purchases Company Common Shares upon exercise of the Option:
(a) If requested by Parent, the Company will, promptly following
the purchase of Company Common Shares upon exercise of the Option and from
time to time thereafter, take all action necessary to cause at least a
majority of the number of directors, rounded up to the next whole number,
of the Company to be persons designated by Parent (whether, at the request
of Parent, by increasing the size of the number of directors of the Company
or by seeking the resignation of directors and causing Parent's designees
to be elected to fill the vacancies so created). At such time, the Company
also will take all action permitted by law to cause persons designated by
Parent to constitute at least the same percentage as is on the Company's
Board of Directors of (i) each committee of the Company's Board of
Directors, (ii) the board of directors of each Subsidiary of the Company,
and (iii) each committee, if any, of each such board of directors. The
Company's obligation to cause designees of Parent to be so elected or
appointed as directors of the Company will be subject to Section 14(f) of
the Exchange Act and Rule 14(f)-1 promulgated thereunder. Parent will
supply to the Company in writing and will be solely responsible for any
information with respect to it and its designees, officers, directors and
affiliates required by Section 14(f) and Rule 14f-1, and the Company will
use all reasonable efforts to file as promptly as practicable with the SEC
and transmit to all holders of record of securities of the Company who
would be entitled to vote at a meeting for election of directors such
information as is required under Section 14(f) and Rule 14(f)-1.
Notwithstanding the foregoing, until the Effective Time, the Company will
use all reasonable efforts to assure that the Company's Board of Directors
has at least three directors who are directors on the date hereof (the
"Continuing Directors"); provided further, that, in such event, if the
number of Continuing Directors is reduced below three for any reason
whatsoever, any remaining Continuing Directors (or Continuing Director, if
there is only one remaining) will be entitled to designate three persons to
fill such vacancies who will be deemed to be Continuing Directors for
purposes of this Agreement or, if no Continuing Director then remains, the
other directors will designate three persons to fill such vacancies who are
not shareholders, affiliates or associates of Parent or Purchaser and such
persons will be deemed to be Continuing Directors for purposes of this
Agreement. The Company will use all reasonable efforts to cause the
person(s) so designated by the Continuing Directors to be elected to the
Board of Directors of the Company.
(b) Parent will use all reasonable efforts in accordance with
applicable law and the Company's certificate of incorporation and by-laws
to convene a meeting of the Company's stockholders as promptly as
practicable to consider and vote upon the Merger, including, without
limitation, timely mailing of the Proxy Statement/Prospectus.
(c) Parent will, with respect to all Company Common Shares
acquired by it upon exercise of the Option and any other Company Common
Shares that it owns of record or beneficially on the record date for voting
at the meeting of stockholders called to consider and vote upon the Merger,
vote or cause to be voted such Company Common
37
<PAGE>
Shares (or execute or cause to be executed written consents with respect
thereto) (i) in favor of the adoption of this Agreement and approval of the
Merger and the other transactions contemplated hereby, (ii) against any
Alternative Proposal, and (iii) in favor of any other matter necessary for
the consummation of the transactions contemplated by this Agreement and
considered and voted upon at such meeting of the Company's stockholders.
(d) Notwithstanding any other provision contained herein to the
contrary, from and after the date of the closing of the exercise of the
Option, the obligations of Parent and Merger Sub to effect the Merger will
be subject only to the fulfillment at or prior to the Closing Date of the
conditions set forth in Section 6.1(a), (c) and (d) and all other
conditions to the obligations of the Parent and Merger Sub to effect the
Merger on the terms and conditions of this Agreement as in effect
immediately prior to the exercise of the Option will be deemed satisfied or
waived.
(e) Notwithstanding any other provision contained herein to the
contrary, from and after the date of the closing of the exercise of the
Option, Parent and Merger Sub will not be entitled to terminate this
Agreement or abandon the Merger unless a United States federal or state
court of competent jurisdiction or United States federal or state
governmental, regulatory or administrative agency or commission issues an
order, decree or ruling or takes any other action permanently restraining,
enjoining or otherwise prohibiting the transactions contemplated by this
agreement and such order, decree, ruling or other action becomes final and
non-appealable.
(f) Any action by the Company to waive or amend any provision of
this Agreement will require the approval of a majority of the Continuing
Directors.
8.16 Absence of Certain Knowledge. Parent hereby acknowledges
----------------------------
that nothing has come to the attention of the executive officers of Parent
during the course of the due diligence conducted by Parent in connection
with this Agreement which gives such executive officers actual knowledge
that any of the representations or warranties of the Company set forth
herein were not true or correct in any material respect as of the date
hereof; provided, however, that nothing in this Section 8.16 will
constitute a waiver of any right which Parent may have with respect to this
Agreement or the representations and warranties made herein by the Company,
whether at law or in equity, in contract or in tort.
38
<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.
BROADWAY STORES, INC.
By: /s/ David L. Dworkin
-------------------------------------------
David L. Dworkin
President and Chief Executive Officer
FEDERATED DEPARTMENT STORES, INC.
By: /s/ Ronald W. Tysoe
-------------------------------------------
Ronald W. Tysoe
Vice Chairman
NOMO COMPANY, INC.
By: /s/ Dennis J. Broderick
-------------------------------------------
Dennis J. Broderick
Vice President
39
Exhibit 2
===========================================================================
STOCK AGREEMENT
by and between
FEDERATED DEPARTMENT STORES, INC.
and
ZELL/CHILMARK FUND, L.P.
-----------------------------------
Dated as of August 14, 1995
-----------------------------------
===========================================================================
<PAGE>
Table of Contents
Page
----
1. Option . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Option . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Prohibited Transfers . . . . . . . . . . . . . . . . . . . . 3
2. Representations and Warranties of Stockholder . . . . . . . . . . 3
2.1 Authorization, Validity and Effect of Agreement . . . . . . . 3
2.2 No Conflict; Required Filings and Consents . . . . . . . . . 3
2.3 Ownership of Owned Shares . . . . . . . . . . . . . . . . . . 4
2.4 Purchase Not for Distribution . . . . . . . . . . . . . . . . 4
2.5 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 4
3. Representations and Warranties of Parent . . . . . . . . . . . . . 4
3.1 Authorization, Validity and Effect of Agreement . . . . . . . 4
3.2 No Conflict; Required Filings and Consents . . . . . . . . . 4
3.3 Purchase Not for Distribution . . . . . . . . . . . . . . . . 5
3.4 No Brokers . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.5 Issuance of Parent Common Shares . . . . . . . . . . . . . . 5
4. Certain Covenants . . . . . . . . . . . . . . . . . . . . . . . . 5
4.1 Voting of Shares . . . . . . . . . . . . . . . . . . . . . . 5
4.2 No Solicitation . . . . . . . . . . . . . . . . . . . . . . . 6
4.3 Registration Rights . . . . . . . . . . . . . . . . . . . . . 6
(a) Definitions . . . . . . . . . . . . . . . . . . . . . . 6
(b) Securities Subject to this Section 4.3 . . . . . . . . . 8
(c) Piggy-Back Registration Rights . . . . . . . . . . . . . 8
(d) Demand Registration Rights . . . . . . . . . . . . . . . 9
(e) Selection of Underwriters . . . . . . . . . . . . . . . 10
(f) Blackout Periods . . . . . . . . . . . . . . . . . . . . 10
(g) Registration Procedures . . . . . . . . . . . . . . . . 11
(h) Registration Expenses . . . . . . . . . . . . . . . . . 16
(i) Reports Under the Exchange Act . . . . . . . . . . . . . 16
(j) Indemnification; Contribution . . . . . . . . . . . . . 16
(k) Participation in Underwritten Offerings . . . . . . . . 19
4.4 Transfer of Shares . . . . . . . . . . . . . . . . . . . . . 19
5. General Provisions . . . . . . . . . . . . . . . . . . . . . . . . 20
5.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.2 Assignment; Binding Effect . . . . . . . . . . . . . . . . . 20
5.3 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . 20
5.4 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . 20
5.5 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . 21
- i -
<PAGE>
Table of Contents (Cont'd)
5.6 Headings . . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.7 Interpretation . . . . . . . . . . . . . . . . . . . . . . . 21
5.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . 21
5.9 Termination . . . . . . . . . . . . . . . . . . . . . . . . . 21
5.10 Specific Performance . . . . . . . . . . . . . . . . . . . . 21
- ii -
<PAGE>
Stock Agreement
Stock Agreement (this "Agreement"), dated as of August 14, 1995,
by and between Federated Department Stores, Inc., a Delaware corporation
("Parent"), and Zell/Chilmark Fund, L.P., a Delaware limited partnership
("Stockholder").
