<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
SCHEDULE 14D-1
TENDER OFFER STATEMENT
Pursuant to Section 14(d)(1) of the Securities Exchange Act of 1934
------------------------
AND
SCHEDULE 13D
Under the Securities Exchange Act of 1934
------------------------
HILLS STORES COMPANY
(NAME OF SUBJECT COMPANY)
HSC ACQUISITION CORP.
AMES DEPARTMENT STORES, INC.
(BIDDERS)
COMMON STOCK, $.01 PAR VALUE
SERIES A CONVERTIBLE PREFERRED STOCK, $.10 PAR VALUE
(TITLES OF CLASSES OF SECURITIES)
431692102
431692201
(CUSIP NUMBERS OF CLASSES OF SECURITIES)
DAVID H. LISSY, ESQ.
SENIOR VICE PRESIDENT, GENERAL COUNSEL
AND CORPORATE SECRETARY
AMES DEPARTMENT STORES, INC.
2418 MAIN STREET
ROCKY HILL, CONNECTICUT 06067-2598
TELEPHONE: (860) 257-2578
FACSIMILE: (860) 257-5160
(NAME, ADDRESS AND TELEPHONE NUMBER OF PERSON AUTHORIZED
TO RECEIVE NOTICES AND COMMUNICATIONS ON BEHALF OF BIDDERS)
Copy to:
JEFFREY J. WEINBERG, ESQ.
WEIL, GOTSHAL & MANGES LLP
767 FIFTH AVENUE
NEW YORK, NEW YORK 10153-0119
TELEPHONE: (212) 310-8000
FACSIMILE: (212) 310-8007
------------------------
NOVEMBER 12, 1998
(Date of event which requires filing of this statement)
------------------------
CALCULATION OF FILING FEE
================================================================================
TRANSACTION VALUATION* AMOUNT OF FILING FEE*
- --------------------------------------------------------------------------------
$16,913,778 $3,383
================================================================================
* Estimated for purposes of calculating the amount of the filing fee only. The
filing fee calculation assumes the purchase of 10,420,870 shares of Common
Stock, par value $0.01 per share ("Common Stock"), and 848,931 shares of
Series A Convertible Preferred Stock, par value $0.10 per share (the
"Preferred Stock", and together with the Common Stock, the "Shares"), of
Hills Stores Company at a price of $1.50 per Share in cash, without interest.
The filing fee calculation is based on 10,420,870 shares of Common Stock and
848,931 shares of Preferred Stock outstanding as of November 12, 1998 and
assumes the exercise, pursuant to Hills Stores Company's Series 1993 Stock
Rights, of rights to purchase an aggregate of 6,051 shares of Common Stock at
an exercise price of $0.01 per right. The filing fee calculation also assumes
there will be no issuance prior to the consummation of the Offer (as defined
herein) of any shares of Common Stock upon the exercise of outstanding
options and warrants exercisable into shares of Common Stock since all such
options and warrants have exercise prices in excess of $1.50 per share. The
amount of the filing fee calculated in accordance with Regulation 240.0-11 of
the Securities Exchange Act of 1934, as amended, equals 1/50th of one percent
of the value of the transaction.
/ / CHECK BOX IF ANY PART OF THE FEE IS OFFSET AS PROVIDED BY RULE 0-11(A)(2)
AND IDENTIFY THE FILING WITH WHICH THE OFFSETTING FEE WAS PREVIOUSLY PAID.
IDENTIFY THE PREVIOUS FILING BY REGISTRATION STATEMENT NUMBER, OR THE FORM
OR SCHEDULE AND THE DATE OF ITS FILING.
Amount Previously Paid:................................... None
Form or Registration No.:................................. N/A
Filing Party:............................................. N/A
Date Filed:............................................... N/A
(CONTINUED ON FOLLOWING PAGES)
(PAGE 1 OF PAGES)
================================================================================
<PAGE>
CUSIP No. 431692102 (Common Stock)
431692201 (Preferred Stock) 14D-1 Page 2 of
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS:
HSC Acquisition Corp.
S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS:
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP:
(a) / /
(b) / /
- --------------------------------------------------------------------------------
3 SEC USE ONLY:
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS:
AF
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEMS 2(e) or 2(f):
/ /
- --------------------------------------------------------------------------------
6. CITIZENSHIP OR PLACE OF ORGANIZATION:
State of Delaware
- --------------------------------------------------------------------------------
7. AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
2,073,753*
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES:
N/A / /
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7):
19.9%
- --------------------------------------------------------------------------------
10. TYPE OF REPORTING PERSON:
CO
- --------------------------------------------------------------------------------
- ------------------
* As of November 12, 1998, Hills Stores Company, a Delaware corporation (the
"Company"), and Ames Department Stores, Inc., a Delaware corporation ("Parent"),
and owner of all capital stock of HSC Acquisition Corp., a Delaware corporation
("Purchaser"), have entered into a Stock Option Agreement (the "Stock Option
Agreement") pursuant to which the Company granted to Parent an option (the
"Stock Option") to purchase up to 2,073,753 shares of common stock, par value
$.01 per share, of the Company or such other number of shares of common stock of
the Company as equals 19.9% of the Company's issued and outstanding shares of
its common stock at the time of the exercise of the Stock Option. The Stock
Option Agreement is described more fully in Section 11 of the Offer to Purchase,
dated November 18, 1998, attached to this Statement as Exhibit (a)(1).
<PAGE>
CUSIP No. 431692102 (Common Stock)
431692201 (Preferred Stock) 14D-1 Page 3 of
- --------------------------------------------------------------------------------
1 NAME OF REPORTING PERSONS:
Ames Department Stores, Inc.
S.S. OR IRS IDENTIFICATION NO. OF ABOVE PERSONS:
- --------------------------------------------------------------------------------
2 CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*:
(a) / /
(b) / /
- --------------------------------------------------------------------------------
3 SEC USE ONLY:
- --------------------------------------------------------------------------------
4 SOURCE OF FUNDS:
BK
- --------------------------------------------------------------------------------
5 CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT
TO ITEM 2(e) or 2(f):
/ /
- --------------------------------------------------------------------------------
6 CITIZENSHIP OR PLACE OF ORGANIZATION:
State of Delaware
- --------------------------------------------------------------------------------
7 AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON:
2,073,753*
- --------------------------------------------------------------------------------
8 CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (7)
EXCLUDES CERTAIN SHARES:
N/A / /
- --------------------------------------------------------------------------------
9 PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (7):
19.9%
- --------------------------------------------------------------------------------
10 TYPE OF REPORTING PERSON:
CO
- --------------------------------------------------------------------------------
- ------------------
*The footnote on page 2 is incorporated by reference herein.
<PAGE>
TENDER OFFER
This Tender Offer Statement on Schedule 14D-1 (this "Statement") is filed
by HSC Acquisition Corp., a Delaware corporation ("Purchaser"), and Ames
Department Stores, Inc., a Delaware corporation ("Parent") and the owner of all
capital stock of Purchaser, in connection with the offer by Purchaser to
purchase (i) all outstanding shares of Common Stock, par value $0.01 per share
(the "Common Stock"), including the preferred stock purchase rights associated
therewith issued pursuant to the Rights Agreement, dated as of August 16, 1994,
between Hills Stores Company, a Delaware corporation (the "Company"), and
Chemical Bank, as Rights Agent (the "Rights" and, together with the Common
Stock, the "Common Shares"), and (ii) all outstanding shares of Series A
Convertible Preferred Stock, par value $0.10 per share (the "Preferred Stock"),
including the associated Rights (the Preferred Stock, together with the Rights,
the "Preferred Shares"; and, together with the Common Shares, the "Shares"), of
the Company at a price of $1.50 per Share, net to the seller in cash, without
interest, plus a Deferred Contingent Cash Right (as described in the Offer to
Purchase), upon the terms and subject to the conditions set forth in the Offer
to Purchase, dated November 18, 1998 (the "Offer to Purchase"), a copy of which
is attached hereto as Exhibit (a)(1), and in the related Letter of Transmittal,
a copy of which is attached hereto as Exhibit (a)(2) (which, as amended or
supplemented from time to time, collectively constitute the "Offer").
This Statement also constitutes a Statement on Schedule 13D with respect to
the Stock Option Agreement pursuant to which the Company granted to Parent the
Stock Option. The item numbers and responses thereto below are in accordance
with the requirements of Schedule 14D-1.
ITEM 1. SECURITY AND SUBJECT COMPANY.
(a) The name of the subject company is Hills Stores Company, a Delaware
corporation. The address of the Company's principal executive offices is 15 Dan
Road, Canton, Massachusetts 02021. The telephone number of the Company at such
location is (781) 821-1000.
(b) The information set forth on the cover page and in the INTRODUCTION of
the Offer to Purchase is incorporated herein by reference.
(c) The information set forth in Section 6 (Price Range of the Shares;
Dividends) of the Offer to Purchase is incorporated herein by reference.
ITEM 2. IDENTITY AND BACKGROUND.
(a)-(d), (g) This Statement is being filed by Purchaser and Parent. The
information set forth in the INTRODUCTION and Section 9 (Certain Information
Concerning Parent and Purchaser) of the Offer to Purchase and Schedule I to the
Offer to Purchase is incorporated herein by reference. The name, business
address, present principal occupation or employment, the material occupations,
positions, offices or employments for the past five years and citizenship of
each director and executive officer of Purchaser and Parent and the name,
principal business and address of any corporation or other organization in which
such occupations, positions, offices and employments are or were carried on are
set forth in Schedule I to the Offer to Purchase and incorporated herein by
reference.
(e)-(f) During the last five years, none of Purchaser or Parent, or, to the
best knowledge of Purchaser and Parent, any of the persons listed in Schedule I
to the Offer to Purchase (i) have been convicted in a criminal proceeding
(excluding traffic violations or similar misdemeanors) or (ii) was a party to a
civil proceeding of a judicial or administrative body of competent jurisdiction
as a result of which any such person was or is subject to a judgment, decree or
final order enjoining future violations of, or prohibiting activities subject
to, federal or state securities laws or finding any violation of such laws.
ITEM 3. PAST CONTACTS, TRANSACTIONS, OR NEGOTIATIONS WITH THE SUBJECT COMPANY.
(a)(1) Other than the transactions described in Item 3(b) below, none of
Purchaser or Parent, or to the best knowledge of Purchaser and Parent, any of
the persons listed in Schedule I to the Offer to Purchase have entered into any
transaction with the Company, or any of the Company's affiliates which are
corporations, since the commencement of the Company's third full fiscal year
preceding the date of this Statement, the aggregate
4
<PAGE>
amount of which was equal to or greater than one percent of the consolidated
revenues of the Company for (i) the fiscal year in which such transaction
occurred or (ii) the portion of the current fiscal year which has occurred if
the transaction occurred in such year.
(a)(2) Other than the transactions described in Item 3(b) below, none of
Purchaser or Parent, or to the best knowledge of Purchaser and Parent, any of
the persons listed in Schedule I to the Offer to Purchase have entered into any
transaction since the commencement of the Company's third full fiscal year
preceding the date of this Statement with the executive officers, directors or
affiliates of the Company which are not corporations, in which the aggregate
amount involved in such transactions or in a series of similar transactions,
including all periodic installments in the case of any lease or other agreement
providing for periodic payments or installments, exceeded $40,000.
(b) The information set forth in the INTRODUCTION, Section 9 (Certain
Information Concerning Parent and Purchaser), Section 11 (Background of the
Offer; Purpose of the Offer and the Merger; The Merger Agreement, The Stock
Option Agreement and Certain Other Agreements) and Section 12 (Plans for the
Company; Other Matters) of the Offer to Purchase is incorporated herein by
reference.
ITEM 4. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
(a)-(b) The information set forth in INTRODUCTION and Section 10 (Sources
and Amount of Funds) of the Offer to Purchase is incorporated herein by
reference.
(c) Not applicable.
ITEM 5. PURPOSE OF THE TENDER OFFER AND PLANS OR PROPOSALS OF THE BIDDER.
(a)-(e) The information set forth in the INTRODUCTION, Section 11
(Background of the Offer; Purpose of the Offer and the Merger; The Merger
Agreement, The Stock Option Agreement and Certain Other Agreements) and
Section 12 (Plans for the Company; Other Matters) of the Offer to Purchase is
incorporated herein by reference.
(f)-(g) The information set forth in the INTRODUCTION and Section 7 (Effect
of the Offer on the Market for the Shares; Stock Listing; Exchange Act
Registration; Margin Regulations) of the Offer to Purchase is incorporated
herein by reference.
ITEM 6. INTEREST IN SECURITIES OF THE SUBJECT COMPANY.
(a)-(b) The information set forth in the INTRODUCTION, Section 9 (Certain
Information Concerning Parent and Purchaser), Section 11 (Background of the
Offer; Purpose of the Offer and the Merger; The Merger Agreement, The Stock
Option Agreement and Certain Other Agreements) and Section 12 (Plans for the
Company; Other Matters of the Offer to Purchase), and Schedule I to the Offer to
Purchase, is incorporated herein by reference.
ITEM 7. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT TO
THE SUBJECT COMPANY'S SECURITIES.
The information set forth in the INTRODUCTION, Section 10 (Sources and
Amount of Funds), Section 11 (Background of the Offer; Purpose of the Offer and
the Merger; The Merger Agreement, The Stock Option Agreement and Certain Other
Agreements), Section 12 (Plans for the Company; Other Matters), Section 13
(Dividends and Distributions) and Section 16 (Fees and Expenses) of the Offer to
Purchase is incorporated herein by reference.
5
<PAGE>
ITEM 8. PERSONS RETAINED, EMPLOYED OR TO BE COMPENSATED.
The information set forth in the INTRODUCTION and Section 16 (Fees and
Expenses) of the Offer to Purchase is incorporated herein by reference.
ITEM 9. FINANCIAL STATEMENTS TO CERTAIN BIDDERS.
The information set forth in Section 9 (Certain Information Concerning
Parent and Purchaser) of the Offer to Purchase is incorporated herein by
reference.
ITEM 10. ADDITIONAL INFORMATION.
(a) Except as disclosed in Items 3 and 7 above, there are no present or
proposed material contracts, arrangements, understandings or relationships
between Purchaser or Parent, or to the best knowledge of Purchaser and Parent,
any of the persons listed in Schedule I to the Offer to Purchase, and the
Company or any of its executive officers, directors, controlling persons or
subsidiaries.
(b)-(c) The information set forth in the INTRODUCTION, Section 14
(Conditions to the Stock Tender Offer and the Note Tender Offer) and Section 15
(Certain Legal Matters) of the Offer to Purchase is incorporated herein by
reference.
(d) The information set forth in Section 7 (Effect of the Offer on the
Market for the Shares; Stock Listing; Exchange Act Registration; Margin
Regulations) and Section 15 (Certain Legal Matters) of the Offer to Purchase is
incorporated herein by reference.
(e) None.
(f) The information set forth in the Offer to Purchase and the Letter of
Transmittal, copies of which are attached hereto as Exhibits (a)(1) and (a)(2),
respectively, to the extent not otherwise incorporated herein by reference, is
incorporated herein by reference.
ITEM 11. MATERIAL TO BE FILED AS EXHIBITS.
(a)(1) Offer to Purchase, dated November 18, 1998.
(a)(2) Letter of Transmittal.
(a)(3) Notice of Guaranteed Delivery.
(a)(4) Letter to Brokers, Dealers, Commercial Banks, Trust Companies and
Other Nominees.
(a)(5) Letter to Clients for use by Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees.
(a)(6) Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9.
(a)(7) Text of Press Release, dated November 12, 1998, issued by Parent and
the Company.
(a)(8) Text of Press Release, dated November 18, 1998, issued by Parent.
(a)(9) Form of Summary Advertisement, dated November 18, 1998.
(b)(1) Commitment Letter from BankAmerica Business Credit, Inc., dated
November 6, 1998.
(c)(1) Agreement and Plan of Merger, dated as of November 12, 1998, by and
among Parent, Purchaser and the Company.
(c)(2) Stock Option Agreement, dated as of November 12, 1998, by and
between Parent and the Company.
(c)(3) Confidentiality Agreement, dated as of August 21, 1998, by and
between Purchaser and the Company.
(d) None.
(e) Not applicable.
(f) None.
6
<PAGE>
SIGNATURES
After due inquiry and to the best of each of the undersigned's knowledge
and belief, the undersigned certifies that the information set forth in this
statement is true, complete and correct.
Dated: November 18, 1998
AMES DEPARTMENT STORES, INC.
By: /s/ ROLANDO DE AGUIAR
-------------------------------------
Name: Rolando de Aguiar
Title: Executive Vice President,
Chief Financial Officer
HSC ACQUISITION CORP.
By: /s/ ROLANDO DE AGUIAR
-------------------------------------
Name: Rolando de Aguiar
Title: Vice President
7
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT PAGE
NUMBER DESCRIPTION NO.
- --------- ---------------------------------------------------------------------------------------------- -----
<S> <C> <C> <C>
(a)(1) -- Offer to Purchase, dated November 18, 1998....................................................
(a)(2) -- Letter of Transmittal.........................................................................
(a)(3) -- Notice of Guaranteed Delivery.................................................................
(a)(4) -- Letter to Brokers, Dealers, Commercial Banks, Trust Companies and Other Nominees..............
(a)(5) -- Letter to Clients for use by Brokers, Dealers, Commercial Banks, Trust Companies and Other
Nominees....................................................................................
(a)(6) -- Guidelines for Certification of Taxpayer Identification Number on Substitute
Form W-9....................................................................................
(a)(7) -- Text of Press Release, dated November 12, 1998, issued by Parent and the Company..............
(a)(8) -- Text of Press Release, dated November 18, 1998, issued by Parent..............................
(a)(9) -- Form of Summary Advertisement, dated November 18, 1998........................................
(b)(1) -- Commitment Letter from BankAmerica Business Credit, Inc., dated November 6, 1998..............
(c)(1) -- Agreement and Plan of Merger, dated as of November 12, 1998, by and among Parent, Purchaser
and the Company.............................................................................
(c)(2) -- Stock Option Agreement, dated as of November 12, 1998, by and between
Parent and the Company......................................................................
(c)(3) -- Confidentiality Agreement, dated as of August 21, 1998, by and between
Parent and the Company......................................................................
(d) -- None..........................................................................................
(e) -- Not applicable................................................................................
(f) -- None..........................................................................................
</TABLE>
8
<PAGE>
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
AND ALL OUTSTANDING SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
AT
$1.50 NET PER SHARE IN CASH
PLUS
A DEFERRED CONTINGENT CASH RIGHT
(AS DESCRIBED HEREIN)
BY
HSC ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY OF
AMES DEPARTMENT STORES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, DECEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED.
THE BOARD OF DIRECTORS OF HILLS STORES COMPANY (THE "COMPANY") HAS
UNANIMOUSLY APPROVED THE MERGER AGREEMENT (AS DEFINED HEREIN) AND THE
TRANSACTIONS CONTEMPLATED THEREBY, INCLUDING THE OFFER AND THE MERGER (EACH AS
DEFINED HEREIN), AND HAS UNANIMOUSLY DETERMINED THAT THE OFFER AND THE MERGER
ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S STOCKHOLDERS AND
UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER AND TENDER THEIR
SHARES PURSUANT TO THE OFFER.
THE COMPANY AND AMES DEPARTMENT STORES, INC. ("PARENT") HAVE ENTERED INTO A
STOCK OPTION AGREEMENT PURSUANT TO WHICH, AMONG OTHER THINGS, THE COMPANY HAS
GRANTED PARENT AN OPTION TO PURCHASE (THE "STOCK OPTION") UP TO 2,073,753 FULLY
PAID AND NONASSESSABLE SHARES OF COMMON STOCK OF THE COMPANY, OR SUCH OTHER
NUMBER OF SHARES OF COMMON STOCK OF THE COMPANY AS EQUALS 19.9% OF THE COMPANY'S
ISSUED AND OUTSTANDING COMMON STOCK AT THE TIME OF EXERCISE OF THE STOCK OPTION.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE (AS DEFINED HEREIN) THAT
NUMBER OF SHARES WHICH, WHEN ADDED TO THE SHARES BENEFICIALLY OWNED BY PARENT,
HSC ACQUISITION CORP. ("PURCHASER") OR ANY OF THEIR AFFILIATES (IF ANY),
CONSTITUTES AT LEAST 60% OF THE SHARES THEN OUTSTANDING ON THE DATE SHARES ARE
ACCEPTED FOR PAYMENT, AND (B) PURCHASER HAVING ACQUIRED PRIOR TO, OR
SIMULTANEOUS WITH, THE CONSUMMATION OF THE OFFER NOT LESS THAN 66 2/3% IN
AGGREGATE PRINCIPAL AMOUNT OF THE THEN OUTSTANDING 12 1/2% SENIOR NOTES DUE 2003
(THE "NOTES") OF THE COMPANY. THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS
SET FORTH IN THIS OFFER TO PURCHASE. SEE SECTION 14.
------------------------
IMPORTANT
Any stockholder desiring to tender all or any portion of such stockholder's
Shares (as defined herein) should either (i) complete and sign the enclosed
Letter of Transmittal (or a facsimile thereof) in accordance with the
Instructions in the Letter of Transmittal, have such stockholder's signature
thereon guaranteed (if required by Instruction 1 to the Letter of Transmittal),
mail or deliver the Letter of Transmittal (or a facsimile thereof) and any other
required documents to the Depositary (as defined herein) and either deliver the
certificates for such Shares to the Depositary or tender such Shares pursuant to
the procedure for book-entry transfer set forth in Section 3 of this Offer to
Purchase, or (ii) request such stockholder's broker, dealer, commercial bank,
trust company or other nominee to effect the transaction for such stockholder.
Any stockholder whose Shares are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee must contact such broker,
dealer, commercial bank, trust company or other nominee to tender such Shares.
Any stockholder who desires to tender Shares and whose certificates
evidencing such Shares are not immediately available, or who cannot comply with
the procedures for book-entry transfer on a timely basis, may tender such Shares
by following the procedures for guaranteed delivery set forth in Section 3 of
this Offer to Purchase.
Questions and requests for assistance may be directed to the Information
Agent or the Dealer Manager at their addresses and telephone numbers set forth
on the back cover of this Offer to Purchase. Additional copies of this Offer to
Purchase, the Letter of Transmittal, the Notice of Guaranteed Delivery and other
tender offer materials may be obtained from the Information Agent or brokers,
dealers, commercial banks or trust companies.
------------------------
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
NOVEMBER 18, 1998
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
INTRODUCTION............................................................................................... 1
THE OFFER.................................................................................................. 5
1. TERMS OF THE OFFER................................................................................... 5
2. ACCEPTANCE FOR PAYMENT AND PAYMENT................................................................... 6
3. PROCEDURES FOR TENDERING SHARES...................................................................... 7
4. WITHDRAWAL RIGHTS.................................................................................... 9
5. CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES................................................ 10
6. PRICE RANGE OF THE SHARES; DIVIDENDS................................................................. 12
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK LISTING; EXCHANGE ACT REGISTRATION; MARGIN
REGULATIONS.......................................................................................... 13
8. CERTAIN INFORMATION CONCERNING THE COMPANY........................................................... 15
9. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER.................................................. 17
10. SOURCES AND AMOUNT OF FUNDS.......................................................................... 19
11. BACKGROUND OF THE OFFER; PURPOSE OF THE OFFER AND THE MERGER; THE MERGER AGREEMENT, THE STOCK OPTION
AGREEMENT AND CERTAIN OTHER AGREEMENTS............................................................... 20
12. PLANS FOR THE COMPANY; OTHER MATTERS................................................................. 32
13. DIVIDENDS AND DISTRIBUTIONS.......................................................................... 34
14. CONDITIONS TO THE STOCK TENDER OFFER AND THE NOTE TENDER OFFER....................................... 35
15. CERTAIN LEGAL MATTERS................................................................................ 38
16. FEES AND EXPENSES.................................................................................... 40
17. MISCELLANEOUS........................................................................................ 41
SCHEDULE I................................................................................................. 42
</TABLE>
i
<PAGE>
TO THE HOLDERS OF COMMON STOCK
AND SERIES A CONVERTIBLE PREFERRED STOCK OF
HILLS STORES COMPANY:
INTRODUCTION
HSC Acquisition Corp., a Delaware corporation ("Purchaser") and a
wholly-owned subsidiary of Ames Department Stores, Inc., a Delaware corporation
("Parent"), hereby offers to purchase (i) all outstanding shares of Common
Stock, par value $0.01 per share (the "Common Stock"), including the preferred
stock purchase rights associated therewith issued pursuant to the Rights
Agreement (as defined below) (the "Rights" and, together with the Common Stock,
the "Common Shares"), of Hills Stores Company, a Delaware corporation (the
"Company"), and (ii) all outstanding shares of Series A Convertible Preferred
Stock, par value $0.10 per share (the "Preferred Stock"), including the
associated Rights (the Preferred Stock, together with the associated Rights, the
"Preferred Shares"; and, together with the Common Shares, the "Shares"), of the
Company, at a price of $1.50 per Share, net to the seller in cash (the "Cash
Offer Price"), without interest, plus a Deferred Contingent Cash Right described
more fully below and in Section 11 hereof (a "DCCR", and together with the Cash
Offer Price, the "Total Offer Price"), upon the terms and subject to the
conditions set forth in this Offer to Purchase and in the related Letter of
Transmittal (which, as amended or supplemented from time to time, collectively
constitute the "Offer").
Tendering stockholders of record who tender Shares directly will not be
obligated to pay brokerage fees or commissions or, except as set forth in
Instruction 6 of the Letter of Transmittal, stock transfer taxes on the purchase
of Shares by Purchaser pursuant to the Offer. Stockholders who hold their Shares
through a bank or broker should check with such institution as to whether they
charge any service fees. Purchaser will pay all fees and expenses of Bear,
Stearns & Co. Inc., which is acting as the Dealer Manager for the Offer (in such
capacity, the "Dealer Manager"), ChaseMellon Shareholder Services, L.L.C., which
is acting as the depositary in connection with the Offer (in such capacity, the
"Depositary"), and D.F. King & Co., Inc., which is acting as the information
agent (in such capacity, the "Information Agent"), incurred in connection with
the Offer and in accordance with the terms of the agreements entered into
between Purchaser and/or Parent and each such person. See Section 16.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 12, 1998 (the "Merger Agreement"), by and among Parent, Purchaser
and the Company. Pursuant to the Merger Agreement and in accordance with the
Delaware General Corporation Law, as amended (the "DGCL"), as soon as
practicable after the completion of the Offer and satisfaction or waiver, if
permissible, of all conditions, including the purchase of Shares pursuant to the
Offer (sometimes referred to herein as the "Consummation of the Offer") and the
approval and adoption of the Merger Agreement by the stockholders of the Company
(if required by applicable law), Purchaser shall be merged with and into the
Company (the "Merger"), and the Company will be the surviving corporation in the
Merger (the "Surviving Corporation"). At the effective time of the Merger (the
"Effective Time"), each Share then outstanding, other than Shares held by
(i) the Company or any of its subsidiaries, (ii) Parent, Purchaser or any of its
subsidiaries, and (iii) stockholders who have properly exercised their
dissenters' rights under the DGCL, will be cancelled and converted automatically
into the right to receive $1.50 in cash, or any higher price per Share paid in
the Offer, and a DCCR (together, the "Merger Consideration"), without interest.
The Merger Agreement is more fully described in Section 11.
Pursuant to the terms of the Merger Agreement, the DCCR to be issued to
holders of Shares (other than Parent or Purchaser, or the Company, or their
respective subsidiaries) in the Offer and the Merger will entitle each such
holder to an amount equal to a pro rata share (rounded up to the nearest cent)
of 25% of the Net Recovery (as defined below), if any. For these purposes a
holder's pro rata share is a fraction, the numerator of which is the number of
Shares held by such person immediately prior to the Consummation of the Offer or
at the time of the Merger, as the case may be, and the denominator of which is
the total number of Shares outstanding immediately prior to the Consummation of
the Offer after giving effect to the exercise after the Consummation of the
Offer of any options, warrants and rights under the Company's Associate Stock
Purchase Plan. The Merger Agreement defines the term "Net Recovery" to mean
(1) the sum of (A) cash payments, if any, actually received by the Surviving
Corporation in respect of a final, non-appealable judgment in or settlement
(including any cash tax refund received by any defendant and paid over to the
Surviving Corporation) of the Hills Litigation (as defined below) and any
advances to other parties recovered by the Surviving Corporation and
(B) amounts received after the Consummation of the Offer from certain employees
of the Company who settled related claims
<PAGE>
prior to such time or who otherwise make payments after such time in respect of
such related claims (including any cash tax refund received by any such persons
and paid over to the Surviving Corporation), together with any interest earned
on the foregoing (such cash payments are hereinafter collectively referred to
as, the "Cash Payment"), minus, without prioritization (2) the sum of (A) the
aggregate expenses incurred after Consummation of the Offer by Parent,
Purchaser, the Company or the Surviving Corporation in prosecuting and defending
the Hills Litigation and obtaining such Cash Payment, (B) the aggregate payments
or advances by the Company or the Surviving Corporation after Consummation of
the Offer to or on behalf of third parties relating to claims of indemnification
in connection with the Hills Litigation, (C) a fee to be paid to members of a
committee to be designated by the Company's Board of Directors prior to the
Consummation of the Offer (the "Litigation Committee") as compensation for the
performance of their services under the Merger Agreement in connection with the
Hills Litigation, (D) any indemnification payments on behalf of the Litigation
Committee pursuant to the applicable section of the Merger Agreement, and
(E) any payments or settlements made by the Surviving Corporation on
counterclaims under the Hills Litigation. The Merger Agreement defines the term
"Hills Litigation" as the lawsuit styled Hills Stores Company v. Bozic, et al.
(Del. Ch., filed September 1995) and the counterclaims asserted in such action,
and any other claims by the Company arising out of or with respect to the
subject matter of the claims filed by the Company against the defendants in the
aforesaid action. For the purposes of the discussion of the DCCRs and the
definitions of "Hills Litigation" and "Net Recovery" in this Statement, the term
"Surviving Corporation" shall refer to either the Surviving Corporation or the
Company after Consummation of the Offer and the terms "Company" and "Surviving
Corporation" shall include in each case any of their respective subsidiaries.
See Sections 8 and 11. THE VALUE OF DCCRS IS DEPENDENT UPON THE OUTCOME OF THE
HILLS LITIGATION. SEE THE CAPTION "THE COMPANY--HILLS LITIGATION" IN SECTION 8.
THE AMOUNT, IF ANY, THAT MAY BE RECOVERED IN CONNECTION WITH THE HILLS
LITIGATION IS IMPOSSIBLE TO ESTIMATE AT THIS TIME, AND ANY RECOVERY IS DEPENDENT
ON THE FAVORABLE RESOLUTION OF MANY COMPLEX FACTUAL AND LEGAL ISSUES. THERE CAN
BE NO ASSURANCE THAT THE DCCRS ULTIMATELY WILL HAVE ANY VALUE RESULTING IN ANY
PAYMENT BEING MADE WITH RESPECT THERETO.
A DCCR WILL NOT (I) BE TRANSFERABLE BY ANY RECIPIENT THEREOF, EXCEPT BY
WILL OR PURSUANT TO THE LAWS OF DESCENT AND DISTRIBUTION OR BY OPERATION OF LAW,
(II) BE EVIDENCED BY A CERTIFICATE OR OTHER INSTRUMENT, (III) POSSESS ANY VOTING
RIGHTS, (IV) RECEIVE OR BE ENTITLED TO RECEIVE ANY DIVIDENDS OR INTEREST, OR
(V) REPRESENT ANY EQUITY INTEREST IN THE COMPANY, PURCHASER, PARENT OR THE
SURVIVING CORPORATION. If no payments on the DCCRs have been made by the fifth
anniversary of the Effective Time, the DCCRs shall expire and none of the
Company, Purchaser, Parent or the Surviving Corporation shall have any further
obligations with respect thereto; provided, however, that the Surviving
Corporation and the Litigation Committee will use commercially reasonable
efforts to extend the term of the DCCRs if the Hills Litigation is not resolved
within such five-year period or if any settlement entered into has not been
fully performed.
THE BOARD OF DIRECTORS OF THE COMPANY (THE "COMPANY BOARD") HAS UNANIMOUSLY
APPROVED THE MERGER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED THEREBY,
INCLUDING THE OFFER AND THE MERGER, AND HAS UNANIMOUSLY DETERMINED THAT THE
OFFER AND THE MERGER ARE FAIR TO, AND IN THE BEST INTERESTS OF, THE COMPANY'S
STOCKHOLDERS AND UNANIMOUSLY RECOMMENDS THAT THE STOCKHOLDERS ACCEPT THE OFFER
AND TENDER THEIR SHARES PURSUANT TO THE OFFER.
The Company has advised Parent and Purchaser that Warburg Dillon Read LLC
("Warburg Dillon Read"), financial advisor to the Company, has delivered to the
Company Board its written opinion, dated as of November 11, 1998 (the "Financial
Advisor Opinion"), to the effect that, as of such date, the $1.50 per Share in
cash to be offered to the holders of Shares in the Offer and the Merger is fair,
from a financial point of view, to such holders. A copy of the Financial Advisor
Opinion is attached in full as an exhibit to the Company's
Solicitation/Recommendation Statement on Schedule 14D-9 (the "Schedule 14D-9"),
which has been filed by the Company with the Securities and Exchange Commission
(the "Commission") in connection with the Offer and is being mailed to holders
of Shares herewith. Holders of Shares are urged to, and should, read the
Financial Advisor Opinion carefully.
THE OFFER IS CONDITIONED UPON, AMONG OTHER THINGS, (A) THERE BEING VALIDLY
TENDERED AND NOT WITHDRAWN PRIOR TO THE EXPIRATION DATE THAT NUMBER OF SHARES
WHICH, WHEN ADDED TO THE SHARES BENEFICIALLY OWNED BY PARENT OR PURCHASER OR ANY
OF THEIR AFFILIATES (IF ANY), REPRESENTS AT LEAST
2
<PAGE>
60% OF THE SHARES OUTSTANDING ON THE DATE SHARES ARE ACCEPTED FOR PAYMENT (THE
"MINIMUM STOCK CONDITION"), AND (B) PURCHASER HAVING ACQUIRED PRIOR TO, OR
SIMULTANEOUS WITH, THE CONSUMMATION OF THE OFFER NOT LESS THAN 66 2/3% AGGREGATE
PRINCIPAL AMOUNT OF THE THEN OUTSTANDING NOTES (THE "NOTE PURCHASE CONDITION").
THE OFFER IS ALSO SUBJECT TO THE OTHER CONDITIONS SET FORTH IN THIS OFFER TO
PURCHASE. SEE SECTION 14. As used in this Offer to Purchase, the term "then
outstanding Shares" includes all Shares outstanding as of the date of the
Consummation of the Offer. The Company has represented and warranted to Parent
and Purchaser that, as of November 12, 1998, there were 10,420,870 Common Shares
issued and outstanding, 1,382,211 Common Shares issuable pursuant to the
exercise of outstanding options ("Options"), with exercise prices ranging from
$2.75 to $18.25 per share, 432,903 Common Shares issuable pursuant to the
exercise of warrants expiring October 4, 2000, all of which have an exercise
price of $30.00 per share (the "Warrants"), 6,051 Common Shares issuable
pursuant to the Company's Series 1993 Stock Rights with an exercise price of
$0.01 per Common Share, and 848,931 Preferred Shares issued and outstanding. The
Certificate of Designations for the Preferred Stock provides that each share of
Preferred Stock is convertible, at any time, into one Common Share, subject to
adjustment as provided therein. The Merger Agreement provides, among other
things, that the Company will not, without the prior written consent of Parent,
issue any additional Shares (except upon the exercise of outstanding Options or
Warrants or the conversion of the Preferred Shares and except pursuant to the
Stock Option Agreement (as hereinafter defined) and the Company's Associate
Stock Purchase Plan). The Company has agreed in the Merger Agreement to amend
the Company's Associate Stock Purchase Plan so that no additional Common Shares
will be issuable thereunder in connection with the Offer or the Merger from and
after the date of the Merger Agreement. See Section 11. Based on the foregoing
and assuming that no Shares will be issued upon the exercise of outstanding
Options or Warrants because the exercise prices therefor exceed $1.50, that no
Common Shares will be issuable under the Company's Associate Stock Purchase Plan
and that 6,051 Common Shares will be issuable under the Company's Series 1993
Stock Rights, Purchaser believes that the Minimum Stock Condition will be
satisfied if 6,765,511 Shares are validly tendered and not withdrawn prior to
the Expiration Date.
The Company has entered into a Stock Option Agreement, dated as of
November 12, 1998 (the "Stock Option Agreement"), with Parent and Purchaser
pursuant to which the Company has granted to Parent an irrevocable option (the
"Stock Option") to purchase up to 2,073,753 fully paid and nonassessable Common
Shares or such other number of Common Shares as equals 19.9% of the issued and
outstanding Common Shares at the time of exercise of the Stock Option, at a
purchase price of $1.50 per Common Share, exercisable upon the occurrence of
certain events.
The Merger Agreement provides that, promptly upon the purchase by Purchaser
of Shares pursuant to the Offer, and from time to time thereafter, Parent shall
be entitled to designate up to such number of directors, rounded up to the next
whole number, on the Company Board as will give Parent representation on the
Company Board equal to the product of the number of the total directors on the
Company Board (giving effect to the directors to be elected as described in this
sentence) multiplied by the percentage that the aggregate number of Shares then
beneficially owned by Purchaser and its affiliates following such purchase bears
to the total number of Shares then outstanding. In the Merger Agreement, the
Company has agreed to take all actions necessary to cause Parent's designees to
be elected as directors of the Company, including increasing the size of the
Company Board or securing the resignations of incumbent directors or both. See
Section 11.
Consummation of the Merger is conditioned upon, among other things, the
approval and adoption by the requisite vote of stockholders of the Company of
the Merger Agreement and the Merger, if required by applicable law and the
Company's Certificate of Incorporation (the "Certificate of Incorporation"). See
Section 11. Under the DGCL and pursuant to the Certificate of Incorporation, the
affirmative vote of the holders of a majority of outstanding Common Shares and
Preferred Shares, voting together as a single class, is the only vote of any
class or series of the Company's capital stock that would be necessary to
approve the Merger Agreement and the Merger at a meeting of the Company's
stockholders. If the Minimum Stock Condition is satisfied and Purchaser
purchases at least a majority of the outstanding Shares entitled to vote on the
approval of the Merger and the Merger Agreement, Purchaser will be able to
effect the Merger without the affirmative vote of any other stockholder.
Pursuant to the Merger Agreement, Parent and Purchaser have agreed to vote the
Shares acquired by them pursuant to the Offer in favor of the Merger. See
Section 12. The Merger Agreement and the Stock Option Agreement are more fully
described in Section 11.
3
<PAGE>
Under Section 253 of the DGCL, if a corporation owns at least 90% of the
outstanding shares of each class of a subsidiary corporation, the corporation
holding such stock may merge such subsidiary into itself, or itself into such
subsidiary, without any action or vote on the part of the board of directors or
the stockholders of such other corporation (a "short-form merger"). In the event
that Purchaser acquires in the aggregate at least 90% of the outstanding Common
Shares and at least 90% of the outstanding Preferred Shares pursuant to the
Offer or otherwise, then, at the election of Parent, a short-form merger of
Purchaser with and into the Company could be effected without any further
approval of the Company Board or the stockholders of the Company. Even if
Purchaser does not own 90% of the outstanding Common Shares or 90% of the
outstanding Preferred Shares following consummation of the Offer, Parent could
seek to purchase additional shares in the open market or otherwise in order to
reach the applicable 90% threshold and employ such a short-form merger. The per
share consideration paid for any Shares so acquired in open market purchases may
be greater or less than the Cash Offer Price. Parent presently intends to effect
a short-form merger, if permitted to do so under the DGCL, pursuant to which
Purchaser will be merged with and into the Company. See Section 12.
The Company has distributed one Right for each outstanding Share pursuant
to the Rights Agreement, dated as of August 16, 1994, by and between the Company
and Chemical Bank, as Rights Agent (the "Rights Agreement"). The Company has
represented in the Merger Agreement that it has taken all necessary action under
the Rights Agreement so that (x) none of the execution or delivery of the Merger
Agreement or the Stock Option Agreement, consummation of the Offer, or any other
transaction contemplated by the Merger Agreement or the Stock Option Agreement
will cause (i) the Rights to become exercisable under the Rights Agreement, (ii)
Parent or Purchaser to be deemed an "Acquiring Person" (as defined in the Rights
Agreement), or (iii) the "Distribution Date" (as defined in the Rights
Agreement) to occur upon any such event, and (y) the "Expiration Date" (as
defined in the Rights Agreement) of the Rights shall occur immediately prior to
the Effective Time.
The Merger Agreement also provides that, as promptly as reasonably
practicable after the date of the Merger Agreement, but in no event later than
five business days after the first public announcement of the execution thereof,
and upon the terms and subject to the conditions of the Merger Agreement,
Purchaser or its designee shall make a tender offer (the "Note Offer to
Purchase") for all of the Notes. In connection with the Note Offer to Purchase,
Purchaser or its designee intends to solicit consents ("Consents") from the
holders of the Notes to certain proposed amendments to and a waiver of certain
provisions of the Indenture, dated as of April 19, 1996 (the "Indenture"), among
the Company, the Guarantors party thereto and Fleet National Bank, as Trustee
(the "Consent Solicitation" and together with the Note Offer to Purchase, the
"Note Tender Offer"). The Note Tender Offer will be made at a price of $550 for
each $1,000 principal amount of the Notes payable in cash (the "Note Tender Cash
Consideration"), which amount includes all accrued and unpaid interest to but
not including the date of payment, plus a DCCR. A portion of the Note Tender
Cash Consideration equal to $30 for each $1,000 principal amount of Notes is a
payment for the delivery of a Consent in accordance with the terms of the
Consent Solicitation. The Note Tender Offer is conditioned upon (i) the
condition that the aggregate principal amount of Notes validly tendered and not
withdrawn prior to the expiration of the Note Tender Offer, combined with the
Notes already owned by Parent, Purchaser or any of their affiliates, constitutes
at least 66 2/3% in aggregate principal amount of the then outstanding Notes at
the expiration of the Note Tender Offer (the "Minimum Note Condition"),
(ii) the condition that Purchaser receive Consents from at least 66 2/3% of the
outstanding principal amount of the Notes, and (iii) the condition that
Purchaser has acquired or is simultaneously acquiring not less than 51% of the
then outstanding Shares (the "Stock Purchase Condition"). The Note Tender Offer
is also subject to other conditions described in Section 14 under the caption
"Note Tender Offer", including the Minimum Stock Condition. Pursuant to the
terms of the Merger Agreement, the DCCR to be received in the Note Tender Offer
will entitle a holder of Notes that are purchased in the Note Tender Offer to an
amount equal to such holder's pro rata share (rounded up to the nearest cent) of
50% of any Net Recovery. Any such holder's pro rata share, will be a fraction,
the numerator of which is the principal amount of the Notes purchased by the
Purchaser from such holder of Notes and the denominator of which is the total
principal amount of all Notes purchased in the Note Tender Offer.
THIS OFFER TO PURCHASE AND THE RELATED LETTER OF TRANSMITTAL CONTAIN
IMPORTANT INFORMATION AND SHOULD BE READ CAREFULLY BEFORE ANY DECISION IS MADE
WITH RESPECT TO THE OFFER.
4
<PAGE>
THE OFFER
1. TERMS OF THE OFFER.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of such extension or
amendment), Purchaser will accept for payment and pay for all Shares validly
tendered prior to the Expiration Date, and not withdrawn in accordance with
Section 4. The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on Wednesday, December 16, 1998, unless and until Purchaser, in accordance
with the terms of the Offer, but subject to the limitations of the Merger
Agreement, shall have extended the period of time during which the Offer is
open, in which event the term "Expiration Date" shall mean the latest time and
date at which the Offer, as so extended by Purchaser, shall expire.
The Offer is conditioned upon the satisfaction of the Minimum Stock
Condition, the expiration or termination of all waiting periods imposed by the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the "HSR
Act"), the Note Purchase Condition, and the other conditions set forth in
Section 14 under the caption "Stock Tender Offer". If such conditions are not
satisfied prior to the Expiration Date, Parent and Purchaser reserve the right,
subject to the terms of the Merger Agreement and subject to complying with
applicable rules and regulations of the Commission, to (i) delay acceptance for
payment of, or, regardless of whether such Shares were theretofore accepted for
payment, payment for, any Shares pending receipt of any regulatory approval
specified in Section 15, (ii) terminate the Offer and not accept for payment any
Shares upon the occurrence of any of the conditions specified in Section 14
under the caption "Stock Tender Offer" and (iii) waive any condition or
otherwise amend the Offer in any respect, by giving oral or written notice of
such delay, termination, waiver or amendment to the Depositary and by making a
public announcement thereof. The Merger Agreement provides that, without the
consent of the Company, Parent and Purchaser will not (i) decrease the price per
Share payable pursuant to the Offer, (ii) change the form of consideration
payable pursuant to the Offer, (iii) reduce the maximum number of Shares sought
pursuant to the Offer, (iv) eliminate the Note Purchase Condition, (v) reduce
the Minimum Stock Condition to below 51% of the then outstanding Shares,
(vi) otherwise modify or amend the conditions to the Offer or any other term of
the Offer in a manner that is materially adverse to the holders of the Shares,
(vii) extend the expiration date of the Offer beyond January 4, 1999 (except
that Purchaser may extend the expiration date of the Offer through January 9,
1999 as required to comply with any rule, regulation or interpretation of the
Commission) or (viii) impose conditions to the Offer in addition to those set
forth in Section 14 under the caption "Stock Tender Offer". During any
extension, all Shares previously tendered and not withdrawn will remain subject
to the Offer, subject to the rights of a tendering stockholder to withdraw his
or her Shares. See Section 4.
Any extension, amendment or termination of the Offer will be followed as
promptly as practicable by public announcement thereof, the announcement in the
case of an extension to be issued no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date in
accordance with Rules 14d-4(c), 14d-6(d) and 14e-1(d) under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Without limiting the
obligation of Purchaser under such Rules or the manner in which Purchaser may
choose to make any public announcement, Purchaser currently intends to make
announcements by issuing a press release to the Dow Jones News Service.
If Purchaser extends the Offer, or if Purchaser (whether before or after
its acceptance for payment of Shares) is delayed in its purchase of, or payment
for, Shares or is unable to pay for Shares pursuant to the Offer for any reason,
then, without prejudice to Purchaser's rights under the Offer, the Depositary
may retain tendered Shares on behalf of Purchaser, and such Shares may not be
withdrawn except to the extent tendering stockholders are entitled to withdrawal
rights as described in Section 4. However, the ability of Purchaser to delay the
payment for Shares which Purchaser has accepted for payment is limited by
Rule 14e-1(c) under the Exchange Act, which requires that a bidder pay the
consideration offered or return the securities deposited by, or on behalf of,
holders of securities promptly after the termination or withdrawal of the Offer.
If Purchaser makes a material change in the terms of the Offer or the
information concerning the Offer or waives a material condition of the Offer,
Purchaser will disseminate additional tender offer materials and extend the
Offer to the extent required by Rules 14d-4(c), 14d-6(d) and 14e-1 under the
Exchange Act. The minimum
5
<PAGE>
period during which the Offer must remain open following material changes in the
terms of the Offer or information concerning the Offer, other than a change in
price or a change in percentage of securities sought, will depend upon the facts
and circumstances then existing, including the relative materiality of the
changed terms or information. In a public release, the Commission has stated its
view that an offer must remain open for a minimum period of time following a
material change in the terms of the Offer and that waiver of a material
condition, such as the Minimum Stock Condition, is a material change in the
terms of the Offer. The release states that an offer should remain open for a
minimum of five (5) business days from the date a material change is first
published, or sent or given to security holders and that, if material changes
are made with respect to information not materially less significant than the
offer price and the number of shares being sought, a minimum of ten
(10) business days may be required to allow adequate dissemination and investor
response. The requirement to extend the Offer will not apply to the extent that
the number of business days remaining between the occurrence of the change and
the then-scheduled Expiration Date equals or exceeds the minimum extension
period that would be required because of such amendment. If, prior to the
Expiration Date, Purchaser increases the consideration offered to holders of
Shares pursuant to the Offer, such increased consideration will be paid to all
holders whose Shares are purchased in the Offer whether or not such Shares were
tendered prior to such increase.
The Company has provided Purchaser with the Company's stockholder lists and
security position listings for the purpose of disseminating the Offer to holders
of Shares. This Offer to Purchase and the related Letter of Transmittal will be
mailed to record holders of Shares and will be furnished to brokers, dealers,
banks and similar persons whose names, or the names of whose nominees, appear on
the stockholder lists or, if applicable, who are listed as participants in a
clearing agency's security position listing, for subsequent transmittal to
beneficial owners of Shares.
2. ACCEPTANCE FOR PAYMENT AND PAYMENT.
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and will pay for, as soon as
practicable after the Expiration Date, all Shares validly tendered prior to the
Expiration Date and not properly withdrawn in accordance with Section 4.
For purposes of the Offer, Purchaser will be deemed to have accepted for
payment, and thereby purchased, Shares properly tendered to Purchaser and not
withdrawn, if, as and when Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance for payment of such Shares. Payment for
Shares accepted for payment pursuant to the Offer will be made by deposit of the
cash purchase price therefor with the Depositary, which will act as agent for
tendering stockholders for the purpose of receiving payment from Purchaser and
transmitting payment to tendering stockholders. In all cases, payment for Shares
accepted for payment pursuant to the Offer will be made only after timely
receipt by the Depositary of (i) certificates for such Shares (or a timely
Book-Entry Confirmation (as defined below) with respect thereto), (ii) a Letter
of Transmittal (or facsimile thereof), properly completed and duly executed,
with any required signature guarantees, or, in the case of a book-entry
transfer, an Agent's Message (as defined below) and (iii) any other documents
required by the Letter of Transmittal. Accordingly, payment may be made to
tendering stockholders at different times if delivery of the Shares and other
required documents occur at different times. The per share consideration paid to
any holder of Shares pursuant to the Offer will be the highest per share
consideration paid to any other holder of such Shares pursuant to the Offer.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID ON THE PURCHASE PRICE TO BE
PAID BY PURCHASER FOR THE SHARES, REGARDLESS OF ANY EXTENSION OF THE OFFER OR
ANY DELAY IN MAKING SUCH PAYMENT.
The Purchaser expressly reserves the right, in its sole discretion, to
delay acceptance for payment of, or payment for, Shares in order to comply in
whole or in part with any applicable law. If Purchaser is delayed in its
acceptance for payment of, or payment for, Shares or is unable to accept for
payment or pay for Shares pursuant to the Offer for any reason, then, without
prejudice to Purchaser's rights under the Offer (including such rights as are
set forth in Sections 1 and 14) (but subject to compliance with Rule 14e-1(c)
under the Exchange Act), the Depositary may, nevertheless, on behalf of
Purchaser, retain tendered Shares, and such Shares may not be
6
<PAGE>
withdrawn except to the extent tendering stockholders are entitled to exercise,
and duly exercise, withdrawal rights as described in Section 4.
If any tendered Shares are not purchased pursuant to the Offer for any
reason, or if certificates are submitted representing more Shares than are
tendered, certificates evidencing Shares not tendered or not accepted for
purchase will be returned to the tendering stockholder, or such other person as
the tendering stockholder shall specify in the Letter of Transmittal, as
promptly as practicable following the expiration, termination or withdrawal of
the Offer. In the case of Shares delivered by book-entry transfer into the
Depositary's account at the Book-Entry Transfer Facility (as defined below)
pursuant to the procedures set forth in Section 3, such Shares will be credited
to such account maintained at the Book-Entry Transfer Facility as the tendering
stockholder shall specify in the Letter of Transmittal, as promptly as
practicable following the expiration, termination or withdrawal of the Offer. If
no such instructions are given with respect to Shares delivered by book-entry
transfer, any such Shares not tendered or not purchased will be returned by
crediting the account at the Book-Entry Transfer Facility designated in the
Letter of Transmittal as the account from which such Shares were delivered.
Purchaser reserves the right to transfer or assign, in whole or, from time
to time, in part, to one or more of its affiliates, the right to purchase Shares
tendered pursuant to the Offer, but any such transfer or assignment will not
relieve Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer.
3. PROCEDURES FOR TENDERING SHARES.
Valid Tender. For Shares to be validly tendered pursuant to the Offer,
either (i) a properly completed and duly executed Letter of Transmittal (or
facsimile thereof), together with any required signature guarantees, or in the
case of a book-entry transfer, an Agent's Message, and any other required
documents, must be received by the Depositary at one of its addresses set forth
on the back cover of this Offer to Purchase prior to the Expiration Date and
either certificates evidencing tendered Shares must be received by the
Depositary at one of such addresses or such Shares must be delivered to the
Depositary pursuant to the procedures for book-entry transfer set forth below
and a Book-Entry Confirmation must be received by the Depositary, in each case
prior to the Expiration Date, or (ii) the tendering stockholder must comply with
the guaranteed delivery procedures described below.
Book-Entry Transfer. The Depositary will establish an account with respect
to the Shares at The Depository Trust Company (the "Book-Entry Transfer
Facility") for purposes of the Offer within two (2) business days after the date
of this Offer to Purchase. Any financial institution that is a participant in
the Book-Entry Transfer Facility's system may make book-entry delivery of Shares
by causing the Book-Entry Transfer Facility to transfer such Shares into the
Depositary's account in accordance with such Book-Entry Transfer Facility's
procedures for such transfer. However, although delivery of Shares may be
effected through book-entry transfer into the Depositary's account at the
Book-Entry Transfer Facility, the Letter of Transmittal (or facsimile thereof),
properly completed and duly executed, with any required signature guarantees, or
an Agent's Message, and any other required documents must, in any case, be
transmitted to, and received by, the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase prior to the Expiration Date,
or the tendering stockholder must comply with the guaranteed delivery procedures
described below. The confirmation of a book-entry transfer of Shares into the
Depositary's account at the Book-Entry Transfer Facility as described above is
referred to herein as a "Book-Entry Confirmation."
DELIVERY OF THE LETTER OF TRANSMITTAL AND ANY OTHER REQUIRED DOCUMENTS TO
THE BOOK-ENTRY TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against such participant.
7
<PAGE>
THE METHOD OF DELIVERY OF SHARES, THE LETTER OF TRANSMITTAL AND ALL OTHER
REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER FACILITY,
IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. SHARES WILL BE DEEMED
DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY (INCLUDING, IN THE CASE
OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION). IF DELIVERY IS BY MAIL,
REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY INSURED, IS RECOMMENDED.
IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
Signature Guarantees. No signature guarantee is required on the Letter of
Transmittal (i) if the Letter of Transmittal is signed by the registered
holder(s) (which term, for purposes of this Section, includes any participant in
the Book Entry Transfer Facility's systems whose name appears on a security
position listing as the owner of the Shares) of Shares tendered therewith and
such registered holder has not completed either the box entitled "Special
Delivery Instructions" or the box entitled "Special Payment Instructions" on the
Letter of Transmittal or (ii) if such Shares are tendered for the account of a
financial institution (including most commercial banks, savings and loan
associations and brokerage houses) that is a participant in the Security
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Guarantee Program or the Stock Exchange Medallion Program (each, an
"Eligible Institution" and, collectively, "Eligible Institutions"). In all other
cases, all signatures on Letters of Transmittal must be guaranteed by an
Eligible Institution. See Instructions 1 and 5 to the Letter of Transmittal. If
the certificates for Shares are registered in the name of a person other than
the signer of the Letter of Transmittal, or if payment is to be made, or
certificates for Shares not tendered or not accepted for payment are to be
returned, to a person other than the registered holder of the certificates
surrendered, then the tendered certificates for such Shares must be endorsed or
accompanied by appropriate stock powers, in either case, signed exactly as the
name or names of the registered holders or owners appear on the certificates,
with the signatures on the certificates or stock powers guaranteed as aforesaid.
See Instruction 5 to the Letter of Transmittal.
Guaranteed Delivery. If a stockholder desires to tender Shares pursuant to
the Offer and such stockholder's certificates for Shares are not immediately
available or the procedures for book-entry transfer cannot be completed on a
timely basis or time will not permit all required documents to reach the
Depositary prior to the Expiration Date, such stockholder's tender may be
effected if all the following conditions are met:
(i) such tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by Purchaser, is received by
the Depositary, as provided below, prior to the Expiration Date; and
(iii) the certificates for (or a Book-Entry Confirmation with respect
to) such Shares, together with a properly completed and duly executed
Letter of Transmittal (or facsimile thereof), with any required signature
guarantees, or, in the case of a book-entry transfer, an Agent's Message,
and any other required documents, are received by the Depositary within
three (3) trading days after the date of execution of such Notice of
Guaranteed Delivery. A "trading day" is any day on which the New York Stock
Exchange (the "NYSE") is open for business.
The Notice of Guaranteed Delivery may be delivered by hand to the
Depositary or transmitted by telegram, facsimile transmission or mailed to the
Depositary and must include a guarantee by an Eligible Institution in the form
set forth in such Notice of Guaranteed Delivery.
The valid tender of Shares pursuant to one of the procedures described
above will constitute a binding agreement between the tendering stockholder and
Purchaser upon the terms and subject to the conditions of the Offer.
Appointment. By executing the Letter of Transmittal as set forth above
(including delivery through an Agent's Message), the tendering stockholder will
irrevocably appoint designees of Parent as such stockholder's attorneys-in-fact
and proxies in the manner set forth in the Letter of Transmittal, each with full
power of substitution, to the full extent of such stockholder's rights with
respect to the Shares tendered by such stockholder and accepted for payment by
Purchaser and with respect to any and all non-cash dividends, distributions,
rights, other Shares or other securities issued or issuable in respect of such
Shares on or after November 12, 1998
8
<PAGE>
(collectively, "Distributions"). All such proxies will be considered coupled
with an interest in the tendered Shares. Such appointment will be effective if,
as and when, and only to the extent that, Purchaser accepts for payment Shares
tendered by such stockholder as provided herein. All such powers of attorney and
proxies will be irrevocable and will be deemed granted in consideration of the
acceptance for payment by Purchaser of Shares tendered in accordance with the
terms of the Offer. Upon such appointment, all prior powers of attorney, proxies
and consents given by such stockholder with respect to such Shares (and any and
all Distributions) will, without further action, be revoked and no subsequent
powers of attorney, proxies, consents or revocations may be given by such
stockholder (and, if given, will not be deemed effective). The designees of
Parent will thereby be empowered to exercise all voting and other rights with
respect to such Shares (and any and all Distributions), including, without
limitation, in respect of any annual or special meeting of the Company's
stockholders (and any adjournment or postponement thereof), actions by written
consent in lieu of any such meeting or otherwise, as each such attorney-in-fact
and proxy or his substitute shall in his sole discretion deem proper. Purchaser
reserves the right to require that, in order for Shares to be deemed validly
tendered, immediately upon Purchaser's acceptance for payment of such Shares,
Purchaser must be able to exercise full voting, consent and other rights with
respect to such Shares (and any and all Distributions), including voting at any
meeting of stockholders.
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance for payment of any tender
of Shares will be determined by Purchaser, in its sole discretion, which
determination will be final and binding. Purchaser reserves the absolute right
to reject any or all tenders of any Shares determined by it not to be in proper
form or the acceptance for payment of which, or payment for which, may, in the
opinion of Purchaser's counsel, be unlawful. Purchaser also reserves the
absolute right, in its sole discretion, subject to the provisions of the Merger
Agreement, to waive any defect or irregularity in any tender of Shares of any
particular stockholder, whether or not similar defects or irregularities are
waived in the case of other stockholders. No tender of Shares will be deemed to
have been validly made until all defects or irregularities relating thereto have
been cured or waived. None of Purchaser, Parent, the Depositary, the Information
Agent or any other person will be under any duty to give notification of any
defects or irregularities in tenders or incur any liability for failure to give
any such notification. Subject to the terms of the Merger Agreement, Purchaser's
interpretation of the terms and conditions of the Offer in this regard
(including the Letter of Transmittal and the instructions thereto) will be final
and binding.
Backup Withholding. Under the "backup withholding" provisions of federal
income tax law, unless a tendering registered holder, or its assignee (in either
case, the "Payee"), satisfies the conditions described in Instruction 10 of the
Letter of Transmittal or is otherwise exempt, the cash payable as a result of
the Offer may be subject to backup withholding tax at a rate of 31% of the gross
proceeds. To prevent backup withholding, each Payee should complete and sign the
Substitute Form W-9 provided in the Letter of Transmittal. See Instruction 10 to
the Letter of Transmittal.
4. WITHDRAWAL RIGHTS.
Except as otherwise provided in this Section 4 or as provided by applicable
law, tenders of Shares are irrevocable. Shares tendered pursuant to the Offer
may be withdrawn pursuant to the procedures set forth below at any time prior to
the Expiration Date and, unless theretofore accepted for payment and paid for by
Purchaser pursuant to the Offer, may also be withdrawn at any time after
January 17, 1999.
To be effective, a written, telegraphic or facsimile transmission notice of
withdrawal must be timely received by the Depositary at one of its addresses set
forth on the back cover of this Offer to Purchase. Any such notice of withdrawal
must specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates evidencing Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such certificates, the serial numbers shown on such certificates must
be submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution, the signatures on the notice of withdrawal must be
guaranteed by an Eligible Institution. If Shares have been delivered pursuant to
the procedures for book-entry transfer as set forth in Section 3, any notice of
withdrawal must also specify the name and number of the account at the
Book-Entry Transfer Facility to be credited with the withdrawn Shares and
otherwise comply with such Book-Entry Transfer Facility's procedures.
9
<PAGE>
Withdrawals of tendered Shares may not be rescinded, and any Shares
withdrawn will thereafter be deemed not validly tendered for purposes of the
Offer. However, withdrawn Shares may be retendered by again following one of the
procedures described in Section 3 at any time prior to the Expiration Date.
All questions as to the form and validity (including time of receipt) of
notices of withdrawal will be determined by Purchaser, in its sole discretion,
which determination will be final and binding. None of Purchaser, Parent, the
Depositary, the Information Agent or any other person will be under any duty to
give notification of any defects or irregularities in any notice of withdrawal
or incur any liability for failure to give any such notification.
5. CERTAIN MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES.
The following is a summary of certain material U.S. federal income tax
consequences resulting from the sale of the Shares pursuant to the Offer. This
discussion is based on the provisions of the Internal Revenue Code of 1986, as
amended (the "Code"), Treasury Regulations promulgated thereunder, and rulings
and judicial decisions in effect on the date hereof, all of which are subject to
change, possibly with retroactive effect, which could affect the continuing
validity of this discussion. HOLDERS OF SHARES ("HOLDERS") SHOULD CONSULT THEIR
OWN TAX ADVISORS CONCERNING THOSE ASPECTS OF FEDERAL INCOME TAXATION THAT MAY BE
RELEVANT TO THEM IN LIGHT OF THEIR PARTICULAR CIRCUMSTANCES.
This discussion does not address the federal income tax consequences to
Holders (i) who do not hold the Shares as a capital asset within the meaning of
Section 1221 of the Code, (ii) who are subject to special rules or treatment
under the federal income tax laws, including, without limitation, non-U.S.
persons, dealers in securities or foreign currency, tax-exempt organizations,
real estate investment trusts, regulated investment companies, banks, thrifts,
insurance companies, other financial institutions, or taxpayers who hold the
Shares as part of a "straddle," "hedge" or "conversion transaction" or who have
a "functional currency" other than the United States dollar, or (iii) who
acquired their Shares pursuant to the exercise of employee stock options or
otherwise as compensation. This discussion also does not consider any aspect of
federal estate or gift taxation, state, local or foreign income or other
taxation.
No rulings have been requested from the Internal Revenue Service (the
"Service") with respect to any of the tax aspects of or relating to the Offer.
As indicated below, as a result of the Deferred Contingent Cash Rights ("DCCRs")
the tax consequences of a sale of Shares pursuant to the Offer is uncertain. The
presence of the DCCRs as a component of the Total Offer Price may affect, for
federal income tax purposes, the timing and/or character of a Holder's gain or
loss on the sale of Shares pursuant to the Offer as well as the timing and
character of gain or loss on payments received by, or imputed to, such Holder
with respect to or upon disposition, termination or expiration of such DCCRs.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT THE SERVICE WILL NOT CHALLENGE ANY
OR ALL OF THE TAX CONSEQUENCES DESCRIBED BELOW OR OTHERWISE RELATING TO THE
OFFER, OR THAT ANY SUCH CHALLENGE WOULD NOT BE SUSTAINED.
THE FOLLOWING SUMMARY IS NOT A SUBSTITUTE FOR CAREFUL TAX PLANNING AND
ADVICE BASED UPON THE PARTICULAR CIRCUMSTANCES OF EACH HOLDER. ACCORDINGLY, EACH
HOLDER IS URGED TO CONSULT WITH ITS OWN TAX ADVISOR AS TO THE CONSEQUENCES OF
TENDERING OR FAILING TO TENDER SHARES, INCLUDING THE APPLICATION AND EFFECT OF
ANY FEDERAL, STATE, LOCAL, AND FOREIGN INCOME AND OTHER TAX LAWS.
A. TAX IMPLICATIONS TO HOLDERS
The federal income tax consequences of the Offer to a Holder, including the
receipt and ownership of DCCRs, will depend, among other things, on whether the
DCCRs have an ascertainable fair market value ("FMV") as of the date the Offer
is consummated (the "Consummation Date"), and whether the DCCRs are treated, for
federal income tax purposes, as a contract right received in respect of property
or as a debt instrument. Other factors may affect a particular Holder's
consequences, including the amount and timing of any payments received in
respect of such DCCRs and the Holder's method of accounting for interest income.
10
<PAGE>
1. Gain or Loss on Sale; Receipt and Ownership of DCCRs
A sale of Shares by Holders pursuant to the Offer will be a taxable
transaction for federal income tax purposes. A Holder will generally recognize
gain or loss on the sale in an amount equal to the difference between (i) the
sum of the cash plus the FMV of any other property, which likely would include
the DCCRs, received in exchange for the Shares and (ii) such Holder's adjusted
tax basis in the Shares.
Gain or loss upon a sale of Shares pursuant to the Offer will generally be
capital gain or loss. Any such capital gain or loss generally will be long-term
capital gain or loss where, at the time of the sale, the Holder has held the
Shares for more than one year, or short-term capital gain or loss where, at the
time of the sale, the Holder has held the Shares for one year or less.
As mentioned above, gain or loss in respect of a Holder's sale of Shares
will be determined with reference to the amount realized by the Holder, which
amount realized will likely include the DCCRs. An important issue affecting
Holders receiving DCCRs pursuant to the Offer, including whether a DCCR will be
taken into account at the Consummation Date in calculating a Holder's gain or
loss, is whether the FMV of the DCCRs, at the Consummation Date, can reasonably
be ascertained. Assuming that the DCCRs have a reasonably ascertainable FMV, a
Holder's amount realized on the sale of the Shares should then equal the cash
plus the FMV of the DCCRs received in the Offer. The Holder's tax basis in the
DCCRs would also equal such FMV. The Purchaser believes that one reasonable
methodology for ascertaining the FMV of the DCCRs as of the Consummation Date is
by reducing the average trading price of the Shares at such date, but not below
zero, by the cash distributed to Holders pursuant to the Offer.
Amounts received as Net Recovery and/or payments to Holders in respect of
the DCCRs would cause such Holders to recognize income, gain or loss (the
character and timing of which is uncertain). Given the wholly contingent nature
of DCCRs, the lack of transferability with respect to the DCCRs, and the
uncertain term of the DCCRs, the Purchaser believes that the DCCRs should not be
treated as debt instruments for federal income tax purposes. Rather, while
subject to some uncertainty, the Purchaser intends to take the position (absent
future authoritative clarification) that payments in respect of the DCCRs should
be characterized as payments under a contract for the sale or exchange of the
Shares and subject to the inputed interest provisions of Section 483 of the
Code. In such circumstances, as stated earlier, the Holder's adjusted tax basis
in the DCCRs would equal the FMV of such DCCRs at such time that the Holder
receives the DCCRs (i.e., the Consummation Date). Payments in respect of the
DCCRs would have an interest income component, the amount of which would be a
function of the timing of such payment and the applicable federal rate ("AFR")
at the Consummation Date. For example, for a payment within 3 years, the
interest component would generally be the difference between the payment and its
discounted value as of the Consummation Date using the AFR in effect at the
Consummation Date for short-term obligations.
The treatment of the excess of any payment over the amount of interest
imputed in respect thereof is unclear. It is possible such excess would be
treated as capital gain or loss in respect of the Holder's sale of its Shares or
a termination payment in respect of the DCCRs. In the event neither of these
characterizations obtain, such excess would be treated as ordinary income or
loss. Any such income, gain or loss would be calculated with reference to the
Holder's adjusted tax basis in the DCCRs; the timing of such income, gain or
loss and the allocation of basis in calculating the amount thereof may depend
upon, among other things, whether the settlement or resolution of the
litigations underlying payments with respect to the DCCRs occurs at one time or
over an extended period of time, and upon the structuring of any such settlement
or resolution.
If Section 483 of the Code is determined not to govern such DCCRs, e.g., if
the DCCRs are treated as debt instruments, the timing and character of a
Holder's income in respect of the receipt of, and payment under, the DCCRs may
differ, including the possibility that the Holder's imputed interest income in
respect of the DCCRs would be accelerated (with the result that income may be
recognized earlier than the actual receipt of a payment) and that the excess of
any payment over the amount of interest imputed would be treated as additional
interest income.
In the event it is determined that the DCCRs do not have a reasonably
ascertainable FMV as of the Consummation Date, the amount, timing and character
of a Holder's gain or loss on both its sale of Shares pursuant to the Offer and
payments in respect of the DCCRs may differ from that described above.
11
<PAGE>
2. Information Reporting
Information statements reporting the payment of the Total Offer Price will
be provided to the IRS and to Holders whose Shares are sold pursuant to the
Offer (except with respect to Holders that are exempt from the information
reporting rules).
3. Backup Withholding and Substitute Form W-9
Under federal income tax law, a backup withholding tax equal to 31% of the
Total Offer Price will apply if a Holder who tenders Shares is not exempt from
backup withholding and (i) fails to furnish such Holder's Taxpayer
Identification Number ("TIN") (which, for an individual, is his or her Social
Security Number) to the Depositary (as payor) in the manner required, (ii)
furnishes an TIN and the payor is so notified by the IRS, (iii) is notified by
the IRS that such Holder has failed to report payments of interest and dividends
or (iv) in certain circumstances, fails to certify, under penalties of perjury,
that such Holder has not been notified by the IRS that such Holder is subject to
backup withholding. Backup withholding does not apply to payments made to
certain exempt recipients, such tax-exempt organizations and most corporations.
Backup withholding is not an additional tax. Rather, any amounts withheld from a
payment to a Holder under the backup withholding rules are allowed as a refund
or credit against such Holder's federal income tax liability, provided that the
required information is furnished to the IRS. If the Depositary is not provided
with the correct TIN, the Holder may be subject to a penalty imposed by the IRS.
To prevent backup withholding, a Holder or other payee that is not an
exempt recipient should complete the Substitute Form W-9 on the Letter of
Transmittal certifying that the TIN provided on such form is correct and that
such Holder or other payee is not subject to backup withholding.
B. Tax Implications to the Company
It is anticipated that the Purchaser's acquisition of the Notes at a
discount pursuant to, and in accordance with the terms of, the Note Tender Offer
will cause the Company to recognize cancellation of indebtedness ("COD") income.
It is also possible that the inclusion of deferred contingent cash rights in the
consideration to be received in the Offer may cause the Company to recognize
additional gain on consummation of the Note Tender Offer. Based on discussions
with the Company, depending on actual results of operations for 1998, it is
expected that the Company will have sufficient net operating loss ("NOL")
carryovers and current operating losses to offset, for federal income tax
purposes, both the COD income and any gain recognized on consummation of the
Offer. However, as a result of the transactions contemplated under the Merger
Agreement, any remaining NOL carryforwards (and certain other tax attributes) of
the Company will be subject to significant limitations.
THE PRECEDING DISCUSSION OF CERTAIN FEDERAL INCOME TAX CONSEQUENCES IS FOR
GENERAL INFORMATION ONLY AND IS NOT TAX ADVICE AND DOES NOT CONSIDER THE
PARTICULAR FACTS AND CIRCUMSTANCES OF ANY HOLDER'S SITUATION OR STATUS.
ACCORDINGLY, HOLDERS (INCLUDING HOLDERS WHO DO NOT TENDER THEIR SHARES) SHOULD
CONSULT THEIR OWN TAX ADVISOR AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM,
INCLUDING THE APPLICABILITY AND EFFECT OF ANY FEDERAL, STATE, LOCAL OR FOREIGN
INCOME AND OTHER TAX LAWS, AND OF ANY PROPOSED CHANGES IN SUCH APPLICABLE LAWS.
6. PRICE RANGE OF THE SHARES; DIVIDENDS.
The Common Stock is listed and principally traded through the NYSE and the
Boston Stock Exchange (the "BSE") under the symbol "HDS" and the Preferred Stock
is listed and principally traded through the NYSE under the symbol "HDSPR". The
following tables sets forth, for each of the fiscal quarters indicated, the high
12
<PAGE>
and low sales price per Common Stock and Preferred Stock on the NYSE. All prices
per share set forth below are as reported in published financial sources.
<TABLE>
<CAPTION>
COMMON STOCK
----------------
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ending January 30, 1999
Fourth Quarter (through November 17, 1998)............................................... $1.69 $1.19
Third Quarter ended October 31, 1998..................................................... 5.06 1.31
Second Quarter ended August 1, 1998...................................................... 7.56 4.06
First Quarter ended May 2, 1998.......................................................... 4.94 2.75
Fiscal Year Ended January 31, 1998
Fourth Quarter ended January 31, 1998.................................................... $4.00 $3.00
Third Quarter ended November 1, 1997..................................................... 5.38 3.00
Second Quarter ended August 2, 1997...................................................... 4.88 2.63
First Quarter ended May 3, 1997.......................................................... 6.38 2.88
Fiscal Year Ended February 1, 1997
Fourth Quarter ended February 1, 1997.................................................... $7.75 $2.75
Third Quarter ended November 2, 1996..................................................... 8.88 6.75
</TABLE>
<TABLE>
<CAPTION>
PREFERRED STOCK
----------------
HIGH LOW
----- -----
<S> <C> <C>
Fiscal Year Ending January 30, 1999
Fourth Quarter (through November 17, 1998)............................................... $2.75 $1.75
Third Quarter ended October 31, 1998..................................................... 5.06 1.88
Second Quarter ended August 1, 1998...................................................... 8.00 5.00
First Quarter ended May 2, 1998.......................................................... 5.00 3.06
Fiscal Year Ended January 31, 1998
Fourth Quarter ended January 31, 1998.................................................... $4.00 $3.00
Third Quarter ended November 1, 1997..................................................... 5.25 3.50
Second Quarter ended August 2, 1997...................................................... 5.00 2.63
First Quarter ended May 3, 1997.......................................................... 6.38 3.50
Fiscal Year Ended February 1, 1997
Fourth Quarter ended February 1, 1997.................................................... $7.38 $3.00
Third Quarter ended November 2, 1996..................................................... 8.63 6.75
</TABLE>
On November 11, 1998, the last full trading day prior to the public
announcement of the execution of the Merger Agreement by the Company, Parent and
Purchaser, the last reported closing sales price of the Common Shares on the
NYSE was $1.31 per Common Share, and the last reported closing sales price of
the Preferred Shares on the NYSE was $1.94 per Preferred Share. On November 17,
1998, the last full trading day prior to the commencement of the Offer, the last
reported sales price of the Common Shares on the NYSE was $1.44 per Common
Share, and the last reported sales price of the Preferred Shares on the NYSE was
$1.88 per Preferred Share. Stockholders are urged to obtain a current market
quotation for the Common Shares and for the Preferred Shares.
The Company did not declare or pay any cash dividends with respect to the
Shares during any of the periods indicated in the above table. In addition,
under the terms of the Merger Agreement, the Company is not permitted to declare
or pay dividends with respect to the Shares without the prior written consent of
Parent and Parent does not intend to consent to any such declaration or payment.
7. EFFECT OF THE OFFER ON THE MARKET FOR THE SHARES; STOCK LISTING; EXCHANGE ACT
REGISTRATION; MARGIN REGULATIONS.
Market for the Shares. The purchase of Shares by the Purchaser pursuant to
the Offer will reduce the number of holders of Shares and the number of Shares
that might otherwise trade publicly and, depending upon
13
<PAGE>
the number of Shares so purchased, could adversely affect the liquidity and
market value of the remaining Shares held by the public.
Stock Listing. The Shares are listed on the NYSE. Depending upon the
aggregate market value and the per share price of any Shares not purchased
pursuant to the Offer, the Shares may no longer meet the requirements for
continued listing on the NYSE. According to the NYSE's published guidelines, the
NYSE would consider delisting the Shares if, among other things, the number of
record holders of at least 100 or more Shares should fall below 1,200, the
number of publicly held Shares (exclusive of holdings of officers and directors
of the Company and their immediate families and other concentrated holdings of
10% or more) should fall below 600,000, or the aggregate market value of the
publicly held Shares should fall below $5,000,000. According to the Company's
Annual Report on Form 10-K for the fiscal year ended January 31, 1998, there
were approximately 2,161 holders of record of Common Shares, and approximately
1,932 holders of record of Preferred Shares as of March 31, 1998. The Company
has represented that, as of November 12, 1998, 10,420,870 Common Shares and
848,931 Preferred Shares were issued and outstanding.
If the NYSE were to delist the Shares, the market therefor could be
adversely affected. It is possible that such Shares would continue to trade on
other securities exchanges or in the over-the-counter market, and that price
quotations would be reported by such exchanges or through the Nasdaq or other
sources. The extent of the public market for the Shares and the availability of
such quotations would, however, depend upon the number of stockholders and/or
the aggregate market value of such Shares remaining at such time, the interest
in maintaining a market in such Shares on the part of securities firms, the
possible termination of registration of such Shares under the Exchange Act and
other factors. Purchaser cannot predict whether the reduction in the number of
Shares that might otherwise trade publicly would have an adverse or beneficial
effect on the market price for, or marketability of, the Shares or whether it
would cause future market prices to be greater or less than the Cash Offer
Price.
Exchange Act Registration. The Shares are currently registered under the
Exchange Act. Registration of the Shares under the Exchange Act may be
terminated upon application of the Company to the Commission if the Shares are
neither listed on a national securities exchange nor held by 300 or more holders
of record. Termination of registration of the Shares under the Exchange Act
would substantially reduce the information required to be furnished by the
Company to its stockholders and to the Commission and would make certain
provisions of the Exchange Act no longer applicable to the Company, such as the
short-swing profit recovery provisions of Section 16(b), the requirement of
furnishing a proxy statement pursuant to Section 14(a) in connection with
stockholders' meetings and the related requirement of furnishing an annual
report to stockholders and the requirements of Rule 13e-3 under the Exchange Act
with respect to "going private" transactions. Furthermore, the ability of
"affiliates" of the Company and persons holding "restricted securities" of the
Company to dispose of such securities pursuant to Rule 144 or Rule 144A
promulgated under the Securities Act of 1933, as amended (the "Securities Act"),
may be impaired or eliminated.
Margin Regulations. The Shares are presently "margin securities" under the
regulations of the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board"), which status has the effect, among other things, of
allowing brokers to extend credit on the collateral of the Shares. Depending
upon factors similar to those described above regarding stock exchange listing
and market quotations, it is possible that, following the Offer, the Shares
would no longer constitute "margin securities" for the purposes of the margin
regulations of the Federal Reserve Board and therefore could no longer be used
as collateral for loans made by brokers. In addition, if registration of the
Shares under the Exchange Act were terminated, the Shares would no longer
constitute "margin securities."
Purchaser currently intends to seek delisting of the Shares from the NYSE
and the termination of the registration of the Shares under the Exchange Act as
soon after the completion of the Offer as the requirements for such delisting
and termination are met. If the NYSE listing and the Exchange Act registration
of the Shares are not terminated prior to the Merger, then the Shares will be
delisted from the NYSE and the registration of the Shares under the Exchange Act
will be terminated following the consummation of the Merger.
14
<PAGE>
8. CERTAIN INFORMATION CONCERNING THE COMPANY.
General. The information concerning the Company contained in this Offer to
Purchase, including that set forth below under the caption "Selected Financial
Information," has been furnished by the Company or has been taken from or based
upon publicly available documents and records on file with the Commission and
other public sources. None of Parent, Purchaser, the Dealer Manager or the
Information Agent assumes responsibility for the accuracy or completeness of the
information concerning the Company contained in such documents and records or
for any failure by the Company to disclose events which may have occurred or may
affect the significance or accuracy of any such information but which are
unknown to Parent, Purchaser, the Dealer Manager or the Information Agent.
The Company operates, through its wholly-owned subsidiary Hills Department
Store Company (collectively with the Company, "Hills"), a chain of discount
department stores under the trade name of Hills Department Stores. Hills is a
leading regional discount retailer offering a broad range of brand name and
other first quality general merchandise. As of November 12, 1998, Hills operated
155 stores in 12 Northeastern, Midwestern and Mid-Atlantic states.
Selected Financial Information. Set forth below is certain consolidated
financial information with respect to the Company, excerpted or derived from the
Company's Annual Reports on Form 10-K for the fiscal years ended January 31,
1998 and February 1, 1997 and from its Quarterly Report on Form 10-Q for the
fiscal quarter ended November 1, 1997, each as filed with the Commission
pursuant to the Exchange Act. More comprehensive financial information is
included in such reports and in other documents filed by the Company with the
Commission. The following summary is qualified in its entirety by reference to
such reports and other documents and all of the financial information (including
any related notes) contained therein. Such reports, documents and financial
information may be inspected and copies may be obtained from the Commission in
the manner set forth below under the caption "Available Information." The
selected interim consolidated financial information with respect to the Company
set forth below with respect to its fiscal quarter ended October 31, 1998 is
excerpted from a press release of the Company, dated November 18, 1998 (the
"November 18 Press Release"), pursuant to which the Company announced its
financial results for such fiscal quarter.
HILLS STORES COMPANY
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT AND FOR 39 WEEKS ENDED
(UNAUDITED)
-------------------------------- AT AND FOR FISCAL YEAR ENDED
OCTOBER 31, NOVEMBER 1, --------------------------------------------------------
1998 1997 JANUARY 31, 1998 FEBRUARY 1, 1997 FEBRUARY 3, 1996
-------------- -------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales................... $1,119,879 $1,137,328 $1,768,274 $1,878,477 $1,900,104
Operating earnings (loss)... (37,005) (10,527) 37,577 8,775 34,187
Net loss.................... (126,011) (29,885) (9,015) (35,058) (16,666)
Basic and diluted loss per
common share.............. (12.04) (2.87) (0.87) (3.42) (1.70)
BALANCE SHEET DATA(1):
Total assets................ N/A 1,096,615 882,581 900,353 863,563
Long-term debt and capital
lease and sale/leaseback
financing obligations..... 339,074 343,608 348,754 349,639 303,945
Preferred stock............. 18,086 18,317 18,209 19,942 24,636
Common shareholders'
equity.................... 92,571 196,790 217,978 224,784 254,663
</TABLE>
- ------------------------
(1) The amount of the Company's total assets at October 31, 1998 was not
reported in the November 18 Press Release.
15
<PAGE>
On November 18, 1998, the Company announced certain financial results for
its third fiscal quarter ended October 31, 1998 (the "1998 Third Quarter").
These results represent a significant deterioration in the Company's
performance. Sales for the 1998 Third Quarter were $399.7 million, an 8% decline
from the comparable period in fiscal year 1997. The Company's operating results
in the 1998 Third Quarter deteriorated by $17.7 million from an operating profit
of $7.0 million in the comparable period in 1997 to an operating loss of
$10.7 million in the 1998 Third Quarter. The Company's net loss for the 1998
Third Quarter increased by $91.3 million to $95.2 million for the 1998 Third
Quarter from $3.9 million for the comparable period in fiscal year 1997. The
Company's net loss for the 1998 Third Quarter included valuation allowances of
approximately $85.4 million on all post-emergence deferred and interim tax
assets. These allowances were established to reflect the Company's opinion that
the realization of the deferred tax assets is uncertain as a result of
continuing sales declines and related pre-tax losses. Before income tax
provision, the 1998 Third Quarter loss was $25.7 million, a $19.5 million
deterioration from the $6.2 million loss for the comparable period in the prior
year.
Other Financial Information. During the course of the discussions between
Parent and the Company that led to the execution of the Merger Agreement, the
Company provided Parent with certain information about the Company and its
financial performance which is not publicly available. This information included
forecasts of potential financial performance of the Company (without regard to
the impact on the Company of a transaction with Parent) for the remainder of the
Company's current fiscal year, which will end January 30, 1999. Subsequent to
the date such information was provided to Parent, the Company advised Parent
that the Company's financial performance for the remainder of its current fiscal
year is expected to be below that which was previously forecasted and that
certain key assumptions made in preparing such forecasts are no longer
applicable.
Hills Litigation. The following summary of the lawsuits comprising the
Hills Litigation is based on information contained in the Company's Annual
Report on Form 10-K for its fiscal year ended January 31, 1998.
In September 1995, the Company and its wholly-owned subsidiary, Hills
Department Store Company, filed a suit in the Court of Chancery of the State of
Delaware against the former members of the Board of Directors (the "Former
Directors") of the Company. That action seeks, among other things, recovery of
damages caused by the breach by the Former Directors of their fiduciary duties
to stockholders arising from the refusal of the Former Directors to approve the
change in control which took place on July 5, 1995 (the "1995 Change of
Control") following the election of seven replacement directors by the
stockholders of the Company. The prayer for relief in this action seeks $32.0
million in damages plus consequential damages. In October 1995, the defendants
filed a motion to dismiss the suit. In March 1997, the court denied the Former
Directors' motion to dismiss.
In April 1997, three of the Former Directors filed a counterclaim against
the Company and the seven replacement directors seeking damages of not less than
$2.5 million for breach of contract, unjust enrichment and intentional
interference with contractual relations arising out of allegations that the
Company improperly failed to honor their request to exercise stock options.
According to the Company's Form 10-K for its fiscal year ended January 31, 1998,
the Company believes the counterclaim is without merit and has denied the
allegations and asserted various defenses. Discovery is ongoing in the case.
In August 1995, in the Court of Chancery of the State of Delaware, three
shareholders of the Company, Gayle Dolowich, Ivan J. Dolowich and Joseph Weiss,
filed a class action lawsuit against the seven new directors of the Company
elected at the 1995 annual meeting, Dickstein Partners Inc. ("Dickstein
Partners") and the Company. In November 1995, the plaintiffs amended their
complaint to include a shareholder's derivative cause of action against the
Former Directors for breach of their fiduciary duties to the Company and its
shareholders. In the amended complaint, the plaintiffs claim (under Section 225
of the DGCL) that in connection with Dickstein Partners' effort to solicit
proxies in support of the election of its nominees for directors of the Company,
Dickstein Partners issued a number of false and misleading statements regarding
its offer to acquire all of the Company's shares it did not already own. On the
Section 225 claim, the plaintiffs seek an order nullifying the election of
directors and declaring there has been no "change of control" of the Company.
The derivative cause of action seeks damages against the Former Directors. In
January 1996, in the same Delaware Chancery Court, another stockholder, Peter M.
Fusco, filed a substantially similar class action and shareholder derivative
suit against the parties named in the Dolowich suit. The Former Directors filed
a motion to dismiss the Dolowich and Fusco suits, and in March 1997 the Court
denied that motion.
16
<PAGE>
Available Information. The Company is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports, proxy statements and other information with the Commission
relating to its business, financial condition and other matters. Information as
of particular dates concerning the Company's directors and officers, their
remuneration, options granted to them, the principal holders of the Company's
securities and any material interests of such persons in transactions with the
Company is required to be disclosed in proxy statements distributed to the
Company's stockholders and filed with the Commission. Such reports, proxy
statements and other information should be available for inspection at the
public reference facilities of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, Suite 1300, New York, NY 10048 and Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, IL 60661. Copies of such
information should be obtainable by mail, upon payment of the Commission's
customary charges, by writing to the Commission's principal office at 450 Fifth
Street, N.W., Washington, D.C. 20549. The Commission also maintains a website on
the internet at http://www.sec.gov that contains reports, proxy statements and
other information relating to the Company which have been filed via the
Commission's EDGAR System.
9. CERTAIN INFORMATION CONCERNING PARENT AND PURCHASER.
Parent and Purchaser. Parent and its subsidiaries (collectively, "Ames")
are retail merchandisers. As of November 12, 1998, Ames operated 301 discount
department stores under the Ames name in 14 states in the Northeast, Middle
Atlantic and Mid-West regions and the District of Columbia. The stores are
located in rural communities, some of which are not served by other large retail
stores, high-traffic suburban sites, small cities and several major metropolitan
areas. The stores largely serve middle and lower-middle income customers.
Purchaser is a newly incorporated Delaware corporation organized in
connection with the Offer and the Merger and has not carried on any significant
activities other than in connection with the Offer and the Merger. All of the
outstanding capital stock of Purchaser is owned directly by Parent. Until
immediately prior to the time Purchaser purchases Shares pursuant to the Offer,
it is not anticipated that Purchaser will have any significant assets or
liabilities or engage in any significant activities other than those incident to
its formation and capitalization and the transactions contemplated by the Offer
and the Merger.
The principal offices of Purchaser and Parent are located at 2418 Main
Street, Rocky Hill, Connecticut 06067. The telephone number of Purchaser and
Parent at such location is (860) 257-5317.
For certain information concerning the executive officers and directors of
Parent and Purchaser, see Schedule I.
Set forth below is certain selected consolidated financial information with
respect to Parent and its consolidated subsidiaries excerpted from Parent's
Annual Report on Form 10-K for its fiscal year ended January 31, 1998, from its
Annual Report on Form 10-K for its fiscal year ended January 25, 1997. More
comprehensive financial information is included in such reports and other
documents filed by Parent with the Commission. The following summary is
qualified in its entirety to reference to such reports and other documents and
all financial information (including any related notes contained therein). Such
reports and other documents are available for inspection and copies are
obtainable in the manner set below in this Section 9 under the caption
"Available Information." The selected interim consolidated financial information
with respect to Parent and its subsidiaries is excerpted from a press release of
Parent, dated November 12, 1998, pursuant to which Parent announced its
financial results for its fiscal quarter ended October 31, 1998. Parent expects
to file with the Commission not later than December 15, 1998 a Quarterly Report
on Form 10-Q for its fiscal quarter ended October 31, 1998. Such report will be
available for inspection and copies obtainable in the manner set forth below in
this Section 9 under the caption "Available Information."
17
<PAGE>
AMES DEPARTMENT STORES, INC.
SELECTED CONSOLIDATED FINANCIAL INFORMATION
<TABLE>
<CAPTION>
AT AND FOR 39 WEEKS ENDED
(UNAUDITED)
------------------------------- AT AND FOR 53 AT AND FOR 52 AT AND FOR 52
OCTOBER 31, OCTOBER 25, WEEKS ENDED WEEKS ENDED WEEKS ENDED
1998 1997 JANUARY 31, 1998 JANUARY 25, 1997 JANUARY 27, 1996
-------------- ------------- ---------------- ---------------- ----------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales..................... $1,634,533 $ 1,463,741 $2,233,118 $2,161,680 $2,104,231
Net income (loss)............. 12,495 4,967 34,546 17,301 (1,618)
Basic income (loss) per common
share....................... 0.55 0.23 1.59 0.85 (0.08)
Diluted income (loss) per
common share................ 0.52 0.21 1.46 0.79 (0.08)
BALANCE SHEET DATA:
Total assets.................. 865,535 754,570 610,042 536,793 502,582
Long-term debt & capital lease
obligations................. 43,996 35,303 35,733 38,220 52,531
Total stockholders' equity.... 196,342 119,738 173,382 108,186 83,303
</TABLE>
Except as set forth in this Offer to Purchase, neither Purchaser nor
Parent, nor, to the best knowledge of Purchaser or Parent, any of the persons
listed on Schedule I, nor any associate or majority owned subsidiary of any of
the foregoing, beneficially owns or has a right to acquire any Shares, and
neither Purchaser nor Parent, nor, to the best of knowledge of Purchaser or
Parent, any of the persons or entities referred to above, nor any of the
respective executive officers, directors or subsidiaries of any of the
foregoing, has effected any transaction in the Shares during the past sixty
(60) days.
Except as set forth in this Offer to Purchase, neither Purchaser nor Parent
has any contract, arrangement, understanding or relationship with any other
person with respect to any securities of the Company, including, but not limited
to, any contract, arrangement, understanding or relationship concerning the
transfer or the voting of any securities of the Company, joint ventures, loan or
option arrangements, puts or calls, guarantees of loans, guarantees against loss
or the giving or withholding of proxies.
Except as set forth in this Offer to Purchase, none of Purchaser, Parent,
any of their respective affiliates, nor, to the best knowledge of Purchaser or
Parent, any of the persons listed on Schedule I, has had, since January 29,
1995, any business relationships or transactions with the Company or any of its
executive officers, directors or affiliates that would be required to be
reported under the rules of the Commission. Except as set forth in this Offer to
Purchase, since January 29, 1995 there have been no contacts, negotiations or
transactions between Purchaser, Parent, any of their respective affiliates or,
to the best knowledge of Purchaser or Parent, any of the persons listed on
Schedule I, and the Company or its affiliates concerning a merger, consolidation
or acquisition, tender offer or other acquisition of securities, election of
directors or a sale or other transfer of a material amount of assets.
Available Information. Parent is subject to the informational filing
requirements of the Exchange Act and, in accordance therewith, is obligated to
file reports, proxy statements and other information with the Commission
relating to its business, financial condition and other matters. Information as
of particular dates concerning Parent's directors and officers, their
remuneration, options granted to them, the principal holders of Parent's
securities and any material interests of such persons in transactions with
Parent is required to be disclosed in proxy statements distributed to Parent's
stockholders and filed with the Commission. Such reports, proxy statements and
other information should be available for inspection at the public reference
facilities of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549,
and at the regional offices of the Commission located at Seven World Trade
Center, Suite 1300, New York, NY 10048 and Citicorp Center, 500 West Madison
Street, Suite 1400, Chicago, IL 60661. Copies of such information should be
obtainable by mail, upon payment of the Commission's customary charges, by
writing to the Commission's principal office at 450 Fifth Street, N.W.,
Washington, D.C. 20549. The Commission also maintains a website at
http://www.sec.gov that contains reports, proxy statements and other information
relating to Purchaser which have been filed via the EDGAR System.
18
<PAGE>
10. SOURCES AND AMOUNT OF FUNDS.
The total amount of funds required by Purchaser to consummate the Offer,
the Merger and the Note Tender Offer, to refinance the Company's obligations
under the Amended and Restated Loan and Security Agreement, dated as of
January 30, 1998 (as amended, the "Company Credit Agreement"), among the
Company, HDSC, C.R.H. International, Inc., the lenders from time to time party
thereto, the issuing banks from time to time party thereto and BankAmerica
Business Credit, Inc. ("BABC"), as Agent, and to pay related fees and expenses
is estimated to be approximately $18.0 million. Purchaser will obtain all of
such funds from Parent, which is responsible for Purchaser's performance of its
obligations in this regard, and its affiliates. Parent currently intends to
provide such funds from cash on hand and funds available pursuant to a new
credit facility (the "New Credit Facility") in the aggregate amount of $650.0
million for which Parent and two of its wholly-owned subsidiaries (together, the
"Borrower") have received a commitment (the "Commitment") from BABC. It is
anticipated that the initial borrowings under the New Credit Facility will be
used, among other things, to provide a portion of the funds required to
consummate the Offer, the Merger and the Note Tender Offer, to pay related fees
and expenses, to repay outstanding balances under the existing credit facility
of Parent (the "Existing Credit Facility"), to provide the Company with
sufficient funds to refinance the Company Credit Agreement and to provide for
the conversion and remodeling of the acquired stores, which conversion and
remodeling is currently estimated to cost $170 million. Additionally, the New
Credit Facility will be used to finance current operating capital expenditures.
The New Credit Facility also will be used to finance the combined inventory
requirements in 1999, which at peak are expected to require approximately $445
million. During 1999, the Borrower will be subject to only one financial
covenant, which will require a minimum availability level of $100 million at all
times during such period. During 1999, it is expected that the New Credit
Facility will be fully utilized. At October 31, 1998, the aggregate outstanding
principal balance under the Existing Credit Facility was approximately $136.1
million.
The New Credit Facility will consist of a $650.0 million forty-two month
revolving credit facility (the "Revolving Credit Facility"), including a
$150 million sub-limit for the issuance of standby letters of credit (the
"Letters of Credit Facility"). Interest will be payable, at the Borrower's
option, at (i) BABC's Reference Rate (as defined in the Commitment) plus 0.625%
per annum or (ii) the 30, 60 or 90-day LIBOR reserve adjusted rate as quoted by
Bank of America NT&SA plus 2.25% per annum. The New Credit Facility will require
the payment of (i) a monthly fee of 1.375% per annum on the average undrawn
amounts of all letters of credit, (ii) a one-time facility fee of 1.45% of the
total amount of the New Credit Facility, (iii) a monthly unused line fee of
.375% per annum on the average unused Revolving Credit Facility, (iv) an agency
fee of $500,000, and (v) a collateral management fee of $400,000. BABC has the
right to syndicate a portion of the New Credit Facility.
The New Credit Facility will be secured by first priority liens and
security interests in certain present and future assets of the Borrower and the
Surviving Corporation. The definitive credit agreement for the New Credit
Facility is expected to provide for various representations, warranties and
covenants of Parent and the Borrower. The covenants in the New Credit Facility
that become effective in the Year 2000 are expected to be typical for a facility
of this type, to include, without limitation, customary affirmative covenants
designed to ensure the continued existence of Parent, the sound operation of its
businesses and the businesses of its subsidiaries, the proper maintenance and
insurance of properties, the provision of financial statements, the payment of
debts and taxes and continued compliance with applicable law, and customary
negative covenants regarding, on a consolidated basis, (i) additional
indebtedness, (ii) asset dispositions and expenditures, (iii) financial ratios,
(iv) contingent liabilities, (v) loans and advances, (vi) liens and security
interests, (vii) dividends and purchases of stock and (viii) transactions with
affiliates. The financial covenants will not be applicable until Parent's first
fiscal quarter ending April 2000.
Under the New Credit Facility, Parent will agree to hold the agent and each
of the lenders harmless against any and all losses, liabilities, claims, damages
and expenses incurred or suffered by it arising out of or by reason of any
transaction financed with the proceeds of any borrowing and any investigation,
litigation or proceeding relating to the transactions contemplated thereby.
The funding of the New Credit Facility will be subject to customary
conditions, including, among other things, the execution of satisfactory
documentation, the receipt of all necessary governmental approvals and there not
having occurred prior thereto a Financial MAC (as defined in Section 14) with
respect to the Company, and in addition will be subject to the satisfaction of
the Minimum Stock Condition and the Minimum Note Condition. Although Parent
expects that the New Credit Facility will be available to provide funds for the
consummation of
19
<PAGE>
the Offer and the Merger in accordance with their respective terms, there can be
no assurance that the New Credit Facility will be consummated.
The foregoing summary is subject to the preparation and completion of a
definitive credit agreement for the New Credit Facility and is qualified in its
entirety by reference to the Commitment, a copy of which has been filed as an
exhibit to the Tender Offer Statement on Schedule 14D-1 and Schedule 13D filed
by Purchaser and Parent with the Commission in connection with the Offer (the
"Schedule 14D-1"). The Commitment may be examined and copies may be obtained, as
set forth in Section 9.
Parent anticipates that indebtedness incurred through borrowings under the
New Credit Facility will be repaid from a variety of sources, which may include,
but may not be limited to, funds generated internally by Parent and its
subsidiaries (including, following the Merger, funds generated by the Surviving
Corporation), bank financing, and the future public or private sale of debt or
equity securities. No decision has been made concerning the method Parent will
employ to repay such indebtedness. Such decision will be made based on Parent's
review from time to time of the advisability of particular actions, as well as
on prevailing interest rates and financial and other economic conditions and
such other factors as Parent may deem appropriate.
11. BACKGROUND OF THE OFFER; PURPOSE OF THE OFFER AND THE MERGER; THE MERGER
AGREEMENT, THE STOCK OPTION AGREEMENT AND CERTAIN OTHER AGREEMENTS.
Contacts with the Company; Background of the Offer
In late June 1998, Bear, Stearns & Co. Inc. ("Bear, Stearns"), Parent's
investment bankers, contacted a director of the Company and then Gregory K.
Raven, who was then the President and Chief Executive Officer of the Company.
Bear, Stearns indicated that Parent was interested in exploring the possibility
of a business combination.
On July 9, 1998, Joseph R. Ettore, the President, Chief Executive Officer
and a director of Parent, sent Mr. Raven a letter which reiterated that Parent
was interested in exploring a business combination and which requested that the
Company furnish Parent with certain non-public information regarding the
Company. In connection with furnishing such information, Mr. Ettore suggested
that Parent and the Company enter into a confidentiality agreement. On July 16,
1998, Mr. Ettore again sent Mr. Raven a letter requesting specific non-public
information and expressing Parent's interest in exploring a business
combination.
Thereafter, during the month of July 1998, representatives of Bear, Stearns
called Mr. Raven and certain other directors of the Company, expressing Parent's
interest as well as repeating its request for non-public information.
On July 31, 1998, David H. Lissy, Senior Vice President and General Counsel
of Parent, sent a draft confidentiality agreement to the Company. From
August 1, 1998 through August 24, 1998, Parent and the Company negotiated the
terms of a confidentiality agreement, which was executed on August 24, 1998 and
dated as of August 21, 1998. Subsequently, representatives of Parent reviewed
preliminary due diligence materials supplied by the Company.
On September 18, 1998, senior officers of Parent and the Company met to
discuss certain due diligence matters.
In mid September 1998, representatives of Bear, Stearns met with certain
directors of the Company to discuss certain issues with respect to a business
combination. During September 1998, Parent continued its due diligence review of
the Company.
On October 15, 1998, Bear, Stearns met in New York with Warburg Dillon
Read, the Company's investment bankers, to discuss certain threshold issues with
respect to a possible transaction. On October 21, 1998, Bear, Stearns and
Purchaser's legal counsel met in New York with Warburg Dillon Read and the
Company's legal counsel, again to discuss certain threshold issues with respect
to a possible transaction.
On October 26 and 29, 1998, senior officers of Parent and the Company met
to discuss certain business due diligence matters with respect to the Company
(including Parent's concern over the continuing deterioration of the Company's
business), as well as the terms of a potential transaction.
During the period from October 29, 1998 through November 11, 1998, Parent
continued its due diligence review of the Company and, along with its legal
representatives and Bear, Stearns, negotiated certain terms of a
20
<PAGE>
potential acquisition with the Company, its legal representatives and Warburg
Dillon Read. Intensive discussions took place between Parent, the Company and
their respective legal representatives beginning on November 9, 1998 and
continuing through November 11, 1998.
On November 12, 1998, the Merger Agreement was executed and delivered by
Parent, Purchaser and the Company, and on November 12, 1998, Parent announced in
a press release the signing of the Merger Agreement. On November 18, 1998,
pursuant to the terms of the Merger Agreement, Purchaser commenced the Offer and
the Note Tender Offer.
Purpose of the Offer and the Merger. The purpose of the Offer and the
Merger is to enable Parent to acquire control of, and the entire equity interest
in, the Company. The Offer is being made pursuant to the Merger Agreement and is
intended to increase the likelihood that the Merger will be effected. The
purpose of the Merger is to acquire all of the outstanding Shares not purchased
pursuant to the Offer.
Stockholders of the Company who sell their Shares in the Offer will cease
to have any equity interest in the Company and any right to participate in its
earnings and future growth. If the Merger is consummated, non-tendering
stockholders will no longer have an equity interest in the Company and instead
will have only the right to receive cash consideration and a DCCR pursuant to
the Merger Agreement or to exercise statutory appraisal rights under
Section 262 of the DGCL. See Section 12. Similarly, after selling their Shares
in the Offer or the subsequent Merger, stockholders of the Company will not bear
the risk of any decrease in the value of the Company.
Merger Agreement
The following is a summary of certain provisions of the Merger Agreement.
This summary is not a complete description of the terms and conditions of the
Merger Agreement and is qualified in its entirety by reference to the full text
of the Merger Agreement filed with the Commission as an exhibit to the Schedule
14D-1 and is incorporated herein by reference. Capitalized terms not otherwise
defined below shall have the meanings set forth in the Merger Agreement. The
Merger Agreement may be examined, and copies obtained, as set forth in
Section 9 of this Offer to Purchase.
Representations and Warranties. In the Merger Agreement, the Company has
made customary representations and warranties to Parent and Purchaser with
respect to, among other things, corporate organization, subsidiaries,
certificate of incorporation and bylaws, capital stock, options or other rights
to acquire Shares, authority to enter into the Merger Agreement and the Stock
Option Agreement, no conflicts between the Merger Agreement, the Stock Option
Agreement and applicable laws and certain agreements to which the Company or its
assets may be subject, required consents, compliance with applicable laws,
filings with the Commission, financial statements, absence of certain changes or
events, litigation, employee benefit plans, labor and employment matters,
disclosures in proxy statement and tender offer documents, owned and leased real
and personal property, intellectual property, tax matters, environmental
matters, material contracts, insurance, certain payments, licenses and permits,
letters of credit, surety bonds and guarantees, brokers' and finders' fees, Year
2000, applicability of state takeover statutes, the Rights Agreement, receipt of
the Financial Advisor Opinion and full disclosure.
In the Merger Agreement, Parent and Purchaser have made customary
representations and warranties to the Company with respect to, among other
things, corporate organization, authority to enter into the Merger Agreement and
the Stock Option Agreement, no conflicts between the Merger Agreement, the Stock
Option Agreement and the certificate of incorporation and by-laws of Parent or
Purchaser or laws applicable to Parent or Purchaser, required consents,
financing, disclosures in proxy statement and tender offer documents, and
brokers' and finders' fees.
Conditions to the Merger. The obligations of Purchaser, on the one hand,
and the Company, on the other hand, to effect the Merger are subject to the
satisfaction of each of the following conditions, any and all of which may be
waived in whole or in part by the Company, or Parent or Purchaser, as the case
may be, to the extent permitted by applicable law: (i) the Merger Agreement and
the Transactions shall have been approved and adopted by the requisite vote of
the holders of Shares, if required by applicable law and the Certificate of
Incorporation, in order to consummate the Merger; (ii) any waiting period or
extension thereof applicable to the Merger under the HSR Act shall have expired
or been terminated; (iii) no foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state court
of competent
21
<PAGE>
jurisdiction shall have enacted, issued, promulgated, enforced or entered any
law, rule, regulation, executive order, decree, injunction or other order
(whether temporary, preliminary or permanent) which is then in effect (which
order or other action, the Company and Parent shall use their reasonable efforts
to lift) and has the effect of making the acquisition of Shares by Purchaser or
any affiliate of Purchaser or the consummation of the Merger illegal under
applicable law or otherwise restricting, preventing or prohibiting under
applicable law the consummation of the transactions contemplated by the Merger
Agreement; (iv) Purchaser or its permitted assignee shall have purchased all
Shares validly tendered and not withdrawn pursuant to the Offer; (v) the
Supplemental Indenture (as defined below) shall have been entered into and
Purchaser or its permitted assignee shall have purchased all Notes validly
tendered and not withdrawn pursuant to the Note Tender Offer; and
(vi) Purchaser shall have received sufficient financing, on terms at least as
favorable to it as those specified in the Commitment Letter, to pay the
aggregate Merger Consideration payable under the Merger Agreement, to purchase
the Notes pursuant to the Note Tender Offer and to satisfy the ongoing working
capital needs of the Surviving Corporation.
Note Tender Offer. Pursuant to the Merger Agreement, as promptly as
reasonably practicable after the date of the Merger Agreement, but in no event
later than five business days after the first public announcement of the
execution thereof, and upon the terms and subject to the conditions of the
Merger Agreement, Purchaser or its designee shall make the Note Offer to
Purchase. In connection with such Note Offer to Purchase, Purchaser or its
designee intends to solicit Consents from the holders of the Notes to amend or
eliminate certain sections of the Indenture. Purchaser's obligation to accept
for payment and pay for the Notes and related Consents tendered pursuant to the
Note Tender Offer is subject (x) to the condition that (i) the aggregate
principal amount of Notes validly tendered and not withdrawn prior to the
expiration of the Note Tender Offer, combined with the Notes already owned by
Parent, Purchaser or any of their affiliates, constitutes at least 66 2/3% in
aggregate principal amount of the then outstanding Notes at the expiration of
the Note Tender Offer, (ii) Purchaser receives Consents from at least 66 2/3% of
the outstanding principal amount of the Notes, and (iii) Purchaser has acquired
or is simultaneously acquiring not less than 51% of the then outstanding Shares
(the "Stock Purchase Condition") and (y) to other conditions (including, without
limitation, the Minimum Stock Condition). See Section 14. The Note Tender Offer
shall be made at a price of 55% of the principal amount of the Notes (which
amount includes all accrued and unpaid interest to, but not including, the date
of payment) plus a deferred contingent cash right, upon the terms and subject to
the conditions of the Merger Agreement and the Note Tender Offer. In the Merger
Agreement, Purchaser expressly reserved the right to waive any condition, to
increase the price payable for each Note and related Consent tendered in the
Note Tender Offer, and to make any other changes in the terms and conditions of
the Note Tender Offer; provided, however, that, without the consent of the
Company, no change may be made which decreases the price payable for each Note
and related Consent tendered in the Note Tender Offer, which reduces the Minimum
Note Condition, which eliminates the Stock Purchase Condition, which otherwise
modifies or amends the conditions to the Note Tender Offer or any other term of
the Note Tender Offer in a manner that is materially adverse to the holders of
the Notes, which imposes additional conditions to the Note Tender Offer, or
which extends the expiration date of the Note Tender Offer beyond January 4,
1999 (except that Purchaser may extend the expiration date of the Note Tender
Offer through January 9, 1999 as required to comply with any rule, regulation or
interpretation of the SEC). Subject to the terms and conditions of the Note
Tender Offer (including, without limitation, the Minimum Note Condition),
Purchaser has agreed in the Merger Agreement to pay, as promptly as practicable
after expiration of the Note Tender Offer, for all Notes and related Consents
validly tendered and not withdrawn. At such time as Purchaser receives Consents
from at least 66 2/3% of the outstanding principal amount of the Notes, the
Company has agreed to execute, and to cause the Guarantors party to the
Indenture to execute, and to use all reasonable efforts to cause the trustee
under the Indenture to execute, a supplemental indenture (the "Supplemental
Indenture") in order to give effect to the amendments of the indenture
contemplated in the Note Tender Offer documents; provided, however, that
notwithstanding the fact that the Supplemental Indenture will become effective
upon such execution, the proposed amendments set forth in the Supplemental
Indenture (the "Proposed Amendments") will not become operative unless and until
the Minimum Note Condition is satisfied and all the other conditions to the Note
Tender Offer set forth in Section 14 have been satisfied or waived by Parent and
Purchaser, and Purchaser accepts all Notes (and related Consents) validly
tendered for purchase and payment pursuant to the Note Tender Offer. In such
event, the parties to the Merger Agreement have agreed that the Proposed
Amendments will be
22
<PAGE>
deemed operative as of the date immediately prior to such acceptance for
payment, and Purchaser will thereafter be obligated to make all payments for the
Notes (and related Consents) so tendered.
Certain Matters Relating to Deferred Contingent Cash Rights. The Merger
Agreement provides that the DCCRs will not (i) be transferable by any recipient
thereof, except by will or pursuant to the laws of descent and distribution or
by operation of law, (ii) be evidenced by a certificate or other instrument,
(iii) possess any voting rights, (iv) receive or be entitled to receive any
dividends or interest, or (v) represent any equity interest in the Surviving
Corporation.
The Surviving Corporation will maintain books of record of the recipients
of the DCCRs in the Offer, the Merger and the Note Tender Offer as provided by
the Merger Agreement, which books of record shall show the names and addresses
of the respective recipients of the DCCRs.
Payment, if any, on the DCCRs will be made to the registered recipients
thereof from time to time following the date, if ever, that the Surviving
Corporation receives and accumulates $1,000,000 of previously undistributed Net
Recovery after the establishment of a reasonable reserve. Such payments shall be
made to the registered recipients of DCCRs at their respective addresses in the
books of record of the Surviving Corporation. All Cash Payments shall be
maintained in a segregated account until distributed and shall be invested in
U.S. government obligations to the extent practicable, and any interest thereon
shall be added to the Net Recovery.
Unless otherwise agreed to by the Litigation Committee, the Surviving
Corporation will continue to prosecute and defend the Hills Litigation;
provided, however, that in no event will the Surviving Corporation be obligated
to expend after consummation of the offer an amount in excess of $1,000,000 (the
"Litigation Cap") in connection with such prosecution and defense, exclusive of
payments or advances to or on behalf of other parties to the Hills Litigation
relating to claims of indemnification. The Hills Litigation shall continue to be
prosecuted and defended by the law firm of Kramer Levin Naftalis & Frankel LLP,
unless otherwise agreed to by the Surviving Corporation and the Litigation
Committee; provided, however, that the Surviving Corporation may engage other
counsel to defend the Hills Litigation, in which case the costs of such defense
shall not be included in the Litigation Cap; and, provided further, that, at
such time as the Litigation Cap and any Non-Recourse Financing (as defined
below) shall have been expended, the Surviving Corporation will have sole
discretion in choosing a law firm to continue to prosecute the Hills Litigation.
Subject only to the two foregoing sentences, and notwithstanding anything to the
contrary in the Merger Agreement or otherwise, the Surviving Corporation will
retain sole and exclusive control of the Hills Litigation, provided, however,
that, unless the amount of the Litigation Cap and any Non-Recourse Financing
have been expended, the Surviving Corporation will not settle or dismiss the
Hills Litigation without the consent of a majority of the Litigation Committee,
which consent will not unreasonably be withheld.
Notwithstanding anything to the contrary in the Merger Agreement or
otherwise, (i) no recipient of a DCCR will have any rights against the Surviving
Corporation or its directors, officers, stockholders or affiliates or the
Litigation Committee for any decision regarding the conduct or disposition of
the Hills Litigation and (ii) the Surviving Corporation's determination of the
amounts of the Net Recovery will be final, conclusive and binding on the
recipients of the DCCRs, subject to review of such computation by the Litigation
Committee. Notwithstanding anything to the contrary in the Merger Agreement or
otherwise, any and all distributions of Net Recovery, if any, must be in
compliance with applicable laws, including, but not limited to, applicable
federal and state securities laws.