Recitals
A. Parent, Nomo Company, Inc., a Delaware corporation and
wholly owned subsidiary of Parent ("Merger Sub"), and Broadway Stores,
Inc., a Delaware corporation (the "Company"), have entered into an
Agreement and Plan of Merger, dated the date hereof (the "Merger
Agreement"), pursuant to which the parties thereto have agreed, on the
terms and subject to the conditions set forth therein, to merge the Company
with and into Merger Sub (the "Merger").
B. As of the date hereof, Stockholder is the record and
beneficial owner of, and has the sole right to vote and dispose of,
24,800,866 shares (the "Owned Shares") of Common Stock, par value $0.01 per
share, of the Company ("Company Common Shares").
C. As a condition to its willingness to enter into the Merger
Agreement, Parent has required that simultaneously with the execution of
the Merger Agreement Stockholder agree, and Stockholder is willing to
agree, to the matters set forth herein.
1. Option
1.1 Option. (a) Stockholder hereby grants to Parent an
------
irrevocable option (the "Option") to purchase, on the terms and subject to
the conditions set forth herein, all of the Owned Shares, together with
(i) any additional shares of capital stock of the Company which Stockholder
is or becomes entitled to receive from the Company by reason of being a
record holder of the Owned Shares, (ii) any securities or other property
into which any such Owned Shares shall have been or shall be converted or
changed (other than Parent Common Shares (as defined below)), whether by
amendment to the Certificate of Incorporation of the Company, merger,
consolidation, reorganization, capital change or otherwise, (iii) any
additional Company Common Shares acquired by Stockholder as the result of
Stockholder exercising an option, warrant or other right to acquire shares
of capital stock from the Company (all of the foregoing hereinafter
collectively referred to as the "Additional Owned Shares"), and (iv) any
shares of capital stock referred to in clauses (i), (ii), and (iii) above
that are issued or issuable in respect of Additional Owned Shares (the
Owned Shares, the Additional Owned Shares and any securities referred to in
clause (iv) above hereinafter collectively referred to as the "Option
Shares").
(b) Subject to the conditions set forth in Section 1.1(f), the
Option may be exercised in whole but not in part by notice given by Parent
to Stockholder at any time prior to the later of (i) February 29, 1996 and
(ii) the date to which the date specified in Section 7.2(a) of the Merger
Agreement may from time to time be extended (the "Outside Date").
<PAGE>
(c) In the event Parent wishes to exercise the Option, Parent
first will send a written notice to Stockholder specifying a place, date
(not less than two Business Days (as defined in Section 4.3(a)) nor more
than 60 calendar days from the date such notice is given) and time for the
closing of the purchase of the Option Shares (the "Closing").
(d) The total price payable to Stockholder upon exercise of the
Option will be the number of shares of Common Stock, par value $0.01 per
share, of Parent together with the associated share purchase rights
("Parent Common Share") equal to the product of (i) the Conversion Rate (as
defined in the Merger Agreement) and (ii) the number of Option Shares to be
purchased upon such exercise; provided, however, that if any additional
shares of capital stock of the Company or any of its Subsidiaries (as
defined in the Merger Agreement) are issued by the Company or any of its
Subsidiaries or any of their respective successors, other than those
described in Section 3.3 to the Merger Agreement (the "Excess Shares"), the
total number of Parent Common Shares payable to Stockholder for all of the
Option Shares, including any Excess Shares owned beneficially or of record
by Stockholder, will be the number of Parent Common Shares equal to the
product of (A) the Conversion Rate and (B) the total number of Option
Shares, less the total number of Excess Shares owned beneficially or of
record by Stockholder.
(e) At the Closing, Stockholder will deliver to Parent a
certificate or certificates representing the Option Shares, duly endorsed
for transfer or accompanied by appropriate stock powers, duly executed in
blank, and Parent will issue or deliver to Stockholder a certificate
representing the number of Parent Common Shares to which Stockholder is
entitled pursuant to Section 1.1(d). Transfer taxes, if any, imposed as a
result of the exercise of the Option and the transfer of the Parent Common
Shares will be shared equally by Stockholder and Parent.
(f) The obligations of Parent and Stockholder to consummate the
purchase and sale of the Option Shares pursuant to this Section 1.1 will be
subject to the fulfillment of the following conditions:
(i) The expiration or termination of the waiting period
applicable to the consummation of such transactions under the Hart-
Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the
rules and regulations thereunder (the "HSR Act");
(ii) Neither of the parties hereto shall be subject to any
order of injunction of a court of competent jurisdiction which
prohibits the consummation of such transactions; and
(iii) Satisfaction of the condition set forth in Section
6.1(g) of the Merger Agreement.
Each of the parties will promptly make, and cause each of their respective
affiliates to make, all such filings and take all such actions as may be
reasonably required in order to permit the
- 2 -
<PAGE>
lawful exercise of the Option, as promptly as possible, including without
limitation all filings and other actions contemplated by Section 1.1(f).
1.2 Prohibited Transfers. Stockholder will not during the
--------------------
term of the Option, except pursuant to this Agreement or the Merger
Agreement (a) sell, pledge or otherwise dispose of any Option Shares or any
interest therein, (b) deposit any Option Shares into a voting trust or
enter into a voting agreement or arrangement with respect to any Option
Shares or grant any proxy with respect thereto, or (c) enter into any
contract, option or other arrangement or undertaking with respect to the
foregoing or the direct or indirect acquisition or sale, assignment,
transfer or other disposition of any Company Common Shares or any interest
therein.
2. Representations and Warranties of Stockholder
Stockholder hereby represents and warrants to Parent as follows:
2.1 Authorization, Validity and Effect of Agreement.
-----------------------------------------------
Stockholder has the requisite limited partnership power and authority to
execute and deliver this Agreement and to consummate the transactions
contemplated hereby. This Agreement has been duly executed and delivered
by Stockholder and constitutes the valid and binding obligation of
Stockholder, enforceable against Stockholder in accordance with its terms.