The members of the Litigation Committee will have no other duties, rights
or obligations except as specifically set forth in the applicable section of the
Merger Agreement and no implied covenants or obligations may be read in to the
Merger Agreement against such members. The Litigation Committee will be entitled
to an aggregate fee (the "Committee Fee") of 2% of the Net Recovery, if any,
less any Advances (as defined below) from the Surviving Corporation, as full
compensation for the performance of their services under the Merger Agreement.
The Surviving Corporation shall make an advance at the rate of $10,000 per annum
to each member of the Litigation Committee (the "Advance") for a period equal to
the earlier of three years from the Effective Time or the final distribution of
all Net Recovery. Each such Advance shall be considered an expenditure by the
Surviving Corporation in prosecution of the Hills Litigation.
Subject to the next sentence, the Surviving Corporation will indemnify and
hold harmless each member of the Litigation Committee from any third party
judgments, losses, claims, damages and liabilities with respect to the
performance of his responsibilities under the applicable section of the Merger
Agreement (including
23
<PAGE>
reasonable attorneys fees, costs of investigation and other expenses reasonably
incurred by the Litigation Committee in performing its responsibilities under
the applicable section of the Merger Agreement), except to the extent that a
court of competent jurisdiction issues a final decision that such member acted
in bad faith or with gross negligence or willful misconduct. The foregoing
obligation of indemnification will be limited to unexpended funds under the
Litigation Cap and the amount of any Net Recovery.
Notwithstanding anything to the contrary contained in the Merger Agreement
or otherwise, if no payments on the DCCRs have been made by the fifth
anniversary of the Effective Time, the DCCRs will expire and the Surviving
Corporation will have no further obligations with respect thereto; provided
however, that the Surviving Corporation and the Litigation Committee will use
commercially reasonable efforts to extend the term of the applicable section of
the Merger Agreement if the Hills Litigation is not resolved within such five
year period or if any settlement entered into has not been fully performed.
The Litigation Committee, to the extent required, is authorized to obtain
financing ("Non-Recourse Financing") to prosecute and defend the Hills
Litigation in the event the Litigation Cap is fully expended (provided that such
financing is recourse only to the Net Recovery) on terms otherwise reasonably
satisfactory to the Parent and the Surviving Corporation, and without cost
(other than its proportionate share of the Net Recovery) or contractual
liability to the Parent or the Surviving Corporation.
The Litigation Committee may enforce the provisions of the Merger Agreement
relating to the DCCRs on behalf of the recipients thereof, and will be entitled
to reimbursement of its expenses (including costs of investigation and
reasonable attorneys fees) in connection therewith irrespective of whether the
Litigation Committee prevails in such enforcement action, unless such
enforcement action is not in good faith or without basis in law or fact. The
foregoing reimbursement will be limited to unexpended funds under the Litigation
Cap and the amount of any Net Recovery. The Litigation Committee will have the
authority to act on behalf of the recipients in resolving with the Surviving
Corporation any ambiguities in the Merger Agreement pertaining to the DCCRs, and
to compromise or settle with the Surviving Corporation on behalf of the
recipients any conflicts or disputes relating to the DCCRs.
For the purposes of such subsection and the definitions of "Hills
Litigation" and "Net Recovery" in the Introduction to this Offer to Purchase,
the term "Surviving Corporation" refers to either the Surviving Corporation or
the Company after the consummation of the Offer and the terms "Company" and
"Surviving Corporation" shall include in each case any of their respective
Subsidiaries.
The Company Board. The Merger Agreement provides that, promptly upon the
purchase by Purchaser of Shares pursuant to the Offer, and from time to time
thereafter, Parent shall be entitled to designate up to such number of
directors, rounded up to the next whole number, on the Company Board as shall
give Parent representation on the Company Board equal to the product of the
total number of directors on the Company Board (giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate of
Purchaser at such time bears to the total number of Shares then outstanding.
Pursuant to the Merger Agreement, the Company agrees, at such time of purchase,
to promptly take all actions necessary to cause Purchaser's designees to be
elected as directors of the Company, including increasing the size of the
Company Board or securing the resignations of incumbent directors or both. The
Merger Agreement also provides that, at such times, the Company shall use all
reasonable efforts to cause persons designated by Parent to constitute the same
percentage as persons designated by Parent shall constitute of the Company Board
with respect to (a) each committee of the Company Board (some of whom may be
required to be independent as required by applicable law or requirements of the
NYSE), (b) each board of directors of each Subsidiary and (c) each committee of
each such board, in each case only to the extent permitted by applicable law.
The Merger Agreement provides that, notwithstanding the foregoing, the
parties thereto shall use their respective reasonable best efforts to ensure
that at least two of the members of the Company Board shall, at all times prior
to the Effective Time, be Continuing Directors (as defined below). From and
after the time, if any, that Parent's designees constitute a majority of the
Company Board, any amendment or modification of the Merger Agreement, any
amendment to the Certificate of Incorporation or By-Laws of the Company
inconsistent with the Merger Agreement, any termination of the Merger Agreement
by the Company, any extension of time for performance of any of the obligations
of Parent or Purchaser under the Merger Agreement, any waiver of any condition
to the Company's obligations under the Merger Agreement or any of the Company's
rights under the Merger Agreement or other action by the Company under the
Merger Agreement may be effected only by the
24
<PAGE>
action of a majority of the Continuing Directors of the Company, which action
shall be deemed to constitute the action of any committee specifically
designated by the Company Board to approve the actions contemplated by the
Merger Agreement and the Transactions and the full Company Board; provided,
that, if there shall be no Continuing Directors, such actions may be effected by
majority vote of the entire Company Board.
"Continuing Director" is defined as (i) any member of the Company Board as
of the date of the Merger Agreement, or (ii) any successor of a Continuing
Director who is (A) unaffiliated with, and not a designee or nominee of, Parent
or Purchaser, and (B) recommended to succeed a Continuing Director by a majority
of the Continuing Directors then on the Company Board, and in each case under
clauses (i) and (ii), who is not an employee of the Company.
Stockholders' Meeting. Pursuant to the Merger Agreement, in the event that
the affirmative vote of the holders of Shares is required to approve the Merger
under Delaware Law, the Company shall duly call, give notice of, convene and
hold a special meeting of its stockholders as soon as practicable following
consummation of the Offer for the purpose of considering and taking action on
the Merger Agreement and the transactions contemplated thereby (the "Special
Stockholders' Meeting"). The Merger Agreement provides that, in the event that
the affirmative vote of holders of Shares is required to approve the Merger, the
Company shall, as soon as practicable following consummation of the Offer, file
with the Commission under the Exchange Act, and use its best efforts to have
cleared by the Commission, a proxy statement and related proxy materials (the
"Proxy Statement") with respect to the Special Stockholders' Meeting and shall
cause the Proxy Statement to be mailed to stockholders of the Company at the
earliest practicable time. The Company has also agreed, subject to the fiduciary
duties of the Company Board under applicable law as advised by the Company's
counsel, to include in the Proxy Statement the unanimous recommendation of the
Company Board that the stockholders of the Company approve and adopt the Merger
Agreement and the transactions contemplated thereby and to use all reasonable
efforts to obtain such approval and adoption. Purchaser has agreed to vote all
Shares beneficially owned by it in favor of the Merger.
Options; Warrants, etc. The Merger Agreement provides that after the
Effective Time, to the extent provided for in the Stock Option Plans (as defined
below), each holder of an outstanding option to purchase any shares of capital
stock of the Company (in each case, an "Option") shall be entitled, upon
exercise of such Option, to receive, in lieu of Common Shares, an amount of cash
and DCCRs equal to the amount thereof to which such holder would actually have
been entitled if such holder had exercised such option immediately prior to the
Effective Time.
The Merger Agreement provides that the Company shall take all actions
necessary and appropriate so that all stock option or other equity based plans
maintained with respect to the Shares ("Stock Option Plans"), shall terminate as
of the Effective Time and the provisions in any other Benefit Plan providing for
the issuance, transfer or grant of any capital stock of the Company or any
interest in respect of any capital stock of the Company shall be deleted as of
the Effective Time, and the Company shall use its best efforts to ensure that
following the Effective Time no holder of an Option or any participant in any
Stock Option Plan shall have any right thereunder to acquire any capital stock
of the Company, Parent, Purchaser or the Surviving Corporation.
The Merger Agreement provides that after the Effective Time, to the extent
provided for in the Warrants, each holder of Warrants shall be entitled, upon
exercise of such Warrants, to receive, in lieu of Common Shares, an amount of
cash and DCCRs equal to the amount thereof to which such holder would actually
have been entitled if such holder had exercised such Warrant immediately prior
to the Effective Time.
In addition, the Merger Agreement provides that prior to the Effective
Time, the Company shall (i) use all reasonable efforts (but not including any
payment to holders of Options or Warrants) to obtain all necessary consents
from, and provide (in a form acceptable to Parent) any required notices to,
holders of Warrants and Options, and (ii) amend the terms of the applicable
Stock Option Plan, in each case as is necessary to give effect to the foregoing.
With respect to the options pursuant to the Company's Associate Stock
Purchase Plan (the "Stock Purchase Plan"), the Merger Agreement provides that
(i) the holder of each option outstanding as of the Effective Time will be
entitled to receive as of the Effective Time upon exercise, in lieu of the
number of Common Shares as to which such option was exercisable, the Merger
Consideration to which such holder would have been entitled pursuant to the
terms of the Merger Agreement, as if such holder had been the holder of record
(as of the last business day prior to the Effective Time) of a number of Common
Shares equal to the number of shares for
25
<PAGE>
which such option was exercisable; provided, however, that if the Effective Time
is on or before December 31, 1998, such holder shall be entitled to receive his
contributions to such plan to the extent provided for in such plan and (ii) the
Company shall amend the Stock Purchase Plan to provide for (A) the suspension of
participation during any offering periods commencing subsequent to the date of
the Merger Agreement for the pendency of the Merger and subject to the
successful consummation of the Merger and (B) the termination of the Stock
Purchase Plan as of the Effective Time.
Conduct of Business. Pursuant to the Merger Agreement, the Company has
covenanted and agreed that, between the date of the Merger Agreement and the
election or appointment of Purchaser's designees to serve on the Company's Board
of Directors upon the purchase by Purchaser of any Shares pursuant to the Offer
(the "Purchaser's Election Date"), unless Parent shall otherwise agree in
writing, the businesses of the Company and the Subsidiaries shall be conducted
only in, and the Company and the Subsidiaries shall not take any action except
in, the ordinary course of business consistent with past practice; and the
Company shall use all reasonable best efforts consistent with good business
judgment under the current circumstances to preserve intact the business
organization of the Company and its Subsidiaries, to keep available the services
of the current officers, employees and consultants of the Company and its
Subsidiaries and to preserve the current relationships of the Company and its
Subsidiaries with customers, suppliers, vendors, distributors and other persons
with which the Company or any Subsidiary has business relations to the end that
their goodwill and ongoing businesses shall be unimpaired in all material
respects at the Effective Time. The Merger Agreement also provides that, except
with the prior written consent of Parent or as contemplated by the Merger
Agreement, the Company agrees that neither the Company nor any Subsidiary shall,
between the date of the Merger Agreement and the Purchaser's Election Date,
directly or indirectly do, or propose to do, any of the following without the
prior written consent of Parent: (a) amend or otherwise change its Certificate
of Incorporation or Bylaws or equivalent organizational documents, each as
amended to date (the "Constituent Documents"); (b) issue, sell, pledge, dispose
of, grant, encumber, or authorize the issuance, sale, pledge, disposition, grant
or encumbrance of (i) any shares of capital stock of any class of the Company or
any Subsidiary, or any options, warrants, convertible securities or other rights
of any kind to acquire any shares of such capital stock, or any other ownership
interest (including, without limitation, any phantom interest), of the Company
or any Subsidiary and except pursuant to the Stock Option Agreement and
outstanding Options and Warrants and the Stock Purchase Plan or (ii) any assets
of the Company or any Subsidiary, except for sales in the ordinary course of
business and in a manner consistent with past practice; (c) declare, set aside,
make or pay any dividend or other distribution, payable in cash, stock, property
or otherwise, with respect to any of its capital stock, except for such
declarations, set asides, dividends and other distributions made by any
Subsidiary to the Company; (d) reclassify, combine, split, subdivide or redeem,
purchase or otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger, consolidation, or
acquisition of stock or assets or any other business combination) any
corporation, partnership, other business organization or any division thereof or
any material amount of assets other than in the ordinary course of business
consistent with past practice; (ii) incur or modify any indebtedness for
borrowed money or issue any debt securities or assume, guarantee or endorse,
pledge in respect of or otherwise as an accommodation become responsible for the
obligations of any person, or make any loans, advances or capital contributions,
except in the ordinary course of business and consistent with past practice;
(iii) enter into any contract or agreement, other than any contract or agreement
entered into in the ordinary course of business consistent with past practice
and which requires payments by the Company or the Subsidiaries in an aggregate
amount of less than $5,000,000 with respect to all such agreements taken
together; (iv) terminate, cancel or request any material change in, or agree to
any material change in, any Material Contract, except in the ordinary course of
business consistent with past practice, or waive, release or assign any material
rights or claims; or (v) authorize capital commitments, in an aggregate amount,
in excess of $2,500,000 for the Company and its Subsidiaries taken as a whole;
(f) increase the compensation payable or to become payable to its officers or
employees, except for increases in accordance with past practices in salaries or
wages of employees of the Company or any Subsidiary who are not officers of the
Company, or grant or modify any severance or termination pay to, or enter into
any employment or severance agreement with, any director, officer or other
employee of the Company or any Subsidiary (other than in connection with hiring
and terminating employees in the ordinary course of the Company's business), or
establish, adopt, enter into or amend any collective bargaining agreement, any
material bonus, profit sharing, thrift, compensation, stock option, restricted
stock, pension, retirement, deferred compensation, employment, retention,
termination or severance plan, benefit, agreement,
26
<PAGE>
trust, fund, policy or arrangement for the benefit of any director, officer or
employee or circulate to any employee any details of any proposal to adopt or
amend any such plan or make, authorize or approve the payment of any
extraordinary amount to any outside advisor, attorney or consultant in all
cases, except as required by law; (g) take any action, other than reasonable and
usual actions in the ordinary course of business consistent with past practice,
with respect to accounting policies or procedures (including, without
limitation, procedures with respect to the payment of accounts payable and
collection of accounts receivable); (h) make any tax election or settle or
compromise any federal, state, local or foreign income tax liability; (i) pay,
discharge or satisfy any claim, liability or obligation (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction, in the ordinary course of business consistent with
past practice, of claims, liabilities or obligations reflected or reserved
against in, or contemplated by, the consolidated financial statements (or the
notes thereto) of the Company and its consolidated Subsidiaries, or subsequently
incurred in the ordinary course of business and consistent with past practice;
(j) waive the benefits of, or agree to modify in any manner any confidentiality,
standstill or similar agreement to which the Company or any of its Subsidiaries
is a party, other than in the ordinary course of business consistent with past
practice; (k) settle or comprise any pending or threatened suit, action or claim
that is material or which relates to any of the Transactions; (l) announce an
intention, enter into any formal or informal agreement, or otherwise make a
commitment, to do any of the foregoing; or (m) take any action that would result
in (i) any of its representations and warranties set forth in the Merger
Agreement that are qualified as to materiality becoming untrue, (ii) any of such
representations and warranties that are not qualified as to materiality becoming
untrue in any material respect or (iii) any of the conditions to the Offer or
the Note Tender Offer, as set forth in the Merger Agreement, not being satisfied
(subject to the Company's right to take action specifically permitted by the
Merger Agreement).
No Solicitation. Pursuant to the Merger Agreement, the Company has agreed
that it shall not, nor shall it permit any of its Subsidiaries to, nor shall it
authorize (and shall use its best efforts not to permit) any officer, director
or employee of, or any investment banker, attorney or other advisor or
representative of, the Company or any of its subsidiaries to, (i) solicit or
initiate, or encourage, directly or indirectly, any inquiries or the submission
of, any Takeover Proposal (as defined below), (ii) participate in any
discussions or negotiations regarding, or furnish to any Person any information
or data with respect to or access to the properties of, or take any other action
to knowingly facilitate the making of any proposal that constitutes, or may
reasonably be expected to lead to, any Takeover Proposal or (iii) enter into any
agreement with respect to any Takeover Proposal or approve or resolve to approve
any Takeover Proposal; provided that nothing contained in the applicable
provisions of the Merger Agreement shall prohibit the Company or the Company
Board from (A) taking and disclosing to the Company's stockholders a position
with respect to a tender or exchange offer by a third party pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act, or (B) making such
disclosure to the Company's stockholders as, in the good faith judgment of the
Company Board, following consultation with outside counsel, is required under
applicable Law, provided that the Company may not, except as permitted by the
following paragraph, withdraw or modify, or propose to withdraw or modify, its
position with respect to the Offer or the Merger or approve or recommend, or
propose to approve or recommend any Takeover Proposal, or enter into any
agreement with respect to any Takeover Proposal. Upon execution of the Merger
Agreement, the Company will immediately cease any existing activities,
discussions or negotiations with any parties conducted prior to the date of the
Merger Agreement with respect to any of the foregoing. Notwithstanding the
foregoing, prior to the time of acceptance of Shares for payment pursuant to the
Offer, the Company may furnish information concerning its business, properties
or assets to any Person or group concerning a Takeover Proposal if: (x) such
Person or group has submitted a Superior Proposal (as defined below); and
(y) in the opinion of the Company Board such action is required to discharge the
Company Board's fiduciary duties to the Company's stockholders under applicable
law, determined in good faith following consultation with outside counsel to the
Company that the failure to provide such information or access or to engage in
such discussions or negotiations would cause the Company Board to violate its
fiduciary duties to the Company's stockholders under applicable law. The Company
will promptly (but in no case later than 24 hours) notify Parent of the
existence of any proposal, discussion, negotiation or inquiry received by the
Company regarding any Takeover Proposal, and the Company will promptly (but in
no case later than 24 hours) communicate to Parent the terms of any proposal,
discussion, negotiation or inquiry which it may receive regarding any Takeover
Proposal (and will promptly provide to Parent copies of any written materials
received by the Company in connection with such proposal, discussion,
negotiation or inquiry) and the identity of the party making such proposal or
inquiry or engaging in such
27
<PAGE>
discussion or negotiation. The Company will promptly provide to Parent any
non-public information concerning the Company provided to any other Person in
connection with any Takeover Proposal which was not previously provided to
Parent. The Company will keep Parent informed of the status and details of any
such Takeover Proposal and will promptly notify Parent (but in no case later
than 24 hours) of any determination by the Company Board that a Superior
Proposal has been made.
Pursuant to the Merger Agreement, except as set forth in this paragraph,
neither the Company Board nor any committee thereof shall (i) withdraw or
modify, or propose to withdraw or modify, in a manner adverse to Parent or
Purchaser, the approval or recommendation by the Company Board or any such
committee of the Offer, the Merger Agreement or the Merger, (ii) approve or
recommend, or propose to approve or recommend, any Takeover Proposal or
(iii) enter into any agreement with respect to any Takeover Proposal.
Notwithstanding the foregoing, subject to compliance with this paragraph prior
to the time of acceptance for payment of Shares pursuant to the Offer, the
Company Board may withdraw or modify its approval or recommendation of the
Offer, the Merger Agreement or the Merger, approve or recommend a Superior
Proposal, or enter into an agreement with respect to a Superior Proposal, in
each case at any time after the fifth business day following Parent's receipt of
written notice from the Company advising Parent that the Company Board has
received a Superior Proposal which it intends to accept, specifying the material
terms and conditions of such Superior Proposal and identifying the person making
such Superior Proposal, but only if the Company shall have caused its financial
and legal advisors to negotiate with Parent to make such adjustments to the
terms and conditions of the Merger Agreement as would enable the Company to
proceed with the Transactions on such adjusted terms. The term "Takeover
Proposal" means any bona fide proposal or offer, whether in writing or
otherwise, from any Person other than Parent, Purchaser or any affiliates
thereof (a "Third Party") to acquire beneficial ownership (as defined under
Rule 13(d) of the Exchange Act) of all or a material portion of the assets of
the Company or any of its material Subsidiaries or 30% or more of any class of
equity securities of the Company or any of its material subsidiaries pursuant to
a merger, consolidation or other business combination, sale of shares of capital
stock, sale of assets, tender offer, exchange offer or similar transaction with
respect to either the Company or any of its material Subsidiaries, including any
single or multi-step transaction or series of related transactions, which is
structured to permit such Third Party to acquire beneficial ownership of any
material portion of the assets of or 30% or more of the equity interest in
either the Company or any of its material Subsidiaries. The term "Superior
Proposal" means an unsolicited bona fide proposal by a Third Party to acquire,
directly or indirectly, for consideration consisting of cash and/or securities,
more than a majority of the Shares then outstanding or all or substantially all
of the assets of the Company or to acquire, directly or indirectly, the Company
by merger or consolidation, and otherwise on terms which the Company Board
determines in good faith to be more favorable to the Company's stockholders than
the Offer and the Merger (based on advice of the Company's independent financial
advisor that the value of the consideration provided for in such proposal is
superior to the value of the consideration provided for in the Offer and the
Merger), for which financing, to the extent required, is then committed or
which, in the good faith reasonable judgment of the Company Board, based on
advice from the Company's independent financial advisor, is reasonably capable
of being financed by such Third Party and which, in the good faith reasonable
judgment of the Company Board is reasonably likely to be consummated within a
period of time not materially longer in duration than the period of time
reasonably believed to be necessary to consummate the Offer and Merger.
Termination. The Merger Agreement may be terminated and the Merger
contemplated therein may be abandoned at any time prior to the Effective Time,
whether before or after approval of matters presented in connection with the
Merger by the stockholders of the Company:
(a) By the mutual written consent of Parent and the Company; provided,
however, that if Parent shall have a majority of the directors pursuant to the
applicable provisions of the Merger Agreement, such consent of the Company may
only be given if approved by the Continuing Directors.
(b) By either of Parent or the Company if (i) a statute, rule or executive
order shall have been enacted, entered or promulgated prohibiting the
Transactions on the terms contemplated by the Merger Agreement or (ii) any
governmental entity shall have issued an order, decree or ruling or taken any
other action (which order, decree, ruling or other action the parties to the
Merger Agreement shall use their reasonable efforts to lift), in each case
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated by the Merger Agreement and such order, decree, ruling or other
action shall have become final and non-appealable.
28
<PAGE>
(c) By either of Parent or the Company if the Note Tender Offer and the
Offer shall not have been consummated by January 4, 1999 (except the Purchaser
may extend the expiration date of the Note Tender Offer and the Offer through
January 9, 1999 as required to comply with any rule, regulation or
interpretation of the SEC) or the Effective Time shall not have occurred on or
before April 30, 1999; provided, that the party seeking to terminate the Merger
Agreement pursuant to this paragraph (c) shall not have breached in any material
respect its obligations under the Merger Agreement in any manner that shall have
proximately contributed to the failure to consummate the Merger on or before
such date;
(d) By the Company: (i) if the Company has entered into an agreement with
respect to a Superior Proposal or has approved or recommended a Superior
Proposal in accordance with the applicable provisions of the Merger Agreement,
provided the Company has complied with all provisions thereof, including the
notice provisions therein, and that it simultaneously terminates the Merger
Agreement and makes simultaneous payment to Parent of the Expenses and the
Termination Fee; (ii) if Parent or Purchaser shall have terminated the Offer or
the Offer expires without Purchaser purchasing any Shares pursuant thereto;
(iii) if, Parent, Purchaser or any of their affiliates shall have failed to
commence the Offer on or prior to five business days following the date of the
initial public announcement of the Offer; or (iv) if there shall be a material
breach by Parent or Purchaser of any of their representations, warranties,
covenants or agreements contained in the Merger Agreement.
(e) By Parent or Purchaser: (i) if prior to the purchase of the Shares
pursuant to the Offer, (A) the Company Board shall have withdrawn, or modified
or changed in a manner adverse to Parent or Purchaser its approval or
recommendation of the Offer, the Merger Agreement or the Merger or shall have
recommended or approved a Takeover Proposal, or (B) there shall have been a
material breach of any provision of the section of the Merger Agreement
summarized under "No Solicitation" above; (ii) if Parent or Purchaser shall have
terminated the Offer without Parent or Purchaser purchasing any Shares
thereunder; (iii) if Parent or Purchaser shall have terminated the Note Tender
Offer without Parent or Purchaser purchasing any Notes thereunder; (iv) if, due
to an occurrence that if occurring after the commencement of the Offer would
result in a failure to satisfy any of the conditions set forth in Section 14
below, Parent, Purchaser or any of their affiliates shall have failed to
commence the Offer on or prior to five (5) business days following the date of
the initial public announcement of the Offer; (v) if any Person or "group" (as
defined in Section 13(d)(3) of the Exchange Act), other than Parent or Purchaser
or their affiliates or any group of which any of them is a member, shall have
acquired beneficial ownership (as determined pursuant to Rule 13d-3 promulgated
under the Exchange Act) of 25% or more of the Shares; (vi) if, prior to the
purchase of the Shares pursuant to the Offer, the Company receives a Takeover
Proposal from any Person (other than Parent or Purchaser), and the Company Board
takes a neutral position or makes no recommendation with respect to such
Takeover Proposal after a reasonable amount of time (and in no event more than
five (5) business days following such receipt) has elapsed for the Company Board
to review and make a recommendation with respect to such Takeover Proposal; or
(vii) if, after the Consummation of the Offer, there shall be a material breach
by the Company of any of its representations, warranties, covenants or
agreements contained in the Merger Agreement or the Stock Option Agreement.
Termination Fee. Pursuant to the Merger Agreement, if (x) Parent or
Purchaser terminates the Merger Agreement pursuant to clauses (e)(i), (e)(v) or
(e)(vi) under the heading "Termination" above or (y) the Company terminates the
Merger Agreement pursuant to clause (d)(i) under the heading "Termination"
above, then in each case, the Company shall pay, or cause to be paid to Parent
or Purchaser, at the time of termination, an amount equal to $5,000,000 (the
"Termination Fee") plus an amount equal to Parent's and Purchaser's actual and
reasonably documented out-of-pocket expenses incurred by Parent or Purchaser in
connection with the Offer, the Merger, the Merger Agreement and the consummation
of the Transactions, including, without limitation, the fees (other than any
break-up, success or other contingent fee) and out-of-pocket expenses payable to
all banks, investment banking firms, and other financial institutions and
Persons and their respective agents and counsel incurred in connection with
acting as Parent's or Purchaser's financial advisor with respect to, or
arranging or committing to provide or providing any financing for, the
Transactions up to an aggregate of $2,500,000 (the "Expenses"). In addition, if
the Merger Agreement is terminated by Parent or Purchaser pursuant to clause
(e)(ii), (e)(iii) or (e)(vii) under the heading "Termination" above (other than
by reason of a breach of the section in the Merger Agreement summarized under
"No Solicitation" above) or, prior to the Consummation of the Offer, by reason
of a breach of the conditions set forth in paragraph (d) of Section 14 hereof
("Conditions to the Stock Tender Offer and the Note Tender Offer"), or by the
Company pursuant to clause (d)(ii) under the heading "Termination" above and at
the time of such termination, neither Parent nor Purchaser is in material breach
of
29
<PAGE>
the Merger Agreement, then the Company shall pay to Parent at the time of
termination, the Expenses, and, if the Company shall thereafter, within 12
months after such termination, announce its intention to enter into an agreement
with respect to a Takeover Proposal and the Company subsequently consummates the
transaction(s) contemplated by such agreement, then the Company shall pay the
Termination Fee concurrently with such consummation; provided, however, that,
with respect to a termination pursuant to clause (e)(ii) or (e)(iii) under the
heading "Termination" above, the Expenses and the Termination Fee will be
payable only if the Offer and the Note Tender Offer shall have remained
continuously open for a period of at least 20 business days and neither the
Minimum Stock Condition nor the Minimum Note Condition were satisfied at the
expiration of the Offer or the Note Tender Offer, as the case may be. Any
payments required to be made pursuant to this Section shall be made by wire
transfer of same day funds to an account designated by Purchaser.
Indemnification. The Merger Agreement provides that the Company shall,
and, from and after the Effective Time, the Surviving Corporation shall,
indemnify and hold harmless, each present and former director, officer or
employee of the Company or any of its Subsidiaries (collectively, the
"Indemnified Parties") against any costs or expenses (including reasonable
attorneys' fees), judgments, losses, claims, damages and liabilities incurred in
connection with, and amounts paid in settlement of, any claim, action, suit,
proceeding or investigation, whether civil, criminal, administrative or
investigative and wherever asserted, brought or filed, (x) arising out of or
pertaining to the Transactions or (y) otherwise with respect to any acts or
omissions or alleged acts or omissions occurring at or prior to the Effective
Time to the same extent as such persons are entitled to indemnification as of
the Effective Time. In the event of any such claim, action, suit, proceeding or
investigation (whether arising before or after the Effective Time), (i) any
counsel retained by the Indemnified Parties for any period after the Effective
Time must be reasonably satisfactory to the Surviving Corporation, and (ii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation will not be liable for any
settlement effected without its written consent (which consent will not be
unreasonably withheld). The Indemnified Parties as a group may retain only one
law firm to represent them with respect to any single action unless there is,
under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
The indemnity agreements of the Surviving Corporation in the applicable
provision of the Merger Agreement shall extend, on the same terms to, and shall
inure to the benefit of and shall be enforceable by, each Person or entity who
controls, or in the past controlled, any present or former director, officer or
employee of the Company or any of its Subsidiaries.
The Merger Agreement provides that not later than 30 days after the
Consummation of the Offer, the Surviving Corporation will procure directors' and
officers' liability insurance policies (the "New Insurance") covering for a
period of six years after the Effective Time those Persons who are currently
covered by the Company's directors' and officers' liability insurance policies
(the "Current Insurance") and providing coverage (including but not limited to
amounts of coverage, amounts of deductibles, employment practices liability and
other terms) that are no less favorable than the terms (exclusive of year 2000
coverage) contained in the Current Insurance. Pursuant to the terms of the
Merger Agreement, the Surviving Corporation will maintain the New Insurance
continuously in effect for such six years period and will not cancel the Current
Insurance unless and until the New Insurance has been procured. If the New
Insurance is provided under any insurance policies other than a "run-off" of the
Company's existing insurance policies, such new policies shall be in form and
substance reasonably satisfactory to the Continuing Directors. The Merger
Agreement further provides that the foregoing indemnification provisions shall
survive the consummation of the Merger at the Effective Time, is intended to
benefit the Company, the Surviving Corporation and the Indemnified Parties,
shall be binding on all successors and assigns of the Surviving Corporation and
shall be enforceable by the Indemnified Parties.
Miscellaneous. The Merger Agreement provides that Parent shall be
responsible for the performance of, and, if necessary, shall perform, or cause
to be performed, each obligation of Purchaser or the Surviving Corporation, or
either of their permitted successors and assigns, under the Merger Agreement.
Stock Option Agreement
The following is a summary of the material terms of the Stock Option
Agreement, dated as of November 12, 1998, between the Company and Parent (the
"Stock Option Agreement"). This summary is not a complete description of the
terms and conditions of the Stock Option Agreement and is qualified in its
entirety by reference to the full text of the Stock Option Agreement, which is
incorporated by reference and a copy of which has been filed with the Commission
as an exhibit to the Schedule 14D-1. The Stock Option Agreement may be examined,
30
<PAGE>
and copies obtained, as set forth in the Offer to Purchase. Capitalized terms
not otherwise defined herein or in the following summary shall have the meaning
set forth in the Stock Option Agreement.
Grant of Option. The Stock Option Agreement provides for the grant by the
Company to Parent of an irrevocable option (the "Stock Option") to purchase up
to 2,073,753 Common Shares, or such other number of Common Shares as equals
19.9% of the issued and outstanding Common Shares at the time of exercise of the
Stock Option, at a price of $1.50 per Share (the "Exercise Price"), payable in
cash in accordance with the terms of the Stock Option Agreement.
Exercise of Option. The Stock Option Agreement provides that the Stock
Option may be exercised by Parent in whole or in part, at any time or from time
to time (a) after the Merger Agreement is terminated pursuant to a Trigger Event
(as defined below) or (b) after Purchaser accepts payment for Shares tendered in
the Offer and prior to the Effective Time. For the purposes of the Stock Option
Agreement, "Trigger Event" means the termination of the Merger Agreement either
(i) by the Company, if it has entered into an agreement with respect to a
Superior Proposal or has approved or recommended a Superior Proposal, in
accordance with the applicable provisions of the Merger Agreement, provided the
Company has complied with all provisions thereof, including the notice
provisions therein, and that it simultaneously terminates the Merger Agreement
and makes simultaneous payment to Parent of the Expenses and the Termination
Fee, or (ii) by Parent, if prior to the purchase of the Shares pursuant to the
Offer, the Company Board shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser its approval or recommendation of the
Offer, the Merger Agreement, or the Merger or shall have recommended or approved
a Takeover Proposal.
Termination. The Stock Option Agreement provides that the Stock Option
will terminate upon the earliest of: (i) the Effective Time of the Merger;
(ii) the termination of the Merger Agreement pursuant to the termination
provisions thereof, other than a termination as a result of the occurrence of a
Trigger Event; or (iii) 120 days following any termination of the Merger
Agreement as a result of the occurrence of a Trigger Event (or if, at the
expiration of such 120 day period the Stock Option cannot be exercised by reason
of any applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the HSR Act has not expired or been terminated,
10 business days after such impediment to exercise has been removed or has
become final and not subject to appeal, but in no event later than 210 days
after the date of termination of the Merger Agreement). The Stock Option
Agreement further provides that the Stock Option may not be exercised if Parent
is in material breach of any of its representation, warranties, covenants or
agreements contained in the Stock Option Agreement or the Merger Agreement.
Certain Repurchases. The Stock Option Agreement provides that, at the
request of Parent at any time during which the Stock Option is exercisable (the
"Repurchase Period"), the Company (or any successor entity) will repurchase from
Parent the Stock Option, or any portion thereof, for a price equal to the amount
by which the Market/Tender Offer Price (as defined below) for Common Shares as
of the date Parent gives notice of its intent to exercise its rights to "put"
the Stock Option to the Company exceeds the Exercise Price, multiplied by the
number of Common Shares purchasable pursuant to the Stock Option (or portion
thereof with respect to which Parent is exercising its rights to "put" the Stock
Option to the Company). For purposes of the Stock Option Agreement,
Market/Tender Offer Price means the higher of (A) the highest price per Common
Share paid as of such date pursuant to any tender or exchange offer or other
Takeover Proposal or (B) the average of the closing sale prices of Common Shares
on the NYSE for the ten trading days immediately preceding such date.
Registration Rights. The Stock Option Agreement provides that in the event
that Parent desires to sell any of the Common Shares purchased pursuant to the
Stock Option within three years after such purchase, and such sale requires in
the opinion of counsel to Parent, which opinion will be reasonably satisfactory
to the Company and its counsel, registration of such shares under the Securities
Act, Parent may, by written notice (the "Registration Notice") to the Company,
request the Company to register under the Securities Act all or any part of the
Common Shares purchased pursuant to the Stock Option ("Restricted Shares")
beneficially owned by Parent (the "Registrable Securities") pursuant to a bona
fide firm commitment underwritten public offering in which Parent and the
underwriters will effect as wide a distribution of such Registrable Securities
as is reasonably practicable and will use their best efforts to prevent any
person and its affiliates from purchasing through such offering Restricted
Shares representing more than 2% of the outstanding Common Shares on a fully
diluted basis (a "Permitted Offering"). The Company (and/or any person
designated by the Company) will have the option, exercisable by written notice
delivered to Parent within 10 business days after the receipt of the
31
<PAGE>
Registration Notice, to purchase all or any part of the Registrable Securities
for cash at a price (the "Option Price") equal to the product of (i) the number
of Registrable Securities and (ii) the Fair Market Value (as defined in the
Stock Option Agreement) of such Registrable Securities. Purchaser is entitled to
request an aggregate of two effective registration statements under the terms of
the Stock Option Agreement.
Adjustment upon Changes in Capitalization. The Stock Option Agreement
provides that in the event of any change in Common Shares by reason of stock
dividends, stock splits, mergers (other than the Merger), recapitalizations,
combinations, exchange of shares or the like, the type and number of shares or
securities subject to the Stock Option, and the Exercise Price per share, will
be adjusted appropriately.
Confidentiality Agreement
The following is a summary of certain provisions of the Confidentiality
Agreement, dated as of August 21, 1998, between Parent and the Company (the
"Confidentiality Agreement"). This summary is not a complete description of the
terms and conditions of the Confidentiality Agreement and is qualified in its
entirety by reference to the full text of the Confidentiality Agreement filed
with the Commission as an exhibit to the Schedule 14D-1 and is incorporated
herein by reference. Capitalized terms not otherwise defined below shall have
the meanings set forth in the Confidentiality Agreement. The Confidentiality
Agreement may be examined, and copies obtained, as set forth in Section 9 of
this Offer to Purchase.
Pursuant to the terms of the Confidentiality Agreement between the Company
and Parent, dated as of August 21, 1998, the Company and Parent agreed to
provide, among other things, for the confidential treatment of their discussions
regarding the Offer, the Note Offer to Purchase and the Merger, and the exchange
of certain confidential information concerning the Company. The term of the
Confidentiality Agreement is for one year, unless terminated earlier. Purchaser
further agreed, until the earliest of (i) the acquisition of the Company by
Parent or any third party, (ii) 12 months following termination of the
Confidentiality Agreement, or (iii) 15 months from the date of the
Confidentiality Agreement, (A) it would not initiate or maintain contact with
any officer or senior-level employee of the Company, and (B) it will not
specifically target any other employees of the Company for employment.
In addition, provided Parent has received substantially all of the
information requested from the Company, Parent has agreed that neither it nor
any of its Representatives will, for a period of the later of 15 months from the
date of the Confidentiality Agreement or 12 months from the termination of the
Confidentiality Agreement: (A)(i) commence a tender or exchange offer for voting
securities of the Company, or (ii) solicit proxies or otherwise attempt to
influence the voting of the Company's securities; or (B) act, or express any
intent to act, whether alone or with any other group, to seek with regard to the
Company, (i) a merger, business combination, or acquisition of all or
substantially all assets, (ii) a restructuring or recapitalization, or (iii)
control or influence over the management, the Board of Directors or the policies
of the Company, unless there has been a public disclosure of a tender offer or
similar attempt by a third party to acquire all or substantially all assets or
voting securities of the Company.
12. PLANS FOR THE COMPANY; OTHER MATTERS.
Plans for the Company
The Parent presently intends to implement, promptly following consummation
of the Offer, a $170 million remodeling program for the Company's stores to
convert them into "Ames" stores. The remodeling program is anticipated to be
implemented over a nine-month period and will involve staggered store closings
during the remodeling period. The Parent is conducting a detailed review of the
Company and its business and operations with a view towards determining how to
optimally realize any potential synergies which may exist between the operations
of the Company and those of the Parent. Such review is not expected to be
completed until after the consummation of the Merger, and, following such
review, the Parent will consider what, if any, changes would be desirable in
light of the circumstances then existing. However, the Parent presently intends
that, following the Offer, the Company (and after the Merger, the Surviving
Corporation) will be an operating subsidiary of Parent.
32
<PAGE>
If, as and to the extent that Purchaser acquires control of the Company,
Parent and Purchaser intend to conduct a detailed review of the Company and its
assets, corporate structure, capitalization, operations, properties, policies,
management and personnel and to consider and determine what, if any, changes
would be desirable in light of the circumstances which then exist. Such changes
could include, among other things, closing certain of the Company's stores,
transfers of all or any portion of the Company's assets to Parent or a
subsidiary of Parent, merging or otherwise consolidating the Company into Parent
or another subsidiary of Parent, or changes in the Company's business, corporate
structure, certificate of incorporation, by-laws, capitalization, management or
dividend policy.
Assuming the Minimum Stock Condition is satisfied and Purchaser purchases
Shares pursuant to the Offer, Parent intends to promptly exercise its rights
under the Merger Agreement to obtain majority representation on, and control of,
the Board of Directors of the Company. See "Merger Agreement--The Company Board"
in Section 11 above. Parent will exercise such rights by causing the Company to
elect to its Board of Directors Joseph R. Ettore, Rolando de Aguiar and David H.
Lissy. Information with respect to such directors is contained in Schedule I
hereto and in the Schedule 14D-9. The Merger Agreement provides that, promptly
upon the purchase by Purchaser of Shares pursuant to the Offer, and from time to
time thereafter, Parent will be entitled to designate up to such number of
directors of the Company, rounded up to the next whole number, as will give
Parent representation on the Board of Directors of the Company equal to the
product of the total number of directors on the Board of Directors of the
Company (giving effect to the directors elected pursuant to this sentence)
multiplied by the percentage that the aggregate number of Shares beneficially
owned by Purchaser or any affiliate of Purchaser at such time bears to the total
number of Shares then outstanding. See Section 11. The Merger Agreement provides
that the directors and officers of Purchaser at the Effective Time of the Merger
will, from and after the Effective Time, be the initial directors and officers,
respectively, of the Surviving Corporation.
Purchaser or an affiliate of Purchaser may, following the consummation or
termination of the Offer, seek to acquire additional Shares through open market
purchases, privately negotiated transactions, a tender offer or exchange offer
or otherwise, upon such terms and at such prices as it shall determine, which
may be more or less than the price to be paid pursuant to the Offer. Purchaser
and its affiliates also reserve the right to dispose of any or all Shares
acquired by them, subject to the terms of the Merger Agreement.
Except as disclosed in this Offer to Purchase, and except as may be
effected in connection with the integration of operations referred to above,
neither Parent nor Purchaser has any present plans or proposals that would
result in an extraordinary corporate transaction, such as a merger,
reorganization, liquidation, relocation of operations, or sale or transfer of a
material amount of assets, involving the Company or any of its subsidiaries, or
any material changes in the Company's capitalization, corporate structure,
business or composition of its management or the Company Board.
Stockholder Approval. Under the DGCL, the approval of the Company Board and
the affirmative vote of the holders of a majority of the outstanding Shares are
required to adopt and approve the Merger Agreement and transactions contemplated
thereby. The Company has represented in the Merger Agreement that the execution
and delivery of the Merger Agreement by the Company and the consummation by the
Company of the transactions contemplated by the Merger Agreement have been duly
authorized by all necessary corporate action on the part of the Company, subject
to the approval of the Merger by the Company's stockholders in accordance with
the DGCL. In addition, the Company has represented that the affirmative vote of
the holders of a majority of the outstanding Shares is the only vote of the
holders of any class or series of the Company's capital stock which is necessary
to approve the Merger Agreement and the transactions contemplated thereby,
including the Merger. Therefore, unless the Merger is consummated pursuant to
the short-form merger provisions under the DGCL described below (in which case
no further corporate action by the stockholders of the Company will be required
to complete the Merger), the only remaining required corporate action of the
Company will be the approval of the Merger Agreement and the transactions
contemplated thereby by the affirmative vote of the holders of a majority of the
Shares. The Merger Agreement provides that Parent will vote, or cause to be
voted, all of the Shares then owned by Parent, Purchaser or any of Parent's
other subsidiaries and affiliates in favor of the approval of the Merger and the
adoption of the Merger Agreement. In the event that Parent, Purchaser and
Parent's other subsidiaries acquire in the aggregate at least a majority of the
Shares entitled to vote on the approval of the Merger and the Merger Agreement,
they would have the ability to effect the Merger without the affirmative votes
of any other stockholders.
33
<PAGE>
Short-Form Merger. Section 253 of the DGCL provides that, if a corporation
owns at least 90% of the outstanding shares of each class of another
corporation, the corporation holding such stock may merge itself into such
corporation without any action or vote on the part of the board of directors or
the stockholders of such other corporation. In the event that Parent and any
other subsidiaries of Parent acquire in the aggregate at least 90% of the
outstanding Common Shares and at least 90% of the outstanding Preferred Shares
pursuant to the Offer or otherwise, then, at the election of Parent, a
short-form merger of Purchaser with and into the Company could be effected
without any approval of the Company Board or the stockholders of the Company,
subject to compliance with the provisions of Section 253 of the DGCL. Even if
Parent and Purchaser do not own 90% of the outstanding Common Shares or 90% of
the outstanding Preferred Shares following consummation of the Offer, Parent and
Purchaser could seek to purchase additional shares in the open market or
otherwise in order to reach the applicable 90% threshold and employ a short-form
merger. The per share consideration paid for any Shares so acquired may be
greater or less than that paid in the Offer. Parent presently intends to effect
such a short-form merger if permitted to do so under the DGCL.
Appraisal Rights. Holders of the Shares do not have appraisal rights in
connection with the Offer. However, if the Merger is consummated, holders of the
Shares at the Effective Time will have certain rights pursuant to the provisions
of Section 262 of the DGCL including the right to dissent and demand appraisal
of, and to receive payment in cash of the fair value of, their Shares. Under
Section 262 of the DGCL, dissenting stockholders of the Company who comply with
the applicable statutory procedures will be entitled to receive a judicial
determination of the fair value of their Shares (exclusive of any element of
value arising from the accomplishment or expectation of the Merger) and to
receive payment of such fair value in cash, together with a fair rate of
interest thereon, if any. Any such judicial determination of the fair value of
the Shares could be based upon factors other than, or in addition to, the price
per Share to be paid in the Merger or the market value of the Shares. The value
so determined could be more or less than the price per Share to be paid in the
Merger. THE FOREGOING SUMMARY OF THE RIGHTS OF DISSENTING STOCKHOLDERS UNDER THE
DGCL DOES NOT PURPORT TO BE A COMPLETE STATEMENT OF THE PROCEDURES TO BE
FOLLOWED BY STOCKHOLDERS DESIRING TO EXERCISE ANY APPRAISAL RIGHTS AVAILABLE
UNDER THE DGCL. THE PRESERVATION AND EXERCISE OF APPRAISAL RIGHTS REQUIRE STRICT
ADHERENCE TO THE APPLICABLE PROVISIONS OF THE DGCL.
Rule 13e-3. The Commission has adopted Rule 13e-3 under the Exchange Act
which is applicable to certain "going private" transactions and which may under
certain circumstances be applicable to the Merger or another business
combination following the purchase of Shares pursuant to the Offer in which
Purchaser seeks to acquire the remaining Shares not held by it. Purchaser
believes, however, that Rule 13e-3 will not be applicable to the Merger because
it is anticipated that the Merger would be effected within one (1) year
following consummation of the Offer and in the Merger stockholders would receive
the same price per Share as paid in the Offer. If Rule 13e-3 were applicable to
the Merger, it would require, among other things, that certain financial
information concerning the Company, and certain information relating to the
fairness of the proposed transaction and the consideration offered to minority
stockholders in such a transaction, be filed with the Commission and disclosed
to minority stockholders prior to consummation of the transaction.
13. DIVIDENDS AND DISTRIBUTIONS.
The Merger Agreement provides that the Company shall not, between the date
of the Merger Agreement and the Effective Time, without the prior written
consent of Parent, (a) issue, sell, pledge, dispose of, grant, encumber, or
authorize the issuance, sale, pledge, disposition, grant or encumbrance of any
shares of capital stock of any class of the Company or any Subsidiary, or any
options, warrants, convertible securities or other rights of any kind to acquire
any shares of such capital stock, or any other ownership interest (including,
without limitation, any phantom interest), of the Company or any Subsidiary
(except pursuant to the Stock Option Agreement, outstanding Options and
Warrants, and the Company's Associate Stock Purchase Plan), (b) declare, set
aside, make or pay any dividend or other distribution, payable in cash, stock,
property or otherwise, with respect to any of its capital stock, except for such
declarations, set asides, dividends and other distributions made by any
Subsidiary to the Company or (c) reclassify, combine, split, subdivide or
redeem, purchase or otherwise acquire, directly or indirectly, any of its
capital stock.
34
<PAGE>
14. CONDITIONS TO THE STOCK TENDER OFFER AND THE NOTE TENDER OFFER.
Stock Tender Offer. Notwithstanding any other provision of the Offer,
Purchaser shall not be required to accept for payment or pay for any Shares
tendered pursuant to the Offer, and may terminate or amend the Offer and may
postpone the acceptance for payment of and payment for Shares tendered, if
(i) the Minimum Stock Condition shall not have been satisfied, (ii) the Note
Purchase Condition shall not have been satisfied, (iii) any applicable waiting
period under the HSR Act shall not have expired or been terminated prior to the
expiration of the Offer or (iv) at any time on or after the date of the Merger
Agreement, and prior to the acceptance for payment of Shares, any of the
following conditions shall occur and be continuing:
(a) there shall be threatened or pending any suit, action or
proceeding by a federal, state or foreign government entity (i) seeking to
prohibit or impose any material limitations on Parent's or Purchaser's
ownership or operation (or that of any of its subsidiaries or affiliates)
of all or a material portion of its or the Company's businesses or assets,
(ii) seeking to compel Parent or Purchaser or their subsidiaries or
affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Parent and their respective
subsidiaries, in each case taken as a whole, (iii) challenging the
acquisition by Parent or Purchaser of any Shares pursuant to the Offer or
the Stock Option Agreement, (iv) seeking to restrain or prohibit the making
or consummation of the Offer or the Merger or the performance of any of the
other Transactions, (v) seeking to obtain from the Company any damages that
would be reasonably likely to have a Material Adverse Effect (as defined
below) on the Company, (vi) seeking to impose material limitations on the
ability of Parent or Purchaser, or rendering Purchaser unable, to accept
for payment, pay for or purchase some or all of the Shares pursuant to the
Offer and the Merger, (vii) seeking to impose material limitations on the
ability of Purchaser effectively to exercise full rights of ownership of
the Shares, including, without limitation, the right to vote the Shares
purchased by it on all matters properly presented to the Company's
stockholders, or (viii) which otherwise would have a Material Adverse
Effect on the Company or, as a result of the Transactions, Parent and its
subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
any Transaction, or any other action shall be taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses
(i) through (viii) of paragraph (a) above; or
(c) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the NYSE, the American Stock
Exchange or in the Nasdaq National Market System, for a period in excess of
three hours (excluding suspensions or limitations resulting solely from
physical damage or interference with such exchanges not related to market
conditions), (2) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory), (3) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (4) any limitation or proposed limitation (whether or not
mandatory) by any United States governmental authority or agency that has a
material adverse effect generally on the extension of credit by banks or
other financial institutions, (5) any change in general financial bank or
capital market conditions which has a material adverse effect on the
ability of financial institutions in the United States to extend credit or
syndicate loans, or (6) in the case of any of the situations in clauses
(1) through (5) inclusive, existing on the date hereof, a material
acceleration or worsening thereof; or
(d) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect to a specific period of time which
need only be true and accurate as of such date or with respect to such
period) or the Company shall have breached or failed to perform or comply
with any obligation, agreement or covenant required by the Merger Agreement
to be performed or complied with by it except, in each case where the
failure of such representations and warranties to be true and accurate
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth herein), or the failure to perform or comply with
such obligations, agreements or covenants, do not, individually or in the
aggregate, have a
35
<PAGE>
Material Adverse Effect on the Company or a materially adverse effect on
the ability to consummate the Offer or the Merger or any of the other
Transactions; or
(e) there shall have occurred any events or changes which have had or
would have or constitute, individually or in the aggregate, a Material
Adverse Effect on the Company; or
(f) the Company's Board of Directors (i) shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including
by amendment of the Schedule 14D-9) its recommendation of the Offer, the
Merger Agreement, or the Merger, (ii) shall have recommended a Takeover
Proposal, (iii) shall have adopted any resolution to effect any of the
foregoing, or (iv) upon request of Parent or Purchaser, shall fail to
reaffirm its approval or recommendation of the Offer, the Agreement, the
Merger or any of the other Transactions; or
(g) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any
group of which any of them is a member, shall have acquired or announced
its intention to acquire beneficial ownership (as determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
Shares; or
(h) any party to the Stock Option Agreement other than Parent shall
have breached or failed to perform any of its agreements under such
agreement or breached any of its representations and warranties in such
agreements or any such agreements shall not be valid, binding and
enforceable, except for such breaches or failures or failures to be valid,
binding and enforceable that do not materially and adversely affect the
benefits expected to be received by Parent or Purchaser under the Stock
Option Agreement; or
(i) the Merger Agreement shall have terminated in accordance with its
terms; or
(j) Purchaser shall not have received sufficient financing, on terms
at least as favorable to Purchaser as are contained in the Commitment
Letter, to pay the aggregate Merger Consideration payable hereunder, to
purchase the Notes pursuant to the Note Tender Offer and to satisfy the
ongoing working capital needs of the Surviving Corporation (it being agreed
that Parent and Purchaser will use reasonable commercial efforts to
consummate the financing pursuant to the Commitment Letter, subject to
satisfactory documentation in Parent's and Purchaser's reasonable
discretion); or
(k) if the Offer has not expired on or before December 28, 1998, the
Company shall have failed to deliver a certificate to Parent, in form and
substance reasonably acceptable to Arthur Andersen LLP and Parent, stating
that a Financial MAC (as defined below) has not occurred;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser not otherwise in breach of the Merger Agreement) giving rise to such
condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payments for Shares.
The Merger Agreement defines the term "Material Adverse Effect" to mean any
effect that is or is reasonably likely to be materially adverse to the business,
results of operation, financial condition, assets or liabilities (including,
without limitation, contingent liabilities) of the Company and its Subsidiaries
taken as a whole, except that, with regard to the financial condition or results
of operation of the Company, it shall constitute a Material Adverse Effect only
if, at December 26, 1998, (i) Working Capital is less than $197,000,000, or (ii)
the sum of the outstanding balance under the Company Credit Agreement and book
merchandise/trade accounts payable owed by the Company and its Subsidiaries
exceeds $230,000,000 (the "Financial MAC"). "Working Capital" means, with
respect to the Company and its Subsidiaries on the date the Financial MAC is
determined, the excess of (a) the sum of book cash and cash equivalents plus
book bankcard receivables plus book inventory, less (b) the sum of the
outstanding balance under the Company Credit Agreement plus book
merchandise/trade accounts payable. Such book amounts shall be determined
consistently with the practices used by the Company in arriving at its regular
month-end amounts and/or as defined in the Company's annual report to the
Commission on Form 10-K for the fiscal year ended January 31, 1998, except that
interim weekly data shall be used to "roll-forward" balances from the end of the
fiscal month of November to December 26, 1998; provided further, that if the
Company has notified the Purchaser's chief financial or chief accounting
officer, in writing delivered by express mail or delivery or by fax, that
(i) the Company has prepaid
36
<PAGE>
any sales, payroll or other similar fiduciary taxes through the period ending
January 2, 1999, and (ii) the amount of such prepayments, that the amount of
such prepayments shall be deducted from the outstanding balance under the
Company Credit Agreement in calculating the Financial MAC.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be waived by Parent or Purchaser, in whole or in part, at any time and
from time to time, in the sole discretion of Parent or Purchaser (subject to
certain limitations in the Merger Agreement). The failure by Parent or Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
Note Tender Offer. Notwithstanding any other provision of the Note Tender
Offer, Purchaser shall not be required to accept for payment or pay for any
Notes or related Consents tendered pursuant to the Note Tender Offer and may
terminate or amend the Note Tender Offer and may postpone the acceptance for
payment of and payment for Notes and related Consents tendered, if (i) the
Minimum Note Condition shall not have been satisfied, (ii) the Minimum Stock
Condition shall not have been satisfied or (iii) at any time on or after the
date of the Merger Agreement, and prior to the acceptance for payment of Notes
and related Consents, any of the following conditions shall occur and be
continuing:
(a) there shall be threatened or pending any suit, action or
proceeding by a federal, state or foreign governmental entity (i) seeking
to prohibit or impose any material limitations on Parent's or Purchaser's
ownership or operation (or that of any of its subsidiaries or affiliates)
of all or a material portion of its or the Company's businesses or assets,
(ii) seeking to compel Parent or Purchaser or their respective subsidiaries
or affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Parent and their respective
subsidiaries, in each case taken as a whole, (iii) challenging the
acquisition by Parent or Purchaser of any Notes pursuant to the Note Tender
Offer or payment for the related Consents, (iv) seeking to restrain or
prohibit the making or consummation of the Note Tender Offer, the seeking
of Consents, or the performance of any of the other Transactions,
(v) seeking to obtain from the Company any damages that would be reasonably
likely to have a Material Adverse Effect on the Company, (vi) seeking to
impose material limitations on the ability of Purchaser or Parent, or
rendering Purchaser unable, to accept for payment, pay for or purchase some
or all of the Notes pursuant to the Note Tender Offer, (vii) seeking to
impose material limitations on the ability of Purchaser or Parent
effectively to exercise full rights of ownership of any Notes or related
Consents, or (viii) which otherwise would have a Material Adverse Effect on
the Company or, as a result of the Transactions, Parent and its
subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order or
injunction enacted, entered, enforced, promulgated or deemed applicable to
any Transaction, or any other action shall be taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses
(i) through (viii) of paragraph (a) above; or
(c) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the NYSE, the American Stock
Exchange or in the Nasdaq National Market System, for a period in excess of
three hours (excluding suspensions or limitations resulting solely from
physical damage or interference with such exchanges not related to market
conditions), (2) a declaration of a banking moratorium or any suspension of
payments in respect of banks in the United States (whether or not
mandatory), (3) the commencement of a war, armed hostilities or other
international or national calamity directly or indirectly involving the
United States, (4) any limitation or proposed limitation (whether or not
mandatory) by any United States governmental authority or agency that has a
material adverse effect generally on the extension of credit by banks or
other financial institutions, (5) any change in general financial bank or
capital market conditions which has a material adverse effect on the
ability of financial institutions in the United States to extend credit or
syndicate loans, or (6) in the case of any of the situations in clauses
(1) through (5) inclusive, existing on the date hereof, a material
acceleration or worsening thereof; or
(d) the representations and warranties of the Company set forth in the
Merger Agreement shall not be true and accurate as of the date of
consummation of the Offer as though made on or as of such date (except for
those representations and warranties that address matters only as of a
particular date or only with respect
37
<PAGE>
to a specific period of time which need only be true and accurate as of
such date or with respect to such period) or the Company shall have
breached or failed to perform or comply with any obligation, agreement or
covenant required by the Merger Agreement to be performed or complied with
by it except, in each case where the failure of such representations and
warranties to be true and accurate (without giving effect to any limitation
as to "materiality" or "material adverse effect" set forth herein), or the
failure to perform or comply with such obligations, agreements or
covenants, do not, individually or in the aggregate, have a Material
Adverse Effect on the Company or a materially adverse effect on the ability
to consummate the Offer or the Merger or any of the other Transactions; or
(e) there shall have occurred any events or changes which have had or
would have or constitute, individually or in the aggregate, a Material
Adverse Effect on the Company; or
(f) the Company's Board of Directors (i) shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including
by amendment of the Schedule 14D-9) its recommendation of the Offer, the
Merger Agreement, or the Merger, (ii) shall have recommended a Takeover
Proposal, (iii) shall have adopted any resolution to effect any of the
foregoing, or (iv) upon request of Parent or Purchaser, shall fail to
reaffirm its approval or recommendation of the Offer, the Merger Agreement,
the Merger or any of the other Transactions; or
(g) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any
group of which any of them is a member, shall have acquired or announced
its intention to acquire beneficial ownership (as determined pursuant to
Rule 13d-3 promulgated under the Exchange Act) of 20% or more of the
Shares; or
(h) any party to the Stock Option Agreement other than Parent shall
have breached or failed to perform any of its agreements under such
agreement or breached any of its representations and warranties in such
agreements or any such agreements shall not be valid, binding and
enforceable, except for such breaches or failures or failures to be valid,
binding and enforceable that do not materially and adversely affect the
benefits expected to be received by Parent or Purchaser under the Stock
Option Agreement; or
(i) the Merger Agreement shall have terminated in accordance with its
terms; or
(j) Purchaser shall not have received sufficient financing, on terms
at least as favorable to Purchaser as are contained in the Commitment
Letter, to pay the aggregate Merger Consideration payable hereunder, to
purchase the Notes pursuant to the Note Tender Offer and to satisfy the
ongoing working capital needs of the Surviving Corporation (it being agreed
that Parent and Purchaser will use reasonable commercial efforts to
consummate the financing pursuant to the Commitment Letter, subject to
satisfactory documentation in Parent's and Purchaser's reasonable
discretion); or
(k) if the Note Tender Offer has not expired on or before December 28,
1998, the Company shall have failed to deliver a certificate to Parent, in
form and substance reasonably acceptable to Arthur Andersen LLP and Parent,
stating that a Financial MAC (as defined above) has not occurred;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent or
Purchaser not otherwise in breach of the Merger Agreement) giving rise to such
condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payments for Shares.
The foregoing conditions are for the sole benefit of Parent and Purchaser
and may be waived by Parent or Purchaser, in whole or in part, at any time and
from time to time, in the sole discretion of Parent or Purchaser (subject to
certain limitations in the Merger Agreement). The failure by Parent or Purchaser
at any time to exercise any of the foregoing rights shall not be deemed a waiver
of any right and each such right shall be deemed an ongoing right which may be
asserted at any time and from time to time.
15. CERTAIN LEGAL MATTERS.
General. Except as described in this Section 15, based on information
provided by the Company, none of the Company, Purchaser or Parent is aware of
any license or regulatory permit that appears to be material to the business of
the Company and its subsidiaries, taken as a whole, that might be adversely
affected by the
38
<PAGE>
acquisition of Shares by Parent or Purchaser pursuant to the Offer, the Merger
or otherwise, except as set forth above, or of any approval or other action by
any governmental, administrative or regulatory agency or authority, domestic or
foreign, that would be required prior to the acquisition of Shares by Purchaser
pursuant to the Offer, the Merger or otherwise. Should any such approval or
other action be required, Purchaser and Parent presently contemplates that such
approval or other action will be sought, except as described below under "State
Antitakeover Statutes." While, except as otherwise described in this Offer to
Purchase, Purchaser does not presently intend to delay the acceptance for
payment of, or payment for, Shares tendered pursuant to the Offer pending the
outcome of any such matter, there can be no assurance that any such approval or
other action, if needed, would be obtained or would be obtained without
substantial conditions or that failure to obtain any such approval or other
action might not result in consequences adverse to the Company's business or
that certain parts of the Company's business might not have to be disposed of,
or other substantial conditions complied with, in the event that such approvals
were not obtained or such other actions were not taken or in order to obtain any
such approval or other action. If certain types of adverse action are taken with
respect to the matters discussed below, Purchaser could decline to accept for
payment, or pay for, any Shares tendered. See Section 14 for certain conditions
to the Offer, including conditions with respect to governmental actions.
State Antitakeover Statutes. Section 203 of the DGCL, in general,
prohibits a Delaware corporation, such as the Company, from engaging in a
"Business Combination" (defined as a variety of transactions, including mergers)
with an "Interested Stockholder" (defined generally as a person that is the
beneficial owner of 15% or more of the outstanding voting stock of the subject
corporation) for a period of three years following the date that such person
became an Interested Stockholder unless, prior to the date such person became an
Interested Stockholder, the board of directors of the corporation approved
either the Business Combination or the transaction that resulted in the
stockholder becoming an Interested Stockholder. The provisions of Section 203 of
the DGCL are not applicable to any of the transactions contemplated by the
Merger Agreement, since the Merger Agreement and the transactions contemplated
thereby were approved by the Company Board prior to the execution thereof.
A number of states have adopted laws and regulations that purport to apply
to attempts to acquire corporations that are incorporated in such states, or
whose business operations have substantial economic effects in such states, or
which have substantial assets, security holders, employees, principal executive
offices or principal places of business in such states. In Edgar v. MITE Corp.,
the Supreme Court of the United States (the "Supreme Court") invalidated on
constitutional grounds the Illinois Business Takeover statute, which, as a
matter of state securities law, made certain corporate acquisitions more
difficult. However, in 1987, in CTS Corp. v. Dynamics Corp. of America, the
Supreme Court held that the State of Indiana may, as a matter of corporate law
and, in particular, with respect to those aspects of corporate law concerning
corporate governance, constitutionally disqualify a potential acquiror from
voting on the affairs of a target corporation without the prior approval of the
remaining stockholders. The state law before the Supreme Court was by its terms
applicable only to corporations that had a substantial number of stockholders in
the state and were incorporated there.
Parent and Purchaser do not believe that the antitakeover laws and
regulations of any state other than the State of Delaware will by their terms
apply to the Offer, and, except as set forth above with respect to Section 203
of the DGCL, neither the Parent nor Purchaser has attempted to comply with any
state antitakeover statute or regulation. Purchaser reserves the right to
challenge the applicability or validity of any state law purportedly applicable
to the Offer and nothing in this Offer to Purchase or any action taken in
connection with the Offer is intended as a waiver of such right. If it is
asserted that any state antitakeover statute is applicable to the Offer and an
appropriate court does not determine that it is inapplicable or invalid as
applied to the Offer, Purchaser might be required to file certain information
with, or to receive approvals from, the relevant state authorities, and
Purchaser might be unable to accept for payment or pay for Shares tendered
pursuant to the Offer or may be delayed in consummating the Offer. In such case,
Purchaser may not be obligated to accept for payment, or pay for, any Shares
tendered pursuant to the Offer. See Section 14.
Antitrust. The Offer and the Merger are subject to the HSR Act, which
provides that certain acquisition transactions may not be consummated unless
certain information has been furnished to the Antitrust Division of the
Department of Justice (the "DOJ") and the Federal Trade Commission (the "FTC")
and certain waiting period requirements have been satisfied.
39
<PAGE>
Parent has filed its Notification and Report Forms with respect to the
Offer under the HSR Act on November 12, 1998. The Company is required to file,
and has informed Parent it will file, its Notification and Report Forms with
respect to the Offer under the HSR Act on or before November 20, 1998. The
waiting period under the HSR Act with respect to the Offer will expire at
11:59 p.m., New York City time, on the fifteenth day after the date Parent's
form was filed unless early termination of the waiting period is granted.
However, the DOJ or the FTC may extend the waiting period by requesting
additional information or documentary material from Parent or the Company. If
such a request is made, such waiting period will expire at 11:59 p.m., New York
City time, on the tenth day after substantial compliance by Parent with such
request. Only one extension of the waiting period pursuant to a request for
additional information is authorized by the HSR Act. Thereafter, such waiting
period may be extended only by court order or with the consent of Parent. In
practice, complying with a request for additional information or material can
take a significant amount of time. In addition, if the DOJ or the FTC raises
substantive issues in connection with a proposed transaction, the parties
frequently engage in negotiations with the relevant governmental agency
concerning possible means of addressing those issues and may agree to delay
consummation of the transaction while such negotiations continue. Parent will
not accept for payment Shares tendered pursuant to the Offer unless and until
the waiting period requirements imposed by the HSR Act with respect to the Offer
have been satisfied. See Section 14.
The FTC and the DOJ frequently scrutinize the legality under the Antitrust
Laws (as defined below) of transactions such as Purchaser's acquisition of
Shares pursuant to the Offer and the Merger. At any time before or after
Purchaser's acquisition of Shares, the DOJ or the FTC could take such action
under the Antitrust Laws as it deems necessary or desirable in the public
interest, including seeking to enjoin the acquisition of Shares pursuant to the
Offer or otherwise seeking divestiture of Shares acquired by Purchaser or
divestiture of substantial assets of Parent or its subsidiaries. Private
parties, as well as state governments, may also bring legal action under the
Antitrust Laws under certain circumstances. Based upon an examination of
information provided by the Company relating to the businesses in which Parent
and the Company are engaged, Parent and Purchaser believe that the acquisition
of Shares by Purchaser will not violate the Antitrust Laws. Nevertheless, there
can be no assurance that a challenge to the Offer or other acquisition of Shares
by Purchaser on antitrust grounds will not be made or, if such a challenge is
made, of the result. See Section 14 for certain conditions to the Offer,
including conditions with respect to litigation and certain government actions.
As used in this Offer to Purchase, "Antitrust Laws" shall mean and include
the Sherman Act, as amended, the Clayton Act, as amended, the HSR Act, the
Federal Trade Commission Act, as amended, and all other Federal and state
statutes, rules, regulations, orders, decrees, administrative and judicial
doctrines, and other laws that are designed or intended to prohibit, restrict or
regulate actions having the purpose or effect of monopolization or restraint of
trade.
Federal Reserve Board Regulations. Regulations T, U and X (the "Margin
Regulations") of the Federal Reserve Board restrict the extension or maintenance
of credit for the purpose of buying or carrying margin stock, including the
Shares, if the credit is secured directly or indirectly by margin stock. Such
secured credit may not be extended or maintained in an amount that exceeds the
maximum loan value of all the direct and indirect collateral securing the
credit, including margin stock and other collateral. Purchaser believes that the
financing of the acquisition of the Shares will be in full compliance with or
not subject to the margin regulations.
16. FEES AND EXPENSES.
Bear, Stearns is acting as Dealer Manager in connection with the Offer and
has provided certain financial advisory services to Parent in connection with
the proposed acquisition of the Company. Parent has agreed to pay Bear, Stearns
for its services (i) a retainer fee of $50,000 (the "Retainer Fee"), (ii) an
opinion fee of $750,000 (the "Opinion Fee"), and (iii) a success fee of
$2,800,000 (the "Success Fee"), against which the Retainer Fee and the Opinion
Fee, to the extent previously paid, will be credited. Bear, Stearns is acting as
the dealer manager for the Note Tender Offer for which it will receive customary
compensation. In addition, Parent has agreed to reimburse Bear, Stearns for all
reasonable out-of-pocket expenses incurred by Bear, Stearns including the
reasonable fees of its counsel and of other consultants and advisors retained by
Bear, Stearns with the approval of Parent, and to indemnify Bear, Stearns and
certain related persons against certain liabilities and expenses, including
certain liabilities under the federal securities laws. In the ordinary course of
its business, Bear, Stearns
40
<PAGE>
and its affiliates may actively trade in the Shares for its own account and for
the account of its customers, and accordingly, may at any time hold a long or
short position in the Shares.
Purchaser has retained ChaseMellon Shareholder Services, L.L.C. to serve as
the Depositary and D.F. King & Co., Inc. to serve as the Information Agent in
connection with the Offer. The Information Agent may contact holders of Shares
by personal interview, mail, telephone, telex, telegraph and other methods of
electronic communication and may request brokers, dealers, commercial banks,
trust companies and other nominees to forward the Offer materials to beneficial
holders. The Information Agent and the Depositary will each receive reasonable
and customary compensation for their services, be reimbursed for certain
reasonable out-of-pocket expenses and be indemnified against certain liabilities
in connection with their services, including certain liabilities and expenses
under the federal securities laws.
Except as set forth above, Purchaser will not pay any fees or commissions
to any broker or dealer or other person or entity in connection with the
solicitation of tenders of Shares pursuant to the Offer. Brokers, dealers, banks
and trust companies will be reimbursed by Purchaser for customary mailing and
handling expenses incurred by them in forwarding the Offer materials to their
customers.
17. MISCELLANEOUS.
Purchaser is not aware of any state where the making of the Offer is
prohibited by administrative or judicial action pursuant to any valid state
statute. If Purchaser becomes aware of any valid state statute prohibiting the
making of the Offer or the acceptance of the Shares pursuant thereto, Purchaser
shall make a good faith effort to comply with such statute or seek to have such
statute declared inapplicable to the Offer. If, after such good faith effort,
Purchaser cannot comply with such state statute, the Offer will not be made to
(nor will tenders be accepted from or on behalf of) holders of Shares in such
state.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION ON BEHALF OF PURCHASER NOT CONTAINED HEREIN OR IN THE LETTER OF
TRANSMITTAL AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED.
Purchaser has filed with the Commission the Schedule 14D-1 pursuant to
Rule 14d-3 under the Exchange Act, together with exhibits, furnishing certain
additional information with respect to the Offer. In addition, the Company has
filed with the Commission the Schedule 14D-9 pursuant to Rule 14d-9 under the
Exchange Act, setting forth its recommendation with respect to the Offer and the
reasons for its recommendation and furnishing certain additional related
information. Such Schedules and any amendments thereto, including exhibits,
should be available for inspection and copies should be obtainable in the same
manner set forth in Section 9 of this Offer to Purchase (except that such
material will not be available at the regional offices of the Commission).
HSC ACQUISITION CORP.
November 18, 1998
41
<PAGE>
SCHEDULE I
INFORMATION CONCERNING DIRECTORS AND EXECUTIVE OFFICERS OF
PARENT AND PURCHASER
1. DIRECTORS AND EXECUTIVE OFFICERS OF PARENT.
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years, of each director and executive officer of Parent. Unless
otherwise indicated, the business address of each such person is c/o Ames
Department Stores, Inc., 2418 Main Street, Rocky Hill, CT 06067 and each such
person is a citizen of the United States. Unless otherwise indicated, each such
person has held his or her present occupation as set forth below, or has been an
executive officer at Parent for the past five years.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
JOSEPH R. ETTORE....................... Mr. Ettore has been President, Chief Executive Officer and a Director of
Parent since June 1994. Prior to joining Parent, he was President, Chief
Executive Officer and a Director of Jamesway Corporation ("Jamesway")
from July 1993 to June 1994. Jamesway filed for protection under
Chapter 11 of the Bankruptcy Code ("Chapter 11") in July 1993, emerged
from the Chapter 11 case in January 1995, and re-filed for protection
under Chapter 11 in October 1995. Mr. Ettore was Chairman of the Board
and Chief Executive Officer of Stuarts Department Stores, Inc.
("Stuarts") from October 1992 to June 1993, and he remained a Director
of Stuarts until May 1994. Stuarts filed under Chapter 11 in December
1990 and emerged from the Chapter 11 case in October 1992 and re-filed
for protection under Chapter 11 in May 1995.
FRANCIS X. BASILE ..................... Mr. Basile is currently retired. Prior to his retirement, he was
Director since 1992 Chairman and Chief Executive Officer of the CIT Group/Factoring, Inc. He
was also Director and Chairman of the National Commercial Finance
Association and a member of its Executive Committee.
PAUL BUXBAUM .......................... Mr. Buxbaum is President of Buxbaum Group Associates, Inc., a nationwide
Director since 1992 retail consulting company and Chief Executive Officer of Global Health
Chairman since 1993 Sciences, Inc., a developer, manufacturer and packager of vitamins,
herbs, dietary supplements and protein powders. He is also a Director of
Richmond Gordman 1/2 Price Stores and Lamonts Apparel, Inc. and was
formerly a Director of Herbalife International, Inc.
ALAN COHEN ............................ Mr. Cohen has been Chairman of Alco Capital Group, Inc., et al., a
Director since 1992 diversified financial service and investment company, since 1975, and
Chief Executive Officer of Russ Toggs, Inc., since November 1993. He is
also Chairman of the Board of Alco Cadillac-Pontiac Sales Corp., and
formerly served as court-appointed trustee of Tower Financial
Corporation and as Chief Executive Officer of Health-Tex, Inc.
RICHARD M. FELNER ..................... Mr. Felner has been the head of Richard M. Felner Associates, a
Director since 1994 consulting firm specializing in retail and commercial real estate, since
1991.
SIDNEY S. PEARLMAN .................... Mr. Pearlman is currently retired. He has extensive retail experience,
Director since 1992 having served as president of three different department store chains.
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
LAURIE M. SHAHON ...................... Ms. Shahon has been the President of the Wilton Capital Group since
Director since 1995 January 1994, which makes principal investments in later-stage venture
capital companies and medium-sized management buyouts. She was
previously Managing Director of "21" International Holdings, Inc., a
private holding company, from April 1988 to December 1993. She is also a
Director of One Price Clothing Stores, Inc. and Homeland Holding
Corporation.
JAMES J. AGLIO, JR..................... Mr. Aglio became Senior Vice President, General Merchandise Manager,
Home Division of Parent in June 1998. Since joining Parent in July 1974,
he has served in various merchandising positions including Buyer,
Divisional Merchandise Manager, Assistant Vice President, and Vice
President Home Division.
ROLANDO DE AGUIAR...................... Mr. de Aguiar joined Parent as Executive Vice President, Chief Financial
Officer on April 14, 1998. Prior to joining Parent, he was President of
Aguiar Associates from March 1997 to March 1998. He served as Executive
Vice President and Chief Administrative Officer for Gruma from October
1994 to January 1997, and from September 1991 to August 1994 he held
senior financial positions at Sears, Roebuck & Co., the most recent of
which was Vice President and Controller--Merchandise Group.
EUGENE E. BANKERS...................... Mr. Bankers joined Parent as Senior Vice President, Marketing in
December 1993. Prior to joining Parent, he was Vice President,
Communications and Investor Relations at Shopko Stores, Inc. from 1991
to 1993.
RICHARD L. CARTER...................... Mr. Carter joined Parent as Senior Vice President, Human Resources in
February 1993.
DAVID S. COVITZ........................ Mr. Covitz became Senior Vice President, General Merchandise Manager,
Hardlines of Parent in June 1998. Since joining Parent in November 1989,
he has served as Vice President, Divisional Merchandise Manager of
various divisions and as Vice President, General Merchandise Manager,
Hardlines. Prior to joining Parent, his background included employment
at Gold Circle Stores and Filenes Department Store.
GREGORY D. LAMBERT..................... Mr. Lambert joined Parent as Senior Vice President, Finance in September
1996. Prior to joining Parent, he was employed at Homart Development as
Vice President-Strategy from 1994 to 1996 and was employed at The May
Department Stores Company as Director of Strategic Planning from 1989 to
1994.
PAUL C. LANHAM......................... Mr. Lanham became Senior Vice President, Management Information Systems,
in March, 1996. He joined Parent in October 1994 as Vice President,
Allocation and Planning. Prior to joining Parent, he was employed at
Brookstone Stores, most recently as Director of Inventory Management.
DENIS T. LEMIRE........................ Mr. Lemire joined Parent as Executive Vice President, Merchandising in
August 1994. Prior to joining Parent, he was President and Chief
Operating Officer of Stuarts from November, 1993 to August, 1994 and
Senior Vice President, Merchandising for Stuarts from April, 1990 to
November, 1993. Stuarts filed for protection under Chapter 11 in
December, 1990; emerged from the Chapter 11 case in October 1992; and
re-filed for protection under Chapter 11 in May 1995.
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
DAVID H. LISSY......................... Mr. Lissy became Senior Vice President, General Counsel and Corporate
Secretary in December 1992. Mr. Lissy joined Parent in June 1990. He has
been the owner of Samuel Lehrer & Co., Inc., a wholesaler of fine
quality fabrics, since 1988.
ALFRED B. PETRILLO, JR................. Mr. Petrillo joined Parent as Senior Vice President, Store Planning in
October, 1995. Prior to joining Parent, he was employed at Jamesway as
Vice President, Store Planning, Construction, Maintenance and Energy
from 1976 to 1995, when he was appointed Senior Vice President, Store
Planning, Construction, Visual Merchandising, Plan-o-gramming,
Maintenance and Energy.
GRANT C. SANBORN....................... Mr. Sanborn became Senior Vice President, Store Operations in January
1995. Since joining Parent in 1971, he has served in a number of store
operations positions, most recently as Vice President, Store Operations
from October 1993 to January 1995.
SANFORD H. SANSAVERA................... Mr. Sansavera became Senior Vice President, General Merchandise Manager,
Softlines of Parent in June 1998. He joined Parent as Divisional
Merchandise Manager, Jewelry in May 1993. Prior to joining Parent, he
was employed at the May Co. in Cleveland, OH, from 1971 to 1992, where
he became Senior Vice President, General Merchandise Manager of
Accessories and Shoes in 1989.
JAMES A. VARHOL........................ Mr. Varhol joined Parent as Senior Vice President, Asset Protection in
August 1995. Prior to joining Parent he was employed at Jamesway, where
he held a number of increasingly senior positions from 1977 to 1995,
most recently Vice President, Loss Prevention from June, 1987 to August
1995.
</TABLE>
2. DIRECTORS AND EXECUTIVE OFFICERS OF PURCHASER.
The following table sets forth the name and present principal occupation or
employment, and material occupations, positions, offices or employments for the
past five years, of each director and executive officer of Purchaser. The
business address of each such person is c/o Ames Department Stores, Inc., 2418
Main Street, Rocky Hill, CT 06067, and each such person is a citizen of the
United States.
<TABLE>
<CAPTION>
PRESENT PRINCIPAL OCCUPATION OR EMPLOYMENT;
NAME MATERIAL POSITIONS HELD DURING THE PAST FIVE YEARS
- --------------------------------------- ------------------------------------------------------------------------
<S> <C>
JOSEPH R. ETTORE....................... President and a Director of Purchaser. See Part 1 of this Schedule I.
ROLANDO DE AGUIAR...................... Vice President and a Director of Purchaser. See Part 1 of this
Schedule I.
DAVID H. LISSY......................... Vice President, Secretary and a Director of Purchaser. See Part 1 of
this Schedule I.
MARK VON MAYRHAUSER.................... Treasurer of Purchaser. See Part 1 of this Schedule I.
</TABLE>
44
<PAGE>
Facsimiles of the Letter of Transmittal will be accepted. The Letter of
Transmittal and certificates evidencing Shares and any other required documents
should be sent or delivered by each stockholder or his broker, dealer,
commercial bank, trust company or other nominee to the Depositary at one of its
addresses set forth below.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway--13th Floor 85 Challenger Road
South Hackensack, NJ 07606 New York, NY 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Department (registered Attn: Reorganization Department Mail Drop: Reorganization Department
or certified
mail recommended)
</TABLE>
By Facsimile Transmission:
(201) 296-4293
Confirm by Telephone:
(201) 296-4860
Questions or requests for assistance may be directed to the Information
Agent or the Dealer Manager at their respective addresses and telephone numbers
listed below. Additional copies of this Offer to Purchase, the Letter of
Transmittal and the Notice of Guaranteed Delivery may be obtained from the
Information Agent. A stockholder may also contact brokers, dealers, commercial
banks or trust companies for assistance concerning the Offer.
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 431-9629 (TOLL FREE)
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
(800) 513-BEAR (TOLL-FREE)
(800) 513-2327
45
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER SHARES OF
COMMON STOCK AND SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
PURSUANT TO THE OFFER TO PURCHASE
DATED NOVEMBER 18, 1998
OF
HSC ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY
OF
AMES DEPARTMENT STORES, INC.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK
CITY TIME, ON WEDNESDAY, DECEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery:
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway--13th Floor 85 Challenger Road
South Hackensack, NJ 07606 New York, NY 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Mail Drop: Reorganization Department
(registered or certified
mail recommended)
</TABLE>
By Facsimile Transmission:
(For Eligible Institutions Only)
(201) 296-4293
Confirm Facsimile by Telephone:
(201) 296-4860
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE TO A NUMBER OTHER
THAN AS SET FORTH ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY TO THE DEPOSITARY.
THE INSTRUCTIONS CONTAINED WITHIN THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
This Letter of Transmittal is to be used by stockholders of Hills Stores
Company if certificates for Shares (as such term is defined below) are to be
forwarded herewith or, unless an Agent's Message (as defined in Instruction 2
below) is utilized, if delivery of Shares is to be made by book-entry transfer
to an account maintained by the Depositary at the Book-Entry Transfer Facility
(as defined in and pursuant to the procedures set forth in Section 3 of the
Offer to Purchase). Stockholders who deliver Shares by book-entry transfer are
referred to herein as "Book-Entry Stockholders" and other stockholders who
deliver shares are referred to herein as "Certificate Stockholders."
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver either the certificates for, or a Book-Entry Confirmation (as
defined in Section 3 of the Offer to Purchase) with respect to, their Shares and
all other documents required hereby to the Depositary prior to the Expiration
Date (as defined in Section 1 of the Offer to Purchase) must tender their Shares
pursuant to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase. See Instruction 2. DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY
TRANSFER FACILITY WILL NOT CONSTITUTE DELIVERY TO THE DEPOSITARY.
<PAGE>
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE DEPOSITARY'S ACCOUNT AT THE BOOK-ENTRY TRANSFER
FACILITY AND COMPLETE THE FOLLOWING (ONLY PARTICIPANTS IN THE
BOOK-ENTRY TRANSFER FACILITY MAY DELIVER SHARES BY BOOK-ENTRY
TRANSFER):
Name of Tendering Institution: _________________________________________________
Account Number: ___________________ Transaction Code Number: ___________________
/ / CHECK HERE IF TENDERED SHARES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Owner(s): ________________________________________________
Window Ticket No. (if any): ____________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Institution which Guaranteed Delivery: _________________________________
If delivered by Book-Entry Transfer, check box: / /
Account Number: ___________________ Transaction Code Number: ___________________
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------
DESCRIPTION OF COMMON SHARES TENDERED
- ------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY
AS NAME(S)
APPEAR(S) ON COMMON SHARE COMMON SHARES TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ------------------------------------------------------------------------------------
TOTAL NUMBER
OF COMMON NUMBER
SHARES OF COMMON
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S) (1) CERTIFICATE(S)(1) TENDERED(2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
TOTAL COMMON
SHARES
- ------------------------------------------------------------------------------------
</TABLE>
(1) NEED NOT BE COMPLETED BY BOOK-ENTRY STOCKHOLDERS.
(2) UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL COMMON SHARES
REPRESENTED BY COMMON SHARE CERTIFICATES DELIVERED TO THE DEPOSITARY ARE
BEING TENDERED HEREBY. SEE INSTRUCTION 4.
<TABLE>
- ------------------------------------------------------------------------------------
DESCRIPTION OF PREFERRED SHARES TENDERED
- ------------------------------------------------------------------------------------
NAME(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S)
(PLEASE FILL IN, IF BLANK, EXACTLY
AS NAME(S)
APPEAR(S) ON PREFERRED SHARE PREFERRED SHARES TENDERED
CERTIFICATE(S)) (ATTACH ADDITIONAL SIGNED LIST IF NECESSARY)
- ------------------------------------------------------------------------------------
TOTAL NUMBER
OF PREFERRED NUMBER
SHARES OF PREFERRED
CERTIFICATE REPRESENTED BY SHARES
NUMBER(S) (1) CERTIFICATE(S)(1) TENDERED(2)
- ------------------------------------------------------------------------------------
<S> <C> <C> <C>
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
-----------------------------------------------
TOTAL
PREFERRED
SHARES
- ------------------------------------------------------------------------------------
</TABLE>
(1) NEED NOT BE COMPLETED BY BOOK-ENTRY STOCKHOLDERS.
(2) UNLESS OTHERWISE INDICATED, IT WILL BE ASSUMED THAT ALL PREFERRED SHARES
REPRESENTED BY PREFERRED SHARE CERTIFICATES DELIVERED TO THE DEPOSITARY ARE
BEING TENDERED HEREBY. SEE INSTRUCTION 4.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE INSTRUCTIONS SET FORTH IN THIS LETTER OF TRANSMITTAL CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to HSC Acquisition Corp., a Delaware
corporation ("Purchaser") and wholly-owned subsidiary of Ames Department Stores,
Inc., a Delaware corporation ("Parent"), the above-described shares of
(i) common stock, par value $0.01 per share (the "Common Stock"), including the
preferred stock purchase rights associated therewith issued pursuant to the
Rights Agreement (as defined in the Offer of Purchase) (the "Rights" and,
together with the Common Stock, the "Common Shares"), and/or (ii) Series A
convertible preferred stock, par value $0.10 per share (the "Preferred Stock"),
including the associated Rights (the Preferred Stock, together with the
associated Rights, the "Preferred Shares"; and, together with the Common Shares,
the "Shares"), of Hills Stores Company, a Delaware corporation (the "Company"),
pursuant to Purchaser's offer to purchase all of the outstanding Shares at a
price of $1.50 per Share, net to the seller in cash, without interest, plus a
Deferred Contingent Cash Right (as defined and described in the Offer to
Purchase) upon the terms and subject to the conditions set forth in the Offer to
Purchase, dated November 18, 1998, and in this Letter of Transmittal (which,
together with any amendments or supplements thereto or hereto, collectively
constitute the "Offer"). The undersigned understands that Purchaser reserves the
right to transfer or assign, in whole at any time, or in part from time to time,
to one or more of its affiliates, the right to purchase all or any portion of
the Shares tendered pursuant to the Offer, but any such transfer or assignment
will not relieve Purchaser of its obligations under the Offer and will in no way
prejudice the rights of tendering stockholders to receive payment for Shares
validly tendered and accepted for payment pursuant to the Offer. Receipt of the
Offer is hereby acknowledged.
The Company has distributed one Right for each outstanding Share pursuant to
the Rights Agreement. The Rights are currently evidenced by and trade with
certificates evidencing the Common Stock and the Preferred Stock. The Company
has taken such action so as to make the Rights Agreement inapplicable to
Purchaser and its affiliates and associates in connection with the Merger
Agreement (as defined below) and the transactions contemplated thereby.
The Offer is being made pursuant to an Agreement and Plan of Merger, dated
as of November 12, 1998 (the "Merger Agreement"), between Parent, Purchaser and
the Company.
Upon the terms and subject to the conditions of the Offer (and if the Offer
is extended or amended, the terms of any such extension or amendment), subject
to, and effective upon, acceptance for payment of, and payment for, the Shares
tendered herewith in accordance with the terms of the Offer, the undersigned
hereby sells, assigns and transfers to, or upon the order of, Purchaser all
right, title and interest in and to, and any and all claims in respect of or
arising or having arisen as a result of the undersigned's status as a holder of,
all the Shares that are being tendered hereby (and any and all non-cash
dividends, distributions, rights, other Shares or other securities issued or
issuable in respect thereof on or after November 18, 1998 (collectively,
"Distributions")) and irrevocably constitutes and appoints the Depositary the
true and lawful agent and attorney-in-fact of the undersigned with respect to
such Shares (and all Distributions), with full power of substitution (such power
of attorney being deemed to be an irrevocable power coupled with an interest),
to (i) deliver certificates for such Shares (and any and all Distributions), or
transfer ownership of such Shares (and any and all Distributions) on the account
books maintained by the Book-Entry Transfer Facility, together, in any such
case, with all accompanying evidences of transfer and authenticity, to or upon
the order of Purchaser, (ii) present such Shares (and any and all Distributions)
for transfer on the books of the Company, and (iii) receive all benefits and
otherwise exercise all rights of beneficial ownership of such Shares (and any
and all Distributions), all in accordance with the terms of the Offer.
By executing this Letter of Transmittal, the undersigned hereby irrevocably
appoints Joseph R. Ettore, Rolando de Aguiar and David H. Lissy in their
respective capacities as officers of Purchaser, and any individual who shall
thereafter succeed to any such office of Purchaser, and each of them, the
attorneys-in-fact and proxies of the undersigned, each with full power of
substitution, to vote at any annual or special meeting of the Company's
stockholders or any adjournment or postponement thereof or otherwise in such
manner as each such attorney-in-fact and proxy or his substitute shall in his
sole discretion deem proper with respect to, to execute any written consent
concerning any matter as each such attorney-in-fact and proxy or his substitute
shall in his sole discretion deem proper with respect to, and to otherwise act
as each such attorney-in-fact and proxy or his substitute shall in his sole
discretion deem proper with respect to, all of the Shares (and any and all
Distributions) tendered hereby and accepted for payment by Purchaser. This
appointment will be effective if and when, and only to the extent that,
Purchaser accepts such Shares for payment pursuant to the Offer. This power of
attorney and proxy are irrevocable and are granted in consideration of the
acceptance for payment of such Shares in accordance with the terms of the Offer.
Such acceptance for payment shall, without further action, revoke any prior
powers of attorney and proxies granted by the undersigned at any time with
respect to such Shares (and any and all Distributions), and no subsequent powers
of attorney, proxies, consents or revocations may be given by the undersigned
with respect thereto (and, if given, will not be deemed effective). Purchaser
reserves the right to require that, in order for Shares or other securities to
be deemed validly tendered, immediately upon Purchaser's acceptance for payment
of such Shares, Purchaser must be able to exercise full voting, consent and
other rights with respect to such Shares (and any and all Distributions),
including voting at any meeting of the Company's stockholders.
The undersigned hereby represents and warrants that the undersigned has full
power and authority to tender, sell, assign and transfer the Shares tendered
hereby and all Distributions, that the undersigned owns the Shares tendered
hereby within the meaning of Rule 14e-4 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), that the tender of the
tendered Shares complies with Rule 14e-4 under the Exchange Act, and that when
the same are accepted for payment by Purchaser, Purchaser will acquire good,
marketable and unencumbered title thereto and to all Distributions, free and
clear of all liens, restrictions, charges and encumbrances and the same will not
be subject to any adverse claims. The undersigned will, upon request, execute
and deliver any additional documents deemed by the Depositary or Purchaser to be
necessary or desirable to complete the sale, assignment and transfer of the
Shares tendered hereby and all Distributions. In addition, the undersigned shall
remit and transfer promptly to the Depositary for the account of Purchaser all
Distributions in respect of the Shares tendered hereby, accompanied by
appropriate documentation of transfer, and, pending such remittance and transfer
or appropriate assurance thereof, Purchaser shall be entitled to all rights and
privileges as owner of each such Distribution and may withhold the entire
purchase price of the Shares tendered hereby or deduct from such purchase price,
the amount or value of such Distribution as determined by Purchaser in its sole
discretion.
<PAGE>
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned, and any obligation of the undersigned
hereunder shall be binding upon the heirs, executors, administrators, personal
representatives, trustees in bankruptcy, successors and assigns of the
undersigned. Except as stated in the Offer, this tender is irrevocable.
The undersigned understands that the valid tender of Shares pursuant to any
one of the procedures described in Section 3 of the Offer to Purchase and in the
Instructions hereto will constitute a binding agreement between the undersigned
and Purchaser upon the terms and subject to the conditions of the Offer (and if
the Offer is extended or amended, the terms or conditions of any such extension
or amendment). Without limiting the foregoing, if the price to be paid in the
Offer is amended in accordance with the terms of the Merger Agreement, the price
to be paid to the undersigned will be the amended price notwithstanding the fact
that a different price is stated in this Letter of Transmittal. The undersigned
recognizes that under certain circumstances set forth in the Offer to Purchase,
Purchaser may not be required to accept for payment any of the Shares tendered
hereby.
Unless otherwise indicated herein in the box entitled "Special Payment
Instructions," please issue the check for the purchase price of all Shares
purchased and/or return any certificates for Shares not tendered or accepted for
payment in the name(s) of the registered holder(s) appearing above under
"Description of Common Shares Tendered" or "Description of Preferred Shares
Tendered," as the case may be. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please mail the check for the purchase price of
all Shares purchased and/or return any certificates for Shares not tendered or
not accepted for payment (and any accompanying documents, as appropriate) to the
address(es) of the registered holder(s) appearing above under "Description of
Common Shares Tendered" or "Description of Preferred Shares Tendered," as the
case may be. In the event that the boxes entitled "Special Payment Instructions"
and "Special Delivery Instructions" are both completed, please issue the check
for the purchase price of all Shares purchased and/or return any certificates
evidencing Shares not tendered or not accepted for payment (and any accompanying
documents, as appropriate) in the name(s) of, and deliver such check and/or
return any such certificates (and any accompanying documents, as appropriate)
to, the person(s) so indicated. Unless otherwise indicated herein in the box
entitled "Special Payment Instructions," please credit any Shares tendered
herewith by book-entry transfer that are not accepted for payment by crediting
the account at the Book-Entry Transfer Facility designated above. The
undersigned recognizes that Purchaser has no obligation, pursuant to the
"Special Payment Instructions," to transfer any Shares from the name of the
registered holder thereof if Purchaser does not accept for payment any of the
Shares so tendered.
<PAGE>
/ / CHECK HERE IF ANY OF THE CERTIFICATES REPRESENTING SHARES THAT YOU OWN HAVE
BEEN LOST, DESTROYED OR STOLEN AND SEE INSTRUCTION 11.
NUMBER OF SHARES REPRESENTED BY LOST, DESTROYED OR STOLEN CERTIFICATES:
- --------------------------------------------------------------------------------
SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the check for the purchase price of Shares accepted for
payment is to be issued in the name of someone other than the undersigned, if
certificates for Shares not tendered or not accepted for payment are to be
issued in the name of someone other than the undersigned or if Shares tendered
hereby and delivered by book-entry transfer that are not accepted for payment
are to be returned by credit to an account maintained at a Book-Entry Transfer
Facility other than the account indicated above.
Issue check and/or Share certificate(s) to:
Name ___________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9)
Credit Shares delivered by book-entry transfer and not purchased to the
Book-Entry Transfer Facility account.
________________________________________________________________________________
(ACCOUNT NUMBER)
================================================================================
SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if certificates for Shares not tendered or not accepted for
payment and/or the check for the purchase price of Shares accepted for payment
is to be sent to someone other than the undersigned or to the undersigned at an
address other than that shown under "Description of Common Shares Tendered" or
"Description of Preferred Shares Tendered," as the case may be.
Mail check and/or Share certificates to:
Name ___________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9)
- --------------------------------------------------------------------------------
<PAGE>
IMPORTANT--SIGN HERE
(ALSO COMPLETE SUBSTITUTE FORM W-9 BELOW)
________________________________________________________________________________
________________________________________________________________________________
(SIGNATURE(S) OF STOCKHOLDER(S))
DATED: __________ , 1998
(Must be signed by registered holder(s) exactly as name(s) appear(s) on the
Share certificate(s) or on a security position listing or by person(s)
authorized to become registered holder(s) by certificates and documents
transmitted herewith. If signature is by trustee, executor, administrator,
guardian, attorney-in-fact, officer of a corporation or other person acting in a
fiduciary or representative capacity, please provide the following information
and see Instruction 5.)
Name(s): _______________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Name of Firm:___________________________________________________________________
Capacity (full title):__________________________________________________________
(SEE INSTRUCTION 5)
Address:________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
________________________________________________________________________________
Taxpayer Identification or Social Security Number:______________________________
(SEE SUBSTITUTE FORM W-9)
GUARANTEE OF SIGNATURE(S) (SEE INSTRUCTIONS 1 AND 5)
Authorized Signature:___________________________________________________________
Name(s):________________________________________________________________________
________________________________________________________________________________
(PLEASE PRINT)
Title:__________________________________________________________________________
Name of Firm:___________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number:_________________________________________________
<PAGE>
INSTRUCTIONS
Forming Part of the Terms and Conditions of the Offer
1. GUARANTEE OF SIGNATURES. No signature guarantee is required on this
Letter of Transmittal (a) if this Letter of Transmittal is signed by the
registered holder(s) (which term, for purposes of this Section, includes any
participant in any of the Book-Entry Transfer Facility's systems whose name
appears on a security position listing as the owner of the Shares) of Shares
tendered herewith, unless such registered holder(s) has(have) completed either
the box entitled "Special Payment Instructions" or the box entitled "Special
Delivery Instructions" on the Letter of Transmittal or (b) if such Shares are
tendered for the account of a financial institution (including most commercial
banks, savings and loan associations and brokerage houses) that is a participant
in the Security Transfer Agents Medallion Program, the New York Stock Exchange
Medallion Signature Guarantee Program or the Stock Exchange Medallion Program
(each, an "Eligible Institution"). In all other cases, all signatures on this
Letter of Transmittal must be guaranteed by an Eligible Institution. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND SHARES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed by stockholders of
the Company either if Share certificates are to be forwarded herewith or, unless
an Agent's Message is utilized, if delivery of Shares is to be made by
book-entry transfer pursuant to the procedures set forth herein and in
Section 3 of the Offer to Purchase. For a stockholder validly to tender Shares
pursuant to the Offer, either (a) a properly completed and duly executed Letter
of Transmittal (or facsimile thereof), together with any required signature
guarantees or an Agent's Message (in connection with book-entry transfer) and
any other required documents, must be received by the Depositary at one of its
addresses set forth herein prior to the Expiration Date and either
(i) certificates for tendered Shares must be received by the Depositary at one
of such addresses prior to the Expiration Date or (ii) Shares must be delivered
pursuant to the procedures for book-entry transfer set forth herein and in
Section 3 of the Offer to Purchase and a Book-Entry Confirmation must be
received by the Depositary prior to the Expiration Date or (b) the tendering
stockholder must comply with the guaranteed delivery procedures set forth herein
and in Section 3 of the Offer to Purchase.
Stockholders whose certificates for Shares are not immediately available or
who cannot deliver their certificates and all other required documents to the
Depositary prior to the Expiration Date or who cannot comply with the book-entry
transfer procedures on a timely basis may tender their Shares by properly
completing and duly executing the Notice of Guaranteed Delivery pursuant to the
guaranteed delivery procedure set forth herein and in Section 3 of the Offer to
Purchase.
Pursuant to such guaranteed delivery procedures, (i) such tender must be
made by or through an Eligible Institution, (ii) a properly completed and duly
executed Notice of Guaranteed Delivery, substantially in the form provided by
Purchaser, must be received by the Depositary prior to the Expiration Date and
(iii) the certificates for all tendered Shares, in proper form for transfer (or
a Book-Entry Confirmation with respect to all tendered Shares), together with a
properly completed and duly executed Letter of Transmittal (or a facsimile
thereof), with any required signature guarantees, or, in the case of a
book-entry transfer, an Agent's Message, and any other required documents must
be received by the Depositary within three trading days after the date of
execution of such Notice of Guaranteed Delivery. A "trading day" is any day on
which the New York Stock Exchange is open for business.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility to, and received by, the Depositary and forming a part of a
Book-Entry Confirmation, which states that such Book-Entry Transfer Facility has
received an express acknowledgment from the participant in such Book-Entry
Transfer Facility tendering the Shares, that such participant has received and
agrees to be bound by the terms of the Letter of Transmittal and that Purchaser
may enforce such agreement against the participant.
The signatures on this Letter of Transmittal cover the Shares tendered
hereby.
THE METHOD OF DELIVERY OF THE SHARES, THIS LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH THE BOOK-ENTRY TRANSFER
FACILITY, IS AT THE ELECTION AND RISK OF THE TENDERING STOCKHOLDER. THE SHARES
WILL BE DEEMED DELIVERED ONLY WHEN ACTUALLY RECEIVED BY THE DEPOSITARY
(INCLUDING, IN THE CASE OF A BOOK-ENTRY TRANSFER, BY BOOK-ENTRY CONFIRMATION).
IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED, PROPERLY
INSURED, IS RECOMMENDED. IN ALL CASES, SUFFICIENT TIME SHOULD BE ALLOWED TO
ENSURE TIMELY DELIVERY.
No alternative, conditional or contingent tenders will be accepted, and no
fractional Shares will be purchased. All tendering stockholders, by executing
this Letter of Transmittal (or facsimile thereof), waive any right to receive
any notice of acceptance of their Shares for payment.
3. INADEQUATE SPACE. If the space provided herein under "Description of
Common Shares Tendered" or "Description of Preferred Shares Tendered," as the
case may be, is inadequate, the number of Shares tendered and the Share
certificate numbers with respect to such Shares should be listed on a separate
signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to stockholders who tender by
book-entry transfer). If fewer than all the Shares evidenced by any Share
certificate delivered to the Depositary herewith are to be tendered hereby, fill
in the number of Shares that are to be tendered in the box entitled "Number of
Shares Tendered." In any such case, new certificate(s) for the remainder of the
Shares that were evidenced by the old certificates will be sent to the
registered holder, unless otherwise provided in the appropriate box on this
Letter of Transmittal, as soon as practicable after the Expiration Date or the
termination of the Offer. All Shares represented by certificates delivered to
the Depositary will be deemed to have been tendered unless otherwise indicated.
5. SIGNATURES ON LETTER OF TRANSMITTAL; STOCK POWERS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered holder(s) of the Shares
tendered hereby, the signature(s) must correspond with the name(s) as written on
the face of the certificate(s) without alteration, enlargement or any change
whatsoever.
<PAGE>
If any of the Shares tendered hereby are held of record by two or more
joint owners, all such owners must sign this Letter of Transmittal.
If any of the tendered Shares are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any Share certificate or stock power is
signed by a trustee, executor, administrator, guardian, attorney-in-fact,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to Purchaser of the authority of such person so to act must be
submitted.
If this Letter of Transmittal is signed by the registered holder(s) of the
Shares listed and transmitted hereby, no endorsements of Share certificates or
separate stock powers are required unless payment or certificates for Shares not
tendered or not accepted for payment are to be issued in the name of a person
other than the registered holder(s). Signatures on any such Share certificates
or stock powers must be guaranteed by an Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered holder(s) of the Shares evidenced by certificates listed and
transmitted hereby, the Share certificates must be endorsed or accompanied by
appropriate stock powers, in either case signed exactly as the name(s) of the
registered holder(s) appear(s) on the Share certificates. Signature(s) on any
such Share certificates or stock powers must be guaranteed by an Eligible
Institution.
6. STOCK TRANSFER TAXES. Except as otherwise provided in this Instruction
6, Purchaser will pay all stock transfer taxes with respect to the transfer and
sale of any Shares to it or its order pursuant to the Offer. If, however,
payment of the purchase price of any Shares purchased is to be made to, or if
certificates for Shares not tendered or not accepted for payment are to be
registered in the name of, any person other than the registered holder(s), or if
tendered certificates are registered in the name of any person other than the
person(s) signing this Letter of Transmittal, the amount of any stock transfer
taxes (whether imposed on the registered holder(s) or such other person) payable
on account of the transfer to such other person will be deducted from the
purchase price of such Shares purchased unless evidence satisfactory to
Purchaser of the payment of such taxes, or exemption therefrom, is submitted.
Except as provided in this Instruction 6, it will not be necessary for
transfer tax stamps to be affixed to the Share certificates evidencing the
Shares tendered hereby.
7. SPECIAL PAYMENT AND DELIVERY INSTRUCTIONS. If a check for the purchase
price of any Shares accepted for payment is to be issued in the name of, and/or
Share certificates for Shares not accepted for payment or not tendered are to be
issued in the name of and/or returned to, a person other than the signer of this
Letter of Transmittal or if a check is to be sent, and/or such certificates are
to be returned, to a person other than the signer of this Letter of Transmittal,
or to an address other than that shown above, the appropriate boxes on this
Letter of Transmittal should be completed. Any stockholder(s) delivering Shares
by book-entry transfer may request that Shares not purchased be credited to such
account maintained at the Book-Entry Transfer Facility as such
stockholder(s) may designate in the box entitled "Special Payment Instructions."
If no such instructions are given, any such Shares not purchased will be
returned by crediting the account at the Book-Entry Transfer Facility designated
above as the account from which such Shares were delivered.
8. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Questions and requests
for assistance or additional copies of the Offer to Purchase, this Letter of
Transmittal, the Notice of Guaranteed Delivery and the Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 may be
directed to the Information Agent at its address and phone number set forth
below, or from brokers, dealers, commercial banks or trust companies.
9. WAIVER OF CONDITIONS. Subject to the Merger Agreement, Purchaser
reserves the absolute right in its sole discretion to waive, at any time or from
time to time, any of the specified conditions of the Offer, in whole or in part,
in the case of any Shares tendered.
10. BACKUP WITHHOLDING. In order to avoid "backup withholding" of federal
income tax on payments pursuant to the Offer, a stockholder surrendering Shares
in the Offer must, unless an exemption applies, provide the Depositary with such
stockholder's correct taxpayer identification number ("TIN") on Substitute Form
W-9 in this Letter of Transmittal and certify, under penalties of perjury, that
such TIN is correct and that such stockholder is not subject to backup
withholding.
Backup withholding is not an additional income tax. Rather, the amount of
the backup withholding can be credited against the federal income tax liability
of the person subject to the backup withholding, provided that the required
information is given to the IRS. If backup withholding results in an overpayment
of tax, a refund can be obtained by the stockholder upon filing an income tax
return.
The stockholder is required to give the Depositary the TIN (i.e., social
security number or employer identification number) of the record owner of the
Shares. If the Shares are held in more than one name or are not in the name of
the actual owner, consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
number to report.
The box in Part 3 of the Substitute Form W-9 may be checked if the
tendering stockholder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If the box in Part 3 is checked,
the stockholder or other payee must also complete the Certificate of Awaiting
Taxpayer Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 3 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Depositary will
withhold 31% on all payments made prior to the time a properly certified TIN is
provided to the Depositary. However, such amounts will be refunded to such
stockholder if a TIN is provided to the Depositary within 60 days.
Certain stockholders (including, among others, most corporations and
certain foreign individuals and entities) are not subject to backup withholding.
Noncorporate foreign stockholders should complete and sign the main signature
form and a Form W-8,
<PAGE>
Certificate of Foreign Status, a copy of which may be obtained from the
Depositary, in order to avoid backup withholding. See the enclosed "Guidelines
for Certification of Taxpayer Identification Number on Substitute Form W-9" for
more instructions.
11. LOST, DESTROYED OR STOLEN SHARE CERTIFICATES. If any
certificate(s) representing Shares has been lost, destroyed or stolen, the
stockholder should promptly notify the Depositary by checking the box
immediately preceding the special payment/special delivery instructions and
indicating the number of Shares lost. The stockholder will then be instructed as
to the steps that must be taken in order to replace the Share certificate(s).
This Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Share certificates have been
followed.
IMPORTANT: THIS LETTER OF TRANSMITTAL (OR FACSIMILE HEREOF) TOGETHER WITH
ANY REQUIRED SIGNATURE GUARANTEES, OR, IN THE CASE OF A BOOK-ENTRY TRANSFER, AN
AGENT'S MESSAGE, AND ANY OTHER REQUIRED DOCUMENTS, MUST BE RECEIVED BY THE
DEPOSITARY PRIOR TO THE EXPIRATION DATE AND EITHER CERTIFICATES FOR TENDERED
SHARES MUST BE RECEIVED BY THE DEPOSITARY OR SHARES MUST BE DELIVERED PURSUANT
TO THE PROCEDURES FOR BOOK-ENTRY TRANSFER, IN EACH CASE PRIOR TO THE EXPIRATION
DATE, OR THE TENDERING STOCKHOLDER MUST COMPLY WITH THE PROCEDURES FOR
GUARANTEED DELIVERY.
IMPORTANT TAX INFORMATION
Under Federal income tax law, a stockholder whose tendered Shares are
accepted for payment is required to provide the Depositary (as payer) with such
stockholder's correct taxpayer identification number on Substitute Form W-9
below. If such stockholder is an individual, the taxpayer identification number
is his social security number. If a tendering stockholder is subject to backup
withholding, such stockholder must cross out item (2) of Part 2 (the
Certification box) on the Substitute Form W-9. If the Depositary is not provided
with the correct taxpayer identification number, the stockholder may be subject
to a $50 penalty imposed by the Internal Revenue Service. In addition, payments
that are made to such stockholder with respect to Shares purchased pursuant to
the Offer may be subject to backup withholding.
Certain stockholders (including, among others, most corporations, and
certain foreign individuals) are not subject to these backup withholding and
reporting requirements. In order for a foreign individual to qualify as an
exempt recipient, that stockholder must submit a statement, signed under
penalties of perjury, attesting to that individual's exempt status. Such
statements can be obtained from the Depositary. Exempt stockholders, other than
foreign individuals, should furnish their TIN, write "Exempt" on the face of the
Substitute Form W-9 below, and sign, date and return the Substitute Form W-9 to
the Depositary. See the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31%
of any payments made to the stockholder. Backup withholding is not an additional
tax. Rather, the tax liability of persons subject to backup withholding will be
reduced by the amount of tax withheld. If withholding results in an overpayment
of taxes, a refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on payments that are made to a stockholder
with respect to Shares purchased pursuant to the Offer, the stockholder is
required to notify the Depositary of such stockholder's correct taxpayer
identification number by completing the form contained herein certifying that
the taxpayer identification number provided on Substitute Form W-9 is correct
(or that such stockholder is awaiting a taxpayer identification number).
WHAT NUMBER TO GIVE THE DEPOSITARY
The stockholder is required to give the Depositary the social security
number or employer identification number of the record owner of the Shares. If
the Shares are in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report. If the tendering stockholder has not been issued a TIN and has applied
for a number or intends to apply for a number in the near future, such
stockholder should write "Applied For" in the space provided for in the TIN in
Part 1, and sign and date the Substitute Form W-9. If "Applied For" is written
in Part 1 and the Depositary is not provided with a TIN within sixty (60) days,
the Depositary will withhold 31% on all payments of the purchase price until a
TIN is provided to the Depositary.
<PAGE>
PAYER'S NAME: CHASE MELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ______________________________
CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
(If awaiting TIN write
"Applied For")
FORM W-9
OR
DEPARTMENT OF THE TREASURY
INTERNAL REVENUE SERVICE ______________________________
Employer Identification Number
PAYER'S REQUEST FOR (If awaiting TIN write
TAXPAYER "Applied For")
IDENTIFICATION
NUMBER (TIN) --------------------------------------------------------------------------------------------------------
PART 2--Certificate -- Under penalties of perjury, I certify that:
(1) The number shown on this form is my correct Taxpayer Identification Number (or I am
waiting for a number to be issued for me), and
(2) I am not subject to backup withholding because: (a) I am exempt from backup withholding,
or (b) I have not been notified by the Internal Revenue Service (the "IRS") that I am
subject to backup withholding as a result of a failure to report all interest or
dividends, or (c) the IRS has notified me that I am no longer subject to backup
withholding.
--------------------------------------------------------------------------------------------------------
CERTIFICATION INSTRUCTIONS -- You must cross out item (2) above if you have been notified by
the IRS that you are currently subject to backup withholding because of under-reporting
interest or dividends on your tax returns. However, if after being notified by the IRS that
you are subject to backup withholding, you receive another notification from the IRS that
you are no longer subject to backup withholding, do not cross our such item (2). (Also see
instructions in the enclosed Guidelines).
--------------------------------------------------------------------------------------------------------
SIGNATURE ____________________ DATE ____________ , 1998 PART 3 -- Awaiting TIN / /
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF THE SUBSTITUTE FORM W-9.
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a Taxpayer Identification Number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a Taxpayer Identification Number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a Taxpayer Identification Number to the Depositary by the time of
payment, 31% of all reportable payments made to me thereafter will be withheld,
but that such amounts will be refunded to me if I provide a certified Taxpayer
Identification Number to the Depositary within sixty (60) days.
SIGNATURE ___________________________ DATE ______________________________, 199
- --------------------------------------------------------------------------------
Questions and requests for assistance or additional copies of the Offer to
Purchase, this Letter of Transmittal and other tender offer materials may be
directed to the Information Agent at its address and telephone number set forth
below:
The Information Agent for the Offer is:
D.F. KING & CO., INC.
77 Water Street
New York, New York 10005
(800) 431-9629 (TOLL FREE)
The Dealer Manager for the Offer is:
BEAR, STEARNS & CO. INC.
245 Park Avenue
New York, New York 10167
(800) 513-BEAR (TOLL FREE)
(800) 513-2327
<PAGE>
NOTICE OF GUARANTEED DELIVERY
FOR
TENDER OF SHARES OF
COMMON STOCK AND SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
TO
HSC ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY OF
AMES DEPARTMENT STORES, INC.