2.2 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by Stockholder do not, and the
consummation by Stockholder of the transactions contemplated hereby will
not, (i) conflict with or violate the partnership agreement of Stockholder,
(ii) subject to making the filings and obtaining the approvals identified
in Section 2.2(b), conflict with or violate any law, rule, regulation,
order, judgment or decree applicable to Stockholder or by which Stockholder
or any Option Shares is bound or affected, or (iii) result in any breach of
or constitute a default (or an event which with notice or lapse of time or
both would become a default) under, 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 or other encumbrance
on any Option Shares pursuant to any contract, agreement or other
instrument or obligation to which Stockholder is a party or by which
Stockholder or any property or asset of Stockholder is bound or affected.
(b) The execution and delivery of this Agreement by Stockholder
do not, and the performance of this Agreement and the consummation by
Stockholder 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 for (i) applicable
requirements, if any, of the Securities Exchange Act of 1934, as amended
(the "Exchange Act"), and (ii) the notification requirements under the HSR
Act.
- 3 -
<PAGE>
2.3 Ownership of Owned Shares. Stockholder is the sole record
-------------------------
and beneficial owner of the Owned Shares, free and clear of any security
interests, liens, charges, encumbrances, equities, claims, options (other
than the Option), proxies, stockholder agreements or limitations of
whatever nature and free of any other limitation or restriction (including
any restriction on the right to vote, sell or otherwise dispose of the
Owned Shares or any interest therein) except pursuant to this Agreement.
The Owned Shares constitute all of the Company Common Shares owned of
record or beneficially (within the meaning of Rule 13d-3 under the Exchange
Act) by Stockholder.
2.4 Purchase Not for Distribution. The Parent Common Shares to
-----------------------------
be acquired upon exercise of the Option will be so acquired without a view
to the public distribution thereof and such shares will not be transferred
or otherwise disposed of except in a transaction registered or exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"), and in compliance with applicable state securities laws.
2.5 No Brokers. Stockholder has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in
the obligation of Parent to pay any 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.
3. Representations and Warranties of Parent
Parent hereby represents and warrants to Stockholder as follows:
3.1 Authorization, Validity and Effect of Agreement. Parent has
-----------------------------------------------
the requisite corporate power and authority to execute and deliver this
agreement and to consummate the transactions contemplated hereby. This
Agreement has been duly executed and delivered by Parent and constitutes
the valid and binding obligation of Parent, enforceable against Parent in
accordance with its terms.
3.2 No Conflict; Required Filings and Consents. (a) The
------------------------------------------
execution and delivery of this Agreement by Parent do not, and the
consummation by Parent and of the transactions contemplated hereby will
not, (i) conflict with or violate the certificate of incorporation or by-
laws of Parent, (ii) subject to making the filings and obtaining the
approvals identified in Section 3.2(b), conflict with or violate any law,
rule, regulation, order, judgment or decree applicable to Parent or by
which any property or asset of Parent is bound or affected, or (iii)
subject to making the filings and obtaining the approvals identified in
Schedule 4.3(a) of the Merger Agreement, 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 or other encumbrance on any property or asset of Parent
pursuant to, any contract, agreement or other instrument or obligation to
which Parent is a party or by which Parent or any property or asset of
Parent is bound or affected.
- 4 -
<PAGE>
(b) The execution and delivery of this Agreement by Parent do
not, and the performance of this Agreement and the consummation by Parent
of the transactions contemplated hereby will not, require any consent,
approval, authorization or permit of, or filing with or notification to,
any Governmental Entity, except for (i) applicable requirements, if any, of
the Exchange Act and (ii) the notification requirements under the HSR Act.
3.3 Purchase Not for Distribution. The Option and the
-----------------------------
securities to be acquired upon exercise of the Option (the "Acquired
Shares") are and will be acquired by Parent without a view to the public
distribution thereof and neither this Option nor any Acquired Shares will
be transferred or otherwise disposed of except in a transaction registered
or exempt from registration under the Securities Act and in compliance with
applicable state securities laws.
3.4 No Brokers. Parent has not entered into any contract,
----------
arrangement or understanding with any person or firm which may result in
the obligation of Stockholder to pay any 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.
3.5 Issuance of Parent Common Shares. The Parent Common Shares
--------------------------------
to be paid to Stockholder upon exercise of the Option pursuant to this
Agreement will, when issued in accordance with this Agreement, be duly
authorized, validly issue, fully paid and nonassessable.
4. Certain Covenants
4.1 Voting of Shares. (a) Stockholder will, with respect to
----------------
(i) all Owned Shares and (ii) any other Option Shares that it owns of
record or beneficially on the record date for voting at the meeting of
stockholders called to consider and vote upon the Merger (the "Stockholder
Meeting"), vote or cause to be voted such Option Shares (or execute or
cause to be executed written consents with respect to such Option Shares)
(A) in favor of the adoption of the Merger Agreement and approval of the
Merger and the other transactions contemplated by the Merger Agreement,
(B) against any Alternative Proposal (as defined in the Merger Agreement),
and (C) in favor of any other matter necessary for the consummation of the
transactions contemplated by the Merger Agreement and considered and voted
upon at the Stockholder Meeting. Stockholder acknowledges receipt and
review of a copy of the Merger Agreement.
(b) Following the acquisition of the Option Shares by Parent
upon the exercise of the Option, Parent will, with respect to the Option
Shares that it owns of record or beneficially on the record date for the
Stockholder Meeting, vote or cause to be voted such Option Shares (or
execute or cause to be executed written consents with respect to such
Option Shares) (i) in favor of the adoption of the Merger Agreement and
approval of the Merger and the other transactions contemplated by the
Merger Agreement, (ii) against any
- 5 -
<PAGE>
Alternative Proposal, and (iii) in favor of any other matter necessary for
the consummation of the transactions contemplated by the Merger Agreement
and considered and voted upon at the Stockholder Meeting.
4.2 No Solicitation. Prior to the Effective Time (as defined in
---------------
the Merger Agreement), (a) Stockholder will not, and will cause its
officers, directors and employees, in their capacities as such, and its
agents or representatives (including, without limitation, any investment
banker, attorney or accountant retained by it or any of its subsidiaries)
not to, initiate, solicit or encourage, directly or indirectly, any
inquiries or the making or implementation of any Alternative Proposal or
engage in any negotiations concerning, or provide any confidential
information or data to, or have any discussions with, any person relating
to an Alternative Proposal, or otherwise facilitate any effort or attempt
to make or implement an Alternative Proposal, and (b) Stockholder will
notify Parent immediately if any such inquiries or proposals are received
by, any such information is requested from, or any such negotiations or
discussions are sought to be initiated or continued with, it.
4.3 Registration Rights. (a) Definitions. For purposes of
------------------- -----------
this Section 4.3, the following terms will have the following meanings:
"Blackout Period" means a Section 4.3(f)(i) Period or a Section
4.3(f)(ii) Period.
"Business Day" means a day, other than a Saturday or Sunday, on
which banking institutions and securities exchanges in New York, New York
are required to be open.
"Counsel to Stockholder" means the single law firm reasonably
acceptable to Parent from time to time representing Stockholder.
"Effective Period" means a period commencing on the date of this
Agreement and ending on the earlier of (i) the first date as of which all
Registrable Securities cease to be Registrable Securities and (ii) the date
on which such Stockholder may sell Registrable Securities in accordance
with Rule 145(d)(3) under the Securities Act.