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 16, 1998 UNLESS THE OFFER IS EXTENDED.
This Notice of Guaranteed Delivery, or a form substantially equivalent
hereto, must be used to accept the Offer (as defined below) if certificates
representing shares of (i) common stock, par value $0.01 per share (the "Common
Stock"), including the preferred stock purchase rights associated therewith
issued pursuant to the Rights Agreement (as defined in the Offer to Purchase)
(the "Rights" and, together with the Common Stock, the "Common Shares"), and/or
(ii) Series A convertible preferred stock, par value $0.10 per share (the
"Preferred Stock"), including the associated Rights (the Preferred Stock,
together with the associated Rights, the "Preferred Shares"; and, together with
the Common Shares, the "Shares") of Hills Stores Company, a Delaware corporation
(the "Company"), are not immediately available, if the procedure for book-entry
transfer cannot be completed prior to the Expiration Date (as defined in
Section 1 of the Offer to Purchase), or if time will not permit all required
documents to reach the Depositary prior to the Expiration Date. Such form may be
delivered by hand, transmitted by facsimile transmission or mailed to the
Depositary. See Section 3 of the Offer to Purchase.
The Depositary for the Offer is:
CHASEMELLON SHAREHOLDER SERVICES, L.L.C.
<TABLE>
<S> <C> <C>
By Mail: By Hand: By Overnight Delivery
ChaseMellon Shareholder ChaseMellon Shareholder ChaseMellon Shareholder
Services, L.L.C. Services, L.L.C. Services, L.L.C.
Post Office Box 3301 120 Broadway--13th Floor 85 Challenger Road
South Hackensack, NJ 07606 New York, NY 10271 Ridgefield Park, NJ 07660
Attn: Reorganization Department Attn: Reorganization Department Mail Drop: Reorganization Department
(registered or certified
mail recommended) By Facsimile Transmission:
(For Eligible Institutions Only)
(201) 296-4293
Confirm By Telephone:
(201) 296-4860
</TABLE>
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF INSTRUCTIONS VIA FACSIMILE NUMBER OTHER THAN
AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
This form is not to be used to guarantee signatures. If a signature on a
Letter of Transmittal is required to be guaranteed by an "Eligible Institution"
under the instructions thereto, such signature guarantee must appear in the
applicable space provided in the signature box on the Letter of Transmittal.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
THE GUARANTEE ON THE REVERSE SIDE MUST BE COMPLETED.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to HSC Acquisition Corp., a Delaware
corporation ("Purchaser") and a wholly-owned subsidiary of Ames Department
Stores, Inc., a Delaware Corporation ("Parent"), upon the terms and subject to
the conditions set forth in Purchaser's Offer to Purchase, dated November 18,
1998 (the "Offer to Purchase"), and the related Letter of Transmittal (which,
together with any amendments or supplements thereto, constitute the "Offer"),
receipt of which is hereby acknowledged, the number of shares set forth below of
(i) common stock, par value $0.01 per share (the "Common Stock"), including the
preferred stock purchase rights associated therewith issued pursuant to the
Rights Agreement (as defined in the Offer to Purchase)(the "Rights" and,
together with the Common Stock, the "Common Shares"), and/or (ii) Series A
convertible preferred stock, par value $0.10 per share (the "Preferred Stock"),
including the associated Rights (the Preferred Stock, together with the
associated Rights, the "Preferred Shares"; and, together with the Common Shares,
the "Shares"), of Hills Stores Company, a Delaware corporation (the "Company"),
pursuant to the guaranteed delivery procedures set forth in Section 3 of the
Offer to Purchase.
Number of Common Shares:________________________________________________________
Number of Preferred Shares:_____________________________________________________
Certificate Nos. (if available):
________________________________________________________________________________
________________________________________________________________________________
Check box if Shares will be tendered by book-entry transfer: / /
Account Number: ________________________________________________________________
Dated: ____________________________________________________________________, 199
Name(s) of Record Holder(s):____________________________________________________
________________________________________________________________________________
________________________________________________________________________________
PLEASE PRINT
Address(es):____________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
ZIP CODE
Area Code and Tel. No.:
________________________________________________________________________________
________________________________________________________________________________
Signature(s):___________________________________________________________________
________________________________________________________________________________
GUARANTEE
(NOT TO BE USED FOR SIGNATURE GUARANTEES)
The undersigned, a participant in the Security Transfer Agents Medallion
Program, the New York Stock Exchange Medallion Signature Guarantee Program or
the Stock Exchange Medallion Program, guarantees to deliver to the Depositary
either certificates representing the Shares tendered hereby, in proper form for
transfer, or confirmation of book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company, in each case with delivery
of a properly completed and duly executed Letter of Transmittal (or facsimile
thereof), with any required signature guarantees, or an Agent's Message, and any
other documents required by the Letter of Transmittal, within three trading days
(as defined in the Offer to Purchase) after the date hereof.
The Eligible Institution that completes this form must communicate the
guarantee to the Depositary and must deliver the Letter of Transmittal and
certificates for Shares to the Depositary within the time period shown herein.
Failure to do so could result in a financial loss to such Eligible Institution.
Name of Firm: ________________________________
Address: _____________________________________
______________________________________________
______________________________________________
ZIP CODE
Area Code & Tel. No.: ________________________
______________________________________________
Authorized Signature
Name:
________________________________________
Please Print
Date: ___________________________________, 199
DO NOT SEND CERTIFICATES FOR SHARES WITH THIS NOTICE. CERTIFICATES SHOULD BE
SENT ONLY WITH YOUR LETTER OF TRANSMITTAL.
________________________________________________________________________________
<PAGE>
BEAR, STEARNS & CO. INC.
245 PARK AVENUE
NEW YORK, NEW YORK 10167
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
AND ALL OUTSTANDING SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
AT
$1.50 NET PER SHARE IN CASH
PLUS
A DEFERRED CONTINGENT CASH RIGHT
(AS DESCRIBED IN THE OFFER TO PURCHASE REFERRED TO HEREIN)
BY
HSC ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY
OF
AMES DEPARTMENT STORES, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
November 18, 1998
To Brokers, Dealers, Commercial Banks,
Trust Companies and Other Nominees:
We have been engaged by HSC Acquisition Corp., a Delaware corporation
("Purchaser") and wholly-owned subsidiary of Ames Department Stores, Inc., a
Delaware corporation ("Parent"), to act as Dealer Manager in connection with
Purchaser's offer to purchase all outstanding shares of (i) common stock, par
value $0.01 per share (the "Common Stock"), including the preferred stock
purchase rights associated therewith issued pursuant to the Rights Agreement (as
defined in the Offer to Purchase) (the "Rights" and, together with the Common
Stock, the "Common Shares"), and (ii) series A convertible preferred stock, par
value $0.10 per share (the "Preferred Stock"), including the associated Rights
(the Preferred Stock, together with the associated Rights, the "Preferred
Shares"; and, together with the Common Shares, the "Shares") of Hills Stores
Company, a Delaware corporation (the "Company"), at a price of $1.50 per Share,
net to the seller in cash, without interest, plus a Deferred Contingent Cash
Right (as described in the Offer to Purchase) upon the terms and subject to the
conditions set forth in the Offer to Purchase, dated November 18, 1998 (the
"Offer to Purchase"), and in the related Letter of Transmittal (which, together
with any amendments or supplements thereto, constitute the "Offer") enclosed
herewith. Please furnish copies of the enclosed materials to those of your
clients for whose accounts you hold Shares registered in your name or in the
name of your nominee.
The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the Offer
to Purchase) that number of Shares which, when added to the Shares beneficially
owned by Parent, Purchaser or any of their affiliates (if any), constitutes at
least 60% of the then outstanding Shares on the date Shares are accepted for
payment. The Offer is also subject to the other conditions set forth in the
Offer to Purchase. See the Introduction and Sections 1 and 14 of the Offer to
Purchase.
For your information and for forwarding to your clients for whom you hold
Shares registered in your name or in the name of your nominee, we are enclosing
the following documents:
1. Offer to Purchase dated November 18, 1998;
2. Letter of Transmittal for your use in accepting the Offer and
tendering Shares and for the information of your clients;
<PAGE>
3. Notice of Guaranteed Delivery to be used to accept the Offer if
certificates for Shares and all other required documents cannot be
delivered to the Depositary, or if the procedures for book-entry transfer
cannot be completed, by the Expiration Date (as defined in the Offer to
Purchase);
4. A letter which may be sent to your clients for whose accounts you
hold Shares registered in your name or in the name of your nominee, with
space provided for obtaining such clients' instructions with regard to the
Offer;
5. A letter to stockholders of the Company from Chaim Y. Edelstein,
the Chairman of the Board and Chief Executive Officer of the Company,
together with a Solicitation/Recommendation Statement on Schedule 14D-9
dated November 18, 1998, which has been filed by the Company with the
Securities and Exchange Commission;
6. Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9; and
7. A return envelope addressed to ChaseMellon Shareholder Services,
L.L.C., Post Office Box 3301, South Hackensack, New Jersey 07606, ATTN:
Reorganization Department (the "Depositary").
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment), Purchaser will accept for payment and pay for Shares which are
validly tendered prior to the Expiration Date and not theretofore properly
withdrawn when, as and if Purchaser gives oral or written notice to the
Depositary of Purchaser's acceptance of such Shares for payment pursuant to the
Offer. Payment for Shares purchased pursuant to the Offer will in all cases be
made only after timely receipt by the Depositary of (i) certificates for such
Shares, or timely confirmation of a book-entry transfer of such Shares into the
Depositary's account at The Depository Trust Company, pursuant to the procedures
described in Section 3 of the Offer to Purchase, (ii) a properly completed and
duly executed Letter of Transmittal (or a properly completed and manually signed
facsimile thereof) or an Agent's Message (as defined in the Offer to Purchase)
in connection with a book-entry transfer and (iii) all other documents required
by the Letter of Transmittal.
Purchaser will not pay any fees or commissions to any broker or dealer or
other person (other than the Dealer Manager, the Depositary and the Information
Agent as described in the Offer to Purchase) for soliciting tenders of Shares
pursuant to the Offer. Purchaser will, however, upon request, reimburse brokers,
dealers, commercial banks and trust companies for customary mailing and handling
costs incurred by them in forwarding the enclosed materials to their customers.
Purchaser will pay or cause to be paid all stock transfer taxes applicable
to its purchase of Shares pursuant to the Offer, subject to Instruction 6 of the
Letter of Transmittal.
WE URGE YOU TO CONTACT YOUR CLIENTS AS PROMPTLY AS POSSIBLE. PLEASE NOTE
THAT THE OFFER AND WITHDRAWAL RIGHTS EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED.
In order to take advantage of the Offer, a duly executed and properly
completed Letter of Transmittal (or facsimile thereof), with any required
signature guarantees, or an Agent's Message in connection with a book-entry
transfer of Shares, and any other required documents, should be sent to the
Depositary, and certificates representing the tendered Shares should be
delivered or such Shares should be tendered by book-entry transfer, all in
accordance with the Instructions set forth in the Letter of Transmittal and in
the Offer to Purchase.
If holders of Shares wish to tender, but it is impracticable for them to
forward their certificates or other required documents or to complete the
procedures for delivery by book-entry transfer prior to the expiration of the
Offer, a tender may be effected by following the guaranteed delivery procedures
specified in Section 3 of the Offer to Purchase.
Any inquiries you may have with respect to the Offer should be addressed
to, and additional copies of the enclosed materials may be obtained from, the
Dealer Manager or the Information Agent at their addresses and telephone numbers
set forth on the back cover of the Offer to Purchase.
Very truly yours,
BEAR, STEARNS & CO. INC.
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU THE
AGENT OF PURCHASER, PARENT, THE COMPANY, THE DEALER MANAGER, THE INFORMATION
AGENT, THE DEPOSITARY, OR ANY AFFILIATE OF ANY OF THE FOREGOING, OR AUTHORIZE
YOU OR ANY OTHER PERSON TO USE ANY DOCUMENT OR MAKE ANY STATEMENT ON BEHALF OF
ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE DOCUMENTS ENCLOSED
HEREWITH AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
OFFER TO PURCHASE
ALL OUTSTANDING SHARES OF COMMON STOCK
AND ALL OUTSTANDING SHARES OF SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
AT
$1.50 NET PER SHARE IN CASH
PLUS
A DEFERRED CONTINGENT CASH RIGHT
(AS DESCRIBED IN THE OFFER TO PURCHASE REFERRED TO HEREIN)
BY
HSC ACQUISITION CORP.,
A WHOLLY-OWNED SUBSIDIARY
OF
AMES DEPARTMENT STORES, INC.
- --------------------------------------------------------------------------------
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED.
- --------------------------------------------------------------------------------
November 18, 1998
To Our Clients:
Enclosed for your consideration are the Offer to Purchase, dated
November 18, 1998 (the "Offer to Purchase"), and the related Letter of
Transmittal (which, together with any amendments or supplements thereto,
collectively constitute the "Offer") in connection with the offer by HSC
Acquisition Corp., a Delaware corporation ("Purchaser") and wholly-owned
subsidiary of Ames Department Stores, Inc., a Delaware corporation ("Parent"),
to purchase for cash all outstanding shares of (i) common stock, par value $0.01
per share (the "Common Stock"), including the preferred stock purchase rights
associated therewith issued pursuant to the Rights Agreement (as defined in the
Offer to Purchase) (the "Rights" and, together with the Common Stock, the
"Common Shares"), and (ii) series A convertible preferred stock, par value $0.10
per share (the "Preferred Stock"), including the associated Rights (the
Preferred Stock, together with the associated Rights, the "Preferred Shares";
and, together with the Common Shares, the "Shares"), of Hills Stores Company, a
Delaware corporation (the "Company"), at a purchase price of $1.50 per Share,
net to you in cash, plus a Deferred Contingent Cash Right (as described in the
Offer to Purchase). WE ARE THE HOLDER OF RECORD OF SHARES HELD FOR YOUR ACCOUNT.
A TENDER OF SUCH SHARES CAN BE MADE ONLY BY US AS THE HOLDER OF RECORD AND
PURSUANT TO YOUR INSTRUCTIONS. THE ENCLOSED LETTER OF TRANSMITTAL IS FURNISHED
TO YOU FOR YOUR INFORMATION ONLY AND CANNOT BE USED BY YOU TO TENDER SHARES HELD
BY US FOR YOUR ACCOUNT.
We request instructions as to whether you wish us to tender any or all of
the Shares held by us for your account, upon the terms and subject to the
conditions set forth in the Offer.
Your attention is invited to the following:
1. The offer price is $1.50 per Share, net to you in cash, without
interest, plus a Deferred Contingent Cash Right (as described in the Offer to
Purchase).
2. The Offer is being made for all outstanding Shares.
<PAGE>
3. The Board of Directors of the Company has unanimously approved the
Merger Agreement (as defined in the Offer to Purchase) and the transactions
contemplated thereby, including the Offer and the Merger (each as defined in the
Offer to Purchase), and has unanimously determined that the Offer and the Merger
are fair to, and in the best interests of, the Company's stockholders and
unanimously recommends that the stockholders accept the Offer and tender their
Shares pursuant to the Offer.
4. The Offer and withdrawal rights expire at 12:00 Midnight, New York City
time, on Wednesday, December 16, 1998, unless the Offer is extended.
5. The Offer is conditioned upon, among other things, there being validly
tendered and not withdrawn prior to the Expiration Date (as defined in the Offer
to Purchase) that number of Shares which, when added to the Shares beneficially
owned by Parent, Purchaser or any of their affiliates (if any), constitutes at
least 60% of the then outstanding Shares on the date Shares are accepted for
payment. The Offer is also subject to the other conditions set forth in the
Offer to Purchase. See the Introduction and Sections 1 and 14 of the Offer to
Purchase.
6. Any stock transfer taxes applicable to the sale of Shares to Purchaser
pursuant to the Offer will be paid by Purchaser, except as otherwise provided in
Instruction 6 of the Letter of Transmittal.
Except as disclosed in the Offer to Purchase, Purchaser is not aware of any
state in which the making of the Offer is prohibited by administrative or
judicial action pursuant to any valid state statute. In any jurisdiction in
which the securities, blue sky or other laws require the Offer to be made by a
licensed broker or dealer, the Offer will be deemed to be made on behalf of
Purchaser by one or more registered brokers or dealers licensed under the laws
of such jurisdiction.
If you wish to have us tender any or all of your Shares, please so instruct
us by completing, executing and returning to us the instruction form set forth
on the reverse side of this letter. An envelope to return your instructions to
us is enclosed. If you authorize the tender of your Shares, all such Shares will
be tendered unless otherwise specified on the reverse side of this letter. Your
instructions should be forwarded to us in ample time to permit us to submit a
tender on your behalf prior to the expiration of the Offer.
2
<PAGE>
INSTRUCTIONS WITH RESPECT TO THE
OFFER TO PURCHASE FOR CASH
ALL OUTSTANDING SHARES OF COMMON STOCK
AND SERIES A CONVERTIBLE PREFERRED STOCK
(INCLUDING, IN EACH CASE, THE ASSOCIATED PREFERRED STOCK PURCHASE RIGHTS)
OF
HILLS STORES COMPANY
The undersigned acknowledge(s) receipt of your letter and the enclosed
Offer to Purchase dated November 18, 1998 and the related Letter of Transmittal
in connection with the Offer by HSC Acquisition Corp., a Delaware corporation
("Purchaser") and wholly-owned subsidiary of Ames Department Stores, Inc., a
Delaware corporation ("Parent"), to purchase all outstanding shares of
(i) common stock, par value $0.01 per share (the "Common Stock"), including the
preferred stock purchase rights associated therewith issued pursuant to the
Rights Agreement (as defined in the Offer to Purchase) (the "Rights" and,
together with the Common Stock, the "Common Shares"), and (ii) series A
convertible preferred stock, par value $0.10 per share (the "Preferred Stock"),
including the associated Rights (the Preferred Stock, together with the
associated Rights, the "Preferred Shares"; and, together with the Common Shares,
the "Shares"), of Hills Stores Company, a Delaware corporation.
This will instruct you to tender the number of Shares indicated below (or
if no number is indicated below, all Shares) held by you for the account of the
undersigned, upon the terms and subject to the conditions set forth in the
Offer.
Number of Common Shares to be Tendered:*
_________
Number of Preferred Shares to be Tendered:*
_________
Dated: ___________________________, 199 ______________________________________
______________________________________
Signature(s)
______________________________________
Print Name(s)
______________________________________
______________________________________
Address(es)
______________________________________
Area Code and Telephone Number
______________________________________
Tax ID or Social Security Number
___________________
* Unless otherwise indicated, it will be assumed that all Shares held by us for
your account are to be tendered.
<PAGE>
Exhibit 99(a)6
GUIDELINES FOR CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9
Guidelines for Determining the Proper Identification Number to Give the Payer.
- -- Social Security numbers have nine digits separated by two hyphens: i.e.
000-00-0000. Employer identification numbers have nine digits separated by only
one hyphen: i.e. 00-0000000. The table below will help determine the number to
give the payer.
<TABLE>
<CAPTION>
Give the EMPLOYER
Give the SOCIAL IDENTIFICATION number
For this type of account: SECURITY number of - For this type of account: of -
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
1. An individual's account The individual 9. A valid trust, estate, or The legal entity (Do not
pension trust furnish the identifying
number of the personal
representative or trustee
unless the legal entity
itself is not designated
in the account title)(5)
2. Two or more individuals (joint The actual owner of the 10. Corporate account The corporation
account) account or, if combined
funds, any one of the
individuals(1)
3. Husband and wife (joint The actual owner of the 11. Religious, charitable, or The organization
account) account or, if joint educational organization
funds, either person(1) account
4. Custodian account of a minor The minor(2) 12. Partnership account held in The partnership
(Uniform Gift to Minors Act) the name of the business
5. Adult and minor (joint account) The adult or, if the 13. Association, club, or other The organization
minor is the only tax-exempt organization
contributor, the minor(1)
6. Account in the name of The ward, minor, or 14. A broker or registered The broker or nominee
guardian or committee for a incompetent person(3) nominee
designated ward, minor, or
incompetent person
7. a. The usual revocable savings The grantor-trustee(1) 15. Account with the Department of The public entity
trust account (grantor is also Agriculture in the name of a
trustee) public entity (such as a state
b. So-called trust account that is The actual owner(1) or local government, school
not a legal or valid trust under district, or prison) that
State law receives agricultural program
payments
8. Sole proprietorship account The owner(4)
</TABLE>
(1) List first and circle the name of the person whose number you furnish.
(2) Circle the minor's name and furnish the minor's social security number.
(3) Circle the ward's, minor's or incompetent person's name and furnish such
person's social security number.
(4) Show the name of the owner.
(5) List first and circle the name of the legal trust, estate, or pension trust.
Note: If no name is circled when there is more than one name, the number will be
considered to be that of the first name listed.
<PAGE>
GUIDELINES FOR CERTIFICATE OF TAXPAYER IDENTIFICATION
NUMBER ON SUBSTITUTE FORM W-9
OBTAINING A NUMBER
If you don't have a taxpayer identification number or you don't know your
number, obtain Form SS-5, Application for a Social Security Number Card, or Form
SS-4, Application for Employer Identification Number, at the local office of the
Social Security Administration or the Internal Revenue Service and apply for a
number.
PAYEES EXEMPT FROM BACKUP WITHHOLDING
Payees specifically exempted from backup withholding on ALL payments include the
following:
o A corporation.
o A financial institution.
o An organization exempt from tax under section 501(a), or an individual
retirement plan.
o The United States or any agency or instrumentality thereof.
o A State, the District of Columbia, a possession of the United States,
or any subdivision or instrumentality thereof.
o A foreign government, a political subdivision of a foreign government,
or any agency or instrumentality thereof.
o An international organization or any agency, or instrumentality
thereof.
o A registered dealer in securities or commodities registered in the
U.S. or a possession of the U.S.
o A real estate investment trust.
o A common trust fund operated by a bank under section 584(a).
o An exempt charitable remainder trust, or a non-exempt trust described
in section 4947(a)(1).
o An entity registered at all times under the Investment Company Act of
1940.
o A foreign central bank of issue.
Payments of dividends and patronage dividends not generally subject to backup
withholding include the following:
o Payments to nonresident aliens subject to withholding under section
1441.
o Payments to partnerships not engaged in a trade or business in the
U.S. and which have at least one nonresident partner.
o Payments of patronage dividends when the amount received is not paid
in money.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Payments of interest not generally subject to backup withholding include the
following:
o Payments of interest on obligations issued by individuals. Note: You
may be subject to backup withholding if this interest is $600 or more
and is paid in the course of the payer's trade or business and you
have not provided your correct taxpayer identification number to the
payer.
o Payments of tax-exempt interest (including exempt-interest dividends
under section 852).
o Payments described in section 6049(b)(5) to non-resident aliens.
o Payments on tax-free covenant bonds under section 1451.
o Payments made by certain foreign organizations.
o Payments made to a nominee.
Exempt payees described above should file Form W-9 to avoid possible erroneous
backup withholding. FILE THIS FORM WITH THE PAYER, FURNISH YOUR TAXPAYER
IDENTIFICATION NUMBER, WRITE "EXEMPT" ON THE FACE OF THE FORM, AND RETURN IT TO
THE PAYER. ALSO SIGN AND DATE THE FORM.
Certain payments other than interest, dividends, and patronage dividends, that
are not subject to information reporting are also not subject to backup
withholding. For details, see the regulations under sections 6041, 6041A(a),
6045 and 6050A.
PRIVACY ACT NOTICE.--Section 6019 requires most recipients of dividend,
interest, or other payments to give taxpayer identification numbers to payers
who must report the payments to the IRS. The IRS uses the numbers for
identification purposes. Payers must be given the numbers whether or not
recipients are required to file tax returns. Payment must generally withhold 31%
of taxable interest, dividend, and certain other payments to a payee who does
not furnish a taxpayer identification number to a payer. Certain penalties may
also apply.
PENALTIES
(1) PENALTY FOR FAILURE TO FURNISH TAXPAYER IDENTIFICATION NUMBER.--If
you fail to furnish your taxpayer identification number to a payer, you are
subject to a penalty of $50 for each such failure unless your failure is due to
reasonable cause and not to willful neglect.
(2) CIVIL PENALTY FOR FALSE INFORMATION WITH RESPECT TO WITHHOLDING.--If you
make a false statement with no reasonable basis which results in no imposition
of backup withholding, you are subject to a penalty of $500.
(3) CRIMINAL PENALTY FOR FALSIFYING INFORMATION.--Falsifying certifications or
affirmations may subject you to criminal penalties including fines and/or
imprisonment.
FOR ADDITIONAL INFORMATION CONTACT YOUR TAX CONSULTANT OR THE INTERNAL REVENUE
SERVICE.
<PAGE>
For Immediate Release
AMES TO ACQUIRE HILLS,
CREATING NATION'S 4TH LARGEST DISCOUNT RETAILER
-Tender for Equity, Debt Values Hills at Approximately $330 Million-
ROCKY HILL, CT, and CANTON, MA, November 12, 1998 - Ames Department Stores,
Inc. (NASDAQ: AMES), the largest discount retailer in the Northeast, and
Hills Stores Company (NYSE: HDS) today jointly announced the signing of a
definitive agreement in which Ames would acquire Hills in a transaction that
values Hills at approximately $330 million, including the assumption of
capitalized lease obligations and other debt. The Boards of Directors of
both companies have unanimously approved the transaction.
Under the terms of the transaction, Ames will commence a tender offer for
all 11.2 million outstanding common shares, including the Series A
convertible preferred stock, at a price of $1.50 per share; and a separate
tender offer at $550 (including accrued interest) per $1000 principal
amount, including a consent fee for the 12 1/2 % Senior Notes due 2003, of
which there are $195 million outstanding. Ames will also share with Hills
noteholders and stockholders a potential recovery in the form of deferred
contingent cash rights with regard to litigation initiated by Hills against
certain of Hills' former directors. These deferred contingent cash rights
will be divided as follows: 50% noteholders, 25% equity holders, and 25%
Ames.
The transaction is contingent, among other things, on each of the following:
the tender of at least 60% of the combined common and preferred equity, the
tender of at least 66 2/3% of the notes and the consent of at least 66 2/3%
of the notes to the modification or elimination of certain covenants. The
tender offers are expected to commence on or before November 18, 1998. If
any of the Senior Notes remain outstanding subsequent to the completion of
the debt tender offer, the majority of the existing covenants of the
untendered notes will have been eliminated. The transaction is expected to
close prior to the end of December 1998. The closing of the transaction is
contingent on regulatory approval and other customary closing conditions.
-more-
<PAGE>
2
"The acquisition of Hills presents an attractive opportunity for Ames,
provided that we can complete the transaction at the price and on the terms
to which we have agreed," said Joseph R. Ettore, Chief Executive Officer of
Ames Department Stores, Inc.
Upon completion of the combination, the number of Ames stores will increase
by approximately 50% and create the fourth largest discount retailer in the
nation. The combined company will have sales in excess of $4.0 billion. This
transaction will strengthen the Ames market position in the Northeast and
Mid-Atlantic states and allow the company to expand into new markets in the
Midwest.
Chaim Y. Edelstein, Chairman and CEO of Hills, said, "Hills employees have
worked very hard over the years. While it is difficult to sell something
that our people have strived so diligently to support, our board has
determined that the Ames transaction is in the best interest of our
securities holders and customers. When the time comes, I know our management
and our people will do all they can to ensure a smooth transition."
In connection with the transaction, Ames intends to initiate a $170 million
remodeling program for the acquired Hills stores to convert them into Ames
stores. The remodeling program will be implemented over nine months with
staggered store closings. It is expected that most or all of the Hills
management and associates in the acquired stores will be offered new
positions with Ames.
"During the past few years, Ames has made a commitment to providing
exemplary customer service through our A+ Service program, and to harnessing
technologies that improve distribution and point-of-sale efficiency. Also,
we've looked to foster hometown values through our 55 Gold Program(R) -- a
discount program for customers 55 years and older, our Special Buy Program,
and through active involvement in the communities in which we operate," said
Mr. Ettore. "We intend to take these initiatives that have been so
successful at Ames and implement them in the existing Hills store locations
upon conversion."
-more-
<PAGE>
3
Bear Stearns & Co. is serving as financial advisor to Ames on the
transaction and will act as dealer manager for the equity and debt tender
offers. Warburg Dillon Read is acting as exclusive financial advisor to
Hills on the transaction. BankAmerica Business Credit, Inc. is the agent
providing the financing for the transaction.
Hills Stores Company is a leading discount retailer operating 155 stores in
12 Northeastern, Mid-Western and Mid-Atlantic states.
With $2.2 billion in annual net sales, Ames Department Stores, Inc. operates
301 stores in 14 Northeastern, Middle Atlantic and Midwestern states and the
District of Columbia. Ames is a full-line discount retailer, offering a
broad range of merchandise categories including family apparel, housewares,
domestics, electronics, ready-to-assemble and patio furniture, jewelry,
craft and pet supplies, health and beauty care items, stationery, sporting
goods, toys, seasonal products and more.
NOTE: This press release may contain forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Although each company believes its plans are based upon
reasonable assumptions as of the current date, they can give no assurance
that any expectations will be attained. Factors that could cause actual
results to differ materially from expectations include: general business and
economic conditions, weather, competitive factors, pricing, and fluctuations
in consumer demand.
# # #
Contacts:
For Ames Department Stores, Inc:
Rolando de Aguiar Owen Blicksilver
Executive Vice President and Chief Financial Officer Managing Director
Ames Department Stores, Inc. Dewe Rogerson Inc.
(860) 257-5317 (212) 419-4283
For Hills Stores Company:
William K Friend Kathleen Obert
Senior Vice President and General Counsel Senior Vice President
Hills Stores Company Edward Howard & Co.
(781) 821-1000 (216) 781-2400
Editor's Note: A conference call for the Media will be held at Noon Eastern
time. To participate, please call ten minutes before the call on
1-913-981-4910. Confirmation #575005.
<PAGE>
For Immediate Release
AMES FILES WITH SEC TO LAUNCH TENDER OFFER
FOR HILLS COMMON, PREFERRED AND NOTES
ROCKY HILL, CT, November 18, 1998 -- Ames Department Stores, Inc. (NASDAQ: AMES)
today filed with the Securities and Exchange Commission a Form 14D-1 and
documents related to its previously announced offer to purchase all of the
outstanding common and Series A convertible preferred stock and the 12-1/2%
Senior Notes due 2003 of Hills Stores Company (NYSE: HDS) pursuant to its Merger
Agreement with Hills.
According to the filing, Ames will offer:
o $1.50 per share for all outstanding common and preferred stock, under
the condition that at least 60% of the outstanding shares of Hills
are tendered.
o Total cash consideration of $550 per $1000 principal amount of the
Notes. The cash consideration includes both accrued and unpaid
interest, up to but not including the payment date, as well as a fee
for the consent of the noteholders to a proposed waiver of certain
Indenture provisions with respect to the Notes. A cash payment of $30
per $1000 principal amount of Notes is contingent on delivery of
consents on or before the Consent Date, currently December 1. Unless
the Consent Date is extended, the consent payment will be deducted
for noteholders tendering after that time, reducing total cash
consideration to $520 per $1000 principal amount.
<PAGE>
Should the tender offer be further extended so that the January 1
interest payment on the Notes is paid, that payment will also be
deducted from the purchase price. At least 66-2/3% of the Notes must be
tendered.
o A Deferred Contingent Cash Right related to any recovery from
litigation claims against certain former directors of Hills. These
rights will be divided as follows: 50% noteholders, 25% equity holders,
and 25% Ames.
Ames said it will begin mailing documents related to the tender offer and
solicitation to Hills securities owners today.
Bear, Stearns & Co. Inc. is acting as the dealer manager for the equity and debt
tender offers. Any questions concerning the debt tender offer or solicitation of
consents may be directed to Bear, Stearns & Co. Inc., Liability Management
Group, at (877) 696-BEAR (toll free). Questions with respect to the equity
tender offer can be directed to Bear, Stearns & Co. Inc., at (800) 513-BEAR
(toll free). Requests for assistance to complete documents may be directed to
D.F. King & Co., Inc., the Information Agent, at (800) 755-3107 (toll free).
With $2.2 billion in annual net sales, Ames Department Stores, Inc. operates 301
stores in 14 Northeastern, Middle Atlantic and Midwestern states and the
District of Columbia. Ames is a full-line discount retailer, offering a broad
range of merchandise categories including family apparel, housewares, domestics,
electronics, ready-to-assemble and patio
2
<PAGE>
furniture, jewelry, craft and pet supplies, health and beauty care items,
stationery, sporting goods, toys, seasonal products and more.
Contacts:
For Ames Department Stores, Inc.
- --------------------------------
Rolando de Aguiar
Executive Vice President and Chief Financial Officer
Ames Department Stores, Inc.
(860) 257-5317
Owen Blicksilver
Managing Director
Dewe Rogerson Inc.
(212) 419-4283
3
<PAGE>
This announcement is neither an offer to purchase nor a solicitation of an
offer to sell Shares. The Offer is made solely by the Offer to Purchase, dated
as of November 18, 1998, and the related Letter of Transmittal, and is being
made to all holders of Shares. The Offer is not being made to (nor will tenders
be accepted from or on behalf of) holders of Shares in any jurisdiction in which
the making of the Offer or the acceptance thereof would not be in compliance
with the laws of such jurisdiction or any administrative or judicial action
pursuant thereto. In any jurisdiction where securities, blue sky or other laws
require the Offer to be made by a licensed broker or dealer, the Offer shall be
deemed to be made on behalf of HSC Acquisition Corp. by Bear, Stearns & Co.
Inc. or one or more registered brokers or dealers licensed under the laws of
such jurisdiction.
Notice of Offer to Purchase
All Outstanding Shares of Common Stock
and All Outstanding Shares of Series A Convertible Preferred Stock
(Including, in Each Case, the Associated Preferred Stock Purchase Rights)
of
Hills Stores Company
at
$1.50 Net Per Share in Cash
plus
a Deferred Contingent Cash Right
(as described herein)
by
HSC Acquisition Corp.,
a wholly-owned subsidiary of
Ames Department Stores, Inc.
HSC Acquisition Corp., a Delaware corporation ("Purchaser") and
wholly-owned subsidiary of Ames Department Stores, Inc., a Delaware
corporation ("Parent"), is offering to purchase (i) all outstanding shares
of Common Stock, par value $0.01 per share (the "Common Stock"), including
the preferred stock purchase rights associated therewith issued pursuant to
the Rights Agreement (as defined in the Offer to Purchase) (the "Rights"
and, together with the Common Stock, the "Common Shares"), and (ii) all
outstanding shares of Series A Convertible Preferred Stock, par value $0.10
per share (the "Preferred Stock"), including the associated Rights (the
Preferred Stock, together with the associated Rights, the "Preferred
Shares"; and, together with the Common Shares, the "Shares") of Hills Stores
Company, a Delaware corporation (the "Company"), at a price of $1.50 per
Share, net to the seller in cash, without interest, plus a Deferred
Contingent Cash Right (a "DCCR") upon the terms and subject to the
conditions set forth in the Offer to Purchase dated November 18, 1998 (the
"Offer to Purchase") and in the related Letter of Transmittal (which,
together with any amendments or supplements thereto, collectively constitute
the "Offer").
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 12:00 MIDNIGHT, NEW YORK CITY
TIME, ON WEDNESDAY, DECEMBER 16, 1998, UNLESS THE OFFER IS EXTENDED.
The Offer is conditioned upon, among other things, (A) there being
validly tendered and not withdrawn prior to the Expiration Date that
number of Shares which, when added to the Shares beneficially owned by
Parent, Purchaser or any of their affiliates (if any), constitutes at least
60% of the Shares then outstanding on the date Shares are accepted for
payment, and (B) Purchaser having acquired prior to, or simultaneous with,
the consummation of the Offer not less than 66-2/3% in aggregate principal
amount of the then outstanding 12-1/2% Senior Notes due 2003 (the "Notes")
of the Company.
The Offer is being made pursuant to an Agreement and Plan of Merger,
dated as of November 12, 1998 (the "Merger Agreement"), by and among
Parent, Purchaser and the Company. Pursuant to the Merger Agreement and
in accordance with the Delaware General Corporation Law, as amended (the
"DGCL"), as soon as practicable after the completion of the Offer and
satisfaction or waiver, if permissible, of all conditions, including the
purchase of Shares pursuant to the Offer and the approval and adoption
of the Merger Agreement by the stockholders of the Company (if required
by applicable law), Purchaser shall be merged with and into the Company
(the "Merger") and the Company will be the surviving corporation in the
Merger (the "Surviving Corporation"). At the effective time of the
Merger (the "Effective Time"), each Share then outstanding, other than
Shares held by (i) the Company or any of its subsidiaries, (ii) Parent,
Purchaser or any of its subsidiaries, and (iii) stockholders who have
properly exercised their dissenters' rights under the DGCL, will be
cancelled and converted automatically into the right to receive $1.50 in
cash, or any higher price per Share paid in the Offer and a DCCR (the
"Merger Consideration"), without interest.
Concurrently with the execution of the Merger Agreement, the Company
and Parent have entered into a Stock Option Agreement, dated as of November 12,
1998 (the "Stock Option Agreement"), pursuant to which, among other things, the
Company has granted Parent an irrevocable option to purchase (the "Stock
Option") up to 2,073,753 fully paid and nonassessable Common Shares, or such
other number of Common Shares as equals 19.9% of the Company's issued and
outstanding Common Shares at the time of exercise of the Stock Option at a
purchase price of $1.50, exercisable upon the occurrence of certain events.
The Board of Directors of the Company has unanimously approved the
Merger Agreement and the transactions contemplated thereby, including the
Offer and the Merger, and has unanimously determined that the Offer and the
Merger are fair to, and in the best interests of, the Company's stockholders
and unanimously recommends that stockholders accept the Offer and tender
their Shares pursuant to the Offer.
Pursuant to the terms of the Merger Agreement, the DCCR that is part of the
consideration to be received by holders of Shares (other than Parent or
Purchaser, or the Company, or their respective subsidiaries), in the Offer and
the Merger will entitle each such holder to such holder's pro rata share
(rounded up to the nearest cent) of 25% of the Net Recovery (as defined in the
Offer to Purchase), if any, received by the Company or the Surviving Corporation
in respect of certain litigation commenced by the Company in September 1995
against the former members of the Board of Directors of the Company. There can
be no assurance that the DCCRs ultimately will have any value resulting in any
payment being made with respect thereto.
A DCCR will not (i) be transferable by any recipient thereof, except
by will or pursuant to the laws of descent and distribution or by operation
of law, (ii) be evidenced by a certificate or other instrument, (iii)
possess any voting rights, (iv) receive or be entitled to receive any
dividends or interest, or (v) represent any equity in the Company, Purchaser,
Parent or the Surviving Corporation.
For purposes of the Offer, Purchaser will be deemed to have accepted
for payment, and thereby purchased, Shares properly tendered to
Purchaser and not withdrawn if, as and when Purchaser gives oral or
written notice to the Depositary (as defined in the Offer to Purchase)
of its acceptance for payment of such Shares. Upon the terms and subject
to the conditions of the Offer, payment for Shares accepted for payment
pursuant to the Offer will be made by deposit of the purchase price
therefor with the Depositary, which will act as agent for tendering
stockholders for the purpose of receiving payment from Purchaser and
transmitting payment to tendering stockholders. In all cases, payment
for Shares accepted for payment pursuant to the Offer will be made only
after timely receipt by the Depositary of (i) certificates for such
Shares (or a timely Book-Entry Confirmation (as defined in the Offer to
Purchase) with respect thereto), (ii) a Letter of Transmittal (or
facsimile thereof), properly completed and duly executed, with any
required signature guarantees, or, in the case of a book-entry transfer,
an Agent's Message (as defined in the Offer to Purchase), and (iii) any
other documents required by the Letter of Transmittal. Accordingly,
payment may be made to tendering stockholders at different times if
delivery of the Shares and other required documents occur at different
times. The per Share consideration paid to any holder of Shares pursuant
to the Offer will be the highest per Share consideration paid to any
other holder of Shares pursuant to the Offer. Under no circumstances
will interest be paid on the purchase price to be paid by Purchaser for
such Shares, regardless of any extension of the Offer or any delay in
making such payment.
The term "Expiration Date" shall mean 12:00 Midnight, New York City
time, on Wednesday, December 16, 1998, unless and until Purchaser (in
accordance with the terms of the Offer, but subject to the limitations of
the Merger Agreement), shall have extended the period of time during which
the Offer is open, in which event the term "Expiration Date" shall mean the
latest time and date at which the Offer, as so extended by Purchaser, shall
expire. Any such extension will be followed by a public announcement thereof
by no later than 9:00 a.m., New York City time, on the next business day
after the previously scheduled Expiration Date. During any such extension,
all Shares previously tendered and not withdrawn will remain subject to the
Offer, subject to the right of a tendering stockholder to withdraw such
Shares. Without limiting the manner in which Purchaser may choose to make
any public announcement, Purchaser currently intends to make announcements
by issuing a press release to the Dow Jones News Service.
Except as otherwise provided below or as provided by applicable law,
tenders of Shares made pursuant to the Offer are irrevocable. Shares tendered
pursuant to the Offer may be withdrawn at any time prior to the Expiration Date
and, unless theretofore accepted for payment and paid for by Purchaser pursuant
to the Offer, may also be withdrawn at any time after January 17, 1999. For a
withdrawal to be effective, a written, telegraphic or facsimile transmission
notice of withdrawal must be timely received by the Depositary at one of its
addresses set forth in the Offer to Purchase. Any such notice of withdrawal must
specify the name of the person who tendered the Shares to be withdrawn, the
number of Shares to be withdrawn and the name of the registered holder of the
Shares to be withdrawn, if different from the name of the person who tendered
the Shares. If certificates evidencing such Shares to be withdrawn have been
delivered or otherwise identified to the Depositary, then, prior to the physical
release of such certificates, the serial numbers shown on such certificates must
be submitted to the Depositary and, unless such Shares have been tendered by an
Eligible Institution (as defined in the Offer to Purchase), the signatures on
the notice of withdrawal must be guaranteed by an Eligible Institution. If
Shares have been delivered pursuant to the procedures for book-entry transfer
set forth in Section 3 of the Offer to Purchase, any notice of withdrawal must
also specify the name and number of the account at the Book-Entry Transfer
Facility to be credited with the withdrawn Shares and otherwise comply with the
Book-Entry Transfer Facility's procedures. Withdrawals of tendered Shares may
not be rescinded, and any Shares properly withdrawn will thereafter be deemed
not validly tendered for purposes of the Offer. However, withdrawn Shares may be
retendered by again following one of the procedures described in Section 3 of
the Offer to Purchase at any time prior to the Expiration Date. All questions as
to the form and validity (including time of receipt) of notices of withdrawal
will be determined by Purchaser, in its sole discretion, whose determination
will be final and binding.
The information required to be disclosed by paragraph (e)(1)(vii) of
Rule 14d-6 under the Securities Exchange Act of 1934, as amended, is
contained in the Offer to Purchase and is incorporated herein by reference.
The Company has provided Purchaser with the Company's stockholder lists
and security position listings for the purpose of disseminating the
Offer to holders of Shares. The Offer to Purchase and the related Letter
of Transmittal will be mailed to record holders of Shares and will be
furnished to brokers, dealers, banks and similar persons whose names, or
the names of whose nominees, appear on the stockholder lists, or, if
applicable, who are listed as participants in a clearing agency's
security position listing, for subsequent transmittal to beneficial
owners of Shares.
The Offer to Purchase and the related Letter of Transmittal contain
important information and should be read carefully before any decision is
made with respect to the Offer.
Questions and requests for assistance or additional copies of the Offer
to Purchase, Letter of Transmittal and other tender offer documents may be
directed to the Information Agent or the Dealer Manager, at their addresses and
telephone numbers set forth below, and copies will be furnished promptly at
Purchaser's expense. Purchaser will not pay any fees or commissions to any
broker or dealer or other person other than the Dealer Manager, the Depositary
and the Information Agent for soliciting tenders of Shares pursuant to the
Offer.
The Information Agent for the Offer is:
D.F. King & Co., Inc.
77 Water Street
New York, New York 10005-4495
(800) 431-9629 (Toll Free)
The Dealer Manager for the Offer is:
Bear, Stearns & Co. Inc.
245 Park Avenue
New York, New York 10167
(800) 513-BEAR (Toll Free)
(800) 513-2327
November 18, 1998
<PAGE>
November 6, 1998
Mr. Joseph Ettore
President and
Chief Executive Officer
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, CT 06067-2598
Dear Joe:
You have requested that we provide a senior credit facility to Zayre Central
Corp. and Ames FS, Inc. (and subsidiaries) (collectively, the "Borrower").
The facility would be used to refinance secured debt outstanding under
Borrower's and Hills Stores Company's ("Hills") existing credit facilities
(collectively, the "Existing Debt"), finance the purchase by the Borrower of
the outstanding common stock of Hills including preferred stock converted to
common (pursuant to which Hills would become a subsidiary of the Borrower or
Borrower's parent and, as such subsidiary, is hereafter referred to as "New
Hills"), finance the remodeling and pre-opening program for the former Hills
Stores and to provide for the ongoing working capital needs of Borrower and
New Hills. In connection therewith and subject to and upon the terms and
conditions herein set forth, BankAmerica Business Credit, Inc. ("BABC"), is
pleased to commit to arranging a domestic credit facility of $650,000,000
(the "Credit Facility") consisting of revolving loans and letters of credit,
for which BABC will act as agent (the "Agent"). BABC will underwrite the
entire credit facility with the right to assign a portion of its commitment
to one or more other lenders (each with BABC, a "Lender" and collectively,
with BABC, the "Lenders"), as follows:
1. Credit Lines:
1.1 Revolving Credit: A forty-two month Revolving Credit Facility
(the "Revolving Credit Facility"), not exceeding $650,000,000
at any one time outstanding, providing for loan availability
of, up to (i) seventy-five percent (75%) from July 1st to
November 30th of each contract year and seventy percent (70%)
from December 1st to June 30th of each contract year, of the
value (lower of FIFO cost or market) of eligible inventory,
plus (ii) without duplication, fifty percent (50%) of the
value of eligible inventory (lower of FIFO cost or market)
covered by merchandise letters of credit issued or caused to
be issued by Agent. Criteria for determining eligibility of
inventory and the establishment of reserves against borrowing
availability would be determined at the reasonable discretion
of the Agent.
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 2 of 8
1.2 Letter of Credit Line: As part of the Revolving Credit
Facility, a Letter of Credit sub-line for the issuance and
maintenance of, or for having caused to be issued and
maintained, merchandise and standby letters of credit
(the"L/Cs"); provided, however, that the undrawn face amount
of merchandise and standby L/Cs shall not exceed
$150,000,000. The tenor of the L/Cs shall not extend beyond
the term of the credit facility, nor extend beyond 180 days
for merchandise L/Cs and one year for standby L/Cs. A reserve
of 100% of the value of all L/Cs would be established against
loan availability under the Revolving Credit Facility.
2. Interest and Fees:
2.1 Interest Rate: All loans and advances under the Revolving
Credit Facility would bear interest payable monthly,
calculated on the basis of 360 days for actual days elapsed,
at a rate of: (i) five-eighths of one percent (0.625%) per
annum in excess of the Reference Rate (as defined below),
which interest rate would change as the Reference Rate
changes, or (ii) at Borrower's option, two and one-quarter
percent (2.25%) per annum plus the 30, 60 or 90-day LIBOR
reserve adjusted rate as quoted by Bank of America NT&SA. The
LIBOR option would be subject to restrictions as to total
outstanding "strips", initial amounts, incremental amounts
and tenor.
Reference Rate means the rate of interest publicly announced
from time to time by Bank of America National Trust and
Savings Association ("Bank") in San Francisco, California, as
its reference rate. It is a rate set by Bank based upon
various factors including Bank's costs and desired return,
general economic conditions, and other factors, and is used
as a reference point for pricing some loans. Bank may price
loans, at, above or below the Reference Rate. Any change in
the Reference Rate shall take effect on the day specified in
the public announcement of such change.
2.2 L/C Fees: A fee at the rate of one and three eighths percent
(1.375%) per annum, calculated on the basis of 360 days for
actual days elapsed, would be payable monthly on the average
undrawn amounts of all letters of credit, in addition to the
amount of any costs or expenses incurred by Lender (including
the charges of the issuing bank) in connection with any
letter of credit opened, or caused to be opened.
2.3 Facility Fee: A one-time Facility Fee of one and forty-five
hundredths percent (1.45%) of the Credit Facility
($9,425,000) payable at Closing. A portion of
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 3 of 8
the facility fee in the amount of $250,000 (the "Commitment
Fee") should be payable upon Borrower's acceptance of this
letter. The Commitment Fee shall be non-refundable in all
respects.
2.4 Unused Line Fee: Three eighths of one percent (0.375%) per
annum (based on a 360 day year for actual days elapsed) would
be payable monthly on the average unused Revolving Credit
Facility.
2.5 Agency Fee: As set forth in the separate letter agreement of
even date among BABC and the Borrower (the "Fee Letter").
2.6 Collateral Management Fee: As set forth in the Fee Letter.
2.7 Default Rate: Upon and during the continuation of an event of
default, the applicable interest rate and letter of credit
fee would be increased by two percent (2.00%) per annum.
2.8 Early Termination Fee: In the event the Credit Facility is
for any reason terminated by the Borrower prior to the
expiration of the initial forty two month term, Borrower
would pay Lender an early termination fee, in order to
compensate Lender for the loss of its reliance expenses and
anticipated profits. If the effective date of the termination
of the Credit Facility occurs in the first year of the
initial forty two month term, then the early termination fee
would be one-half percent (.50%) of the Credit Facility and
if in the second or third years, one-quarter percent (.25%).
Notwithstanding the foregoing, the Borrower may permanently
reduce the Credit Facility by up to $200,000,000 from the
proceeds of an equity or unsecured debt offering on terms
mutually agreeable to Lenders and Borrower.
3. Collateral: All loans, advances and other obligations, liabilities and
indebtedness of the Borrower or New Hills to the Agent and Lenders (the
"Obligations") shall be secured by valid, perfected and enforceable
first priority liens and security interests in all present and future
assets of the Borrower and New Hills, including accounts, inventory,
contract rights, instruments, documents, chattel paper, general
merchandise, equipment, real property (except in each case as excluded
in the existing credit facility or not currently required to be
pledged), general intangibles, patents, tradenames and trademarks, the
stock of all direct and indirect subsidiaries of the parent and all
deposit accounts. All loans shall be coterminous, cross-guaranteed and
cross-collateralized. The Credit Facility shall be unconditionally
guaranteed by Borrower's parent and secured by a lien on and pledge of
all assets of the parent.
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 4 of 8
The Borrower shall maintain a "concentration account" with a bank
acceptable to the Agent on terms and conditions satisfactory to
the Agent. Borrower and New Hills shall on a daily basis deposit
all cash receipts and other collections into such "concentration
account". If an event of default exists or unused loan
availability is less than $100,000,000 for more than 10
consecutive days, all amounts deposited in such concentration
account shall thereafter be transferred directly to the Agent and
applied to repay outstanding obligations under the Credit Facility
(it being understood that after all Reference Rate based loans
have been paid in full, rather than apply any such payments to the
repayment of outstanding LIBOR based loans, the Borrower shall,
subject to the terms and conditions of the credit documents, have
the right to immediately re-borrow such amounts or request that
the funds be held by or on behalf of the Lenders in a cash
collateral account on terms and conditions acceptable to the
Agent.).
4. Conditions Precedent:
The extension of the aforementioned financing arrangement by BABC
is subject to the fulfillment of a number of conditions,
including, but not limited to, the following:
4.1 The execution and delivery, in form and substance acceptable
to BABC and its counsel, of BABC's customary agreements,
documents, instruments, financing statements, consents,
landlord waivers, documents indicating compliance with all
applicable federal and state environmental laws and
regulations, evidences of corporate authority, opinions of
counsel and such other writings to confirm and effectuate the
financing arrangements as may be required by BABC and its
counsel.
4.2 The loan and security agreement for the Credit Facility shall
contain such terms, conditions, representations, warranties
and covenants as BABC deems appropriate for this transaction
including, without limitation, a requirement that Borrower
maintain unused loan availability of at least $100,000,000 at
all times. To-be-agreed upon financial covenants shall be
tested commencing with Borrower's first fiscal quarter ending
April, 2000. The loan and security agreement shall, without
limitation, also include restrictions, acceptable to BABC, on
distributions, indebtedness, acquisitions, investments,
loans, management fees, and transfers of funds or other
assets by Borrower or New Hills, and an agreement by Borrower
and New Hills to pay all legal fees of BABC (including the
allocated costs of in-house counsel) and audit and appraisal
expenses incurred by BABC together with an allocated charge
of $750 per day per auditor.
4.3 No material adverse change shall have occurred, as determined
by BABC in its sole discretion, in the business, operations,
assets, profits or prospects of Borrower or the financial
condition of Hills since the financial statements dated
October 3, 1998;
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 5 of 8
provided, however, that a material adverse change with
respect to Hills shall be determined on the basis set forth
on Exhibit A hereto.
4.4 There shall exist no action, suit, investigation, litigation,
or proceeding pending or threatened in any court or before
any arbitrator or governmental instrumentality that in BABC's
reasonable judgment (i) could reasonably be expected to have
a material adverse effect on the business, condition
(financial or otherwise), operations, performance, or
properties of Borrower or which could impair Borrower's
ability to perform satisfactorily under the proposed
financing arrangement or (ii) could reasonably be expected to
materially and adversely affect the transaction.
4.5 Termination of the security interest of the existing lenders
in form and substance acceptable to Agent and satisfaction of
the Existing Debt in accordance with terms.
4.6 At least two-thirds (2/3) of the existing Hills 12 1/2%
Senior Unsecured Notes (the "Notes") shall have been
repurchased or otherwise acquired with the proceeds of the
initial borrowing under the facility and appropriate consents
amending the indenture governing the Notes shall have been
obtained, all on terms and conditions satisfactory to the
Agent and Lenders.
4.7 Lenders' receipt and satisfaction with an appraisal of the
inventory of Borrower and Hills by an appraiser (and on a
basis) acceptable to Lenders, including, without limitation
confirmation that the advance rates against inventory set
forth in Section 1.1 are no greater than the orderly
liquidation value (on a percentage of cost basis) of eligible
inventory, net of all costs and expenses.
4.8 Hills shall have become a direct or indirect subsidiary of
the Borrower (or its parent) through the purchase of Hills
common [and preferred] stock with the proceeds of the initial
borrowing under the facility and pursuant to an agreement
approved by the Board of Directors of Hills (i.e. a
"friendly" acquisition), all on terms and conditions
satisfactory to the Agent and Lenders, with such acquisition
agreement and all other documentation to be satisfactory to
the Agent.
4.9 At Closing, the Borrower and New Hills shall have unused
availability of not less than $200,000,000 after giving
effect to all transactions to occur at the Closing.
4.10 Agent's and Lenders' full satisfaction with the compliance by
the Borrower with any and all applicable laws, statutes,
rules and regulations relating to the acquisition or the
conduct and operation of the business and properties of the
Borrower.
4.11 All governmental and third party consents and approvals
necessary in connection with the financing have been obtained
by the Borrower.
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 6 of 8
4.12 BABC's satisfaction that, giving effect to the acquisition,
Borrower and New Hills are adequately capitalized, that the
fair saleable value of Borrower's and New Hills assets will
exceed their liabilities at closing, and that Borrower and
New Hills will have sufficient working capital to pay their
debts as they become due.
4.13 The Borrower and New Hills shall cooperate with BABC in the
syndication of the Credit Facility and shall meet with the
prospective Lenders as may be reasonably requested by BABC.
The summary of terms and conditions contained herein is not meant to
be, nor should it be construed as, an attempt to define all of the terms and
conditions of the transaction contemplated hereby, nor is it intended to
reflect specific document phrasing that will exist in the loan and security
agreement. It is intended only to outline the basic points of business
understanding around which binding legal documentation will be negotiated
and/or structured. Further negotiations will not be precluded by the
issuance of this letter or by acceptance by the Borrower.
All out-of-pocket fees and expenses incurred by BABC in connection with
the documentation of the Credit Facility, the syndication thereof, and
BABC's review and due diligence, such as reasonable legal (including the
allocated costs of in-house counsel to BABC), title insurance, audit and
appraisal expenses, together with an allocated charge of $750 per day per
auditor, shall be paid by Borrower whether or not the transaction herein
contemplated is consummated. Borrower is obligated to make continuing
deposits to reimburse out of pocket costs upon the request of BABC. In the
event that Borrower declines for any reason to borrow from the Lenders, or
the transaction is not consummated for any other reason whatsoever, BABC
shall be entitled to retain the full amount of all deposits and the
Commitment Fee as compensation for administrative costs incurred and damages
sustained. Borrower's obligation for costs and expenses shall survive
termination of this letter.
This letter may not be delivered or disclosed by the Borrower to any
third party except those who are in a confidential relationship to Borrower,
such as Borrower's legal counsel, accountants, or financial advisors;
provided, however that in connection with the execution of acquisition
documents, the Borrower may disclose this letter to Hills. This letter is
solely for the benefit of Borrower and may not be relied on by any other
party without the prior written consent of BABC.
By acceptance of this letter, Borrower agrees to indemnify and hold
BABC (whether acting for itself or as agent) and each Lender, their
respective affiliates and each such party's respective directors, officers,
employees, agents, attorneys and consultants, harmless from and against any
and all losses, claims, damages, liabilities and expenses (including fees
and disbursements of counsel) that may be incurred by or asserted against
any such indemnitees in connection with or arising out of any documentation,
investigation, litigation, proceeding or other matters related to the
financing transactions herein described, this commitment letter or the
credit facilities discussed herein, whether or not any such indemnitees are
a party to such documentation, investigation, litigation, proceeding or
other matters and whether or not such financing transaction is consummated
or any future
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 7 of 8
documentation executed; provided however, that no person shall have the
right to be so indemnified hereunder for matters arising solely from its own
willful misconduct or bad faith. BABC, the Lenders and their affiliates
shall not be responsible or liable to the Borrower or any other person for
any special, indirect, punitive, exemplary or consequential damages which
may be alleged. The obligation contained in this paragraph will survive the
closing of the Credit Facility and/or any termination of this letter.
BORROWER HEREBY EXPRESSLY WAIVES ANY RIGHT TO TRIAL BY JURY OF ANY
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS LETTER, ANY
TRANSACTION RELATING HERETO, OR ANY OTHER INSTRUMENT, DOCUMENT OR AGREEMENT
EXECUTED OR DELIVERED IN CONNECTION HEREWITH, WHETHER SOUNDING IN CONTRACT,
TORT OR OTHERWISE. This letter may only be amended, modified or revised in a
writing executed by all parties hereto.
This letter supersedes and replaces all previous communications between
the parties, written or oral. This letter must be executed and returned no
later than 6 p.m. New York City time on November 6, 1998 along with the
Commitment Fee of $250,000 and the Fee Letter or BABC's commitment in
accordance with the foregoing shall automatically terminate.
This letter agreement shall be governed by and construed in accordance
with the law of the state of New York.
This commitment, unless previously terminated as above provided, shall
expire at 5 p.m. New York City time on January 8, 1999 unless extended in
writing by BABC in its sole discretion.
<PAGE>
Mr. Joseph Ettore
Ames Department Stores, Inc.
November 6, 1998
Page 8 of 8
We look forward to working with you in the weeks ahead.
Very truly yours,
BankAmerica Business Credit, Inc.
By: /s/ Louis Alexander
-------------------------------
Its: Vice President
-------------------------------
AGREED AND ACCEPTED this
day of November, 1998.
AMES DEPARTMENT STORES, INC.
ZAYRE CENTRAL CORP.
AMES FS, INC.
By: /s/ Rolando de Aguiar
------------------------------
Its: Executive Vice President and
------------------------------
Chief Financial Officer
------------------------------
<PAGE>
Exhibit A
Section 3.01
. . . Material Adverse Effect only if, at December 26, 1998,
(i) Working Capital is less than $197,000,000, or (ii) the sum of the
outstanding balance under the Loan Agreement and book merchandise/trade accounts
payable owed by the Company and its Subsidiaries exceeds $230,000,000 (the
"Financial MAC").
Section 9.03
(s) "Working Capital" means, with respect to the Company and its
Subsidiaries on the date the Financial MAC is determined, the excess of (a)
the sum of book cash and cash equivalents plus book bankcard receivables plus
book inventory, less (b) the sum of the outstanding balance under the Loan
Agreement plus book merchandise/trade accounts payable. Such book amounts
shall be determined consistently with the practices used by the Company in
arriving at its regular month-end amounts and/or as defined in the Company's
annual report to the Securities and Exchange Commission on Form 10-K for the
fiscal year ended January 31, 1998, except that interim weekly data shall be
used to "roll-forward" balances from the end of the fiscal month of November
to December 26, 1998; provided further, that if the Company has notified the
Purchaser's chief financial or chief accounting officer, in writing delivered
by express mail or delivery or by fax, that (i) the Company has prepaid any
sales, payroll or other similar fiduciary taxes through the period ending
January 2, 1999, and (ii) the amount of such prepayments, that the amount of
such prepayments shall be deducted from the outstanding balance under the Loan
Agreement in calculating the Financial MAC.
(d) "Cash Equivalents" means cash and highly liquid investments with
maturities of three months or less from the date of purchase and whose cost
approximates market value due to the short maturity of the investments;
(i) "Inventory" means all inventory, goods, merchandise and other
tangible personal property intended for sale or lease, valued using the retail
method on the lower of last-in, first-out (LIFO) cost or market basis;
<PAGE>
AGREEMENT AND PLAN OF MERGER
by and among
AMES DEPARTMENT STORES, INC.,
HSC ACQUISITION CORP.
and
HILLS STORES COMPANY
Dated as of November 12, 1998
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C>
ARTICLE I THE OFFER............................................................................... 2
SECTION 1.01 The Offer............................................................................... 2
SECTION 1.02 Note Tender Offer....................................................................... 3
SECTION 1.03 Company Action.......................................................................... 6
ARTICLE II THE MERGER.............................................................................. 8
SECTION 2.01 The Merger.............................................................................. 8
SECTION 2.02 Effective Time; Closing................................................................. 8
SECTION 2.03 Effect of the Merger.................................................................... 8
SECTION 2.04 Certificate of Incorporation; Bylaws.................................................... 9
SECTION 2.05 Directors and Officers.................................................................. 9
SECTION 2.06 Conversion of Securities................................................................ 9
SECTION 2.07 Stock Options; Warrants................................................................. 10
SECTION 2.08 Surrender of Shares; Stock Transfer Books............................................... 11
SECTION 2.09 Dissenting Shares....................................................................... 13
SECTION 2.10 Withholding Taxes....................................................................... 13
SECTION 2.11 Certain Matters Relating to Deferred Contingent Cash Rights............................. 13
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE COMPANY........................................... 16
SECTION 3.01 Organization and Qualification; Subsidiaries............................................ 16
SECTION 3.02 Certificate of Incorporation and Bylaws................................................. 17
SECTION 3.03 Capitalization.......................................................................... 17
SECTION 3.04 Authority Relative to this Agreement.................................................... 18
SECTION 3.05 No Conflict; Required Filings and Consents.............................................. 19
SECTION 3.06 Compliance.............................................................................. 20
SECTION 3.07 SEC Filings; Financial Statements....................................................... 20
SECTION 3.08 Absence of Certain Changes or Events.................................................... 21
SECTION 3.09 Absence of Litigation................................................................... 22
SECTION 3.10 Employee Benefit Plans.................................................................. 22
SECTION 3.11 Labor Matters........................................................................... 25
SECTION 3.12 Offer Documents; Schedule 14D-9; Proxy Statement........................................ 25
</TABLE>
i
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 3.13 Tangible Property; Real Property and Leases............................................. 26
SECTION 3.14 Trademarks, Patents and Copyrights...................................................... 27
SECTION 3.15 Taxes................................................................................... 28
SECTION 3.16 Environmental Matters................................................................... 30
SECTION 3.17 Contracts............................................................................... 31
SECTION 3.18 Insurance; Workers' Compensation........................................................ 32
SECTION 3.19 Certain Payments; Absence of Certain Business Practices................................. 33
SECTION 3.20 Licenses and Permits.................................................................... 33
SECTION 3.21 Letters of Credit, Surety Bonds, Guarantees............................................. 33
SECTION 3.22 Brokers................................................................................. 33
SECTION 3.23 Year 2000............................................................................... 33
SECTION 3.24 Applicability of State Takeover Statutes................................................ 34
SECTION 3.25 Amendment to Rights Agreement........................................................... 34
SECTION 3.26 Opinion of Financial Advisor............................................................ 34
SECTION 3.27 Full Disclosure......................................................................... 34
ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER.................................. 34
SECTION 4.01 Corporate Organization.................................................................. 35
SECTION 4.02 Authority Relative to This Agreement.................................................... 35
SECTION 4.03 No Conflict; Required Filings and Consents.............................................. 35
SECTION 4.04 Financing............................................................................... 36
SECTION 4.05 Offer Documents; Proxy Statement........................................................ 36
SECTION 4.06 Brokers................................................................................. 37
ARTICLE V CONDUCT OF BUSINESS PENDING THE MERGER.................................................. 37
SECTION 5.01 Conduct of Business by the Company Pending the Merger................................... 37
ARTICLE VI ADDITIONAL AGREEMENTS................................................................... 40
SECTION 6.01 Special Stockholders' Meeting........................................................... 40
SECTION 6.02 Proxy Statement......................................................................... 40
SECTION 6.03 Company Board Representation; Section 14(f)............................................. 41
SECTION 6.04 Access to Information; Confidentiality.................................................. 42
SECTION 6.05 No Solicitation......................................................................... 42
SECTION 6.06 Directors' and Officers' Indemnification and Insurance.................................. 44
SECTION 6.07 Notification of Certain Matters......................................................... 45
SECTION 6.08 Further Action; Reasonable Efforts...................................................... 45
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6.09 Public Announcements.................................................................... 46
SECTION 6.10 Confidentiality Agreement............................................................... 46
SECTION 6.11 State Takeover Laws..................................................................... 46
SECTION 6.12 Employment Covenant..................................................................... 46
SECTION 6.13 Financing............................................................................... 47
ARTICLE VII CONDITIONS TO THE MERGER................................................................ 47
SECTION 7.01 Conditions to the Merger................................................................ 47
ARTICLE VIII TERMINATION, AMENDMENT AND WAIVER....................................................... 48
SECTION 8.01 Termination............................................................................. 48
SECTION 8.02 Effect of the Termination............................................................... 50
SECTION 8.03 Fees and Expenses....................................................................... 50
SECTION 8.04 Amendment............................................................................... 51
SECTION 8.05 Waiver.................................................................................. 51
ARTICLE IX GENERAL PROVISIONS...................................................................... 51
SECTION 9.01 Non-Survival of Representations, Warranties and Agreements.............................. 51
SECTION 9.02 Notices................................................................................. 52
SECTION 9.03 Certain Definitions..................................................................... 52
SECTION 9.04 Severability............................................................................ 56
SECTION 9.05 Entire Agreement, Assignment............................................................ 56
SECTION 9.06 Parties in Interest..................................................................... 57
SECTION 9.07 Specific Performance.................................................................... 57
SECTION 9.08 Governing Law........................................................................... 57
SECTION 9.09 Headings................................................................................ 57
SECTION 9.10 Counterparts............................................................................ 57
SECTION 9.11 Certain Undertakings by Parent.......................................................... 57
</TABLE>
Stock Option Agreement -- Exhibit A
Disclosure Schedule
Section 3.01 -- Subsidiaries of the Company
Section 3.03 -- Capitalization and Stock Option Plans
Section 3.06 -- Compliance
Section 3.07 -- SEC Filings; Financial Statements
Section 3.08 -- Certain Developments
Section 3.09 -- Legal Proceedings
Section 3.10 -- Employee Benefit Plans
Section 3.11 -- Labor Matters
Section 3.13 -- Real and Leased Properties
Section 3.14 -- Trademarks, Patents and Copyrights
iii
<PAGE>
Section 3.15 -- Taxes
Section 3.16 -- Environmental Matters
Section 3.17 -- Material Contracts
Section 3.18 -- Insurance Policies and Workers' Compensation
Section 3.21 -- Letters of Credit, Surety Bonds, Guarantees, etc.
Section 5.01 -- Conduct of Business
Annex A -- Conditions to the Stock Tender Offer
Annex B -- Conditions to the Note Tender Offer
iv
<PAGE>
Glossary of Defined Terms
Location of Definitions
<TABLE>
<S> <C>
Advances....................................................................................... ss. 2.11(f)
affiliate...................................................................................... ss. 9.03(a)
Agreement...................................................................................... Preamble
beneficial owner............................................................................... ss. 9.03(b)
Blue Sky Laws.................................................................................. ss. 3.05(b)
Board.......................................................................................... Recitals
business day................................................................................... ss. 9.03(c)
Cash Equivalents............................................................................... ss. 9.03(d)
Cash Payment................................................................................... ss. 9.03(l)
Certificate of Merger.......................................................................... ss. 2.02
Certificates................................................................................... ss. 2.08(b)
COBRA.......................................................................................... ss. 3.10(e)
Commitment Letter.............................................................................. ss. 4.04
Committee Fee.................................................................................. ss. 2.11(f)
Common Shares.................................................................................. Recitals
Company........................................................................................ Preamble
Confidentiality Agreement...................................................................... ss. 6.04(b)
Consents....................................................................................... Recitals
Consent Solicitation........................................................................... Recitals
Constituent Documents.......................................................................... ss. 3.02
Continuing Director............................................................................ ss. 9.03(e)
control........................................................................................ ss. 9.03(f)
controlled by.................................................................................. ss. 9.03(f)
DCCR........................................................................................... Recitals
Delaware Law................................................................................... Recitals
Disclosure Schedule............................................................................ ss. 3.01
Dissenting Shares.............................................................................. ss. 2.09
Effective Time................................................................................. ss. 2.02
Employees...................................................................................... ss. 3.11
Environmental Law.............................................................................. ss. 3.16(a)
Equity Deferred Contingent Cash Right.......................................................... ss. 9.03(g)
Equity DCCR ................................................................................... Recitals
ERISA.......................................................................................... ss. 3.10(a)
ERISA Affiliate................................................................................ ss. 3.10(a)
Exchange Act................................................................................... ss. 1.03(b)
Expenses....................................................................................... ss. 8.03(b)
Financial MAC.................................................................................. ss. 3.01
GAAP........................................................................................... ss. 3.07(b)
Hazardous Substances........................................................................... ss. 3.16(a)
Hills Litigation............................................................................... ss. 9.03(h)
</TABLE>
v
<PAGE>
<TABLE>
<S> <C>
HSR Act........................................................................................ ss. 3.05(b)
Indemnified Parties............................................................................ ss. 6.07(a)
Indenture...................................................................................... ss. 1.02(a)
Information Statement.......................................................................... ss. 3.12
Inventory...................................................................................... ss. 9.03(i)
IRS............................................................................................ ss. 3.10(a)
Litigation Cap................................................................................. ss. 2.11(d)
Litigation Committee........................................................................... ss. 9.03(j)
Lender......................................................................................... ss. 4.04
Loan Agreement................................................................................. ss. 9.03(k)
Material Adverse Effect........................................................................ ss. 3.01
Material Contracts............................................................................. ss. 3.17(a)
Merger......................................................................................... Recitals
Merger Consideration........................................................................... ss. 2.06(a)
Minimum Note Condition......................................................................... ss. 1.02(a)
Minimum Stock Condition........................................................................ ss. 1.01(a)
Multiemployer Plan............................................................................. ss. 3.10(a)
Net Recovery................................................................................... ss. 9.03(l)
Non-Recourse Financing......................................................................... ss. 2.11(i)
Note DCCR...................................................................................... Recitals
Note Deferred Contingent Cash Right Recitals................................................... ss. 9.03(m)
Note Offer to Purchase......................................................................... Recitals
Note Tender Offer.............................................................................. Recitals
Note Tender Offer Documents.................................................................... ss. 1.02(b)
Noteholders.................................................................................... ss. 1.02(b)
Notes.......................................................................................... Recitals
Offer.......................................................................................... Recitals
Offer Documents................................................................................ ss. 1.01(b)
Offer to Purchase.............................................................................. ss. 1.01(b)
Option......................................................................................... ss. 2.07(a)
Parent......................................................................................... Preamble
Paying Agent................................................................................... ss. 2.08(a)
Per Share Cash Amount.......................................................................... Recitals
person......................................................................................... ss. 9.03(n)
Plans.......................................................................................... ss. 3.10(a)
Preferred Shares............................................................................... Recitals
Proposed Amendments............................................................................ ss. 1.02(c)
Proxy Statement................................................................................ ss. 3.12
Purchaser...................................................................................... Preamble
Purchaser's Election Date...................................................................... ss. 5.01
Representative................................................................................. ss. 9.03(o)
Right; Rights.................................................................................. ss. 2.06(a)
Rights Agreement............................................................................... ss. 2.06(a)
Schedule 14D-1................................................................................. ss. 1.01(b)
Schedule 14D-9................................................................................. ss. 1.03(b)
</TABLE>
vi
<PAGE>
<TABLE>
<S> <C>
SEC............................................................................................ ss. 1.01(a)
SEC Reports.................................................................................... ss. 3.07(a)
Section 203 Approval........................................................................... ss. 1.03(a)
Securities Act................................................................................. ss. 3.07(a)
Shares......................................................................................... Recitals
Special Stockholders' Meeting.................................................................. ss. 6.01
Stock Option Agreement......................................................................... Recitals
Stock Option Plans............................................................................. ss. 2.07(b)
Subsidiary..................................................................................... ss. 3.01
subsidiary; subsidiaries....................................................................... ss. 9.03(p)
Superior Proposal.............................................................................. ss. 9.03(q)
Supplemental Indenture......................................................................... ss. 1.02(c)
Surviving Corporation.......................................................................... ss. 2.01
Takeover Proposal.............................................................................. ss. 9.03(r)
Tax; Taxes..................................................................................... ss. 3.15(p)
Tax Return..................................................................................... ss. 3.15(p)
Termination Fee................................................................................ ss. 8.03(b)
Third Party.................................................................................... ss. 9.03(r)
Transactions................................................................................... ss. 3.04
under common control with...................................................................... ss. 9.03(f)
WARN........................................................................................... ss. 3.11
Warrants....................................................................................... ss. 3.03
Working Capital................................................................................ ss. 9.03(s)
</TABLE>
vii
<PAGE>
AGREEMENT AND PLAN OF MERGER, dated as of November 12, 1998 (this
"Agreement"), by and among Ames Department Stores, Inc., a Delaware
corporation ("Parent"), HSC Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of Parent ("Purchaser"), and Hills Stores Company, a
Delaware corporation the "Company").
W I T N E S S E T H:
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each determined that it is in the best interests of their
respective stockholders for Parent and Purchaser to acquire the Company upon
the terms and subject to the conditions set forth herein; and
WHEREAS, in furtherance of such acquisition, it is proposed that
Purchaser shall make a cash tender offer (the "Offer" or the "Tender Offer")
to acquire (i) all the issued and outstanding shares of common stock, par
value $0.01 per share, of the Company (the "Common Shares"), and (ii) all
the issued and outstanding shares of Series A convertible preferred stock,
par value $0.10 per share, of the Company (the "Preferred Shares" and,
together with the Common Shares, the "Shares"), in each case together with
the associated Rights (as hereinafter defined), for $1.50 per Share (such
amount being hereinafter referred to as the "Per Share Cash Amount") net to
the seller in cash, subject to withholding of taxes, if applicable, and an
Equity Deferred Contingent Cash Right (as defined below) ("Equity DCCR"),
upon the terms and subject to the conditions of this Agreement and the
Offer; and
WHEREAS, also in furtherance of such acquisition, it is proposed
that, simultaneously with the Offer, Purchaser shall make an offer to
purchase for cash (the "Note Offer to Purchase") all of the Company's 12
1/2% Senior Notes due 2003 (the "Notes") and solicit consents ("Consents")
from the holders of the Notes to amend the Indenture (as defined herein) as
herein provided (the "Consent Solicitation" and collectively with the Note
Offer to Purchase, the "Note Tender Offer") at a price of 55% of the
principal amount of the Notes and a Note Deferred Contingent Cash Right (as
defined below) ("Note DCCR" and, together with the
<PAGE>
Equity DCCR, the "DCCRs"), upon the terms and subject to the conditions of this
Agreement and the Note Tender Offer; and
WHEREAS, the Board of Directors of the Company (the "Board") has
unanimously approved the making of the Offer and the Note Tender Offer and
resolved and agreed to recommend that holders of Shares tender their Shares
pursuant to the Offer; and
WHEREAS, the Boards of Directors of Parent, Purchaser and the
Company have each approved the merger (the "Merger") of Purchaser with and into
the Company in accordance with the General Corporation Law of the State of
Delaware ("Delaware Law") following the consummation of the Offer and the Note
Tender Offer and upon the terms and subject to the conditions set forth herein;
and
WHEREAS, concurrently with the execution and delivery of this
Agreement and as a condition to Parent's and Purchaser's willingness to
enter into this Agreement, the Company, Parent and Purchaser have entered
into a Stock Option Agreement (the "Stock Option Agreement") attached as
Exhibit A;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants and agreements herein contained, and intending to be legally bound
hereby, Parent, Purchaser and the Company hereby agree as follows:
ARTICLE I
THE OFFER
SECTION 1.01 The Offer. (a) Provided that this Agreement shall not
have been terminated in accordance with Section 8.01 and none of the events
or circumstances set forth in Annex A hereto shall have occurred or be
existing, Purchaser agrees to, and Parent agrees to cause Purchaser to,
commence the Offer as promptly as reasonably practicable after the date
hereof, but in no event later than five business days after the first public
announcement of the execution hereof. Parent and Purchaser agree that the
obligation of Purchaser to accept for payment and pay for Shares tendered
pursuant to the Offer shall be subject to the conditions that (i) the number
of Shares validly tendered and not withdrawn prior to the expiration of the
Offer, combined with the Shares already owned by Parent, Purchaser or any of
their
2
<PAGE>
affiliates, constitute at least 60% of the then outstanding Shares at the
expiration of the Offer (the "Minimum Stock Condition"), (ii) Purchaser has
acquired or is simultaneously acquiring not less than 66 2/3% in the aggregate
principal amount of the outstanding Notes (the "Note Purchase Condition"), and
(iii) also shall be subject to the satisfaction of the other conditions set
forth in Annex A. Purchaser expressly reserves the right to waive any such
condition, to increase the price per Share payable in the Offer, and to make any
other changes in the terms and conditions of the Offer; provided, however, that
Parent and Purchaser agree that no change may be made without the consent of the
Company which decreases the price per Share payable in the Offer, which changes
the form of consideration to be paid in the Offer, which reduces the maximum
number of Shares to be purchased in the Offer, which eliminates the Note
Purchase Condition, which reduces the Minimum Stock Condition to below 51% of
the then outstanding Shares, which otherwise modifies or amends the conditions
to the Offer or any other term of the Offer in a manner that is materially
adverse to the holders of the Shares, which imposes conditions to the Offer in
addition to those set forth in Annex A hereto or which extends the expiration
date of the Offer beyond January 4, 1999 (except that the Purchaser may extend
the expiration date of the Offer through January 9, 1999 as required to comply
with any rule, regulation or interpretation of the Securities and Exchange
Commission (the "SEC")). The Per Share Cash Amount shall, subject to applicable
withholding of taxes, be net to the seller in cash, upon the terms and subject
to the conditions of the Offer. Subject to the terms and conditions of the Offer
(including, without limitation, the Minimum Stock Condition), Purchaser agrees
to, and Parent agrees to cause Purchaser to, pay, as promptly as practicable
after expiration of the Offer, for all Shares validly tendered and not
withdrawn.
(b) As soon as reasonably practicable on the date of commencement
of the Offer, Parent and Purchaser agree that Parent and Purchaser will file
with the SEC a Tender Offer Statement on Schedule 14D-1 (together with all
amendments and supplements thereto, the "Schedule 14D-1") with respect to
the Offer and the other Transactions (as hereinafter defined). Parent and
Purchaser agree that the Schedule 14D-1 will contain or will incorporate by
reference an offer to purchase (the "Offer to Purchase") and forms of the
related letter of transmittal and any related summary advertisement (the
Schedule 14D-1, the Offer to Purchase and such other documents, together
with all supplements and amendments thereto, being referred to herein
collectively as the "Offer
3
<PAGE>
Documents"). Parent and Purchaser will take all steps necessary to ensure that
the Offer Documents will comply in all material respects with the provisions of
applicable federal and state securities laws. Parent and Purchaser and the
Company agree to correct promptly any information provided by any of them for
use in the Offer Documents which shall have become false or misleading, and
Parent and Purchaser further agree to take all steps necessary to cause the
Schedule 14D-1 as so corrected to be filed with the SEC and the other Offer
Documents as so corrected to be disseminated to holders of Shares, in each case
as and to the extent required by applicable federal securities laws.
SECTION 1.02 Note Tender Offer. (a) Provided that this Agreement
shall not have been terminated in accordance with Section 8.01 and none of
the events or circumstances set forth in Annex B hereto shall have occurred
or be existing, Purchaser agrees that it or its designee will, and Parent
agrees to cause Purchaser or its designee, as the case may be, to commence
the Note Offer to Purchase as promptly as reasonably practicable after the
date hereof, but in no event later than five business days after the first
public announcement of the execution hereof. The aggregate consideration
payable to each holder of Notes pursuant to the Note Offer to Purchase and
related Consent Solicitation shall be an amount equal to 55% of the
principal amount of the Notes held by such holder and a Note DCCR. In
connection with the Note Offer to Purchase, Purchaser intends to solicit
Consents in substance previously described to the Company to amend or
eliminate certain sections of the Indenture, dated as of April 19, 1996 among
the Company, the Guarantors party thereto and Fleet National Bank, as Trustee
(the "Indenture") and any other sections thereof agreed to by the Company, so
that such Sections are not applicable to or after the Merger or are amended
following the consummation of the Note Tender Offer or the Merger. Purchaser
agrees that its obligation to accept for payment and pay for the Notes and
related Consents tendered pursuant to the Note Tender Offer shall be subject to
the condition that (i) the aggregate principal amount of Notes validly tendered
and not withdrawn prior to the expiration of the Note Tender Offer, combined
with the Notes already owned by Parent, Purchaser or any of their affiliates,
constitutes at least 66 2/3% in aggregate principal amount of the then
outstanding Notes at the expiration of the Note Tender Offer (the "Minimum Note
Condition"), (ii) Purchaser receive Consents from at least 66 2/3% of the
outstanding principal amount of the Notes, (iii) Purchaser has acquired or is
simultaneously acquiring not less than 51% of the then outstanding
4
<PAGE>
Shares (the "Stock Purchase Condition"), and (iv) also shall be subject to the
satisfaction of the other conditions set forth in Annex B hereto (including,
without limitation, the Minimum Stock Condition). Purchaser expressly reserves
the right to waive any such condition, to increase the price payable for each
Note and related Consent tendered in the Note Tender Offer, and to make any
other changes in the terms and conditions of the Note Tender Offer; provided,
however, that Purchaser agrees that no change may be made without the consent of
the Company which decreases the price payable for each Note and related Consent
tendered in the Note Tender Offer, which reduces the Minimum Note Condition,
which eliminates the Stock Purchase Condition which otherwise modifies or amends
the conditions to the Note Tender Offer or any other term of the Note Tender
Offer in a manner that is materially adverse to the holders of the Notes, which
imposes conditions to the Note Tender Offer in addition to those set forth in
Annex B hereto, or which extends the expiration date of the Note Tender Offer
beyond January 4, 1999 (except that Purchaser may extend the expiration date of
the Note Tender Offer through January 9, 1999 as required to comply with any
rule, regulation or interpretation of the SEC). The Purchaser further agrees
that unless otherwise agreed to by the Company, it will be obligated to extend
the expiration of the Consent Solicitation until the earlier of (i) the receipt
of Consents from at least 66-2/3 of the then outstanding principal amount of the
Notes and tender to the Purchaser of not less than 66-2/3% in aggregate
principal amount of the then outstanding Notes and (ii) 20 business days after
the commencement of the Note Tender Offer. The Note Tender Offer shall provide
that any tender of Notes under the Note Tender Offer shall also constitute a
Consent. Subject to the terms and conditions of the Note Tender Offer
(including, without limitation, the Minimum Note Condition), Purchaser agrees to
pay, as promptly as practicable after expiration of the Note Tender Offer, for
all Notes and related Consents validly tendered and not withdrawn.
(b) Parent and Purchaser agree to disseminate to the record holders
of the Notes, and to the extent disclosed to Parent or Purchaser by the
Company, the beneficial owners of the Notes (collectively, the
"Noteholders"), the Note Tender Offer pursuant to the terms of an offer to
purchase and consent solicitation statement, together with related letters
of transmittal and similar ancillary agreements (such documents, together
with all supplements and amendments thereto, being referred to herein
collectively as the "Note Tender Offer Documents"), which shall
5
<PAGE>
have been provided to the Company and its counsel a reasonable time prior to
dissemination to holders of the Notes and to which the Company shall not have
reasonably objected. Parent, Purchaser and the Company agree to correct promptly
any information provided by any of them for use in the Note Tender Offer
Documents which shall have become false or misleading, and Parent and Purchaser
further agree to take all steps necessary to cause the Note Tender Offer
Documents as so corrected to be disseminated to holders of Notes, in each case
as and to the extent required by applicable federal securities laws.
(c) At such time as Purchaser receives Consents from at least 66
2/3% of the outstanding principal amount of the Notes, the Company agrees to
execute, and to cause the Guarantors party to the Indenture to execute, and
will use all reasonable efforts to cause the trustee under the Indenture to
execute, a supplemental indenture (the "Supplemental Indenture") in order to
give effect to the amendments of the Indenture contemplated in the Note
Tender Offer Documents; provided, however, that notwithstanding the fact
that the Supplemental Indenture will become effective upon such execution,
the proposed amendments set forth therein (the "Proposed Amendments") will
not become operative unless and until the Minimum Note Condition is
satisfied and all other conditions to the Note Tender Offer set forth on
Annex B have been satisfied or waived by Parent and Purchaser and Purchaser
accepts all Notes (and related Consents) validly tendered for purchase and
payment pursuant to the Note Tender Offer. In such event, the parties hereto
agree that the Proposed Amendments will be deemed operative as of
immediately prior to such acceptance for payment, and Purchaser will
thereafter be obligated to make all payments for the Notes (and related
Consents) so tendered.
(d) The Company agrees to promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Notes and
with security position listings of the Notes held in depositories, each as
of a recent date, together with all other available listings and computer
files containing names, addresses and security position listings of
Noteholders. The Company agrees to furnish Purchaser with such additional
information, including, without limitation, updated listings and computer
files of Noteholders, mailing labels and security position listings, and
such other assistance as Purchaser or its agents may reasonably request.
Subject to the requirements of applicable law, and except for such steps as
are necessary to
6
<PAGE>
disseminate the Note Tender Offer Documents and any other documents
necessary to consummate the transactions contemplated thereby, Purchaser
shall hold in confidence the information contained in such labels, listings
and files, shall use such information only in connection with the Note
Tender Offer and, if this Agreement shall be terminated in accordance with
Section 8.01, shall deliver to the Company all copies of such information
then in its possession.
(e) Parent and Purchaser agree that they will not solicit Consents
in the Consent Solicitation to amend or eliminate any section of the
Indenture, that, by the terms thereof, requires the approval of the holders
of 100% of the outstanding principal amount of the Notes.
SECTION 1.03 Company Action. (a) The Company hereby approves of and
consents to the Offer and the Note Tender Offer and represents that (i) the
Board, at a meeting duly called and held on November 11, 1998, has
unanimously (A) determined that this Agreement, the Stock Option Agreement
and the transactions contemplated hereby, including each of the Offer and
the Merger, are fair to and in the best interests of the stockholders of the
Company and has declared this Agreement and the transactions contemplated
hereby to be advisable, (B) approved and adopted this Agreement, the Stock
Option Agreement and the transactions contemplated hereby and thereby,
including, without limitation, the Merger, and such approval (the "Section
203 Approval") constitutes approval of the foregoing for purposes of Section
203 of Delaware Law, (C) taken all necessary action to avoid the occurrence
of a "Distribution Date" (as defined in the Rights Agreement referred to in
Section 2.06) with respect to the Rights, (D) recommended that the
stockholders of the Company accept the Offer and approve and adopt this
Agreement and the transactions contemplated hereby, including, without
limitation, the Merger, (E) based on the alternatives considered by the
Board at such meeting, expressed its belief, while offering no formal opinion,
that acceptance of the Note Tender Offer is preferable to such alternatives, and
(F) approved the modifications to the Notes and the Indenture as provided for in
the Consents, and (ii) Warburg Dillon Read LLC has delivered to the Board a
written opinion to the effect that, as of the date of such opinion, the
consideration to be received by the holders of Shares (other than Parent,
Purchaser and their affiliates) pursuant to each of the Offer and the Merger is
fair to such holders of Shares from a financial point of view. Subject only to
the fiduciary duties of the Board
7
<PAGE>
under applicable law as determined by the Board in good faith following
consultation with the Company's outside counsel, the Company hereby consents to
the inclusion in the Offer Documents of the recommendation of the Board
described in the immediately preceding sentence. The Company represents to
Parent and Purchaser that the Company has been advised by each of its directors
and executive officers (which shall consist of the President, each Executive
Vice President and any Senior Vice President that beneficially owns in excess of
5,000 Shares) that they intend (i) either to tender or cause to be tendered all
Shares beneficially owned by them to Purchaser pursuant to the Offer or to vote
such Shares in favor of the approval and adoption by the stockholders of the
Company of this Agreement and the transactions contemplated hereby, and (ii) to
tender or cause to be tendered all Notes beneficially owned by them to Purchaser
pursuant to the Note Tender Offer, and, with respect to such Notes, to give the
Consents solicited pursuant to the Consent Solicitation.
(b) As soon as reasonably practicable on the date of commencement
of the Offer, the Company agrees that it will file with the SEC a
Solicitation/Recommendation Statement on Schedule 14D-9 (together with all
amendments and supplements thereto, the "Schedule 14D-9") containing,
subject only to the fiduciary duties of the Board under applicable law as
determined by the Board in good faith following consultation with the
Company's outside counsel, the recommendation of the Board described in
Section 1.03(a) and shall disseminate the Schedule 14D-9 to the extent
required by Rule 14d-9 promulgated under the Securities Exchange Act of
1934, as amended (the "Exchange Act"), and any other applicable federal
securities laws. The Company will take all steps necessary to ensure that
the Schedule 14D-9 will comply in all material respects with the provisions
of applicable federal and state securities laws. The Company, Parent and
Purchaser agree to correct promptly any information provided by any of them
for use in the Schedule 14D-9 which shall have become false or misleading,
and the Company further agrees to take all steps necessary to cause the
Schedule 14D-9 as so corrected to be filed with the SEC and disseminated to
holders of Shares, in each case as and to the extent required by applicable
federal securities laws. Parent and its counsel shall be given a reasonable
opportunity to review
8
<PAGE>
and comment upon the Schedule 14D-9 and all amendments and supplements thereto
prior to their filing with the SEC or dissemination to stockholders of the
Company. The Company and its counsel shall be given a reasonable opportunity to
review and comment upon the Offer Documents prior to their filing with the SEC
or dissemination to stockholders of the Company. The Company agrees to provide
Parent and its counsel with copies of any written comments that the Company or
its counsel may receive from the SEC or its staff with respect to the Schedule
14D-9 promptly after the receipt of such comments and each of Parent and
Purchaser agrees to provide the Company and its counsel with copies of any
written comments that Parent, Purchaser or their counsel may receive from the
SEC or its staff with respect to the Offer Documents promptly after the receipt
of such comments.
(c) The Company agrees to promptly furnish Purchaser with mailing
labels containing the names and addresses of all record holders of Shares
and with security position listings of Shares held in stock depositories,
each as of a recent date, together with all other available listings and
computer files containing names, addresses and security position listings of
record holders and beneficial owners of Shares. The Company agrees to
furnish Purchaser with such additional information, including, without
limitation, updated listings and computer files of stockholders, mailing labels
and security position listings, and such other assistance as Parent, Purchaser
or their agents may reasonably request. Subject to the requirements of
applicable law, and except for such steps as are necessary to disseminate the
Offer Documents and any other documents necessary to consummate the Offer or the
Merger, Parent and Purchaser shall hold in confidence the information contained
in such labels, listings and files, shall use such information only in
connection with the Offer and the Merger and, if this Agreement shall be
terminated in accordance with Section 8.01, shall deliver to the Company all
copies of such information then in their possession.
ARTICLE II
THE MERGER
SECTION 2.01 The Merger. Upon the terms and subject to the
conditions set forth in Article VII, and in accordance with Delaware Law, at
the Effective Time (as hereinafter defined), Purchaser shall be merged with
and into the Company. As a result of the Merger, the separate corporate
existence of Purchaser shall cease and the Company shall continue as the
surviving corporation of the Merger (the "Surviving Corporation"), and shall
continue to be governed by the laws of the State of Delaware.
9
<PAGE>
SECTION 2.02 Effective Time; Closing. As promptly as practicable
after the satisfaction or, if permissible, waiver of the conditions set
forth in Article VII, the parties hereto shall cause the Merger to be
consummated by filing a certificate of merger (the "Certificate of Merger")
with the Secretary of State of the State of Delaware, in such form as is
required by, and executed in accordance with the relevant provisions of,
Delaware Law. The Merger shall become effective upon such filing or at such
time thereafter as is provided in the Certificate of Merger as the Company
and Parent shall agree (the "Effective Time"). Prior to such filing, a
closing shall be held at the offices of Weil, Gotshal & Manges LLP, 767
Fifth Avenue, New York, New York 10153, or such other place as the parties
shall agree, for the purpose of confirming the satisfaction or waiver, as
the case may be, of the conditions set forth in Article VII.
SECTION 2.03 Effect of the Merger. At the Effective Time, the
effect of the Merger shall be as provided in the applicable provisions of
Delaware Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time, all the property, rights, privileges, powers
and franchises of the Company and Purchaser shall vest in the Surviving
Corporation, and all debts, liabilities, obligations, restrictions,
disabilities and duties of the Company and Purchaser shall become the debts,
liabilities, obligations, restrictions, disabilities and duties of the
Surviving Corporation.
SECTION 2.04 Certificate of Incorporation; Bylaws. (a) The
Certificate of Incorporation of the Company, as in effect immediately prior
to the Effective Time, shall be the Certificate of Incorporation of the
Surviving Corporation until thereafter amended as provided by applicable law
and such Certificate of Incorporation.
(b) The Bylaws of the Company, as in effect immediately prior to
the Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of
the Surviving Corporation and such Bylaws.
SECTION 2.05 Directors and Officers. The directors of Purchaser
immediately prior to the Effective Time shall be the initial directors of
the Surviving Corporation, each to hold office in accordance with the
Certificate of Incorporation and Bylaws of the Surviving Corporation, and
the officers of Purchaser
10
<PAGE>
immediately prior to the Effective Time shall be the initial officers of the
Surviving Corporation, in each case until their respective successors are duly
elected or appointed and qualified, or until their earlier death, resignation or
removal in accordance with the Surviving Corporation's Certificate of
Incorporation and Bylaws.
SECTION 2.06 Conversion of Securities. At the Effective Time, by
virtue of the Merger and without any action on the part of Purchaser, the
Company or the holders of any of the Shares:
(a) Each Common Share and each Preferred Share, in each case
together with the associated right to purchase shares of Series B
Participating Cumulative Preferred Stock, par value $0.10 (individually, the
"Right" and collectively, the "Rights"), issued pursuant to the Rights
Agreement dated as of August 16, 1994, between the Company and Chemical
Bank, as Rights Agent (the "Rights Agreement"), issued and outstanding
immediately prior to the Effective Time (other than any Shares to be
canceled pursuant to Section 2.06(b) and Dissenting Shares (as defined in
Section 2.09)) shall be canceled and shall be converted automatically into
the right to receive an amount equal to the Per Share Cash Amount in cash
and an Equity DCCR (the "Merger Consideration"), payable, without interest,
to the holder of such Share, upon surrender, in the manner provided in
Section 2.08, of the certificate that formerly evidenced such Share;
(b) Each Share, together with the associated Right, owned by
Parent, Purchaser, the Company or any direct or indirect wholly owned
subsidiary of Parent or of the Company immediately prior to the Effective
Time shall be canceled and retired without any conversion thereof and no
payment or distribution shall be made with respect thereto; and
(c) Each share of common stock of Purchaser issued and outstanding
immediately prior to the Effective Time shall be converted into and exchanged
for one fully-paid and non-assessable share of common stock, par value $.01 per
share, of the Surviving Corporation.
SECTION 2.07 Stock Options; Warrants. (a) After the Effective Time,
to the extent provided for in the Stock Option Plans (as defined below),
each holder of an outstanding option to purchase any shares of capital stock
of the Company (in each case, an "Option") shall be entitled, upon exercise
of such Option, to
11
<PAGE>
receive, in lieu of Common Shares, an amount of cash and Equity DCCRs equal to
the amount thereof to which such holder would actually have been entitled if
such holder had exercised such option immediately prior to the Effective Time.
(b) The Company shall take all actions necessary and appropriate so
that all stock option or other equity based plans maintained with respect to
the Shares, including, without limitation, the plans listed in Section 3.03
of the Disclosure Schedule ("Stock Option Plans"), shall terminate as of the
Effective Time and the provisions in any other Plan providing for the
issuance, transfer or grant of any capital stock of the Company or any
interest in respect of any capital stock of the Company shall be deleted as
of the Effective Time, and the Company shall use its best efforts to ensure
that following the Effective Time no holder of an Option or any participant
in any Stock Option Plan shall have any right thereunder to acquire any
capital stock of the Company, Parent, Purchaser or the Surviving
Corporation.
(c) After the Effective Time, to the extent provided for in the
Warrants, each holder of Warrants shall be entitled, upon exercise of such
Warrants, to receive, in lieu of Common Shares, an amount of cash and Equity
DCCRs equal to the amount thereof to which such holder would actually have
been entitled if such holder had exercised such Warrant immediately prior to
the Effective Time.
(d) Prior to the Effective Time, the Company shall (i) use all
reasonable efforts (but not including any payment to holders of Options or
Warrants) to obtain all necessary consents from, and provide (in a form
acceptable to Parent) any required notices to, holders of Warrants and
Options, and (ii) amend the terms of the applicable Stock Option Plan, in
each case as is necessary to give effect to the provisions of paragraphs (a)
and (b) of this Section 2.07.
(e) Stock Purchase Plan. With respect to the options pursuant to
the Hills Associate Stock Purchase Plan:
(i) the holder of each option outstanding as of the
Effective Time will be entitled to receive as of the Effective Time
upon exercise, in lieu of the number of Common Shares as to which
such option was exercisable, the Merger Consideration to which such
holder would have been entitled pursuant to the terms of this
Agreement, as if such holder
12
<PAGE>
had been the holder of record (as of the last business day prior to
the Effective Time) of a number of shares of Common Shares equal to
the number of shares for which such option was exercisable;
provided, however, that if the Effective Time is on or before
December 31, 1998, such holder shall be entitled to receive his
contributions to such Plan to the extent provided for in such Plan;
and
(ii) the Company shall amend the Hills Associate Stock
Purchase Plan to provide for (A) the suspension of participation
during any offering periods commencing subsequent to the date of
this Agreement for the pendency of the Merger and subject to the
successful consummation of the Merger and (B) the termination of
the Plan as of the Effective Time.
SECTION 2.08 Surrender of Shares; Stock Transfer Books. (a) Prior
to the Effective Time, Parent shall designate Chase Mellon Shareholder
Services or such other bank or trust company as shall be reasonably
acceptable to the Company to act as agent (the "Paying Agent") for the
holders of Shares in connection with the Merger to receive the funds to
which holders of Shares shall become entitled pursuant to Section 2.06(a),
and Parent shall deposit with such Paying Agent an amount sufficient to pay
the aggregate Per Share Cash Amount. Such funds shall be invested by the
Paying Agent as directed by the Surviving Corporation, provided that such
investments shall be in obligations of or guaranteed by the United States of
America or of any agency thereof and backed by the full faith and credit of
the United States of America or in commercial paper obligations rated A-1 or
P-1 or better by Moody's Investors Service, Inc. or Standard & Poor's
Ratings Group, respectively.
(b) Promptly after the Effective Time, the Surviving Corporation
shall cause to be mailed to each person who was, at the Effective Time, a
holder of record of Shares entitled to receive the Merger Consideration
pursuant to Section 2.06(a) a form of letter of transmittal (which shall
specify that delivery shall be effected, and risk of loss and title to the
certificates evidencing such Shares (the "Certificates") shall pass, only
upon proper delivery of the Certificates to the Paying Agent) and
instructions for use in effecting the surrender of the Certificates pursuant
to such letter of transmittal (or, if such Shares are uncertificated, such
other form of evidence of record ownership as is required by the Paying
Agent). Upon surrender to
13
<PAGE>
the Paying Agent of a Certificate (or, with respect to uncertificated Shares,
such other evidence of record ownership as is required by the Paying Agent),
together with such letter of transmittal, duly completed and validly executed in
accordance with the instructions thereto, and such other documents as may be
required pursuant to such instructions, the holder of such Certificate (or
uncertificated Share, as the case may be) shall be entitled to receive in
exchange therefor the Per Share Cash Amount for each Share formerly evidenced by
such Certificate (or uncertificated Share, as the case may be), and such
Certificate (or uncertificated Share, as the case may be) shall then be
canceled. No interest shall accrue or be paid on the Merger Consideration
payable upon the surrender of any Certificate (or uncertificated Share, as the
case may be) for the benefit of the holder of such Certificate (or
uncertificated Share, as the case may be). If payment of the Merger
Consideration is to be made to a person other than the person in whose name the
surrendered Certificate (or uncertificated Share, as the case may be) is
registered on the stock transfer books of the Company, it shall be a condition
of payment to the holder of a Certificate that it be endorsed properly or, with
respect to Certificates and uncertificated Shares, otherwise be in proper form
for transfer and that, with respect to Certificates and uncertificated Shares,
the person requesting such payment shall have paid all transfer and other taxes
required by reason of the payment of the Merger Consideration to a person other
than the registered holder thereof or shall have established to the satisfaction
of the Surviving Corporation that such taxes either have been paid or are not
applicable.
(c) At any time following 90 days after the Effective Time, the
Surviving Corporation shall be entitled to require the Paying Agent to
deliver to it any funds which had been made available to the Paying Agent
and not disbursed to holders of Shares (including, without limitation, all
interest and other income received by the Paying Agent in respect of all
funds made available to it) and, thereafter, such holders shall be entitled
to look to the Surviving Corporation (subject to abandoned property, escheat
and other similar laws) only as general creditors thereof with respect to
any Merger Consideration that may be payable upon due surrender of the
Certificates held by them (or, if such Shares are uncertificated, such other
form of evidence of record ownership as is required by the Paying Agent),
without any interest thereon. Notwithstanding the foregoing, neither the
Surviving Corporation nor the Paying Agent shall be
14
<PAGE>
liable to any holder of a Share for any Merger Consideration delivered in
respect of such Share to a public official pursuant to any abandoned property,
escheat or other similar law.
(d) At the close of business on the day of the Effective Time, the
stock transfer books of the Company shall be closed and, thereafter, there
shall be no further registration of transfers of Shares on the records of
the Company. From and after the Effective Time, the holders of Shares
outstanding immediately prior to the Effective Time shall cease to have any
rights with respect to such Shares except as otherwise provided herein or by
applicable law.
(e) If any Certificate shall have been lost, stolen or destroyed,
upon the making of an affidavit of that fact by the Person claiming such
Certificate to be lost, stolen or destroyed and, if required by the
Surviving Corporation, the posting by such Person of a bond in such
reasonable amount as the Surviving Corporation may direct as indemnity against
any claim that may be made against it with respect to such Certificate, the
Paying Agent shall pay in exchange for such lost, stolen or destroyed
Certificate the Merger Consideration pursuant to this Agreement.
SECTION 2.09 Dissenting Shares. Notwithstanding any other provision
of this Agreement to the contrary, Shares that are outstanding immediately
prior to the Effective Time and which are held by stockholders who shall
have not voted in favor of the Merger or consented thereto in writing and
who properly shall have demanded appraisal for such shares in accordance
with Delaware Law (collectively, the "Dissenting Shares") shall not be
converted into or represent the right to receive the Merger Consideration.
Such stockholders instead shall be entitled to receive payment of the
appraised value of such Shares held by them in accordance with the
provisions of Delaware Law, except that all Dissenting Shares held by
stockholders who shall have failed to perfect or who effectively shall have
withdrawn or otherwise lost their rights to appraisal of such Shares under
Delaware Law shall thereupon be deemed to have been converted into and to
have become exchangeable, as of the Effective Time, for the right to
receive, without any interest thereon, the Merger Consideration upon
surrender in the manner provided in Section 2.08, of the Certificate or
Certificates (or, if such Shares are uncertificated, such other form of
evidence of record ownership as is required by the Paying Agent) that,
immediately prior to the Effective Time, evidenced such Shares. The Company
shall give
15
<PAGE>
Parent (i) prompt notice of any written demands for appraisal of any Shares,
attempted withdrawals of such demands and any other instruments served pursuant
to Delaware Law and received by the Company relating to stockholders' rights of
appraisal, and (ii) the opportunity to direct all negotiations and proceedings
with respect to demands for appraisal under Delaware Law. The Company shall not,
except with the prior written consent of Parent, voluntarily make any payment
with respect to, or settle or offer to settle, any such demand for payment.
SECTION 2.10 Withholding Taxes. Parent and Purchaser shall be
entitled to deduct and withhold, or cause the Paying Agent to deduct and
withhold, from the Per Share Cash Amount or the Merger Consideration payable
to a holder of Shares pursuant to the Offer or the Merger any withholding
and stock transfer Taxes and such amounts as are required under the Code, or
any applicable provision of state, local or foreign Tax law. To the extent
that amounts are so withheld by Parent or Purchaser, such withheld amounts
shall be treated for all purposes of this Agreement as having been paid to
the holder of the Shares in respect of which such deduction and withholding
was made by Parent or Purchaser.
SECTION 2.11 Certain Matters Relating to Deferred Contingent Cash
Rights. (a) No DCCR shall (i) be transferable by any recipient thereof in
connection with the Offer, the Merger or the Note Tender Offer, except by
will or pursuant to the laws of descent and distribution or by operation of
law, (ii) be evidenced by a certificate or other instrument, (iii) possess any
voting rights, (iv) receive or be entitled to receive any dividends or interest,
or (v) represent any equity interest in the Surviving Corporation.
(b) The Surviving Corporation will maintain books of record of the
recipients of DCCRs in the Offer, the Merger and the Note Tender Offer as
provided by this Agreement. Such books of record shall show the names and
addresses of the respective recipients of DCCRs.
(c) Payment, if any, on the DCCRs shall be made to the registered
recipients thereof from time to time following the date on which the
Surviving Corporation receives and accumulates $1,000,000 of previously
undistributed Net Recovery after the establishment of a reasonable reserve.
Any such payments on the DCCRs shall be made to the registered recipients of
DCCRs at their respective addresses in the books of record of the Surviving
16
<PAGE>
Corporation. All Cash Payments shall be maintained in a segregated account
until distributed and shall be invested in U.S. government obligations to
the extent practicable, and any interest thereon shall be added to the Net
Recovery.
(d) Unless otherwise agreed to by the Litigation Committee, the
Surviving Corporation shall continue to prosecute and defend the Hills
Litigation; provided, however, that in no event shall the Surviving
Corporation be obligated to expend after consummation of the Offer an amount
in excess of $1,000,000 (the "Litigation Cap") in connection with such
prosecution and defense, exclusive of payments or advances to or on behalf
of other parties to the Hills Litigation relating to claims of
indemnification. The Hills Litigation shall continue to be prosecuted and
defended by the law firm of Kramer Levin Naftalis & Frankel LLP, unless
otherwise agreed to by the Surviving Corporation and the Litigation
Committee; provided, however, the Surviving Corporation may engage other
counsel to defend the Hills Litigation, in which case the costs of such
defense shall not be included in the Litigation Cap; and provided further
that, at such time as the Litigation Cap and any Non-Recourse Financing
shall have been expended, the Surviving Corporation shall have sole
discretion in choosing a law firm to continue to prosecute the Hills
Litigation. Subject only to the two foregoing sentences, and notwithstanding
anything to the contrary in this Agreement or otherwise, the Surviving
Corporation shall retain sole and exclusive control of the Hills Litigation,
provided, however, that, unless the amount of the Litigation Cap and any
Non-Recourse Financing have been expended, the Surviving Corporation shall
not settle or dismiss the Hills Litigation without the consent of a majority
of the Litigation Committee, which consent shall not unreasonably be
withheld.
(e) Notwithstanding anything to the contrary in this Agreement or
otherwise, (i) no recipient of DCCRs shall have any rights against the
Surviving Corporation or its directors,
officers, stockholders or affiliates or the Litigation Committee for any
decision regarding the conduct or disposition of the Hills Litigation, and
(ii) the Surviving Corporation's determination of the amounts of the Net
Recovery will be final, conclusive and binding on the recipients of DCCRs,
subject to review by the Litigation Committee of such computation.
Notwithstanding anything to the contrary in this Agreement or otherwise, any
and all distributions of Net Recovery, if any, shall be in compliance
17
<PAGE>
with applicable laws, including, but not limited to, applicable federal and
state securities laws.
(f) The members of the Litigation Committee shall have no other
duties, rights or obligations except as specifically set forth herein and no
implied covenants or obligations shall be read in to this Agreement against
such members. The Litigation Committee shall be entitled to an aggregate fee
of 2% of the Net Recovery, if any, (the "Committee Fee"), less any Advances
(as defined below) from the Surviving Corporation as full compensation for
performance of their services hereunder. The Surviving Corporation shall
make an advance at the rate of $10,000 per annum to each member of the
Litigation Committee (the "Advances") for a period equal to the earlier of
three years from the Effective Time or the final distribution of all Net
Recovery. Such Advances shall be considered an expenditure by the Surviving
Corporation in prosecution of the Hills Litigation.
(g) Subject to the next sentence, the Surviving Corporation shall
indemnify and hold harmless each member of the Litigation Committee from any
third party judgments, losses, claims, damages and liabilities with respect
to the performance of his responsibilities hereunder (including reasonable
attorneys fees, costs of investigation and other expenses reasonably
incurred by the Litigation Committee in performing its responsibilities
hereunder), except to the extent that a court of competent jurisdiction
issues a final decision that such member acted in bad faith or with gross
negligence or willful misconduct. The foregoing obligation of
indemnification shall be limited to unexpended funds under the Litigation
Cap and the amount of any Net Recovery.
(h) Notwithstanding anything to the contrary contained in this
Agreement or otherwise, if no payments of the DCCRs have been made by the
fifth anniversary of the Effective Time, the DCCRs shall expire and the
Surviving Corporation shall have no further obligations with respect
thereto; provided however, that the Surviving Corporation and the Litigation
Committee will use commercially reasonable efforts to extend the term hereof
if the Hills Litigation is not resolved within such five year period or if
any settlement entered into has not been fully performed.
(i) The Litigation Committee, to the extent required, is authorized
to obtain financing ("Non-Recourse Financing") to prosecute and defend the
Hills Litigation in the event the
18
<PAGE>
Litigation Cap is fully expended; provided that such financing is recourse only
to the Net Recovery, on terms otherwise reasonably satisfactory to Parent and
the Surviving Corporation, and without cost (other than its proportionate share
of the Net Recovery) or contractual liability to Parent or the Surviving
Corporation.
(j) The Litigation Committee may enforce the provisions of the
Merger Agreement relating to the DCCRs on behalf of the recipients, and
shall be entitled to reimbursement of their expenses (including costs of
investigation and reasonable attorneys fees) in connection therewith
irrespective of whether the Litigation Committee prevails in such
enforcement action, unless such enforcement action is not in good faith or
without basis in law or fact. The foregoing reimbursement shall be limited
to unexpended funds under the Litigation Cap and the amount of any Net
Recovery. The Litigation Committee shall have the authority to act on behalf
of the recipients in resolving with the Surviving Corporation any
ambiguities in this Agreement pertaining to the DCCRs, and to compromise or
settle with the Surviving Corporation on behalf of the recipients any
conflicts or disputes relating to the DCCRs.
(k) For the purposes of this Section 2.11 and the definitions of "Hills
Litigation" and "Net Recovery" in Section 9.03, the term "Surviving Corporation"
shall refer to either the Surviving Corporation or the Company after the
consummation of the Offer and the terms "Company" and "Surviving Corporation"
shall include in each case any of their respective Subsidiaries.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to Parent and Purchaser
that:
SECTION 3.01 Organization and Qualification; Subsidiaries. Each of
the Company and each subsidiary of the Company (a "Subsidiary") is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation and has the requisite power
and authority and all necessary governmental approvals to own, lease and
operate its properties and to carry on its business as it is now being
conducted. The Company and each Subsidiary is duly qualified or licensed as
a foreign corporation to do business, and is in good standing, in each
jurisdiction where the character of the properties owned, leased or operated
by it or the nature of its
19
<PAGE>
business makes such qualification or licensing necessary, except for such
failures to be so qualified or licensed and in good standing that would not,
individually or in the aggregate, have a Material Adverse Effect (as defined
below). When used in connection with the Company or any Subsidiary, the term
"Material Adverse Effect" means any effect that is or is reasonably likely to be
materially adverse to the business, results of operation, financial condition,
assets or liabilities (including, without limitation, contingent liabilities) of
the Company and the Subsidiaries taken as a whole, except that, with regard to
the financial condition or results of operation of the Company, it shall
constitute a Material Adverse Effect only if, at December 26, 1998, (i) Working
Capital is less than $197,000,000, or (ii) the sum of the outstanding balance
under the Loan Agreement and book merchandise/trade accounts payable owed by the
Company and its Subsidiaries exceeds $230,000,000 (the "Financial MAC"). A true
and complete list of all the Subsidiaries, together with the jurisdiction of
incorporation of each Subsidiary and the percentage of the outstanding capital
stock of each Subsidiary owned by the Company and each other Subsidiary, is set
forth in Section 3.01 of the Disclosure Schedule, which has been delivered prior
to the date of this Agreement by the Company to Parent (the "Disclosure
Schedule"). Except as disclosed in such Section 3.01, the Company does not
directly or indirectly beneficially own any equity or similar interest in, or
any interest convertible into or exchangeable or exercisable for any equity or
similar interest in, any corporation, partnership, limited liability company,
joint venture or other business association or entity.