"Inspectors" has the meaning specified in Section 4.3(g)(xii).
"NASD" means the National Association of Securities Dealers, Inc.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by any prospectus supplement with
respect to the terms of the offering of any portion of the Registrable
Securities covered by any Registration Statement and by all other
amendments and supplements to the prospectus, including post-effective
amendments and all material incorporated by reference in such prospectus.
"Records" has the meaning specified in Section 4.3(g)(xii).
- 6 -
<PAGE>
"Registrable Securities" means Parent Common Shares acquired by
Stockholder upon the exercise of the Option.
"Registration Expenses" means any and all reasonable expenses
incident to performance of or compliance with this Agreement, including
without limitation, (i) all SEC, NASD and securities exchange registration
and filing fees, (ii) all fees and expenses of complying with state
securities or blue sky laws (including reasonable fees and disbursements of
counsel for any underwriters in connection with blue sky qualifications of
the Registrable Securities), (iii) all printing expenses, (iv) all fees and
expenses incurred in connection with the listing of the Registrable
Securities on any securities exchange or automated quotation system
pursuant to Section 4.3(g)(viii), (v) the fees and disbursements of counsel
for Parent and of its independent public accountants, (vi) the reasonable
fees and expenses of any special experts retained by Parent in connection
with the requested registration, and (vii) out-of-pocket expenses of
underwriters customarily paid by the issuer to the extent provided for in
any underwriting agreement, but excluding underwriting discounts,
commissions and transfer taxes, if any, fees and expenses of Counsel to
Stockholder and all the fees and expenses of Stockholder incident to its
offering or sale of Registerable Securities.
"Registration Hold Period" means a Section 4.3(g)(v) Period or a
Section 4.3(g)(xiii) Period.
"Registration Statement" means any registration statement of
Parent referred to in Sections 4.3(c) or (d), including any Prospectus,
amendments and supplements to any such registration statement, including
post-effective amendments, and all exhibits and all material incorporated
by reference in any such registration statement.
"Related Securities" means any securities of Parent similar or
identical to any of the Registrable Securities, including without
limitation Parent Common Shares and all options, warrants, rights and other
securities convertible into, or exchangeable or exercisable for, Parent
Common Shares.
"SEC" means the Securities and Exchange Commission.
"Section 4.3(f)(i) Period" has the meaning specified in Section
4.3(f)(i).
"Section 4.3(f)(ii) Period" has the meaning specified in Section
4.3(f)(ii).
"Section 4.3(g)(v) Period" has the meaning specified in Section
4.3(g)(v).
"Section 4.3(g)(xiii) Period" has the meaning specified in
Section 4.3(g)(xiii).
"Shelf Registration" means a registration statement on an
appropriate form pursuant to Rule 415 under the Securities Act (or any
successor rule that may be adopted by the SEC).
- 7 -
<PAGE>
"underwritten registration" or "underwritten offering" means an
underwritten offering in which securities of Parent are sold to an
underwriter for reoffering to the public.
(b) Securities Subject to this Section 4.3. The securities
--------------------------------------
entitled to the benefits of this Section 4.3 are the Registrable
Securities. For the purposes of this Section 4.3, Registrable Securities
will cease to be Registrable Securities when and to the extent that (i) a
Registration Statement covering Registrable Securities has been declared
effective under the Securities Act and Registrable Securities have been
disposed of pursuant to such effective Registration Statement or three
years has passed since such Registration Statement was declared effective,
(ii) Registrable Securities are distributed to the public pursuant to Rule
144 (or any similar provision then in force) under the Securities Act, or
(iii) Registrable Securities have ceased to be outstanding.
(c) Piggy-Back Registration Rights. (i) Whenever during the
------------------------------
Effective Period Parent proposes to file a registration statement under the
Securities Act relating to the public offering of Parent Common Shares for
cash pursuant to a firm commitment underwritten offering (other than
pursuant to a registration statement on Form S-4 or Form S-8 or any
successor forms, or filed in connection with an exchange offer or an
offering of securities solely to existing stockholders or employees of
Parent), Parent will (A) give written notice at least 15 Business Days
prior to the filing thereof to Stockholder, specifying the approximate date
on which Parent proposes to file such registration statement and advising
Stockholder of its right to have any or all of the Registrable Securities
then held by Stockholder included among the securities to be covered
thereby, and (B) at the written request of Stockholder given to Parent at
least five Business Days prior to the proposed filing date, include among
the securities covered by such registration statement the number of
Registrable Securities which Stockholder shall have requested be so
included (subject, however, to reduction in accordance with paragraph (ii)
of this Section). Parent will use commercially reasonable efforts to cause
the managing underwriter of the proposed underwritten offering to permit
the Registrable Securities so requested to be included in the Registration
Statement for such offering to be included in such offering on the same
terms and conditions as any similar securities of Parent included therein.
(ii) In the event Stockholder desires to participate in an
offering pursuant to Section 4.3(c)(i), Stockholder may include Registrable
Securities in any Registration Statement relating to such offering to the
extent that the inclusion of such Registrable Shares will not reduce the
number of shares of Parent Common Shares to be offered and sold by Parent
or any other person pursuant thereto. If the lead managing underwriter
selected by Parent for an underwritten offering pursuant to Section
4.3(c)(i) determines that marketing factors require a limitation on the
number of Parent Common Shares to be offered and sold by the stockholders
of Parent in such offering, there will be included in the offering only
that number of Parent Common Shares, if any, that such lead managing
underwriter determines will not jeopardize the success of the offering of
all the Parent Common Shares that Parent desires to sell for its own
account. In such event and provided the managing underwriter has so
notified Parent in writing, the number of shares of Parent Common Shares to
be offered and sold by stockholders of Parent, including Stockholder,
desiring to participate in such
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<PAGE>
offering will be allocated among such holders of the Parent Common Shares
(subject to any written agreements between two or more holders requiring a
different priority).
(iii) Nothing in this Section 4.3(c) will create any liability on
the part of Parent to Stockholder if Parent for any reason should decide
not to file a registration statement proposed to be filed under Section
4.3(c)(i) or to withdraw such registration statement subsequent to its
filing, regardless of any action whatsoever that Stockholder may have
taken, whether as a result of the issuance by Parent of any notice
hereunder or otherwise.
(iv) A request by Stockholder to include Registrable Securities
in a proposed underwritten offering pursuant to Section 4.3(c)(i) will not
be deemed to be a request for a demand registration pursuant to
Section 4.3(d).
(d) Demand Registration Rights. (i) Upon the written request
--------------------------
by Stockholder during the Effective Period that Parent effect the
registration with the SEC under and in accordance with the provisions of
the Securities Act of all or part of Stockholder's Registrable Securities
(which written request will specify the aggregate number of shares of
Registrable Securities requested to be registered and the means of
distribution), Parent will file a Registration Statement covering
Stockholder's Registrable Securities requested to be registered within 20
Business Days after receipt of such request; provided, however, that Parent
will not be required to take any action pursuant to this Section 4.3(d):
(A) if prior to the date of such request Parent shall have
effected one registration pursuant to this Section 4.3(d);
(B) if Parent has effected a registration pursuant to
Section 4.3(c) within the 180-day period next preceding such request
which permitted Stockholder to register Registrable Securities;
(C) if Parent shall at the time have effective a Shelf
Registration pursuant to which Stockholder could effect the
disposition of Stockholder's Registrable Securities in the manner
requested;
(D) if the Registrable Securities which Parent shall have
been requested to register shall have a then-current market value of
less than $50,000,000, unless such registration request is for all
remaining Registrable Securities; or
(E) during the pendency of any Blackout Period;
provided further, however, that Parent will be permitted to satisfy its
obligations under this Section 4.3(d)(i) by amending (to the extent
permitted by applicable law) any registration statement previously filed by
Parent under the Securities Act so that such registration statement (as
amended) will permit the disposition (in accordance with the intended
methods of disposition specified as aforesaid) of all of the Registrable
Securities for which a demand for registration has been made under this
Section 4.3(d)(i). If Parent so amends a previously
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<PAGE>
filed registration statement, it will be deemed to have effected a
registration for purposes of this Section 4.3(d).
(ii) Stockholder may distribute the Registrable Securities
covered by such request by means of an underwritten offering or any other
lawful means, as determined by Stockholder.
(iii) A registration requested pursuant to this Section 4.3(d)
will not be deemed to be effected for purposes of this Section 4.3(d) if it
has not been declared effective by the SEC or become effective in
accordance with the Securities Act and the rules and regulations
thereunder.
(iv) Stockholder may, at any time prior to the effective date of
the Registration Statement relating to such registration, revoke such
request by providing a written notice to Parent revoking such request. In
such event, Stockholder will reimburse Parent for all its out-of-pocket
expenses incurred in the preparation, filing and processing of the
Registration Statement; provided, however, that, if such revocation was
based on (A) Parent's failure to comply in any material respect with its
obligations hereunder or (B) the occurrence of a Blackout Period, such
reimbursement will not be required.
(v) Parent will not include any securities which are not
Registrable Securities in any Registration Statement filed pursuant to a
demand made under this Section 4 without the prior written consent of
Stockholder.
(e) Selection of Underwriters. In connection with any
-------------------------
underwritten offering pursuant to a Registration Statement filed pursuant
to a demand made under Section 4.3(d), Stockholder will have the right to
select a managing underwriter or underwriters to administer the offering,
which managing underwriter or underwriters will be reasonably satisfactory
to Parent.
(f) Blackout Periods. (i) If (A) during the Effective Period,
----------------
Parent files or proposes to file a registration statement (other than in
connection with the registration of securities issuable pursuant to a
continuous "at the market offering" pursuant to Rule 415(a)(4) under the
Securities Act, an employee stock option, stock purchase, dividend
reinvestment plan or similar plan or pursuant to a merger, exchange offer
or a transaction of the type specified in Rule 145(a) under the Securities
Act) with respect to any securities of Parent, and (B) with reasonable
prior notice, (1) Parent (in the case of a non-underwritten offering
pursuant to such registration statement) advises Stockholder in writing
that a sale or distribution of Registrable Securities would adversely
affect such offering or (2) the managing underwriter or underwriters (in
the case of an underwritten offering) advise Parent in writing (in which
case Parent will notify Stockholder), that a sale or distribution of
Registrable Securities would adversely affect such offering, then Parent
will not be obligated to effect the initial filing of a Registration
Statement pursuant to Section 4.3(d) during the period commencing on the
date that is 30 calendar days prior to the date Parent in good faith
estimates (as certified in writing by an officer of Parent to Stockholder
following a request for registration pursuant to Section 4.3(d)(i)) will be
the date of the filing of, and ending on
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<PAGE>
the date which is 120 calendar days following the effective date of, such
registration statement (a "Section 4.3(f)(i) Period").
(ii) If Parent determines in good faith that the registration and
distribution of Registrable Securities (A) would materially impede, delay
or interfere with any pending financing (other than a financing of the type
described in Section 4.3(f)(i)), acquisition, corporate reorganization or
other significant transaction involving Parent or (B) would require
disclosure of non-public material information, the disclosure of which
would materially and adversely affect Parent, and, in the case of clause
(B), Parent is concurrently forbidding purchases or sales in the open
market by senior executives of Parent, Parent will promptly give the
stockholder written notice of such determination and will be entitled to
postpone the filing or effectiveness of a Registration Statement for a
reasonable period of time not to exceed 120 calendar days (a "Section
4.3(f)(ii) Period"); provided, however, that in connection therewith Parent
will be required to deliver to Counsel to Stockholder (as identified at
such time to the Company) a general statement, signed by an officer of
Parent, describing in reasonable detail the reasons for such postponement
or restriction on use and an estimate of the anticipated delay. Parent
will promptly notify Stockholder of the expiration or earlier termination
of a Section 4.3(f)(ii) Period.
(iii) Notwithstanding anything in this Section 4.3(f) to the
contrary, (A) the beginning of any Blackout Period will be at least 120
calendar days after the end of the prior Blackout Period, and (B) the
aggregate number of days included in all Blackout Periods and all
Registration Hold Periods during any consecutive 12-month period during the
Effective Period will not exceed 180 calendar days.
(g) Registration Procedures. If and whenever Parent is required
-----------------------
to use commercially reasonable efforts to effect or cause the registration
of any Registrable Securities under the Securities Act as provided in this
Agreement, Parent will, as expeditiously as possible:
(i) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities on any form for which
Parent then qualifies or which counsel for Parent deems appropriate,
and which form is available for the sale of the Registrable Securities
in accordance with the intended methods of distribution thereof
(including, if so requested by Stockholder, distributions under Rule
415 under the Securities Act pursuant to a Shelf Registration
Statement), and use commercially reasonable efforts to cause such
Registration Statement to become and remain effective;
(ii) prepare and file with the SEC amendments and post-
effective amendments to such Registration Statement and such
amendments to the Prospectus used in connection therewith as may be
necessary to maintain the effectiveness of such registration or as may
be required by the rules, regulations or instructions applicable to
the registration form utilized by Parent or by the Securities Act or
rules and regulations thereunder necessary to keep such Registration
Statement effective for up to 90 calendar days, in the case of an
underwritten offering, or 180 calendar days,
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<PAGE>
in any other case (or longer period in the event of a Registration
Hold Period during such 90 or 180 calendar days, as provided in this
Section 4.3(g)) and cause the Prospectus as so supplemented to be
filed pursuant to Rule 424 under the Securities Act, and to otherwise
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such Registration Statement
until the earlier of (A) such 90th or 180th calendar day (or longer
period) and (B) such time as all Registrable Securities covered by
such Registration Statement have ceased to be Registrable Securities;
provided that a reasonable time before filing a Registration Statement
or Prospectus, or any amendments or supplements thereto, Parent will
furnish to Stockholder, the managing underwriter and their respective
counsel for review and comment, copies of all documents proposed to be
filed and will not file any such documents to which any of them
reasonably object prior to the filing thereof;
(iii) furnish to Stockholder such number of copies of such
Registration Statement and of each amendment and post-effective
amendment thereto (in each case including all exhibits), any
Prospectus or Prospectus supplement and such other documents as
Stockholder may reasonably request in order to facilitate the
disposition of the Registrable Securities by Stockholder (Parent
hereby consenting to the use (subject to the limitations set forth in
the last paragraph of this Section 4.3(g)) of the Prospectus or any
amendment or supplement thereto in connection with such disposition);
(iv) use commercially reasonable efforts to register or
qualify such Registrable Securities covered by such Registration
Statement under such other securities or blue sky laws of such
jurisdictions as Stockholder reasonably requests, and do any and all
other acts and things which may be reasonably necessary or advisable
to enable Stockholder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by Stockholder,
except that Parent will not for any such purpose be required to
qualify generally to do business as a foreign corporation in any
jurisdiction where, but for the requirements of this Section
4.3(g)(iv), it would not be obligated to be so qualified, to subject
itself to taxation in any such jurisdiction or to consent to general