SECTION 3.02 Certificate of Incorporation and Bylaws. The Company
has heretofore furnished or made available to Parent a complete and correct
copy of the Certificate of Incorporation and the Bylaws or equivalent
organizational documents, each as amended to date (the "Constituent
Documents"), of the Company and each Subsidiary, in each case as amended as
of the date of this Agreement. The Constituent Documents of the Company and
its Subsidiaries are in full force and effect. Neither the Company nor any
Subsidiary is in violation of any provision of its Constituent Documents.
The Constituent Documents of the Subsidiaries of the Company do not contain
any provision limiting or otherwise restricting the ability of the Company
to control such Subsidiaries.
SECTION 3.03 Capitalization. The authorized capital stock of the
Company consists of 15,000,000 Preferred Shares and
20
<PAGE>
50,000,000 Common Shares. As of the date hereof, (i) 10,420,870 Common Shares
are issued and outstanding, all of which are validly issued, fully paid and
nonassessable, (ii) 5,407 Common Shares and 4,685 Preferred Shares are held in
the Company's treasury, (iii) no Shares are held by the Subsidiaries, (iv)
1,382,211 Common Shares are reserved for issuance pursuant to grants or awards
under the Stock Option Plans, (v) 432,903 Common Shares are reserved for
issuance upon exercise of warrants (the"Warrants") expiring on October 4, 2000,
with an exercise price of $30.00 per share, (vi) 848,931 Preferred Shares are
issued and outstanding, all of which are validly issued, fully paid and
nonassessable, and (vii) $195,000,000 in principal amount of the Notes are
outstanding. Except as set forth above or on Section 3.03 of the Disclosure
Schedule, as of the date of this Agreement: (i) no shares of capital stock or
other voting securities of the Company are issued, reserved for issuance or
outstanding; (ii) there are no stock appreciation rights, phantom stock units,
restricted stock grants, contingent stock grants or Plans which grant awards of
any of the foregoing, and there are no other outstanding contractual rights to
which the Company is a party the value of which is based on the value of Shares;
(iii) all outstanding shares of capital stock of the Company are, and all Shares
which may be issued will be, when so issued, duly authorized, validly issued,
fully paid and nonassessable and not subject to preemptive rights; and (iv)
there are no bonds, debentures, notes or other indebtedness of the Company
having the right to vote (or convertible into, or exchangeable for, securities
having the right to vote) on any matters on which stockholders of the Company
may vote. Except as set forth in this Section 3.03 or Section 3.03 of the
Disclosure Schedule, and except for the Stock Option Agreement, there are no
options, warrants or other rights, agreements, arrangements or commitments of
any character obligating the Company or any Subsidiary to issue or sell any
shares of capital stock of, or other equity interests in, the Company or any
Subsidiary. Section 3.03 of the Disclosure Schedule sets forth a list, as of the
date hereof, of the names of each person holding options under the Stock Option
Plans, and the number of shares purchasable under, the exercise price of such
options, date such options were granted and the date on which such options
expire. There are no outstanding contractual obligations of the Company or any
Subsidiary to repurchase, redeem or otherwise acquire any Shares or any capital
stock of any Subsidiary or to provide funds to, or make any investment (in the
form of a loan, capital contribution or otherwise) in, any Subsidiary or any
other person. Each outstanding share of capital
21
<PAGE>
stock of each Subsidiary is duly authorized, validly issued, fully paid and
nonassessable, and, except as set forth in Section 3.03 of the Disclosure
Schedule, each such share owned by the Company or another Subsidiary is owned
free and clear of all security interests, liens, claims, pledges, options,
rights of first refusal, agreements, limitations on the Company's or such other
Subsidiary's voting rights, charges and other encumbrances of any nature
whatsoever. Following the Effective Time, no holder of Options will have any
right to receive shares of common stock of the Surviving Corporation upon
exercise of Options.
SECTION 3.04 Authority Relative to this Agreement. The Company has
all necessary corporate power and authority to execute and deliver this
Agreement and the Stock Option Agreement, to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby, including, without limitation, all actions required to
be taken by the Company hereunder in connection with the Merger, the Offer
and the Note Tender Offer (the "Transactions"). The execution and delivery
of this Agreement and the Stock Option Agreement by the Company and the
consummation by the Company of the Transactions have been duly and validly
authorized by all necessary corporate action and no other corporate
proceedings on the part of the Company are necessary to authorize this
Agreement or the Stock Option Agreement or to consummate the Transactions
(other than, with respect to the Merger, the approval and adoption of this
Agreement by the affirmative vote of the stockholders of the Company to the
extent required by Delaware Law, the filing of the Certificate of Merger and,
with respect to the execution of the Supplemental Indenture, the satisfaction of
the Minimum Note Condition). Each of this Agreement and the Stock Option
Agreement has been duly and validly executed and delivered by the Company and,
assuming the due authorization, execution and delivery by Parent and Purchaser,
constitutes a legal, valid and binding obligation of the Company enforceable
against the Company in accordance with its terms, except that (i) such
enforcement may be subject to bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) the remedy of specific performance and injunctive relief may
be subject to equitable defenses and to the discretion of the court before which
any proceeding therefor may be brought.
SECTION 3.05 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement and
22
<PAGE>
the Stock Option Agreement by the Company do not, and the consummation of the
Transactions and compliance with the provisions of this Agreement and the Stock
Option Agreement by the Company will not, (i) conflict with or violate the
Constituent Documents of the Company or any Subsidiary, (ii) assuming that
required filings under the HSR Act (as hereinafter defined) are made by the
appropriate parties, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to the Company or any Subsidiary or by which any
property or asset of the Company or any Subsidiary is bound or affected, or
(iii) conflict with, result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give to others any right of termination, amendment, acceleration or
cancellation of, or result in the loss of a material benefit under, or result in
the creation of a lien or other encumbrance of any nature on any property or
asset of the Company or any Subsidiary pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which the Company or any Subsidiary is a party or by
which the Company or any Subsidiary or any property or asset of the Company or
any Subsidiary is bound or affected, except, in cases of (ii) and (iii), for any
such conflicts, violations, breaches, defaults or other occurrences which would
not, individually or in the aggregate, have a Material Adverse Effect.
(b) The execution and delivery of each of this Agreement and the
Stock Option Agreement by the Company do not, and the performance of this
Agreement and the Stock Option Agreement by the Company will not, require
any consent, approval, authorization or permit of, or registration,
declaration or filing with, or notification to, any governmental or
regulatory authority, domestic or foreign, except (i) for applicable
requirements, if any, of the Exchange Act, state securities or "blue sky"
laws ("Blue Sky Laws") and state takeover laws, the pre-merger notification
requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as
amended, and the rules and regulations promulgated thereunder (the "HSR Act"),
and filing of the Certificate of Merger pursuant to Delaware Law, 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
the Offer, the Note Tender Offer or the Merger, or otherwise prevent the Company
from performing its obligations under this Agreement or the Stock Option
Agreement, and would not, individually or in the aggregate, have a
23
<PAGE>
Material Adverse Effect. The Board has taken all appropriate action so that
neither Parent nor Purchaser will be an "interested stockholder" within the
meaning of Section 203 of Delaware Law by virtue of Parent, Purchaser and the
Company entering into this Agreement or the Stock Option Agreement or any other
agreement contemplated hereby or thereby and consummating the Transactions.
SECTION 3.06 Compliance. Except as set forth in Section 3.06 of the
Disclosure Schedule, neither the Company nor any Subsidiary is in default or
violation of (i) any law, rule, regulation, order, judgment or decree
applicable to the Company or any Subsidiary or by which any property or
asset of the Company or any Subsidiary is bound or subject, or (ii) any
note, bond, mortgage, indenture, contract, agreement, lease, license,
permit, franchise or other instrument or obligation to which the Company or
any Subsidiary is a party or by which the Company or any Subsidiary or any
property or asset of the Company or any Subsidiary is bound or affected,
except for any such defaults or violations that would not, individually or
in the aggregate, (x) have a Material Adverse Effect, or (y) prevent or
delay consummation of the Offer, the Note Tender Offer or the Merger, or
otherwise prevent the Company from performing its obligations under this
Agreement.
SECTION 3.07 SEC Filings; Financial Statements. (a) The Company has
filed all forms, reports and documents required to be filed by it with the
SEC since February 3, 1996, and has heretofore delivered or made available
to Parent, in the form filed with the SEC, (i) its Annual Reports on Form
10-K for the fiscal years ended February 3, 1996, February 1, 1997, and
January 31, 1998, respectively, (ii) its Quarterly Report on Form 10-Q for
the period ended August 1, 1998, (iii) all proxy statements relating to the
Company's meetings of stockholders (whether annual or special) held since
February 3, 1996, and (iv) all other forms, reports and other registration
statements (other than Quarterly Reports on Form 10-Q not referred to in
clause (ii) above) filed by the Company with the SEC since February 3, 1996
(the forms, reports and other documents referred to in clauses (i), (ii),
(iii) and (iv) above being referred to herein, collectively, as the "SEC
Reports"). The SEC Reports (i) were prepared in accordance with the
requirements of the Securities Act of 1933, as amended (the "Securities
Act"), and the Exchange Act, as the case may be, and the rules and
regulations promulgated thereunder and, at the time they were filed (or at
the effective date thereof with respect to registration statements under the
Securities Act)
24
<PAGE>
complied in all material respects with the requirements of the Securities Act,
or the Exchange Act, as the case may be, and the rules and regulations
promulgated thereunder applicable to such SEC Reports, and (ii) did not, at the
time they were filed (or at the effective date thereof with respect to
registration statements under the Securities Act), contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements made therein, in the light
of the circumstances under which they were made, not misleading. No Subsidiary
is required to file any form, report or other document with the SEC.
(b) The financial statements of the Company included in the SEC
Reports as of the dates of such SEC Reports, are true and complete and
complied as to form in all material respects with applicable accounting
requirements and the published rules and regulations of the SEC with respect
thereto, have been prepared in accordance with generally accepted accounting
principles ("GAAP") in the United States applied on a consistent basis
during the periods involved (except as may be indicated in the notes
thereto) and fairly presented the consolidated financial position of the
Company and its consolidated Subsidiaries as of the dates thereof and the
consolidated results of their operations and cash flows for the periods then
ended (subject, in the case of unaudited statements, to normal year-end
audit adjustments).
(c) Except as and to the extent set forth on the consolidated
balance sheet of the Company and the consolidated Subsidiaries as at January
31, 1998 including the notes thereto, in Section 3.07 of the Disclosure
Schedule or in any SEC Report filed by the Company after January 31, 1998,
neither the Company nor any Subsidiary has any liability or obligation of
any nature (whether accrued, absolute, contingent or otherwise) that would
be required to be reflected on a balance sheet, or in the notes thereto,
prepared in accordance with GAAP, except for liabilities and obligations
incurred in the ordinary course of business consistent with past practice
since January 31, 1998.
(d) The Company has heretofore furnished or made available to
Parent complete and correct copies of all amendments and modifications (if
any) that have not been filed by the Company with the SEC to all agreements,
documents and other instruments that previously had been filed by the
Company with the SEC and are currently in effect.
25
<PAGE>
SECTION 3.08 Absence of Certain Changes or Events. Since January
31, 1998 except as set forth in Section 3.08 of the Disclosure Schedule or
as contemplated by this Agreement or disclosed in any SEC Report filed since
January 31, 1998 and prior to the date of this Agreement, the Company and
the Subsidiaries have conducted their businesses only in the ordinary course
and in a manner consistent with past practice, there has not been (i) any
change in the business, operations, properties, financial condition, assets
or liabilities (including, without limitation, contingent liabilities) of
the Company or any Subsidiary having, individually or in the aggregate, a
Material Adverse Effect, (ii) any damage, destruction or loss (whether or not
covered by insurance) with respect to any property or asset of the Company or
any Subsidiary having, individually or in the aggregate, a Material Adverse
Effect, (iii) any material change by the Company in its accounting methods,
principles or practices, (iv) except for merchandise markdowns made in the
ordinary course of business, any material revaluation by the Company of any
asset (including, without limitation, any writing down of the value of inventory
or writing off of notes or accounts receivable), (v) any failure by the Company
to revalue any asset in accordance with GAAP, (vi) any entry by the Company or
any Subsidiary into any commitment or transaction material to the Company and
the Subsidiaries taken as a whole, (vii) any declaration, setting aside or
payment of any dividend or distribution in respect of any capital stock of the
Company or any redemption, purchase or other acquisition of any of its
securities, (viii) any material increase in or establishment of any material
bonus, insurance, severance, deferred compensation, pension, retirement, profit
sharing, stock option (including, without limitation, the granting of stock
options, stock appreciation rights, performance awards or restricted stock
awards), stock purchase or other employee benefit plan, or any other material
increase in the compensation payable or to become payable to any officers or key
employees of the Company or any Subsidiary, except in the ordinary course of
business consistent with past practice, or (ix) any entering into, renewal,
modification or extension of, any contract, arrangement or agreement with any
other party having, individually or in the aggregate, a Material Adverse Effect.
SECTION 3.09 Absence of Litigation. Except as set forth in Section
3.09 of the Disclosure Schedule or as disclosed in the SEC Reports filed
prior to the date of this Agreement, (a) there is no claim, suit, action,
proceeding or investigation pending or, to the knowledge of the Company,
threatened against the Company or any Subsidiary, or any property or asset
of the Company or
26
<PAGE>
any Subsidiary, before any court, arbitrator or administrative, governmental or
regulatory authority or body, domestic or foreign, which (i) individually or in
the aggregate, is reasonably likely to have a Material Adverse Effect, or (ii)
seeks to, or is reasonably likely to, prevent or delay the consummation of the
Offer, the Note Tender Offer or the Merger, or otherwise prevent the Company
from Performing its obligations under this Agreement, and (b) as of the date
hereof, neither the Company nor any Subsidiary nor any property or asset of the
Company or any Subsidiary is subject to any order, writ, judgment, injunction,
decree, determination or award having, individually or in the aggregate, a
Material Adverse Effect.
SECTION 3.10 Employee Benefit Plans. (a) Section 3.10(a) of the
Disclosure Schedule contains a true and complete list of all employee
benefit plans (within the meaning of Section 3(3) of the Employee Retirement
Income Security Act of 1974, as amended ("ERISA")) and all other material
employee benefit arrangements or payroll practices, including, without
limitation, bonus, stock option, stock purchase, restricted stock, incentive,
deferred compensation, retiree medical or life insurance, supplemental
retirement or severance plans, programs or policies, and all employment,
termination or severance contracts to which the Company or any Subsidiary is a
party, with respect to which the Company or any Subsidiary has any material
obligation or which are maintained, contributed to or sponsored by the Company
or any Subsidiary for the benefit of any current or former employee, officer or
director of the Company or any Subsidiary (collectively, the "Plans"). Except as
set forth in Section 3.10(a) of the Disclosure Schedule, neither the Company,
any Subsidiary or any trade or business (whether or not incorporated) which is
or has ever been under common control, or which is or has ever been treated as a
single employer, with the Company or any Subsidiary under Section 414(b), (c),
(m) or (o) of the Code ("ERISA Affiliate") has within the last six years
contributed or been obligated to contribute to an "employee pension plan", as
defined in Section 3(2) of ERISA, subject to Title IV of ERISA or Section 412 of
the Code, or a multiemployer plan, as defined in Section 3(37) of ERISA
("Multiemployer Plan"). The Company has previously furnished or made available
to Parent a true and complete copy of each Plan (and all amendments thereto) and
a true and complete copy of each material document prepared in connection with
each Plan, including, without limitation, to the extent applicable (i) a copy of
each trust or other funding arrangement
27
<PAGE>
(and all amendments thereto), (ii) each summary plan description and summary of
material modifications, (iii) the three most recently filed Internal Revenue
Service ("IRS") Forms 5500 and all schedules and attachments thereto, (iv) the
most recently received IRS determination letter for each such Plan, and (v) the
most recently prepared actuarial valuation report and financial statement in
connection with each such Plan. Except as set forth in Section 3.10(a) of the
Disclosure Schedule, neither the Company nor any Subsidiary has within the last
six months made a general written announcement or entered into an agreement (i)
to create or adopt a new benefit plan or (ii) except in the ordinary course of
business consistent with past practice or as required by applicable law, to
amend any Plan.
(b) Except as set forth on Section 3.10(b) of the Disclosure
Schedule, any Plan intended to qualify under Section 401 of the Code is the
subject of a favorable IRS determination letter, and nothing has occurred
with respect to the operation of any such Plan which is reasonably likely to
cause the loss of such qualification or exemption or the imposition of any
liability, penalty or tax under ERISA or the Code.
(c) Except as set forth on Section 3.10(c) of the Disclosure
Schedule, (i) the Plans have been maintained, in all material respects, in
accordance with their terms and with all provisions of ERISA and the Code
(including rules and regulations thereunder) and other applicable federal
and state laws and regulations; (ii) neither the Company nor any Subsidiary
nor, to the Company's knowledge, any "party in interest" or "disqualified
person" with respect to the Plans has engaged in a non-exempt "prohibited
transaction" within the meaning of Section 4975 of the Code or Section 406 of
ERISA; (iii) to the Company's knowledge, no fiduciary has any liability for
breach of fiduciary duty or any other failure to act or comply in connection
with the administration or investment of the assets of any Plan; (iv) there are
no pending actions, claims or lawsuits which have been asserted or instituted
against the Plans, the assets of any of the trusts under such plans or the plan
sponsor or the plan administrator, or, to the Company's knowledge, against any
fiduciary of the Plans with respect to the operation of such plans (other than
routine benefit claims), nor does the Company or any Subsidiary have knowledge
of facts which could reasonably be expected to form the basis for any such claim
or lawsuit; and (v) all amendments and actions required to bring the Plans into
conformity in all material respects with all of the applicable
28
<PAGE>
provisions of the Code, ERISA and other applicable laws have been made or taken
except to the extent that such amendments or actions are not required by law to
be made or taken until a date after the Effective Time.
(d) All contributions (including all employer contributions and
employee salary reduction contributions) required to have been made under
any of the Plans or by law (without regard to any waivers granted under
Section 412 of the Code), to any funds or trusts established thereunder or
in connection therewith have been made by the due date thereof (including
any valid extension), and all contributions for any period ending on or
before the Effective Time which are not yet due will have been paid or
accrued on the Company's financial statements filed with the SEC Reports on
or prior to the Effective Time.
(e) Except as set forth on Section 3.10(e) of the Disclosure
Schedule, none of the Plans provide for post-employment life or health
insurance, benefits or coverage for any participant or any beneficiary of a
participant, except as may be required under the Consolidate Omnibus Budget
Reconciliation Act of 1985, as amended ("COBRA") and at the expense of the
participant or the participant's beneficiary. Each of the Company, any
Subsidiary and any ERISA Affiliate which maintains a "group health plan"
within the meaning of Section 5000(b)(1) of the Code has complied with the
notice and continuation requirements of Section 4980B of the Code, COBRA,
Part 6 of Subtitle B of Title I of ERISA and the regulations thereunder.
(f) Except as set forth on Section 3.10(f) of the Disclosure
Schedule, no stock or other security issued by the Company or any Subsidiary
forms or has formed a material part of the assets of any Plan.
(g) Except as set forth in Section 3.10(g) of the Disclosure
Schedule, neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will, on account of any
plan, agreement or arrangement in effect prior to the Effective Time (i) result
in any payment of severance or unemployment compensation becoming due to any
director or any employee of the Company or any of the Subsidiaries under any
Plan or otherwise from the Company or any of the Subsidiaries, (ii) increase any
benefits otherwise payable under any Plan, or (iii) result in any acceleration
of the time of payment or vesting of any such benefit.
29
<PAGE>
(h) Except as disclosed in Section 3.10(h) of the Disclosure
Schedule, the Company and the Subsidiaries do not have any unfunded
liabilities under pension, retirement or other employee benefit plans,
programs or arrangements maintained outside the United States by the Company
or any of the Subsidiaries for the employees thereof.
SECTION 3.11 Labor Matters. None of the employees of the Company or
any Subsidiary the ("Employees") is represented in his or her capacity as an
employee of the Company or any Subsidiary by any labor organization, and
neither the Company nor any Subsidiary has entered into any collective
bargaining agreement or union contract recognizing any labor organization as
the bargaining agent of any Employees. To the knowledge of the Company,
there is no union organization activity involving any of the Employees,
pending or threatened. Since February 3, 1996, or except as set forth on
Section 3.11 of the Disclosure Schedule, there has never been union
representation involving any of the Employees and there are no picketing,
strikes, slowdowns, work stoppages, other job actions, lockouts,
arbitrations, grievances or other labor disputes involving any of the
Employees, pending or threatened. Except as disclosed on Section 3.11 of the
Disclosure Schedule, there are no material complaints, charges or claims
against the Company or any Subsidiary pending or, to any of their knowledge,
threatened which could be brought or filed, with any public or governmental
authority, arbitrator or court based on, arising out of, in connection with,
or otherwise relating to the employment or termination of employment or
failure to employ by the Company or any Subsidiary, of any individual.
Except as set forth on Section 3.11 of the Disclosure Schedule, the Company
and the Subsidiaries are in material compliance with all laws, regulations
and orders relating to the employment of labor, including all such laws,
regulations and orders relating to wages, hours, the Worker Adjustment and
Retraining Notification Act and any similar state or local "mass layoff" or
"plant closing" law ("WARN"), collective bargaining, discrimination, civil
rights, safety and health, workers' compensation and the collection and
payment of withholding and/or social security taxes. There has been no "mass
layoff" or "plant closing" as defined by WARN with respect to the Company
and any Subsidiary within the six (6) months prior to the Effective Time.
SECTION 3.12 Offer Documents; Schedule 14D-9; Proxy
Statement. None of the Schedule 14D-9, the information supplied
by the Company for inclusion in the Offer Documents or the Note
30
<PAGE>
Tender Offer Documents or the information to be filed by the Company in
connection with the Offer pursuant to Rule 14f-1 promulgated under the
Exchange Act (the "Information Statement") shall, at the respective times
the Schedule 14D-9, the Offer Documents, the Note Tender Offer Documents,
the Information Statement or any amendments or supplements thereto are filed
with the SEC or are first published, sent or given to stockholders of the
Company, as the case may be, contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or
necessary in order to make the statements made therein, in the light of the
circumstances under which they are made, not misleading. The proxy statement
to be sent to the stockholders of the Company in connection with the Special
Stockholders' Meeting (as defined in Section 6.01 hereof) (such proxy
statement, as amended or supplemented, being referred to herein as the
"Proxy Statement") shall not, at the date the Proxy Statement is first
mailed to stockholders of the Company or at the time of the Special
Stockholders' Meeting and the Effective Time, and, with respect to the
Information Statement at the time Shares are accepted for payment in the
Offer and with respect to the Note Tender Offer at the time the Notes (and
related Consents) are accepted for payment in the Note Tender Offer, be
false or misleading with respect to any material fact, or omit to state any
material fact required to be stated therein or necessary in order to make
the statements made therein, in the light of the circumstances under which
they are made, not misleading or, with respect to the Proxy Statement,
necessary to correct any statement in any earlier communication with respect
to the solicitation of proxies for the Special Stockholders' Meeting which
shall have become false or misleading. Notwithstanding the foregoing, the
Company makes no representation or warranty with respect to any information
supplied by Parent, Purchaser or any of their representatives which is
contained in any of the foregoing documents or the Offer Documents or the
Note Tender Offer Documents. The Schedule 14D-9, the Information Statement
and the Proxy Statement shall comply in all material respects as to form
with the requirements of the Exchange Act and the rules and regulations
thereunder.
SECTION 3.13 Tangible Property; Real Property and Leases. (a) The
Company and the Subsidiaries have good and marketable title to, or valid
leasehold interests in, all their tangible properties and assets to conduct
their respective businesses as currently conducted or as contemplated to be
conducted, except as set forth on Section 3.13 of the Disclosure Schedule.
31
<PAGE>
(b) No parcel of real property owned or leased by the Company is
subject in any material respect to any governmental decree or order to be
sold nor is being condemned, expropriated or otherwise taken by any public
authority with or without payment of compensation therefor, nor, to the
knowledge of the Company, has any such condemnation, expropriation or taking
been proposed.
(c) Section 3.13 of the Disclosure Schedule lists (a) all real
property owned by the Company and its Subsidiaries, and (b) all leases
(including all amendments and modifications thereto) pursuant to which the
Company or any of its Subsidiaries leases real or personal property, true,
correct and complete copies of which have previously been delivered or made
available to Parent. All leases of real property leased for the use or
benefit of the Company or any Subsidiary to which the Company or any
Subsidiary is a party and all amendments and modifications thereto are in
full force and effect and have not been modified or amended, and there
exists no default under any such lease by the Company or any Subsidiary, nor
any event which with notice or lapse of time or both would constitute a
default thereunder by the Company or any Subsidiary, except as would not
materially and adversely affect the use of the property by the Company or
the Subsidiary, as the case may be. Set forth on Section 3.13 of the
Disclosure Schedule is a true and correct copy of the rent roll for the
leases listed on Section 3.13 of the Disclosure Schedule, indicating for
each lease the name of the tenant, the name of the landlord, the address of
the property, the date of the lease and any amendments, the commencement and
termination dates, and extension options, if any.
SECTION 3.14 Trademarks, Patents and Copyrights. Except as set
forth in Section 3.14(a) of the Disclosure Schedule, the Company and the
Subsidiaries own or possess adequate licenses or other valid rights to use
all patents, patent rights, trademarks, trademark rights, trade names, trade
dress, trade name rights, copyrights, servicemarks, trade secrets,
applications for trademarks and for servicemarks, maskworks, know-how and
other proprietary rights and information used or held for use in connection
with the business of the Company and the Subsidiaries as conducted since
January 31, 1998, as currently conducted or as contemplated to be conducted,
and the Company is unaware of any assertion or claim challenging the
validity of any of the foregoing which, individually or in the aggregate,
would have a Material Adverse Effect. Section 3.14(b) of the Disclosure
Schedule lists each patent owned by the Company or any Subsidiary
32
<PAGE>
and specifies the number and date of each such patent. Section 3.14(c) of the
Disclosure Schedule lists each agreement pursuant to which a patent is licensed
to the Company or any Subsidiary as licensee for use in the business of the
Company and the Subsidiaries as currently conducted. Section 3.14(d) of the
Disclosure Schedule lists each trademark and servicemark owned by the Company,
or for which registration is currently pending. The conduct of the business of
the Company and the Subsidiaries as conducted since January 31, 1998, as
currently conducted and as contemplated to be conducted did not, does not and
will not conflict in any way with any patent, patent right, license, trademark,
trademark right, trade dress, trade name, trade name right, service mark,
maskwork or copyright of any third party except for conflicts that, individually
or in the aggregate, would not have a Material Adverse Effect.
SECTION 3.15 Taxes. Except as set forth in Section 3.15 of the
Disclosure Schedule or as otherwise previously disclosed to Parent:
(a) The Company and the Subsidiaries, and each affiliated group
(within the meaning of Section 1504 of the Code) or combined or unitary
group of which the Company or any Subsidiary is a member, has timely filed
all federal income Tax Returns (as defined below), and all other Tax Returns
required to be filed by them. All such Tax Returns are true and correct in
all respects. The Company and the Subsidiaries have given or otherwise made
available to the Purchaser or Parent all federal and state income tax
returns for periods ending, or transactions consummated, on or after
February 3, 1996, provided with respect to certain returns for the year
ended January 31, 1998 the Company provided the most current drafts. Except
to the extent adequately reserved for in accordance with GAAP, all Taxes (as
defined below) due and payable by the Company and the Subsidiaries have been
timely paid. The most recent consolidated financial statements contained in
the SEC Reports reflect an adequate reserve in accordance with GAAP for all
Taxes payable by the Company and its Subsidiaries for all taxable periods
and portions thereof through the date of such financial statements. Since
January 31, 1998, neither the Company nor the Subsidiaries have incurred any
liability for Taxes other than in the ordinary course of business for which
adequate reserves have been established on subsequent unaudited financial
statements.
33
<PAGE>
(b) No deficiencies for any Taxes have been proposed, asserted or
assessed against the Company or any of the Subsidiaries that have not been
fully paid or adequately provided for in the appropriate financial
statements of the Company and its Subsidiaries, and no issue has been raised
in any examination which, by application of similar principles, could be
expected to result in the proposal or assertion of a Tax deficiency for any
other year not so examined, except to the extent adequate reserves have been
established therefor. No waivers or comparable consents of the time to
assess any Taxes are outstanding, and no power of attorney granted by the
Company or any Subsidiary with respect to any Taxes is currently in force.
No issues relating to Taxes have been raised in writing (or, in the case of
the presently pending federal income tax audit of the Company and the
Subsidiaries, verbally to the knowledge of the Company's Executive Vice
President, Chief Financial Officer and the Company's Director of Taxes) by
any governmental authority during any presently pending audit or
examination.
(c) There are no liens or encumbrances for Taxes on any of the
assets of the Company or the Subsidiaries (other than for current taxes not
yet due and payable).
(d) The Company and the Subsidiaries have complied in all respects
with all applicable laws, rules and regulations relating to the payment and
withholding of Taxes.
(e) None of the Company or the Subsidiaries has filed a consent
under Section 341(f) of the Code.
(f) None of the Company or the Subsidiaries is a party to any
agreement that could obligate it to make any payments that would not be
deductible by reason of Section 280G or Section 162(m) of the Code.
(g) Neither the Company nor, since the date of its acquisition by
the Company, any Subsidiary is a party to any tax allocation, tax sharing
agreement, any closing agreement or similar agreement relating to Taxes with
any taxing authority of the Company.
(h) No federal, state, local or foreign audits or other
administrative proceedings or court proceedings are presently pending with
regard to any federal, state, local or foreign Taxes or Tax Returns of the
Company or any of the Subsidiaries and
34
<PAGE>
neither the Company nor any of the Subsidiaries has received a written notice of
any pending or threatened audit or proceeding.
(i) Neither the Company nor, since the date of its acquisition by
the Company, any Subsidiary has agreed to or is required to make any
adjustment under Section 481(a) of the Code.
(j) To the knowledge of the Company, no property owned by the
Company or any Subsidiary (i) is property required to be treated as being
owned by another person pursuant to the provisions of Section 168(f)(8) of
the Internal Revenue Code of 1954, as amended and in effect immediately
prior to the enactment of the Tax Reform Act of 1986; (ii) constitutes "tax
exempt use property" within the meaning of Section 168(h)(1) of the Code; or
(iii) is tax-exempt bond financed property within the meaning of Section
168(g) of the Code.
(k) The Company has not been (and will not be) a United States real
property holding corporation within the meaning of Section 897(c)(2) of the
Code during the 5-year period ending on the consummation of the Offer.
(l) To the knowledge of the Company, neither the Company nor any
Subsidiary has participated in or cooperated with an international boycott
within the meaning of Section 999 of the Code.
(m) Neither the Company nor the Subsidiaries have ever been a
member of any affiliated group filing a consolidated federal income Tax
Return (other than a group the common parent of which was the Company or
Hills Department Stores, Inc.) and the Company and the Subsidiaries have no
liability for Taxes of any other person under Treas. Reg. ss. 1.1502-6 (or
any similar provision of state, local or foreign law) other than as a member
of a group the common parent of which was the Company or Hills Department
Stores, Inc. All the members of the group of corporations filing a consolidated
federal income tax return of which the Company is the common parent are being
acquired in the Transactions.
(n) For purpose of this Agreement, (A) the terms "Tax" or "Taxes"
shall mean all taxes, fees, duties, tariffs, levies, imposts, or other
charges of any kind (together with any interest, penalties, additions to tax
or additional amounts imposed by any taxing authority with respect thereto),
including, without limitation, (i) taxes or other charges on or with respect
to
35
<PAGE>
income, franchise, gross receipts, property, sales, use, profits, capital
stock, payroll, employment, social security, workers compensation,
unemployment compensation or net worth, taxes or charges in the nature of
excise, withholding, ad valorem, stamp, transfer, value added or gains
taxes; license registration and documentation fees; and customs duties,
tariffs and similar charges of any kind whatsoever, and (ii) any joint,
consolidated, combined, unitary or transferee liability in respect of taxes
or any liability for taxes imposed by tax sharing, tax indemnity or similar
agreement, contract or arrangement; and (B) the term "Tax Return" shall mean
any report, return, document, declaration or any other information or filing
required to be supplied to any taxing authority with respect to Taxes.
SECTION 3.16 Environmental Matters. (a) For purposes of this
Agreement, the following terms shall have the following meanings: (i)
"Hazardous Substances" means any substance, material or waste which is
regulated, classified or otherwise characterized as hazardous, toxic, a
pollutant, contaminant or words of similar meaning or effect by any
governmental authority of the United States, including, without limitation,
petroleum or petroleum products, asbestos, urea formaldehyde and
polychlorinated biphenyls; (ii) "Environmental Law" means any applicable
federal, state, local, or foreign law (including common law), statute, code,
ordinance, rule, regulation or other requirement relating to the protection
of the environment, natural resources, or public or employee health and
safety and includes, but is not limited to, the Comprehensive Environmental
Response, Compensation and Liability Act, 42 U.S.C. ss. 9601 et seq., the
Hazardous Materials Transportation Act, 49 U.S.C. ss. 1801 et seq., the
Resource Conservation and Recovery Act, 42 U.S.C. ss. 6901 et seq., the
Clean Water Act, 33 U.S.C. ss. 1251 et seq., the Clean Air Act, 33 U.S.C.
ss. 2601 et seq., the Toxic Substances Control Act, 15 U.S.C. ss. 2601 et
seq., the Federal Insecticide, Fungicide, and Rodenticide Act, 7 U.S.C. ss.
136 et seq., the Oil Pollution Act of 1990, 33 U.S.C. ss. 2701 et seq., and
the Occupational Safety and Health Act, 29 U.S.C. ss. 651 et seq., as such
laws have been amended or supplemented, and the regulations promulgated
pursuant thereto, and all analogous state or local statutes.
(b) Except as described in Section 3.16 of the Disclosure Schedule
or as, individually or in the aggregate, would not have a Material Adverse
Effect: (i) the Company and each Subsidiary is in material compliance with
all applicable Environmental Laws; (ii) the Company and each Subsidiary have
obtained and currently
36
<PAGE>
maintain all permits, licenses and other material governmental authorizations
required under applicable Environmental Laws, and are in material compliance
with the terms and conditions thereof; (iii) no judicial or administrative
proceedings are pending or, to the knowledge of the Company, threatened against
the Company or any Subsidiary alleging the violation of or seeking to impose
liability pursuant to any Environmental Law and, there are no investigations
pending or, to the knowledge of Company, threatened against the Company or any
Subsidiary or any real property owned, operated or leased by or for the Company
or any Subsidiary, which in any case could reasonably be expected to give rise
to liabilities under Environmental Laws; (iv) there are no facts, circumstances
or conditions relating to, arising from or attributable to the Company or any
Subsidiary or any real property currently or, to the knowledge of the Company,
formerly owned, operated or leased by or for the Company or the Subsidiary that
are reasonably likely to result in the Company or any Subsidiary incurring
material liabilities under Environmental Laws; and (v) the Company has provided
Purchaser with copies of all environmentally related audits, assessments,
studies, reports, analyses, and results of investigations of the any real
property currently or formerly owned, operated or leased by the Company or any
of the Subsidiaries that are in the possession, custody or control of the
Company. Except as described on Section 3.16 of the Disclosure Schedule, there
are no underground storage tanks under the control of the Company or the
Subsidiaries or any friable asbestos-containing materials at any real property
owned, operated or leased by or for the Company or its Subsidiaries, the
presence of which are reasonably likely to result in the Company or the
Subsidiaries incurring material liabilities under Environmental Laws.
SECTION 3.17 Contracts. (a) Except as set forth in the Company's
SEC Reports or Schedule 3.17 of the Disclosure Schedule, neither the Company
nor any of its Subsidiaries is a party to or bound by any (i) "material
contract" (as such term is defined in Item 601(b)(10) of Regulation S-K of
the SEC), (ii) non-competition agreement or any other agreement or
obligation which purports to limit in any respect the manner in which, or
the localities in which, all or any material portion of the business of the
Company and its Subsidiaries, taken as a whole, may be conducted, (iii)
transaction, agreement, arrangement or understanding with any affiliate of
the Company or such Subsidiary that would be required to be disclosed under
Item 404 of regulation S-K under the Securities Act, (iv) voting or other
37
<PAGE>
agreement governing how any Shares shall be voted, (v) material agreement
with any stockholders of the Company, (vi) acquisition, merger, asset
purchase or sale agreement, or (vii) contract or other agreement which would
prohibit or materially delay the consummation of the Merger or any of the
Transactions (all contracts of the type described in clauses (i) through
(vii) being referred to herein as "Material Contracts"). Each Material
Contract is valid and binding on the Company (or, to the extent a Subsidiary
of the Company is a party, such Subsidiary) and is in full force and effect and
the Company and each Subsidiary have, in all material respects, performed all
obligations required to be performed by them to date under each Material
Contract, except where such noncompliance, individually or in the aggregate,
would not have a Material Adverse Effect on the Company. Neither the Company nor
any Subsidiary of the Company is in default or knows of, or has received notice
of, any violation or default under (nor, to the knowledge of the Company, does
there exist any condition which with the passage of time or the giving of notice
or both would result in such a violation or default under) any Material
Contract.
(b) Except as disclosed in the Company's SEC Documents or on
Schedule 3.17 of the Disclosure Schedule or as provided for in this
Agreement, neither the Company nor any of its Subsidiaries is a party to any
oral or written (i) employment, severance, retention or termination
agreements or consulting agreements not terminable on thirty (30) days' or
less notice, (ii) union or collective bargaining agreement, (iii) agreement
with any executive officer or other key employee of the Company or any of
its Subsidiaries the benefits of which are contingent or vest, or the terms
of which are materially altered, upon the occurrence of a transaction
involving the Company or any of its Subsidiaries of the nature contemplated
by this Agreement, (iv) agreement with respect to any executive officer or
other key employee of the Company or any of its Subsidiaries providing any
term of employment or compensation guarantee or (v) agreement or plan,
including any stock option, stock appreciation right, restricted stock or
stock purchase plan, any of the benefits of which will be increased, or the
vesting of the benefits of which will be accelerated, by the occurrence of
any of the Transactions or the value of any of the benefits of which will be
calculated on the basis of any of the Transactions.
SECTION 3.18 Insurance; Workers' Compensation. (a) Section 3.18 of
the Disclosure Schedule sets forth a true, complete and
38
<PAGE>
accurate list of each currently effective material insurance policy issued in
favor of the Company and each Subsidiary, setting forth the identity of the
respective insurance carriers and a description of the policy. All premiums due
and payable in respect of such policies have been paid, such policies are in
full force and effect and free from any right granted by Company of termination
on the part of the insurance carriers, except as provided in the respective
policies. Schedule 3.18 of the Disclosure Schedule sets forth a description,
indicating dates and nature of claims, of the workers' compensation experience
as of January 31, 1998 of the Company and each domestic Subsidiary since
February 3, 1996, or since the dates of their respective acquisition if later
than February 3, 1996 in the case of the Subsidiaries.
(b) Neither the Company nor any Subsidiary has received any notice
of cancellation with respect to any of its insurance policies, and, within
the three years preceding the date hereof,
neither the Company nor any Subsidiary has been refused any insurance
coverage sought or applied for, in each case where such cancellation or
refusal, individually or in the aggregate, would have a Material Adverse
Effect.
SECTION 3.19 Certain Payments; Absence of Certain Business
Practices. No director, officer, employee or agent of the Company or any
Subsidiary, nor any other person acting on behalf of Company or any
Subsidiary, has made or caused to be made any payments to government
officials in violation of the laws of the United States or any other
jurisdiction and, as of the date hereof, neither the IRS nor any other
federal, state, local or foreign government agency or entity has notified
the Company or any Subsidiary of any pending or threatened investigation of
any payment made by or on behalf of the Company or any Subsidiary of, or
alleged to be of, the type described in the immediately preceding sentence.
SECTION 3.20 Licenses and Permits. The Company and each Subsidiary
have obtained all governmental licenses and permits necessary to conduct
their respective businesses in accordance with past practice, except for
failures that, individually or in the aggregate, would not have a Material
Adverse Effect and there are no appeals nor any other actions pending to
revoke any such licenses or permits. Such licenses and permits are valid and
in full force and effect, and no such licenses or permits will be terminated
or materially impaired or become terminable as a result
39
<PAGE>
of the Transactions, except for those that, individually or in the aggregate,
would not have a Material Adverse Effect.
SECTION 3.21 Letters of Credit, Surety Bonds, Guarantees. Section
3.21 of the Disclosure Schedule lists, as of the date hereof, all letters of
credit, performance or payment bonds, guaranty arrangements and surety bonds
of any nature involving amounts in excess of $25,000 relating to the Company
or any Subsidiary.
SECTION 3.22 Brokers. No broker, finder or investment banker (other
than Warburg Dillon Read LLC) is entitled to any brokerage, finder's or
other fee or commission in connection with the Transactions based upon
arrangements made by or on behalf of the Company. The Company has heretofore
furnished to Parent a complete and correct copy of all agreements between
the Company and Warburg Dillon Read LLC pursuant to which such firm would be
entitled to any payment relating to the Transactions.
SECTION 3.23 Year 2000. The Company has made and will continue to
make reasonable efforts to enable the Company's computer systems and
software to accurately process date data, including but not limited to,
calculating, comparing and sequencing from, into and between the twentieth
century (through year 1999), the year 2000 and the twenty-first century,
including leap year calculations.
SECTION 3.24 Applicability of State Takeover Statutes. The Section
203 Approval is valid and in full force and effect. Section 203 of Delaware
Law will not apply to the Stock Option Agreement, the Offer, the acquisition
of Shares pursuant to the Offer or the Merger. No other state takeover
statute or similar statute or regulation applies or purports to apply to the
Offer, the Merger or the other Transactions.
SECTION 3.25 Amendment to Rights Agreement. The Company's Board of
Directors has taken all necessary action (including any amendment thereof)
under the Rights Agreement so that (x) none of the execution or delivery of
this Agreement or the Stock Option Agreement, consummation of the Offer, or
any other transaction contemplated hereby or thereby will cause (i) the
Rights to become exercisable under the Rights Agreement, (ii) Parent or
Purchaser to be deemed an "Acquiring Person" (as defined in the Rights
Agreement), or (iii) the "Distribution Date" (as defined in the Rights
Agreement) to occur upon any such event and (y) the
40
<PAGE>
"Expiration Date" (as defined in the Rights Agreement) of the Rights shall occur
immediately prior to the Effective Time.
SECTION 3.26 Opinion of Financial Advisor. The Company has received
the opinion of Warburg Dillon Reed LLC to the effect that, as of the date of
this Agreement, the consideration to be received in the Offer and the Merger
by the Company's stockholders is fair to the Company's stockholders from a
financial point of view, and a complete and correct signed copy of such
opinion has been, or promptly upon receipt thereof will be, delivered to
Parent. The Company has been authorized by Warburg Dillon Reed LLC to permit
the inclusion of such opinion in its entirety in the Offer Documents and the
Schedule 14D-9 and the Proxy Statement, so long as such inclusion is in form
and substance reasonably satisfactory to Warburg Dillon Reed LLC and its
counsel.
SECTION 3.27 Full Disclosure. No representation or warranty by the
Company in this Agreement and no statement contained in any document
(including, without limitation, the Disclosure Schedule), certificate, or
other writing specifically identified in this Agreement to be furnished by
the Company to Parent or Purchaser or any of its Representatives pursuant to
the provisions hereof or in connection with the Transactions, contains or
will contain any untrue statement of material fact or omits or will omit to
state any material fact necessary, in light of the circumstances under which
it was made, in order to make the statements herein or therein not
misleading.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF PARENT AND PURCHASER
Parent and Purchaser hereby represent and warrant to the Company
that:
SECTION 4.01 Corporate Organization. Each of Parent and Purchaser
is a corporation duly organized, validly existing and in good standing under
the laws of the jurisdiction of its incorporation and has the requisite
power and authority and all necessary governmental approvals to own, lease
and operate its properties and to carry on its business as it is now being
conducted, except where the failure to be so organized, existing or in good
standing or to have such power, authority and governmental approvals would
not, individually or in the
41
<PAGE>
aggregate, have a material adverse effect on the business, operations, financial
condition, assets or liabilities (including, without limitation, contingent
liabilities) of Purchaser and their respective subsidiaries, taken as a whole.
SECTION 4.02 Authority Relative to This Agreement. Each of Parent
and Purchaser has all necessary corporate power and authority to execute and
deliver this Agreement and the Stock Option Agreement, to perform its
obligations hereunder and thereunder and to consummate the Transactions. The
execution and delivery of this Agreement and the Stock Option Agreement by
Parent and Purchaser and the consummation by Parent and Purchaser of the
Transactions have been duly and validly authorized by all necessary
corporate action and no other corporate proceedings on the part of Parent or
Purchaser are necessary to authorize this Agreement or the Stock Option
Agreement or to consummate the Transactions (other than with respect to the
Merger, the filing of the Certificate of Merger). Each of this Agreement and
the Stock Option Agreement has been duly and validly executed and delivered
by Parent and Purchaser and, assuming the due authorization, execution and
delivery by the Company, constitutes a legal, valid and binding obligation
of each of Parent and Purchaser enforceable against each of Parent and
Purchaser in accordance with its terms, except that (i) such enforcement may
be subject to bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally, and (ii) the remedy of specific performance and injunctive relief
may be subject to equitable defenses and to the discretion of the court
before which any proceeding therefor may be brought.
SECTION 4.03 No Conflict; Required Filings and Consents. (a) The
execution, delivery and performance of this Agreement and the Stock Option
Agreement by Parent and Purchaser do not, and the consummation of the
Transactions and compliance with the provisions of this Agreement by Parent
and Purchaser will not, (i) conflict with or violate the Certificate of
Incorporation or Bylaws of either Parent or Purchaser, (ii) assuming that
required filings under the HSR Act are made by the appropriate parties,
conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to Parent or Purchaser or by which any property or asset
of either of them is bound or affected, or (iii) conflict with, result in
any breach of or constitute a default (or an event which with notice or
lapse of time or both would become a default) under, or give to others any
rights of termination, amendment, acceleration or cancellation of, or result
42
<PAGE>
in the creation of a lien or other encumbrance on any property or asset of
Parent or Purchaser pursuant to, any note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument
or obligation to which Parent or Purchaser is a party or by which Parent or
Purchaser or any property or asset of either of them is bound or affected,
except, in cases of (ii) and (iii), for any such conflicts, violations,
breaches, defaults or other occurrences which would not, individually or in
the aggregate, have a material adverse effect on the business, operations,
financial condition, assets or liabilities (including, without limitation,
contingent liabilities) of Parent or Purchaser and their respective
subsidiaries, taken as a whole.
(b) The execution and delivery of each of this Agreement and the
Stock Option Agreement by Parent and Purchaser do not, and the performance
of this Agreement by Parent and Purchaser will not, require any consent,
approval, authorization or permit of, or filing with or notification to, any
governmental or regulatory authority, domestic or foreign, except (i) for
applicable requirements, if any, of the Exchange Act, Blue Sky Laws and
state takeover laws, the HSR Act, and the filing of the Certificate of
Merger as required by Delaware Law, 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 the Offer or the
Merger, or otherwise prevent Purchaser from performing its obligations under
this Agreement.
SECTION 4.04 Financing. Parent has commitments from BankAmerica
Business Credit, Inc. (the "Lender") to obtain sufficient funds to permit
Purchaser (i) to acquire all the outstanding Shares in the Offer and the
Merger, (ii) to acquire all of the Notes (and obtain all of the related
Consents) in the Note Tender Offer, written evidence of which has been
provided to the Company (the "Commitment Letter"), and (iii) to satisfy the
ongoing working capital needs of the Surviving Corporation. Except as set
forth in the Commitment Letter, other than as may be required by law, to
Parent's knowledge, there are no conditions or other limitations on the
obligations of the lender to make available the funds as aforesaid.
SECTION 4.05 Offer Documents; Proxy Statement. Neither the Offer
Documents nor the Note Tender Offer Documents will, at the time such
documents are filed with the SEC or are first published, sent or given to
stockholders of the Company, as the case may be,
43
<PAGE>
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary in order to make the statements
made therein, in the light of the circumstances under which they are made, not
misleading. The information supplied by Parent for inclusion in the Schedule
14D- 9, the Information Statement or the Proxy Statement will not, on the date
such document (or any amendment or supplement thereto) is first mailed to
stockholders of the Company, with respect to the Information Statement, at the
time Shares are accepted for payment in the Offer and with respect to the Note
Tender Offer Documents, at the time the Notes (and related Consents) are
accepted for payment in the Note Tender Offer, and with respect to the Proxy
Statement at the time of the Special Stockholders' Meeting and at the Effective
Time, contain any statement which, at such time and in light of the
circumstances under which it is made, is false or misleading with respect to any
material fact, or omits to state any material fact required to be stated therein
or necessary in order to make the statements therein not false or misleading or
necessary to correct any statement in any earlier communication with respect to
the solicitation of proxies for the Special Stockholders' Meeting which shall
have become false or misleading. Notwithstanding the foregoing, Parent and
Purchaser make no representation or warranty with respect to any information
supplied by the Company or any of its representatives which is contained in any
of the foregoing documents or the Offer Documents or the Note Tender Offer
Documents. The Offer Documents and the Note Tender Offer Documents shall comply
in all material respects as to form with the requirements of the Exchange Act,
the Trust Indenture Act of 1939, as amended, and the rules and regulations
thereunder.
SECTION 4.06 Brokers. No broker, finder or investment banker (other
than Bear, Stearns & Co. Inc.) is entitled to any brokerage, finder's or other
fee or commission in connection with the Transactions based upon arrangements
made by or on behalf of Parent or Purchaser.
ARTICLE V
CONDUCT OF BUSINESS PENDING THE MERGER
SECTION 5.01 Conduct of Business by the Company Pending the Merger.
The Company covenants and agrees that, between the date of this Agreement
and the election or appointment of Purchaser's
44
<PAGE>
designees to the Board pursuant to Section 6.03 upon the purchase by Purchaser
of any Shares pursuant to the Offer (the "Purchaser's Election Date"), unless
Parent shall otherwise agree in writing, the businesses of the Company and the
Subsidiaries shall be conducted only in, and the Company and the Subsidiaries
shall not take any action except in, the ordinary course of business consistent
with past practice and the Company shall use all reasonable best efforts
consistent with good business judgment under the current circumstances to
preserve intact the business organization of the Company and the Subsidiaries,
to keep available the services of the current officers, employees and
consultants of the Company and the Subsidiaries and to preserve the current
relationships of the Company and the Subsidiaries with customers, suppliers,
vendors, distributors and other persons with which the Company or any Subsidiary
has business relations to the end that their goodwill and ongoing businesses
shall be unimpaired in all material respects at the Effective Time. By way of
amplification and not limitation, except as contemplated by this Agreement or by
Section 5.01 of the Disclosure Schedule, the Company agrees that neither the
Company nor any Subsidiary shall, between the date of this Agreement and the
Purchaser's Election Date, directly or indirectly do, or propose to do, any of
the following without the prior written consent of Parent:
(a) amend or otherwise change, directly or indirectly, its
Constituent Documents;
(b) issue, sell, pledge, dispose of, grant, encumber, or authorize
the issuance, sale, pledge, disposition, grant or encumbrance of (i) any
shares of capital stock of any class of the Company or any Subsidiary, or
any options, warrants, convertible securities or other rights of any kind to
acquire any shares of such capital stock, or any other ownership interest
(including, without limitation, any phantom interest), of the Company or any
Subsidiary, and except pursuant to the Stock Option Agreement and
outstanding Options and Warrants and the Company's Associate Stock Purchase
Plan, or (ii) any assets of the Company or any Subsidiary, except for sales
in the ordinary course of business and in a manner consistent with past
practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect to
any of its capital stock, except for such declarations, set asides,
dividends and other distributions made by any Subsidiary to the Company;
45
<PAGE>
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, by merger,
consolidation, or acquisition of stock or assets or any other business
combination) any corporation, partnership, other business organization or
any division thereof or any material amount of assets other than in the
ordinary course of business consistent with past practice; (ii) incur or
modify any indebtedness for borrowed money or issue any debt securities or
assume, guarantee or endorse, pledge in respect of or otherwise as an
accommodation become responsible for the obligations of any person, or make
any loans, advances or capital contributions, except in the ordinary course
of business consistent with past practice; (iii) enter into any contract or
agreement, other than any contract or agreement entered into in the ordinary
course of business consistent with past practice and which requires payments
by the Company or the Subsidiaries in an aggregate amount of less than
$5,000,000 with respect to all such agreements taken together; (iv)
terminate, cancel or request any material change in, or agree to any
material change in, any Material Contract, except in the ordinary course of
business consistent with past practice, or waive, release or assign any
material rights or claims; or (v) authorize capital commitments, in an
aggregate amount in excess of $2,500,000 for the Company and the
Subsidiaries taken as a whole;
(f) increase the compensation payable or to become payable to its
officers or employees, except for increases in accordance with past
practices in salaries or wages of employees of the Company or any Subsidiary
who are not officers of the Company, or grant or modify any severance or
termination pay to, or enter into any employment or severance agreement
with, any director, officer or other employee of the Company or any
Subsidiary (other than in connection with hiring and terminating employees
in the ordinary course of the Company's business), or establish, adopt,
enter into or amend any collective bargaining agreement, any material bonus,
profit sharing, thrift, compensation, stock option, restricted stock,
pension, retirement, deferred compensation, employment, retention,
termination or severance plan, benefit, agreement, trust, fund, policy or
arrangement for the benefit of any director, officer or employee or
circulate to any employee any details of any proposal to adopt or amend any
such plan or make, authorize or approve the payment of any extraordinary
amount to
46
<PAGE>
any outside advisor, attorney or consultant in all cases, except
as required by law;
(g) take any action, other than reasonable and usual actions in the
ordinary course of business consistent with past practice, with respect to
accounting policies or procedures (including, without limitation, procedures
with respect to the payment of accounts payable and collection of accounts
receivable);
(h) make any Tax election or settle or compromise any federal,
state, local or foreign income Tax liability;
(i) pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction, in the ordinary course of
business consistent with past practice, of claims, liabilities or
obligations reflected or reserved against in, or contemplated by, the
consolidated financial statements (or the notes thereto) of the Company and
its consolidated Subsidiaries, or subsequently incurred in the ordinary
course of business consistent with past practice;
(j) waive the benefits of, or agree to modify in any manner any
confidentiality, standstill or similar agreement to which the Company or any
Subsidiary is a party, other than in the ordinary course of business
consistent with past practice;
(k) settle or comprise any pending or threatened suit,
action or claim that is material or which relates to any of the
Transactions;
(l) announce an intention, enter into any formal or informal
agreement, or otherwise make a commitment, to do any of the foregoing; or
(m) take any action that would result in (i) any of its
representations and warranties set forth in this Agreement that are qualified as
to materiality becoming untrue, (ii) any of such representations and warranties
that are not so qualified becoming untrue in any material respect, or (iii) any
of the conditions to the Offer or the Note Tender Offer set forth in Annex A and
Annex B not being satisfied (subject to the Company's right to take action
specifically permitted by Section 6.05).
47
<PAGE>
ARTICLE VI
ADDITIONAL AGREEMENTS
SECTION 6.01 Special Stockholders' Meeting. The Company, acting
through the Board, shall, in accordance with applicable law and its
Constituent Documents, unless not required under applicable "short-form"
merger provisions of Delaware Law, (i) duly call, give notice of, convene
and hold a special meeting of its stockholders as soon as practicable
following consummation of the Offer for the purpose of considering and
taking action on this Agreement and the transactions contemplated hereby
(the "Special Stockholders' Meeting") and (ii) subject to its fiduciary
duties under applicable law as determined in good faith by the Board
following consultation with the Company's counsel, (A) include in the Proxy
Statement the unanimous recommendation of the Board that the stockholders of
the Company approve and adopt this Agreement and the Transactions,
including, without limitation, the Merger, and (B) use all reasonable
efforts to obtain such approval and adoption. At the Special Stockholders'
Meeting (or by consent if a stockholders meeting is not required), Parent
and Purchaser shall cause all Shares then owned by them and their
subsidiaries to be voted in favor of the approval and adoption of this
Agreement and the Transactions, including, without limitation, the Merger.
SECTION 6.02 Proxy Statement. As soon as practicable following
consummation of the Offer, the Company shall file the Proxy Statement with
the SEC under the Exchange Act, unless the Special Stockholders' Meeting is
not required under applicable "short-form" merger provisions of Delaware
Law, and shall use its best efforts to have the Proxy Statement cleared by
the SEC. Parent, Purchaser and the Company shall cooperate with each other
in the preparation of the Proxy Statement, and the Company shall notify
Parent of the receipt of any comments of the SEC with respect to the Proxy
Statement and of any requests by the SEC for any amendment or supplement
thereto or for additional information and shall provide to Parent promptly
copies of all correspondence between the Company or any representative of
the Company and the SEC. The Company shall give Parent and its counsel the
opportunity to review the Proxy Statement prior to its being filed with the
SEC and shall give Parent and its counsel the opportunity to review all
amendments and supplements to the Proxy Statement and all responses to
requests for additional information and replies to comments prior to their
being filed with, or sent to,
48
<PAGE>
the SEC. Each of the Company, Parent and Purchaser agrees to use all reasonable
efforts, after consultation with the other parties hereto, to respond promptly
to all such comments of and requests by the SEC and to cause the Proxy Statement
and all required amendments and supplements thereto to be mailed to the holders
of Shares entitled to vote at the Special Stockholders' Meeting at the earliest
practicable time.