service of process in any such jurisdiction;
(v) notify Stockholder at any time when a Prospectus
relating to any such Registrable Securities is required to be
delivered under the Securities Act within the appropriate period
mentioned in Section 4.3(g)(ii) of Parent's becoming aware that the
Prospectus included in such Registration Statement, as then in effect,
includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then
existing (the period during which Stockholder is required to refrain
from effective public sales or distributions in such case being
referred to as a "Section 4.3(g)(v) Period"), and prepare and furnish
to Stockholder a reasonable number of copies of an amendment to such
Registration Statement or related Prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such Prospectus shall not include an untrue statement of a
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<PAGE>
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and the time during which
such Registration Statement shall remain effective pursuant to Section
4.3(g)(ii) will be extended by the number of days in the Section
4.3(g)(v) Period;
(vi) notify Stockholder at any time,
(A) when the Prospectus or any Prospectus supplement
or post-effective amendment has been filed, and, with respect to
the Registration Statement or any post-effective amendment, when
the same has become effective;
(B) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or
for additional information;
(C) of the issuance by the SEC of any stop order of
which Parent or its counsel is aware or should be aware
suspending the effectiveness of the Registration Statement or any
order preventing the use of a related Prospectus, or the
initiation or any threats of any proceedings for such purposes;
(D) of the receipt by Parent of any written
notification of the suspension of the qualification of any of the
Registrable Securities for sale in any jurisdiction of the
initiation or any threats of any proceeding for that purpose; and
(E) if at any time the representations and warranties
of Parent contemplated by Section 4.3(g)(ix)(A) cease to be true
and correct in any material respect;
(vii) otherwise use commercially reasonable efforts to comply
with all applicable rules and regulations of the SEC, and make
available to Stockholder an earnings statement which shall satisfy the
provisions of Section 11(a) of the Securities Act, provided that
Parent will be deemed to have complied with this Section 4.3(g)(vii)
if it has satisfied the provisions of Rule 158 under the Securities
Act;
(viii) use commercially reasonable efforts to cause all such
Registrable Securities to be listed on any securities exchange or
automated quotation system on which the Parent Common Shares is then
listed, if such Registrable Securities are not already so listed and
if such listing is then permitted under the rules of such exchange or
automated quotation system, and to provide a transfer agent and
registrar for such Registrable Securities covered by such Registration
Statement no later than the effective date of such Registration
Statement;
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<PAGE>
(ix) enter into agreements (including underwriting
agreements) and take all other appropriate and reasonable actions in
order to expedite or facilitate the disposition of such Registrable
Securities and in such connection, whether or not an underwriting
agreement is entered into and whether or not the registration is an
underwritten registration:
(A) make such representations and warranties to
Stockholder and the underwriters, if any, in form, substance and
scope as are customarily made by issuers to underwriters in
comparable underwritten offerings;
(B) obtain opinions of counsel to Parent thereof
(which counsel and opinions (in form, scope and substance) will
be reasonably satisfactory to the managing underwriters, if any,
and Stockholder) addressed to Stockholder and the underwriters,
if any, covering the matters customarily covered in opinions
requested in comparable underwritten offerings and such other
matters as may be reasonably requested by Stockholder and the
managing underwriter, if any;
(C) obtain "cold comfort" letters and bring-downs
thereof from Parent's independent certified public accountants
addressed to Stockholder and the underwriters, if any, such
letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by independent
accountants in connection with underwritten offerings;
(D) if requested, provide indemnification in
accordance with the provisions and procedures of Section 4.3(j)
to all parties to be indemnified pursuant to said Section; and
(E) deliver such documents and certificates as may be
reasonably requested by Stockholder and the managing
underwriters, if any, to evidence compliance with Section
4.3(g)(vi) and with any customary conditions contained in the
underwriting agreement or other agreement entered into by Parent.
(x) cooperate with Stockholder and the managing underwriter
or underwriters or agents, if any, to facilitate, to the extent
commercially reasonable under the circumstances, the timely
preparation and delivery of certificates (not bearing any restrictive
legends) representing the securities to be sold under such
Registration Statement, and enable such securities to be in such
denominations and registered in such names as the managing underwriter
or underwriters or agents, if any, or Stockholder may request;
(xi) if reasonably requested by the managing underwriter or
underwriters or Stockholder, incorporate in a Prospectus supplement or
post-effective amendment such information as the managing underwriters
and Stockholder agree should be included therein relating to the plan
of distribution with respect to such
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<PAGE>
Registrable Securities, including without limitation information with
respect to the purchase price being paid by such underwriters and with
respect to any other terms of the underwritten offering of the
Registrable Securities to be sold in such offering and make all
required filings of such Prospectus supplement or post-effective
amendment as promptly as practicable upon being notified of the
matters to be incorporated in such Prospectus supplement or post-
effective amendment;
(xii) provide Stockholder, any underwriter participating in
any disposition pursuant to such Registration Statement and any
attorney, accountant or other agent retained by Stockholder or
underwriter (collectively, the "Inspectors") reasonable access to
appropriate officers of Parent and Parent's subsidiaries to ask
questions and to obtain information reasonably requested by any such
Inspector and make available for inspection all financial and other
records and other information, pertinent corporate documents and
properties of any of Parent and its subsidiaries and affiliates
(collectively, the "Records") as may be reasonably necessary to enable
them to exercise their due diligence responsibilities; provided,
however, that the Records that Parent determines, in good faith, to be
confidential and which it notifies the Inspectors in writing are
confidential will not be disclosed to any Inspector unless such
Inspector signs a confidentiality agreement reasonably satisfactory to
Parent but in any event permitting disclosure by an Inspector if (A)
the disclosure of such Records is necessary to avoid or correct a
misstatement or omission of a material fact in such Registration
Statement or (B) the release of such Records is ordered pursuant to a
subpoena or other order from a court of competent jurisdiction;
provided further, however, that any decision regarding the disclosure
of information pursuant to clause (A) may be made only after
consultation with counsel for the applicable Inspectors. Stockholder
agrees that it will promptly after learning that disclosure of such
Records is sought in a court having jurisdiction, give notice to
Parent and allow Parent, at Parent's expense, to undertake appropriate
action to prevent disclosure of such Records; and
(xiii) in the event of the issuance of any stop order of which
Parent or its counsel is aware or should be aware suspending the
effectiveness of the Registration Statement or of any order suspending
or preventing the use of any related Prospectus or suspending the
qualification of any Registrable Securities included in the
Registration Statement for sale in any jurisdiction, Parent will use
commercially reasonable efforts promptly to obtain its withdrawal; and
the period for which the Registration Statement will be kept effective
will be extended by a number of days equal to the number of days
between the issuance and withdrawal of any stop orders (a "Section
4.3(g)(xiii) Period").
Parent may require Stockholder to furnish Parent with such information
regarding Stockholder and pertinent to the disclosure requirements relating
to the registration and the distribution of such securities as Parent may
from time to time reasonably request in writing. Upon receipt of any
notice from Parent of the happening of any event of the kind described in
Section 4.3(g)(v), Stockholder will forthwith discontinue disposition of
Registrable Securities pursuant to the Prospectus or Registration Statement
covering such Registrable
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<PAGE>
Securities until Stockholder's receipt of the copies of the supplemented or
amended Prospectus contemplated by Section 4.3(g)(v), and, if so directed
by Parent, Stockholder will deliver to Parent (at Parent's expense) all
copies, other than permanent file copies then in Stockholder's possession,
of the Prospectus covering such Registrable Securities current at the time
of receipt of such notice.
(h) Registration Expenses. Parent will pay all Registration
---------------------
Expenses in connection with all registrations of Registrable Securities
pursuant to Sections 4.3(c) and (d) upon the written request of
Stockholder, and Stockholder will pay (A) any fees or disbursements of
Counsel to Stockholder and (B) all underwriting discounts and commissions
and transfer taxes, if any, and other fees, costs and expenses of
Stockholder relating to the sale or disposition of Stockholder's
Registrable Securities pursuant to the Registration Statement.
(i) Reports Under the Exchange Act. Parent will:
------------------------------
(i) file with the SEC in a timely manner all reports and
other documents required of Parent under the Exchange Act; and
(ii) furnish to Stockholder, during the Effective Period,
forthwith upon request (A) a written statement by Parent that it has
complied with the current public information and reporting
requirements of Rule 144 under the Securities Act and the Exchange Act
and (B) a copy of the most recent annual or quarterly report of Parent
and such other reports and documents so filed by Parent.
(j) Indemnification; Contribution. (i) Indemnification by
-----------------------------
Parent. Parent will indemnify and hold harmless Stockholder, its officers,
directors, agents, trustees, general partners and each person who controls
Stockholder (within the meaning of Section 15 of the Securities Act or
Section 20 of the Exchange Act), against all losses, claims, damages,
liabilities and expenses (including reasonable attorneys' fees,
disbursements and expenses) incurred by such party pursuant to any actual
or threatened action, suit, proceeding or investigation arising out of or
based upon (A) any violation by Parent (or its officers, directors or
controlling persons) of any federal or state law, rule or regulation
applicable to Parent and relating to any action required or inaction by
Parent (or such other person) in connection with or relating to any
Registration Statement, (B) any untrue or alleged untrue statement of
material fact contained in the Registration Statement, any Prospectus or
preliminary Prospectus, or any amendment or supplement to any of the
foregoing, or (C) any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
statements therein (in the case of a Prospectus or a preliminary
Prospectus, in light of the circumstances then existing) not misleading,
except in each case insofar as the same arise out of or are based upon any
such untrue statement or omission made in reliance on and in conformity
with information with respect to such indemnified party furnished in
writing to Parent by such indemnified party or its counsel expressly for
use therein. In connection with an underwritten offering, Parent will
indemnify the underwriters thereof, their officers, directors, agents,
trustees, general partners, and each person who controls such underwriters
(within the meaning of Section 15 of the Securities
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<PAGE>
Act or Section 20 of the Exchange Act) to the same extent as provided above
with respect to the indemnification of Stockholder. Notwithstanding the
foregoing provisions of this Section 4.3(j)(i), Parent will not be liable
to Stockholder (or any officer, director, agent, trustee or controlling
person thereof), any person who participates as an underwriter in the
offering or sale of Registrable Securities or any other person, if any, who
controls Stockholder or underwriter (within the meaning of Section 15 of
the Securities Act or Section 20 of the Exchange Act), under the indemnity
agreement in this Section 4.3(j)(i) for any such loss, claim, damage,
liability (or action or proceeding in respect thereof) or expense that
arises out of Stockholder's or such other person's failure to send or
deliver a copy of the final Prospectus to the person asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of the Registrable Securities
to such person if such statement or omission was corrected in such final
Prospectus and Parent had previously furnished copies thereof to
Stockholder or such other person in accordance with this Agreement.
(ii) Indemnification by Stockholder. In connection with the
Registration Statement, Stockholder will furnish to Parent in writing such
information, including the name and address of, and the amount of
Registrable Securities held by, Stockholder, as Parent reasonably requests
for use in such Registration Statement or the related Prospectus and will
indemnify and hold harmless (in the same manner and to the same extent as
set forth in Section 4.3(j)(i)) Parent or any underwriter, as the case may
be, and any of their respective affiliates, directors, officers, agents,
trustees and controlling persons (within the meaning of Section 15 of the
Securities Act or Section 20 of the Exchange Act), against any losses,
claims, damages, liabilities and expenses resulting from (A) any violation
by Stockholder (or its officers, directors, agents, trustees or controlling
persons) of any federal or state law, rule or regulation relating to action
required of or inaction by Stockholder (or such other person) in connection
with its offer and sale of Registrable Securities and (B) any untrue or
alleged untrue statement of a material fact contained in, or any omission
or alleged omission of a material fact required to be stated in, such
Registration Statement or Prospectus or any amendment or supplement to
either of them or necessary to make the statements therein (in the case of
a Prospectus, in the light of the circumstances then existing) not
misleading, but only to the extent that any such untrue statement or
omission is made in reliance on and in conformity with information with
respect to Stockholder furnished in writing to Parent by Stockholder or its
counsel specifically for inclusion therein.
(iii) Conduct of Indemnification Proceedings. Any Person entitled
to indemnification hereunder agrees to give prompt written notice to the
indemnifying party after the receipt by such indemnified party of any
written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which such indemnified
party may claim indemnification or contribution pursuant to this Agreement
(provided that failure to give such notification will not affect the
obligations of the indemnifying party pursuant to this Section 4.3(j)
except to the extent the indemnifying party shall have been actually
prejudiced as a result of such failure). In case any such action is
brought against any indemnified party and it notifies the indemnifying
party of the commencement thereof, the indemnifying party will be entitled
to participate therein and, to the extent that it wishes, jointly with any
other indemnifying party similarly notified, to
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<PAGE>
assume the defense thereof, with counsel satisfactory to such indemnified
party (who may not, except with the consent of the indemnified party, be
counsel to the indemnifying party), and after notice from the indemnifying
party to such indemnified party of its election so to assume the defense
thereof, the indemnifying party will not be liable to such indemnified
party under these indemnification provisions for any legal expenses of
other counsel or any other expenses, in each case subsequently incurred by
such indemnified party, in connection with the defense thereof other than
reasonable costs of investigation, unless in the reasonable judgment of any
indemnified party a conflict of interest is likely to exist, based on the
written opinion of counsel, between such indemnified party and any other of
such indemnified parties with respect to such claim, in which event the
indemnifying party will be obligated to pay the reasonable fees and
expenses of such additional counsel. No indemnifying party, in defense of
any such action, suit, proceeding or investigation, may, except with the
consent of each indemnified party, consent to the entry of any judgment or
entry into any settlement (which consent will not be unreasonably withheld)
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such indemnified party of a release from all
liability in respect to such action, suit, proceeding or investigation to
the extent the same is covered by the indemnity obligation set forth in
this Section 4.3(j). No indemnified party may consent to entry of any
judgment or enter into any settlement without the consent of each
indemnifying party (which consent will not be unreasonably withheld).
(iv) Contribution. If the indemnification from the indemnifying
party provided for in this Section 4.3(j) is unavailable to an indemnified
party hereunder in respect of any losses, claims, damages, liabilities or
expenses referred to herein, then the indemnifying party, in lieu of
indemnifying such indemnified party, will contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims,
damages, liabilities and expenses in such proportion as is appropriate to
reflect the relative fault of the indemnifying party and indemnified party
in connection with the actions which resulted in such losses, claims,
damages, liabilities and expenses, as well as any other relevant equitable
considerations. The relative fault of such indemnifying party and
indemnified party will be determined by reference to, among other things,
whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a
material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative
intent, knowledge, access to information and opportunity to correct or
prevent such action. The amount paid or payable by a party as a result of
the losses, claims, damages, liabilities and expenses referred to above
will be deemed to include, subject to the limitations set forth in Section
4.3(j)(iii), any legal and other fees and expenses reasonably incurred by
such indemnified party in connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 4.3(j)(iv) were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to above. Notwithstanding
the provisions of this Section 4.3(j)(iv), no underwriter will be required
to contribute any amount in excess of the underwriting discount or
commission applicable to the Registrable Securities underwritten by it. No
person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from
any person who was
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<PAGE>
not guilty of such fraudulent misrepresentation. Stockholder's obligation
to contribute is several in the proportion that the proceeds of the
offering received by Stockholder bears to the total proceeds of the
offering, and not joint. If indemnification is available under this
Section 4.3(j)(iv), the indemnifying parties will indemnify each
indemnified party to the full extent provided in Section 4.3(j)(i) or
4.3(j)(ii), as the case may be, without regard to the relative fault of
said indemnifying parties or indemnified party or any other equitable
consideration provided for in this Section 4.3(j)(iv).
(v) Certain Limitations. In no event will Stockholder be liable
or required to contribute any amount under this Section 4.3(j) or otherwise
in respect of any untrue or alleged untrue statement or omission or alleged
omission for amounts in excess of the amount by which the total price at
which the Registrable Securities of Stockholder were offered to the public
exceeds the amount of any damages which Stockholder has otherwise been
required to pay by reason of such untrue statement or omission.
(vi) Nonexclusivity. The provisions of this Section 4.3(j) will
be in addition to any liability which any indemnifying party may have to
any indemnified party and will survive the termination of this Agreement.
(k) Participation in Underwritten Offerings. Stockholder may
---------------------------------------
not participate in any underwritten offering pursuant to Section 4.3(c)
hereunder unless Stockholder (i) agrees to sell Stockholder's Registrable
Securities on the basis provided in any underwriting arrangements approved
by Parent in its reasonable discretion and (ii) completes and executes all
questionnaires, powers of attorney, indemnities, underwriting agreements
and other documents reasonably required under the terms of such
underwriting arrangements.
4.4 Transfer of Shares. Prior to the Effective Time or, if
------------------
earlier, the termination of the Merger Agreement in accordance with its
terms, Stockholder will not directly or indirectly, through any affiliate
or associate, sell, assign, transfer, pledge or otherwise dispose of or
acquire, or enter into any put, call or other contract, option or other
arrangement or undertaking with respect to the direct or indirect
acquisition or sale, assignment or other disposition of any Parent Common
Shares. For 90 calendar days beginning on the date of the Effective Time,
Stockholder will not directly or indirectly, through any affiliate or
associate, sell, assign, transfer, pledge or otherwise dispose of
(including make any distribution to its limited partners) or acquire, or
enter into any put, call or other contract, option or other arrangement or
undertaking with respect to the direct or indirect acquisition or sale,
assignment or other disposition of, any Parent Common Shares.
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<PAGE>
5. General Provisions
5.1 Notices. Any notice 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 Merger Sub: If to Stockholder:
Federated Department Stores, Inc. Zell/Chilmark Fund, L.P.
7 W. Seventh Street Two North Riverside Plaza
Cincinnati, Ohio 45202 Suite 1500
Attention: Dennis J. Broderick Chicago, IL 60606
General Counsel Attention: David M. Schulte
Fax No.: 513/579-7354 Fax No.: (312) 984-0317
With copies to: With copies to:
Jones, Day, Reavis & Pogue Rosenberg & Liebentritt, P. C.
599 Lexington Avenue Two North Riverside Plaza
New York, New York 10022 Suite 1600
Attention: Robert A. Profusek, Esq. Chicago, Illinois 60606
Fax No.: 212/755-7306 Attention: Sheli Z. Rosenberg
Fax No.: (312) 454-0531
or to such other address as any party shall 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.
5.2 Assignment; Binding Effect. Neither this Agreement nor any
--------------------------
of the rights, interests or obligations hereunder may be assigned or
delegated by either of the parties hereto (whether by operation of law or
otherwise). This Agreement will be binding upon and inure solely to the
benefit of each party hereto, and nothing in this Agreement, express or
implied, is intended to or will confer upon any person any right, benefit
or remedy of any nature whatsoever under or by reason of this Agreement.
5.3 Entire Agreement. This Agreement constitutes the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersedes all prior agreements and understandings between the parties with
respect thereto.
5.4 Governing Law. This Agreement will be governed by and
-------------
construed in accordance with the laws of the State of Delaware without
regard to its rules of conflict of laws.
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<PAGE>
5.5 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 both, but together signed
by both of the parties hereto.
5.6 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.
5.7 Interpretation. In this Agreement, unless the context
--------------
otherwise requires, words describing the singular number will include the
plural and vice versa, and words denoting any gender will include all
genders and words denoting natural persons will include corporations and
partnerships and vice versa.
5.8 Severability. If any term or other provision of this
------------
Agreement is invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
will nevertheless remain in full force and effect so long as the economic
or legal substance of the transactions contemplated hereby is not affected
in any manner materially adverse to any party. Upon such determination
that any term or other provisions is invalid, illegal or incapable of being
enforced, the parties hereto will negotiate in good faith to modify this
Agreement so as to effect the original intent of the parties as closely as
possible to the fullest extent permitted by applicable law in an acceptable
manner to the end that the transactions contemplated hereby are fulfilled
to the extent possible.
5.9 Termination. If Parent has not theretofore purchased the
-----------
Option Shares pursuant to the Option or not then given notice of its desire
to exercise the Option pursuant to Section 1.1(c), this Agreement will
terminate automatically immediately upon the earlier to occur of (a) the
Outside Date and (b) the termination of the Merger Agreement pursuant to
Section 7.1, 7.2(a), 7.2(b), 7.3(c) or 7.4 thereof. In addition if Parent
fails to exercise the Option to purchase Parent Common Shares within 60
calendar days after giving notice that it wishes to do so, this Agreement
will terminate automatically.
5.10 Specific Performance. The parties hereto agree that
--------------------
irreparable damage would occur in the event any provision of this Agreement
was not performed in accordance with the terms hereof and that the parties
will be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or in equity.
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<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as
of the date first above written.
FEDERATED DEPARTMENT STORES,
INC.
By: /s/ Ronald W. Tysoe
------------------------
Name: Ronald W. Tysoe
---------------------
Title: Vice Chairman
--------------------
Zell/Chilmark Fund, L.P.
By: ZC Limited Partnership,
general partner
By: ZC Partnership,
general partner
By: CZ Inc., a partner
By: /s/ David M. Schulte
--------------------------
David M. Schulte, President
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