SECTION 6.03 Company Board Representation; Section 14(f). (a)
Promptly upon the purchase by Purchaser of Shares pursuant to the Offer, and
from time to time thereafter, Parent shall be entitled to designate up to
such number of directors, rounded up to the next whole number, on the Board
as shall give Parent representation on the Board equal to the product of the
total number of directors on the Board (giving effect to the directors
elected pursuant to this sentence) multiplied by the percentage that the
aggregate number of Shares beneficially owned by Purchaser or any affiliate
of Purchaser at such time bears to the total number of Shares then
outstanding, and the Company shall, at such time, promptly take all actions
necessary to cause Parent's designees to be elected as directors of the
Company, including increasing the size of the Board or securing the
resignations of incumbent directors or both. At such times, the Company
shall use all reasonable efforts to cause persons designated by Parent to
constitute the same percentage as persons designated by Parent shall
constitute of the Board with respect to (i) each committee of the Board
(some of whom may be required to be independent as required by applicable
law or requirements of The New York Stock Exchange), (ii) each board of
directors of each Subsidiary, and (iii) each committee of each such board,
in each case only to the extent permitted by applicable law.
(b) The Company shall promptly take all actions required pursuant
to Section 14(f) of the Exchange Act and Rule 14f-1 promulgated thereunder
in order to fulfill its obligations under this Section 6.03 and shall
include the Information Statement containing such information with respect
to the Company and its officers and directors as is required under Section
14(f) and Rule 14f-1 as an annex to the Schedule 14D-9 to fulfill such
obligations. Parent or Purchaser shall supply to the Company and be solely
responsible for any information with respect to either of them and their
nominees, officers, directors and affiliates required by such Section 14(f)
and Rule 14f-1. The provisions of this Section 6.03 are in addition to and
shall not limit any rights which Purchaser, Parent or any of their
affiliates may have
49
<PAGE>
as a holder or beneficial owner of Shares as a matter of applicable law with
respect to the election of directors or otherwise.
(c) Notwithstanding the provisions of this Section 6.03, the
parties hereto shall use their respective reasonable best efforts to ensure
that at least two of the members of the Board shall, at all times prior to
the Effective Time be, Continuing Directors. From and after the time, if
any, that Parent's designees constitute a majority of the Board, any
amendment or modification of this Agreement, any amendment to the Company's
Constituent Documents inconsistent with this Agreement, any termination of this
Agreement by the Company, any extension of time for performance of any of the
obligations of Parent or Purchaser hereunder, any waiver of any condition to the
Company's obligations hereunder or any of the Company's rights hereunder or
other action by the Company hereunder may be effected only by the action of a
majority of the Continuing Directors of the Company, which action shall be
deemed to constitute the action of any committee specifically designated by the
Board to approve the actions contemplated hereby and the Transactions and the
full Board; provided, that, if there shall be no Continuing Directors, such
actions may be effected by majority vote of the entire Board.
SECTION 6.04 Access to Information; Confidentiality. (a) The
Company shall (and shall cause each of its Subsidiaries to) afford to the
Representatives of Parent reasonable access on reasonable prior notice to
the Company's Chief Executive Officer, Chief Financial Officer or General
Counsel during normal business hours, throughout the period prior to the
earlier of the Effective Time or the termination of this Agreement, to all
of its properties, offices, employees, contracts, commitments, books and
records (including but not limited to Tax Returns) and any report, schedule
or other document filed or received by it pursuant to the requirements of
federal or state securities laws and shall (and shall cause each of its
Subsidiaries to) furnish promptly to Parent such additional financial and
operating data and other information as to its and its Subsidiaries'
respective businesses and properties as Parent may from time to time
reasonably request. Parent and Purchaser will make all reasonable efforts to
minimize any disruption to the businesses of the Company and its
Subsidiaries which may result from the requests for access to properties and
employees and for data and information hereunder.
50
<PAGE>
(b) Parent agrees that all information obtained by Parent or
Purchaser pursuant to this Section 6.04 shall be kept confidential, by
Purchaser, by Parent and by any other party which is to be afforded access
pursuant to Section 6.04(a), in accordance with the confidentiality
agreement, dated August 21, 1998 (the "Confidentiality Agreement"), between
Parent and the Company, including the obligation to return all documents,
work papers and other written materials obtained by Parent or its
representatives in the event of the termination of this Agreement without
the purchase of any Shares in the Offer.
SECTION 6.05 No Solicitation. (a) The Company shall not, nor shall
it permit any of its Subsidiaries to, nor shall it authorize (and shall use
its best efforts not to permit) any officer, director or employee of, or any
investment banker, attorney or other advisor or representative of, the
Company or any of its Subsidiaries to, (i) solicit or initiate, or
encourage, directly or indirectly, any inquiries or the submission of, any
Takeover Proposal, (ii) participate in any discussions or negotiations
regarding, or furnish to any Person any information or data with respect to or
access to the properties of, or take any other action to knowingly facilitate
the making of any proposal that constitutes, or may reasonably be expected to
lead to, any Takeover Proposal or (iii) enter into any agreement with respect to
any Takeover Proposal or approve or resolve to approve any Takeover Proposal;
provided, that nothing contained in this Section 6.05 or any other provision
hereof shall prohibit the Company or the Board from (i) taking and disclosing to
the Company's stockholders a position with respect to a tender or exchange offer
by a third party pursuant to Rules 14d-9 and 14e-2 promulgated under the
Exchange Act, or (ii) making such disclosure to the Company's stockholders as,
in the good faith judgment of the Board, following consultation with outside
counsel, is required under applicable Law, provided that the Company may not,
except as permitted by Section 6.05(b), withdraw or modify, or propose to
withdraw or modify, its position with respect to the Offer or the Merger or
approve or recommend, or propose to approve or recommend any Takeover Proposal,
or enter into any agreement with respect to any Takeover Proposal. Upon
execution of this Agreement, the Company will immediately cease any existing
activities, discussions or negotiations with any parties conducted heretofore
with respect to any of the foregoing. Notwithstanding the foregoing, prior to
the time of acceptance of Shares for payment pursuant to the Offer, the Company
may furnish information
51
<PAGE>
concerning its business, properties or assets to any Person or group concerning
a Takeover Proposal if:
(x) such Person or group has submitted a Superior
Proposal; and
(y) in the opinion of the Board such action is
required to discharge the Board's fiduciary duties to the Company's
stockholders under applicable Law, determined in good faith
following consultation with outside counsel to the Company that the
failure to provide such information or access or to engage in such
discussions or negotiations would cause the Board to violate its
fiduciary duties to the Company's stockholders under applicable
Law.
The Company will promptly (but in no case later than 24 hours)
notify Parent of the existence of any proposal, discussion, negotiation or
inquiry received by the Company regarding any Takeover Proposal, and the
Company will promptly (but in no case later than 24 hours) communicate to
Parent the terms of any proposal, discussion, negotiation or inquiry which
it may receive regarding any Takeover Proposal (and will promptly provide to
Parent copies of any written materials received by the Company in connection
with such proposal, discussion, negotiation or inquiry) and the identity of
the party making such proposal or inquiry or engaging in such discussion or
negotiation. The Company will promptly provide to Parent any non-public
information concerning the Company provided to any other Person in
connection with any Takeover Proposal which was not previously provided to
Parent. The Company will keep Parent informed of the status and details of
any such Takeover proposal and will promptly (but in no case later than 24
hours) notify Parent of any determination by the Board that a Superior
Proposal has been made.
(b) Except as set forth in this Section 6.05(b), neither the Board
nor any committee thereof shall (i) withdraw or modify, or propose to
withdraw or modify, in a manner adverse to Parent or Purchaser, the approval
or recommendation by the Board or any such committee of the Offer, this
Agreement or the Merger, (ii) approve or recommend, or propose to approve or
recommend, any Takeover Proposal or (iii) enter into any agreement with
respect to any Takeover Proposal. Notwithstanding the foregoing, subject to
compliance with the provisions of this Section 6.05, prior to the time of
acceptance for payment of Shares pursuant to the Offer, the Board may
withdraw or modify its approval or recommendation of
52
<PAGE>
the Offer, this Agreement or the Merger, approve or recommend a Superior
Proposal, or enter into an agreement with respect to a Superior Proposal, in
each case at any time after the fifth business day following Parent's receipt of
written notice from the Company advising Parent that the Board received a
Superior Proposal which it intends to accept, specifying the material terms and
conditions of such Superior Proposal and identifying the Person making such
Superior Proposal, but only if the Company shall have caused its financial and
legal advisors to negotiate with Parent to make such adjustments to the terms
and conditions of this Agreement as would enable the Company to proceed with the
Transactions on such adjusted terms.
SECTION 6.06 Directors' and Officers' Indemnification and
Insurance. (a) The Company shall, and from and after the Effective Time, the
Surviving Corporation shall, indemnify and hold harmless, each present and
former director, officer or employee of the Company or any of its
Subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including reasonable attorneys' fees), judgments, losses, claims,
damages and liabilities incurred in connection with, and amounts paid in
settlement of, any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative and wherever asserted,
brought or filed, (x) arising out of or pertaining to the Transactions or
(y) otherwise with respect to any acts or omissions or alleged acts or
omissions occurring at or prior to the Effective Time to the same extent as
such persons are entitled to indemnification as of the Effective Time. In
the event of any such claim, action, suit, proceeding or investigation
(whether arising before or after the Effective Time), (i) any counsel
retained by the Indemnified Parties for any period after the Effective Time
must be reasonably satisfactory to the Surviving Corporation, and (ii) the
Surviving Corporation will cooperate in the defense of any such matter;
provided, however, that the Surviving Corporation shall not be liable for
any settlement effected without its written consent (which consent shall not
be unreasonably withheld). The Indemnified Parties as a group may retain
only one law firm to represent them with respect to any single action unless
there is, under applicable standards of professional conduct, a conflict on any
significant issue between the positions of any two or more Indemnified Parties.
The indemnity agreements of the Surviving Corporation in this Section 6.06 shall
extend, on the same terms to, and shall inure to the benefit of and shall be
enforceable by, each Person or entity who controls, or in the past controlled,
any present or former
53
<PAGE>
director, officer or employee of the Company or any of its Subsidiaries.
(b) Not later than 30 days after the consummation of the Offer, the
Surviving Corporation shall procure directors' and officers' liability
insurance policies (the "New Insurance") covering for a period of six years
after the Effective Time those Persons who are currently covered by the
Company's directors' and officers' liability insurance policies (the
"Current Insurance") and providing coverage (including but not limited to
amounts of coverage, amounts of deductibles, employment practices liability
and other terms) that are no less favorable than the terms (exclusive of
year 2000 coverage) contained in the Current Insurance. The Surviving
Corporation will maintain the New Insurance continuously in effect for such
six years period and will not cancel the Current Insurance unless and until
the New Insurance has been procured. If the New Insurance is provided under
any insurance policies other than a "run-off" of the Company's existing
insurance policies, such new policies shall be in form and substance
reasonably satisfactory to the Continuing Directors.
(c) This Section 6.06 shall survive the consummation of the Merger
at the Effective Time, is intended to benefit the Company, the Surviving
Corporation and the Indemnified Parties, shall be binding on all successors
and assigns of the Surviving Corporation and shall be enforceable by the
Indemnified Parties.
SECTION 6.07 Notification of Certain Matters. The Company shall
give prompt notice to Parent, and Parent shall give prompt notice to the
Company, of (i) the occurrence or non-occurrence of any event the occurrence
or non-occurrence of which causes any representation or warranty contained
in this Agreement to be untrue or inaccurate in any material respect, and
(ii) any failure of the Company, Parent or Purchaser, as the case may be, to
comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of
any notice pursuant to this Section 6.07 shall not limit or otherwise affect
the remedies available hereunder to the party receiving such notice.
SECTION 6.08 Further Action; Reasonable Efforts. Upon the terms and
subject to the conditions hereof, each of the parties hereto shall (i) make
promptly its respective filings, and thereafter make any other required
submissions, under the HSR Act
54
<PAGE>
with respect to the Transactions, (ii) use all reasonable efforts to take, or
cause to be taken, all appropriate action, and to do, or cause to be done, all
things necessary, proper or advisable under applicable laws and regulations to
consummate and make effective the Transactions, including, without limitation,
using all reasonable efforts to obtain all licenses, permits (including, without
limitation, environmental permits), consents, approvals, authorizations,
qualifications and orders of governmental authorities and parties to contracts
with the Company and the Subsidiaries as are necessary for the consummation of
the Transactions and to fulfill the conditions to the Offer, the Note Tender
Offer and the Merger and including, without limitation, the defending of any
lawsuits or other legal proceedings, whether judicial or administrative,
challenging this Agreement or the consummation of any of the Transactions,
including seeking to have any stay or temporary restraining order entered by any
court or other governmental entity vacated or reversed, and (iii) except as
contemplated by this Agreement, use all reasonable efforts not to take any
action, or enter into any transaction, which would cause any of its
representations or warranties contained in this Agreement to be untrue or result
in a breach of any covenant made by it in this Agreement. In case at any time
after the Effective Time any further action is necessary or desirable to carry
out the purposes of this Agreement, the proper officers and directors of Parent
and the Company shall use all reasonable efforts to take all such action.
Notwithstanding the foregoing, in no event shall Parent, Purchaser or the
Surviving Corporation be required to divest any of their respective assets or
agree to any restrictions in their businesses as currently or proposed to be
conducted.
SECTION 6.09 Public Announcements. Parent and the Company shall
consult with each other before issuing any press release or otherwise making
any public statements with respect to this Agreement or any Transaction and
shall not issue any such press release or make any such public statement
without the prior approval of the Chief Executive Officer of both Parent and
the Company, except as may be required by law or any listing agreement with
a national securities exchange to which Parent or the Company is a party.
SECTION 6.10 Confidentiality Agreement. Assuming the Minimum Stock
Condition has been satisfied, upon the acceptance for payment of Shares
pursuant to the Offer, the Confidentiality Agreement shall be deemed to have
terminated without further action by the parties thereto.
55
<PAGE>
SECTION 6.11 State Takeover Laws. Notwithstanding any other
provision in this Agreement, in no event shall the Section 203 Approval be
withdrawn, revoked or modified by the Board. If any state takeover statute
other than Section 203 of the Delaware Law becomes or is deemed to become
applicable to the Offer, the acquisition of Shares pursuant to the Offer or
the Merger, the Company shall take all action necessary to render such
statute inapplicable to all of the foregoing.
SECTION 6.12 Employment Covenant. Parent shall provide each
employee of the Company with credit for all service with or credited by the
Company under each of Parent's employee benefit plans, programs and arrangements
for purposes of eligibility, vesting and, to the extent not prohibited by
applicable regulation, calculation of benefits (except to the extent crediting
such service would result in the duplication of benefits). Nothing herein
obligates Parent to maintain any Plan, program or arrangement which it otherwise
has the ability to terminate.
SECTION 6.13 Financing. Parent and Purchaser will use reasonable
commercial efforts to consummate the financing pursuant to the Commitment
Letter, subject to satisfactory documentation in Parent's and Purchaser's
reasonable discretion.
ARTICLE VII
CONDITIONS TO THE MERGER
SECTION 7.01 Conditions to the Merger. The respective obligations
of each party to effect the Merger shall be subject to the satisfaction at
or prior to the Effective Time of the following conditions:
(a) Stockholder Approval. This Agreement and the Transactions,
including, without limitation, the Merger, shall have been approved and
adopted by the affirmative vote of the stockholders of the Company (unless
the vote of the stockholders is not required by Delaware Law);
(b) HSR Act. Any waiting period (and any extension thereof)
applicable to the consummation of the Merger under the HSR Act shall have
expired or been terminated;
56
<PAGE>
(c) No Order. No foreign, United States or state governmental
authority or other agency or commission or foreign, United States or state
court of competent jurisdiction shall have enacted, issued, promulgated,
enforced or entered any law, rule, regulation, executive order, decree,
injunction or other order (whether temporary, preliminary or permanent)
which is then in effect (which order or other action the parties hereto
shall use their reasonable efforts to lift) and has the effect of making the
acquisition of Shares by Purchaser or any affiliate of Purchaser or the
consummation of the Merger illegal under applicable law or otherwise
restricting, preventing or prohibiting under applicable law consummation of
the Transactions;
(d) Offer. Purchaser or its permitted assignee shall have purchased
all Shares validly tendered and not withdrawn pursuant to the Offer;
(e) Note Tender Offer. The Supplemental Indenture shall
have been entered into and Purchaser or its permitted assignee shall have
purchased all Notes validly tendered and not withdrawn pursuant to the Note
Tender Offer; and
(f) Financing. Purchaser shall have received sufficient financing,
on terms at least as favorable to it as those specified in the Commitment
Letter, to pay the aggregate Merger Consideration payable hereunder, to
purchase the Notes pursuant to the Note Tender Offer and to satisfy the
ongoing working capital needs of the Surviving Corporation.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
SECTION 8.01 Termination. This Agreement may be terminated and the
Merger contemplated herein may be abandoned at any time prior to the
Effective Time, whether before or after approval of matters presented in
connection with the Merger by the stockholders of the Company:
(a) By the mutual written consent of Parent and the Company,
provided, however, that if Parent shall have a majority of the directors
pursuant to Section 6.03, such consent of the Company may only be given if
approved by the Continuing Directors.
57
<PAGE>
(b) By either of Parent or the Company if (i) a statute, rule or
executive order shall have been enacted, entered or promulgated prohibiting
the Transactions on the terms contemplated by this Agreement or (ii) any
governmental entity shall have issued an order, decree or ruling or taken
any other action (which order, decree, ruling or other action the parties
hereto shall use their reasonable efforts to lift), in each case permanently
restraining, enjoining or otherwise prohibiting the Transactions and such
order, decree, ruling or other action shall have become final and
non-appealable.
(c) By either of Parent or the Company if the Note Tender Offer and
the Offer have not been consummated by January 4, 1999 (except the Purchaser
may extend the expiration date of the Note Tender Offer and the Offer
through January 9, 1999 as required to comply with any rule, regulation or
interpretation of the SEC) or the Effective Time shall not have occurred on
or before April 30, 1999; provided, that the party seeking to terminate this
Agreement pursuant to this Section 8.01(c) shall not have breached in any
material respect its obligations under this Agreement in any manner that
shall have proximately contributed to the failure to consummate the Merger
on or before such date;
(d) By the Company:
(i) if the Company has entered into an agreement with
respect to a Superior Proposal or has approved or recommended a Superior
Proposal in accordance with Section 6.05(b), provided the Company has complied
with all provisions thereof, including the notice provisions therein, and that
it simultaneously terminates this Agreement and makes simultaneous payment to
Parent of the Expenses and the Termination Fee; or
(ii) if Parent or Purchaser shall have terminated the
Offer or the Offer expires without Purchaser purchasing any Shares pursuant
thereto; or
(iii) if Parent, Purchaser or any of their affiliates
shall have failed to commence the Offer on or prior to five business days
following the date of the initial public announcement of the Offer; or
(iv) if there shall be a material breach by Parent or
Purchaser or any of their representations, warranties, covenants or
agreements contained in this Agreement.
58
<PAGE>
(e) By Parent or Purchaser:
(i) If prior to the purchase of the Shares pursuant to the
Offer, (A) the Board shall have withdrawn, or modified or changed in a
manner adverse to Parent or Purchaser its approval or recommendation of the
Offer, this Agreement or the Merger or shall have recommended or approved a
Takeover Proposal; or (B) there shall have been a material breach of any
provision of Section 6.05; or
(ii) if Parent or Purchaser shall have terminated the
Offer without Parent or Purchaser purchasing any Shares thereunder; or
(iii) if Parent or Purchaser shall have terminated the
Note Tender Offer without Parent or Purchaser purchasing any Notes
thereunder; or
(iv) if, due to an occurrence that if occurring after the
commencement of the Offer would result in a failure to satisfy any of the
conditions set forth in Annex A hereto, Parent, Purchaser or any of their
affiliates shall have failed to commence the Offer on or prior to five
business days following the date of the initial public announcement of the
Offer; or
(v) any Person or "group" (as defined in Section 13(d)(3)
of the Exchange Act), other than Parent, Purchaser or their affiliates or
any group of which any of them is a member, shall have acquired beneficial
ownership (as determined pursuant to Rule 13d-3 promulgated under the
Exchange Act) of 25% or more of the Shares; or
(vi) if, prior to the purchase of the Shares pursuant to
the Offer, the Company receives a Takeover Proposal from any Person (other
than Parent or Purchaser), and the Board takes a neutral position or makes
no recommendation with respect to such Takeover Proposal after a reasonable
amount of time (and in no event more than five business days following such
receipt) has elapsed for the Board to review and make a recommendation with
respect to such Takeover Proposal; or
(vii) if, after the consummation of the Offer, there shall
be a material breach by the Company of any of its representations,
warranties, covenants or agreements contained in this Agreement or the Stock
Option Agreement.
59
<PAGE>
SECTION 8.02 Effect of the Termination. In the event of termination
of this Agreement by either the Company or Parent or Purchaser as provided
in Section 8.01, this Agreement shall forthwith become void and have no
effect, without any liability or obligation on the part of Parent, Purchaser
or the Company, other than the provisions of Section 6.04(b), this Section
8.02, Section 8.03 and Article IX and except to the extent that such
termination results from the wilful and material breach by a party of any of
its representations, warranties, covenants or agreements set forth in this
Agreement.
SECTION 8.03 Fees and Expenses. (a) Except as provided below, all
fees and expenses incurred in connection with the Offer, the Merger, this
Agreement and the Transactions shall be paid by the party incurring such
fees or expenses, whether or not the Offer or the Merger is consummated.
(b) If (x) Parent or Purchaser terminates this Agreement pursuant
to Section 8.01(e)(i), 8.01(e)(v) or 8.01(e)(vi) or (y) the Company
terminates this Agreement pursuant to Section 8.01(d)(i), then in each case,
the Company shall pay, or cause to be paid to Parent, or Purchaser, at the
time of termination, an amount equal to $5,000,000 (the "Termination Fee")
plus an amount equal to Parent's and Purchaser's actual and reasonably
documented out-of-pocket expenses incurred by Parent or Purchaser in
connection with the Offer, the Merger, this Agreement and the consummation
of the Transactions, including, without limitation, the fees (other than any
break-up, success or other contingent fee) and out-of-pocket expenses
payable to all banks, investment banking firms and other financial
institutions and Persons and their respective agents and counsel incurred in
connection with acting as Parent's or Purchaser's financial advisor with
respect to, or arranging or committing to provide or providing any financing
for, the Transactions up to an aggregate of $2,500,000 (the "Expenses"). In
addition, if this Agreement is terminated by Parent or Purchaser pursuant to
Section 8.01(e)(ii), 8.01(e)(iii) or 8.01(e)(vii) (other than by reason of a
breach of Section 6.05) or, prior to consummation of the Offer, by reason of
a breach of the conditions set forth in paragraph (d) of Annex A, or by the
Company pursuant to Section 8.01(d)(ii) and at the time of such termination,
neither Parent nor Purchaser is in material breach of this Agreement, then
the Company shall pay to Parent, at the time of termination, the Expenses,
and, if the Company shall thereafter, within 12 months after such
termination, announce its intention to enter into an agreement with respect to a
Takeover
60
<PAGE>
Proposal and the Company subsequently consummates the transaction(s)
contemplated by such agreement, then the Company shall pay the Termination Fee
concurrently with such consummation; provided, however, that, with respect to a
termination pursuant to Section 8.01(e)(ii) or 8.01(e)(iii), the Expenses and
the Termination Fee will be payable only if the Offer and the Note Tender Offer
shall have remained continuously open for a period of at least 20 business days
and neither the Minimum Stock Condition nor the Minimum Note Condition were
satisfied at the expiration of the Offer or the Note Tender Offer, as the case
may be. Any payments required to be made pursuant to this Section 8.03 shall be
made by wire transfer of same day funds to an account designated by Parent.
(c) Expenses. The Company shall pay all Taxes, such as (a)
transfer, stamp and documentary Taxes or fees and (b) sales, use, gains,
real property transfer and other or similar Taxes or fees, incident to
preparing for, entering into and carrying out this Agreement and the
consummation of the transactions contemplated hereby.
SECTION 8.04 Amendment. Subject to applicable Law, this Agreement
may be amended by the parties hereto by action taken by or on behalf of
their respective Boards of Directors at any time prior to the Effective
Time; provided, however, that, after the approval and adoption of this
Agreement and the transactions contemplated hereby by the stockholders of
the Company, no amendment may be made which would reduce the amount or
change the type of consideration into which each Share shall be converted
upon consummation of the Merger. This Agreement may not be amended except by
an instrument in writing signed by the parties hereto.
SECTION 8.05 Waiver. At any time prior to the Effective Time, any
party hereto may (i) extend the time for the performance of any obligation
or other act of any other party hereto, (ii) waive any inaccuracy in the
representations and warranties contained herein or in any document delivered
pursuant hereto, and (iii) waive compliance with any agreement or condition
contained herein. Any such extension or waiver shall be valid if set forth
in an instrument in writing signed by the party or parties to be bound
thereby.
ARTICLE IX
61
<PAGE>
GENERAL PROVISIONS
SECTION 9.01 Non-Survival of Representations, Warranties and
Agreements. The representations, warranties and agreements in this Agreement
shall terminate at the Effective Time or upon the termination of this
Agreement pursuant to Section 8.01, as the case may be, except that the
agreements set forth in Articles II and IX and Section 6.06 shall survive the
Effective Time indefinitely and those set forth in Sections 6.04(b), 8.02, 8.03
and Article IX shall survive termination indefinitely.
SECTION 9.02 Notices. All notices, requests, claims, demands and
other communications hereunder shall be in writing and shall be given (and
shall be deemed to have been duly given upon receipt or refusal by the
addressee thereof) by delivery in person, by a recognized overnight courier,
or by registered or certified mail (postage prepaid, return receipt
requested) to the respective parties at the following addresses (or at such
other address for a party as shall be specified in a notice given in
accordance with this Section 9.02):
if to Parent or Purchaser:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067
Attn: David Lissy, Esq.
with a copy to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attn: Jeffrey J. Weinberg, Esq.
if to the Company:
Hills Stores Company
15 Dan Road
Canton, Massachusetts 02021
Attn: William Friend, Esq.
62
<PAGE>
with a copy to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attn: Paul S. Pearlman, Esq.
SECTION 9.03 Certain Definitions. For purposes of this Agreement,
the term:
(a) "affiliate" of a specified person means a person who directly
or indirectly through one or more intermediaries controls, is controlled by,
or is under common control with, such specified person;
(b) "beneficial owner" with respect to any Shares means a person
who shall be deemed to be the beneficial owner of such Shares (i) that such
person or any of its affiliates or associates (as such term is defined in
Rule 12b-2 promulgated under the Exchange Act) beneficially owns, directly or
indirectly, (ii) that such person or any of its affiliates or associates has,
directly or indirectly, (A) the right to acquire (whether such right is
exercisable immediately or subject only to the passage of time), pursuant to any
agreement, arrangement or understanding or upon the exercise of consideration
rights, exchange rights, warrants or options, or otherwise, or (B) the right to
vote pursuant to any agreement, arrangement or understanding or (iii) that are
beneficially owned, directly or indirectly, by any other persons with whom such
person or any of its affiliates or associates or person with whom such person or
any of its affiliates or associates has any agreement, arrangement or
understanding for the purpose of acquiring, holding, voting or disposing of any
Shares;
(c) "business day" means any day on which the principal offices of
the SEC in Washington, D.C. are open to accept filings, or, in the case of
determining a date when any payment is due, any day on which banks are not
required or authorized to close in the City of New York;
(d) "Cash Equivalents" means cash and highly liquid investments
with maturities of three months or less from the date of purchase and whose
cost approximates market value due to the short maturity of the investments;
63
<PAGE>
(e) "Continuing Director" means (i) any member of the Board of
Directors of the Company as of the date hereof, or (ii) any successor of a
Continuing Director who is (A) unaffiliated with, and not a designee or
nominee, of Parent or Purchaser, and (B) recommended to succeed a Continuing
Director by a majority of the Continuing Directors then on the Board of
Directors of the Company, and in each case under clauses (i) and (ii), who
is not an employee of the Company;
(f) "control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly or as
trustee or executor, of the power to direct or cause the direction of the
management and policies of a person, whether through the ownership of voting
securities, as trustee or executor, by contract or credit arrangement or
otherwise;
(g) "Equity Deferred Contingent Cash Right" means an amount,
rounded up the nearest whole cent, equal to 25% of the Net Recovery (as
defined below) divided by the total number of Shares outstanding immediately
before consummation of the Offer, after giving effect to the exercise after
consummation of the Offer of any Options, Warrants and rights under the
Hills Associate Stock Purchase Plan outstanding on the date hereof;
(h) "Hills Litigation" shall mean the claims filed against the
defendants in Hills Stores Company v. Bozic, et al, (Del. Ch., filed
September 1995), and the counterclaims asserted in such action, and any
other claims by the Company arising out of or with respect to the subject matter
of the claims filed by the Company against the defendants in the aforesaid
action;
(i) "Inventory" means all inventory, goods, merchandise and other
tangible personal property intended for sale or lease, valued using the
retail method on the lower of last-in, first-out (LIFO) cost or market
basis;
(j) "Litigation Committee" means the three individuals (who shall
be reasonably acceptable to the Parent and not have any independent interest
in the Hills Litigation other than as a holder of DCCRs) designated by the
Company's Board of Directors prior to the consummation of the Offer to serve
as the members of such committee. Any vacancy on the Litigation Committee
shall be filled by the remaining members of the Litigation Committee. Any
action of the Litigation Committee must be taken by a majority of its
members;
64
<PAGE>
(k) "Loan Agreement" means the Loan and Security Agreement, dated
as of September 30, 1996, as subsequently amended, among the financial
institutions named therein as lenders, BankAmerica Business Credit, Inc. as
agent, Hills Department Stores Company as borrower, C.R.H. International,
Inc. as borrower, and the other loan parties named therein;
(l) "Net Recovery" means (1) the sum of (A) cash payments, if any,
actually received by the Surviving Corporation in respect of a final,
non-appealable judgment in or settlement (including any cash tax refund
received by any defendant and paid over to the Surviving Corporation) of the
Hills Litigation and any advances to other parties recovered by the
Surviving Corporation and (B) amounts received after the consummation of the
Offer from certain employees of the Company who settled related claims prior
to such time or who otherwise make payments after such time in respect of
such related claims (including any cash tax refund received by any such
persons and paid over to the Surviving Corporation), together with any
interest earned on the foregoing (such cash payments are hereinafter
referred to as the "Cash Payment") minus, without prioritization, (2) the
sum of (A) the aggregate expenses incurred after consummation of the Offer
by Parent, Purchaser, the Company or the Surviving Corporation in
prosecuting and defending the Hills Litigation and obtaining such Cash
Payment, (B) the aggregate payments or advances by the Company or the
Surviving Corporation after consummation of the Offer to or on behalf of
third parties relating to claims of indemnification in connection with the
Hills Litigation, (C) the Committee Fee, (D) any indemnification payments on
behalf the Litigation Committee pursuant to Section 2.11(g) above, and (E)
any payments or settlements made by the Surviving Corporation on
counterclaims under the Hills Litigation;
(m) "Note Deferred Contingent Cash Right" means, with respect to
any holder of Notes, an amount, rounded up to the nearest whole cent, equal
to 50% of the Net Recovery multiplied by a fraction, the numerator of which is
the principal amount of the Notes purchased from such holder of Notes, and the
denominator of which is the total principal amount of all Notes purchased in the
Note Offer to Purchase;
(n) "person" means an individual, corporation, partnership, limited
partnership, syndicate, person (including, without limitation, a "person" as
defined in Section 13(d)(3) of the
65
<PAGE>
Exchange Act), trust, association or entity or government, political
subdivision, agency or instrumentality of a government;
(o) "Representative" means, with respect to any Person, such
Person's officers, directors, employees, agents and representatives
(including any investment banker, financial advisor, accountant, legal
counsel, agent, representative or expert retained by or acting on behalf of
such Person or its Subsidiaries);
(p) "subsidiary" or "subsidiaries" of the Company, the Surviving
Corporation, Parent, Purchaser or any other person means an affiliate
controlled by such person, directly or indirectly, through one or more
intermediaries;
(q) "Superior Proposal" means an unsolicited bona fide proposal by
a Third Party to acquire, directly or indirectly, for consideration
consisting of cash and/or securities, more than a majority of the Shares
then outstanding or all or substantially all of the assets of the Company or
to acquire, directly or indirectly, the Company by merger or consolidation,
and otherwise on terms which the Board determines in good faith to be more
favorable to the Company's stockholders than the Offer and the Merger (based
on advice of the Company's independent financial advisor that the value of
the consideration provided for in such proposal is superior to the value of
the consideration provided for in the Offer and the Merger), for which
financing, to the extent required, is then committed or which, in the good
faith reasonable judgment of the Board, based on advice from the Company's
independent financial advisor, is reasonably capable of being financed by
such Third Party and which, in the good faith reasonable judgment of the
Board is reasonably likely to be consummated within a period of time not
materially longer in duration than the period of time reasonably believed to
be necessary to consummate the Offer and Merger;
(r) "Takeover Proposal" means any bona fide proposal or offer,
whether in writing or otherwise, from any Person other than Parent,
Purchaser or any affiliates thereof (a "Third Party") to acquire beneficial
ownership (as defined under Rule 13(d) of the Exchange Act) of all or a
material portion of the assets of the Company or any of its material
Subsidiaries or 30% or more of any class of equity securities of the Company
or any of its material Subsidiaries pursuant to a merger, consolidation or
other business combination, sale of shares of capital stock, sale of assets,
66
<PAGE>
tender offer, exchange offer or similar transaction with respect to either the
Company or any of its material Subsidiaries, including any single or multi-step
transaction or series of related transactions, which is structured to permit
such Third Party to acquire beneficial ownership of any material portion of the
assets of or 30% or more of the equity interest in either the Company or any of
its material Subsidiaries; and
(s) "Working Capital" means, with respect to the Company and its
Subsidiaries on the date the Financial MAC is determined, the excess of (a)
the sum of book cash and cash equivalents plus book bankcard receivables
plus book inventory, less (b) the sum of the outstanding balance under the
Loan Agreement plus book merchandise/trade accounts payable. Such book
amounts shall be determined consistently with the practices used by the
Company in arriving at its regular month-end amounts and/or as defined in
the Company's annual report to the Securities and Exchange Commission on
Form 10-K for the fiscal year ended January 31, 1998, except that interim
weekly data shall be used to "roll-forward" balances from the end of the
fiscal month of November to December 26, 1998; provided further, that if the
Company has notified the Purchaser's chief financial or chief accounting
officer, in writing delivered by express mail or delivery or by fax, that
(i) the Company has prepaid any sales, payroll or other similar fiduciary
taxes through the period ending January 2, 1999, and (ii) the amount of such
prepayments, that the amount of such prepayments shall be deducted from the
outstanding balance under the Loan Agreement in calculating the Financial
MAC.
SECTION 9.04 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by any rule of
law, or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic
or legal substance of the Transactions is not affected in any manner
materially adverse to any party. Upon such determination that any term or
other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as
to effect the original intent of the parties as closely as possible in a
mutually acceptable manner in order that the Transactions be consummated as
originally contemplated to the fullest extent possible.
SECTION 9.05 Entire Agreement, Assignment. This Agreement
constitutes the entire agreement among the parties with respect to
67
<PAGE>
the subject matter hereof and supersedes, except as set forth in Section
6.04(b), all prior agreements and undertakings, both written and oral, among the
parties, or any of them, with respect to the subject matter hereof. This
Agreement shall not be assigned by operation of law or otherwise, except that
Purchaser may assign all or any of its rights and obligations hereunder to any
affiliate of Parent provided that no such assignment shall relieve the assigning
party of its obligations hereunder if such assignee does not perform such
obligations.
SECTION 9.06 Parties in Interest. This Agreement shall be binding
upon and inure solely to the benefit of each party hereto, and nothing in
this Agreement, express or implied, is intended to or shall confer upon any
other person any right, benefit or remedy of any nature whatsoever under or
by reason of this Agreement, other than Section 6.06 (which is intended to
be for the benefit of the persons covered thereby and may be enforced by
such persons) and Section 2.11 (which is intended to be for the benefit of
the holders of the DCCRs and the Litigation Committee but may be enforced
only by the Litigation Committee).
SECTION 9.07 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
shall be entitled to specific performance of the terms hereof, in addition
to any other remedy at law or equity.
SECTION 9.08 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of Delaware.
SECTION 9.09 Headings. The descriptive headings contained in this
Agreement are included for convenience of reference only and shall not
affect in any way the meaning or interpretation of this Agreement.
SECTION 9.10 Counterparts. This Agreement may be executed in one or
more counterparts, and by the different parties hereto in separate
counterparts, each of which when executed shall be deemed to be an original
but all of which taken together shall constitute one and the same agreement.
SECTION 9.11 Certain Undertakings by Parent. Parent shall be
responsible for the performance of, and, if necessary, shall
68
<PAGE>
perform, or cause to be performed each obligation of Purchaser or the Surviving
Corporation, or either of their permitted successors and assigns, under this
Agreement.
69
<PAGE>
IN WITNESS WHEREOF, Parent, Purchaser and the Company have caused
this Agreement to be executed as of the date first written above by their
respective officers thereunto duly authorized.
AMES DEPARTMENT STORES, INC.
By: /s/ Joseph R. Ettore
-----------------------------------
Name: Joseph R. Ettore
Title: President
HSC ACQUISITION CORP.
By: /s/ Joseph R. Ettore
-----------------------------------
Name: Joseph R. Ettore
Title: President
HILLS STORES COMPANY
By: /s/ Chaim Y. Edelstein
-----------------------------------
Name: Chaim Y. Edelstein
Title: Chairman
70
<PAGE>
ANNEX A
CONDITIONS TO THE STOCK TENDER OFFER
Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreement and Plan of Merger of which this Annex A
is a part. Notwithstanding any other provision of the Offer, Purchaser shall
not be required to accept for payment or, subject to any applicable rules
and regulations of the SEC, including Rule 14e-1(c) under the Exchange Act
(relating to Purchaser's obligation to pay for or return tendered Shares
promptly after termination or withdrawal of the Offer), pay for, and may
delay the acceptance for payment of or, subject to the restriction referred
to above, the payment for, any tendered Shares, and may amend the Offer
consistent with the terms of the Agreement or terminate the Offer and not
accept for payment any tendered Shares, if (i) the Minimum Stock Condition
shall not have been satisfied, (ii) the Note Purchase Condition shall not
have been satisfied, (iii) any applicable waiting period under the HSR Act
has not expired or been terminated, or (iv) at any time on or after the date
of the Agreement and prior to the acceptance for payment of Shares, any of
the following events shall occur and be continuing:
(a) there shall be threatened or pending any suit, action or
proceeding by a federal, state, or foreign governmental entity (i) seeking to
prohibit or impose any material limitations on Parent's or Purchaser's ownership
or operation (or that of any of its subsidiaries or affiliates) of all or a
material portion of its or the Company's businesses or assets, (ii) seeking to
compel Parent or Purchaser or their respective subsidiaries or affiliates to
dispose of or hold separate any material portion of the business or assets of
the Company or Parent and their respective subsidiaries, in each case taken as a
whole, (iii) challenging the acquisition by Parent or Purchaser of any Shares
pursuant to the Offer or the Stock Option Agreement, (iv) seeking to restrain or
prohibit the making or consummation of the Offer or the Merger or the
performance of any of the other Transactions, (v) seeking to obtain from the
Company any damages that would be reasonably likely to have a Material Adverse
Effect on the Company, (vi) seeking to impose material
A-1
<PAGE>
limitations on the ability of Purchaser or Parent, or rendering Purchaser
unable, to accept for payment, pay for or purchase some or all of the Shares
pursuant to the Offer and the Merger, (vii) seeking to impose material
limitations on the ability of Purchaser effectively to exercise full rights of
ownership of the Shares, including, without limitation, the right to vote the
Shares purchased by it on all matters properly presented to the Company's
stockholders, or (viii) which otherwise would have a Material Adverse Effect on
the Company or, as a result of the Transactions, Parent and its subsidiaries; or
(b) there shall be any statute, rule, regulation, judgment, order
or injunction enacted, entered, enforced, promulgated or deemed applicable
to any Transaction, or any other action shall be taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses
(i) through (viii) of paragraph (a) above; or
(c) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
the American Stock Exchange or in the Nasdaq National Market System, for a
period in excess of three hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges
not related to market conditions), (2) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (3) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving
the United States, (4) any limitation or proposed limitation (whether or not
mandatory) by any United States governmental authority or agency that has a
material adverse effect generally on the extension of credit by banks or
other financial institutions, (5) any change in general financial bank or
capital market conditions which has a material adverse effect on the ability
of financial institutions in the United States to extend credit or syndicate
loans, or (6) in the case of any of the situations in clauses (1) through
(5) inclusive, existing on the date hereof, a material acceleration or
worsening thereof; or
(d) the representations and warranties of the Company set forth in
the Agreement shall not be true and accurate as of the date of consummation
of the Offer as though made on or as of such date (except for those
representations and warranties that address matters only as of a particular
date or only with respect to a specific period of time which need only be
true and accurate as of
A-2
<PAGE>
such date or with respect to such period) or the Company shall have breached or
failed to perform or comply with any obligation, agreement or covenant required
by the Agreement to be performed or complied with by it except, in each case
where the failure of such representations and warranties to be true and accurate
(without giving effect to any limitation as to "materiality" or "material
adverse effect" set forth herein), or the failure to perform or comply with such
obligations, agreements or covenants, do not, individually or in the aggregate,
have a Material Adverse Effect on the Company or a materially adverse effect on
the ability to consummate the Offer or the Merger or any of the other
Transactions; or
(e) there shall have occurred any events or changes which have had
or would have or constitute, individually or in the aggregate, a Material
Adverse Effect on the Company; or
(f) the Company's Board of Directors (i) shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the
Agreement, or the Merger, (ii) shall have recommended a Takeover Proposal,
(iii) shall have adopted any resolution to effect any of the foregoing, or
(iv) upon request of Parent or Purchaser, shall fail to reaffirm its
approval or recommendation of the Offer, the Agreement, the Merger or any of
the other Transactions; or
(g) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any group
of which any of them is a member, shall have acquired or announced its
intention to acquire beneficial ownership (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the Shares;
(h) any party to the Stock Option Agreement other than Parent or
Purchaser shall have breached or failed to perform any of its agreements
under such agreement or breached any of its representations and warranties
in such agreements or any such agreements shall not be valid, binding and
enforceable, except for such breaches or failures or failures to be valid,
binding and enforceable that do not materially and adversely affect the
benefits expected to be received by Parent or Purchaser under the Stock
Option Agreement;
A-3
<PAGE>
(i) the Agreement shall have terminated in accordance with its terms;
(j) Purchaser shall not have received sufficient financing, on
terms at least as favorable to Purchaser as are contained in the Commitment
Letter, to pay the aggregate Merger Consideration payable hereunder, to
purchase the Notes pursuant to the Note Tender Offer and to satisfy the
ongoing working capital needs of the Surviving Corporation (it being agreed
that Parent and Purchaser will use reasonable commercial efforts to
consummate the financing pursuant to the Commitment Letter, subject to
satisfactory documentation in Parent's and Purchaser's reasonable
discretion); or
(k) If the Offer has not expired on or before December 28, 1998,
the Company shall have failed to deliver a certificate to Parent, in form
and substance reasonably acceptable to Arthur Andersen LLP and Parent,
stating that a Financial MAC has not occurred;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser not otherwise in breach of this Agreement) giving rise to such
condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payments for Shares.
The foregoing conditions are for the sole benefit of Parent and
Purchaser and may be waived by Parent or Purchaser, in whole or in part, at
any time and from time to time, in the sole discretion of Parent or
Purchaser. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
A-4
<PAGE>
ANNEX B
CONDITIONS TO THE NOTE TENDER OFFER
Capitalized terms used but not defined herein shall have the
meanings set forth in the Agreement and Plan of Merger of which this Annex B
is a part. Notwithstanding any other provision of the Note Tender Offer,
Purchaser shall not be required to accept for payment or pay for, and may
delay the acceptance for payment of or, subject to the restriction referred
to above, the payment for, any tendered Notes, and may amend the Note Tender
Offer consistent with the terms of the Agreement or terminate the Note
Tender Offer and not accept for payment any tendered Notes, if (i) the
Minimum Note Condition shall not have been satisfied, (ii) the Minimum Stock
Condition shall not have been satisfied, or (iii) at any time on or after
the date of the Agreement and prior to the acceptance for payment of Notes
and related Consents, any of the following events shall occur and be
continuing:
(a) there shall be threatened or pending any suit, action or
proceeding by a federal, state or foreign governmental entity (i) seeking to
prohibit or impose any material limitations on Parent's or Purchaser's
ownership or operation (or that of any of its subsidiaries or affiliates) of
all or a material portion of its or the Company's businesses or assets, (ii)
seeking to compel Parent or Purchaser or their respective subsidiaries or
affiliates to dispose of or hold separate any material portion of the
business or assets of the Company or Parent and their respective
subsidiaries, in each case taken as a whole, (iii) challenging the
acquisition by Parent or Purchaser of any Notes pursuant to the Note Tender
Offer or payment for the related Consents, (iv) seeking to restrain or
prohibit the making or consummation of the Note Tender Offer, the seeking of
Consents, or the performance of any of the other Transactions, (v) seeking
to obtain from the Company any damages that would be reasonably likely to
have a Material Adverse Effect on the Company, (vi) seeking to impose
material limitations on the ability of Purchaser or Parent, or rendering
Purchaser unable, to accept for payment, pay for or purchase some or all of
the Notes pursuant to the Note Tender Offer, (vii) seeking to impose
material limitations on the ability of Purchaser or Parent effectively to
exercise full rights of ownership of any Notes or related Consents, or
(viii) which otherwise would have a Material Adverse Effect on the Company
or, as a result of the Transactions, Parent and its subsidiaries; or
B-1
<PAGE>
(b) there shall be any statute, rule, regulation, judgment, order
or injunction enacted, entered, enforced, promulgated or deemed applicable
to any Transaction, or any other action shall be taken by any governmental
entity, other than the application to the Offer or the Merger of applicable
waiting periods under the HSR Act, that is reasonably likely to result,
directly or indirectly, in any of the consequences referred to in clauses
(i) through (viii) of paragraph (a) above; or
(c) there shall have occurred (1) any general suspension of trading
in, or limitation on prices for, securities on the New York Stock Exchange,
the American Stock Exchange or in the Nasdaq National Market System, for a
period in excess of three hours (excluding suspensions or limitations
resulting solely from physical damage or interference with such exchanges
not related to market conditions), (2) a declaration of a banking moratorium
or any suspension of payments in respect of banks in the United States
(whether or not mandatory), (3) the commencement of a war, armed hostilities
or other international or national calamity directly or indirectly involving
the United States, (4) any limitation or proposed limitation (whether or not
mandatory) by any United States governmental authority or agency that has a
material adverse effect generally on the extension of credit by banks or
other financial institutions, (5) any change in general financial bank or
capital market conditions which has a material adverse effect on the ability
of financial institutions in the United States to extend credit or syndicate
loans, or (6) in the case of any of the situations in clauses (1) through
(5) inclusive, existing on the date hereof, a material acceleration or
worsening thereof; or
(d) the representations and warranties of the Company set forth in
the Agreement shall not be true and accurate as of the date of consummation
of the Offer as though made on or as of such date (except for those
representations and warranties that address matters only as of a particular
date or only with respect to a specific period of time which need only be
true and accurate as of such date or with respect to such period) or the
Company shall have breached or failed to perform or
B-2
<PAGE>
comply with any obligation, agreement or covenant required by the Agreement to
be performed or complied with by it except, in each case where the failure of
such representations and warranties to be true and accurate (without giving
effect to any limitation as to "materiality" or "material adverse effect" set
forth herein), or the failure to perform or comply with such obligations,
agreements or covenants, do not, individually or in the aggregate, have a
Material Adverse Effect on the Company or a materially adverse effect on the
ability to consummate the Offer or the Merger or any of the other Transactions;
or
(e) there shall have occurred any events or changes which have had
or would have or constitute, individually or in the aggregate, a Material
Adverse Effect on the Company; or
(f) the Company's Board of Directors (i) shall have withdrawn, or
modified or changed in a manner adverse to Parent or Purchaser (including by
amendment of the Schedule 14D-9) its recommendation of the Offer, the
Agreement, or the Merger, (ii) shall have recommended a Takeover Proposal,
(iii) shall have adopted any resolution to effect any of the foregoing, or
(iv) upon request of Parent or Purchaser, shall fail to reaffirm its
approval or recommendation of the Offer, the Agreement, the Merger or any of
the other Transactions; or
(g) any Person or "group" (as defined in Section 13(d)(3) of the
Exchange Act), other than Parent, Purchaser or their affiliates or any group
of which any of them is a member, shall have acquired or announced its
intention to acquire beneficial ownership (as determined pursuant to Rule
13d-3 promulgated under the Exchange Act) of 20% or more of the Shares; or
(h) any party to the Stock Option Agreement other than Parent or
Purchaser shall have breached or failed to perform any of its agreements
under such agreement or breached any of its representations and warranties
in such agreements or any such agreements shall not be valid, binding and
enforceable, except for such breaches or failures or failures to be valid,
binding and enforceable that do not materially and adversely affect the
benefits expected to be received by Parent or Purchaser under the Stock
Option Agreement;
(i) the Agreement shall have terminated in accordance with
its terms;
(j) Purchaser shall not have received sufficient financing, on
terms at least as favorable to Purchaser as are contained in the Commitment
Letter, to pay the aggregate Merger Consideration payable hereunder, to
purchase the Notes pursuant to the Note Tender Offer and to satisfy the
ongoing working capital needs of
B-3
<PAGE>
the Surviving Corporation (it being agreed that Parent and Purchaser will use
reasonable commercial efforts to consummate the financing pursuant to the
Commitment Letter, subject to satisfactory documentation in Parent's and
Purchaser's reasonable discretion); or
(k) If the Note Tender Offer has not expired on or before December
28, 1998, the Company shall have failed to deliver a certificate to Parent,
in form and substance reasonably acceptable to Arthur Andersen LLP and
Parent, stating that a Financial MAC has not occurred;
which in the sole judgment of Parent or Purchaser, in any such case, and
regardless of the circumstances (including any action or inaction by Parent
or Purchaser not otherwise in breach of this Agreement) giving rise to such
condition makes it inadvisable to proceed with the Offer and/or with such
acceptance for payment of or payments for Shares.
The foregoing conditions are for the sole benefit of Parent and
Purchaser and may be waived by Parent or Purchaser, in whole or in part, at
any time and from time to time, in the sole discretion of Parent or
Purchaser. The failure by Parent or Purchaser at any time to exercise any of
the foregoing rights shall not be deemed a waiver of any right and each such
right shall be deemed an ongoing right which may be asserted at any time and
from time to time.
B-4
<PAGE>
Exhibit A
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 12, 1998, by and between
Hills Stores Company, a Delaware corporation ("Company") and Ames Department
Stores, Inc., a Delaware corporation ("Parent").
WHEREAS, concurrently with the execution and delivery of this
Agreement, Company, Parent and HSC Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Purchaser"), are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides that, among other things, upon the terms and subject
to the conditions thereof, Purchaser will be merged with and into Company (the
"Merger"); and
WHEREAS, as a condition to Parent's and Purchaser's willingness to
enter into the Merger Agreement, Parent has requested that Company agree, and in
order to induce Parent and Purchaser to enter into the Merger Agreement, Company
has so agreed, to grant to Parent an option with respect to certain shares of
Company's common stock on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Grant of Option. Company hereby grants Parent an irrevocable option
(the "Stock Option") to purchase up to 2,073,753 shares of common stock, $.01
par value per share, of Company (the "Company Common Stock"), or such other
number of shares of Company Common Stock as equals 19.9% of the issued and
outstanding shares of Company Common Stock at the time of exercise of the Stock
Option, in the manner set forth below, at a price of $1.50 per share (the
"Exercise Price"), payable in cash in accordance with Section 4 hereof.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Merger Agreement.
2. Exercise of Option. The Stock Option may be exercised by Parent, in
whole or in part, at any time or from time to time (a) after the Merger
Agreement is terminated pursuant to Section 8.01(d)(i) or 8.01(e)(i)(A) (a
"Trigger Event") or (b) at any time after the acceptance of the Offer by
Purchaser and prior to the Effective Time.
In the event Parent wishes to exercise the Stock Option, Parent shall
deliver to Company a written notice (an "Exercise Notice") specifying the total
number of shares of Company Common Stock it wishes to purchase. Each closing of
a purchase of shares of
1
<PAGE>
Company Common Stock (a "Closing") shall occur at a place, on a date and at a
time designated by Parent in an Exercise Notice delivered at least two business
days prior to the date of the Closing.
(a) The Stock Option shall terminate upon the earliest of: (i)
the Effective Time; (ii) the termination of the Merger Agreement pursuant to
Section 8.01 thereof, other than a termination as a result of the occurrence of
a Trigger Event; or (iii) 120 days following any termination of the Merger
Agreement as the result of the occurrence of a Trigger Event (or if, at the
expiration of such 120 day period the Stock Option cannot be exercised by reason
of any applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the HSR Act has not expired or been terminated,
10 business days after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal, but in no event under this
clause (ii) later than 210 days after the date of termination of the Merger
Agreement).
(b) Notwithstanding the foregoing, the Stock Option may not be
exercised if Parent is in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or in the Merger
Agreement.
3. Conditions to Closing. The obligation of Company to issue shares of
Company Common Stock to Parent hereunder is subject to the conditions that (i)
all waiting periods, if any, under the HSR Act applicable to the issuance of
shares of Company Common Stock hereunder shall have expired or have been
terminated, and all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal administrative agency
or commission or other federal governmental authority or instrumentality, if
any, required in connection with the issuance of shares of Company Common Stock
hereunder shall have been obtained or made, as the case may be; and (ii) no
preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect.
4. Closing. At any Closing, (a) Company will deliver to Parent a single
certificate in definitive form representing the number of shares of Company
Common Stock designated by Parent in its Exercise Notice, such certificate to be
registered in the name of Parent, Purchaser or such other affiliate of Parent as
Parent shall designate in the Exercise Notice and shall bear the legend set
forth in Section 10, and (b) Parent will deliver to Company the aggregate
Exercise Price for the shares of Company Common Stock so designated and being
purchased at such Closing by wire transfer of immediately available funds.
5. Representations and Warranties of Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Company and the consummation by Company
2
<PAGE>
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Company and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
any of the transactions contemplated hereby, (c) this Agreement has been duly
executed and delivered by Company and constitutes a valid and binding obligation
of Company, and, assuming this Agreement constitutes a valid and binding
obligation of Parent, is enforceable against Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, (d) Company has taken all
necessary corporate action to authorize and reserve for issuance and to permit
it to issue, upon exercise of the Stock Option, and at all times from the date
hereof through the expiration of the Stock Option will have so reserved,
2,073,753 unissued shares of Company Common Stock, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of such shares
of Company Common Stock to Parent upon exercise of the Stock Option, Parent will
acquire valid title to all of such shares, free and clear of any and all liens
of any nature whatsoever, (f) the execution and delivery of this Agreement by
Company does not, and the performance of this Agreement by Company will not (1)
violate the certificate of incorporation or by-laws of Company, (2) conflict
with or violate any statute, rule, regulation, order, judgment or decree
applicable to Company or by which it or any of its assets or properties is bound
or affected, or (3) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien on any of the property or
assets of Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which Company or
any of its Subsidiaries is a party or by which Company or any of its assets or
properties is bound or affected (except, in the case of clauses (2) or (3)
above, for violations, breaches or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect on Company), and (g) the execution
and delivery of this Agreement by Company does not, and the performance of this
Agreement by Company will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority except for pre-merger notification requirements of the HSR Act.
6. Representations and Warranties of Parent. Parent represents and
warrants to Company that (a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Parent and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding obligation of Parent, and, assuming this Agreement constitutes
a valid and binding obligation of Company,
3
<PAGE>
is enforceable against Parent in accordance with its terms subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, (d) the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not (1) violate the certificate of incorporation or by-laws of Parent, (2)
conflict with or violate any statute, rule, regulation, order, judgment or
decree applicable to Parent or by which it or any of its properties or assets is
bound or affected, or (3) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give rise to any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien on any of the property or
assets of Parent pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which Parent is
a party or by which Parent or any of its properties or assets is bound or
affected (except, in the case of clauses (2) and (3) above, for violations,
breaches, or defaults which would not, individually or in the aggregate, have a
material adverse effect on the business, operations, financial condition, assets
or liabilities of Parent), (e) the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except for pre-merger
notification requirements of the HSR Act, and (f) any shares of Company Common
Stock acquired upon exercise of the Stock Option will be, and the Stock Option
is being, acquired by Parent for its own account and not with a view to the
public distribution or resale thereof in any manner which would be in violation
of applicable United States securities laws.
7. Certain Repurchases. (a) Parent Put. At the request of Parent at any
time during which the Stock Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), Company (or any successor entity thereof) shall repurchase
from Parent the Stock Option, or any portion thereof, for a price equal to the
amount by which the "Market/Tender Offer Price" for shares of Company Common
Stock as of the date Parent gives notice of its intent to exercise its rights
under this Section 7 (defined as the higher of (A) the highest price per share
paid as of such date pursuant to any tender or exchange offer or other Takeover
Proposal or (B) the average of the closing sale prices of shares of Company
Common Stock on the NYSE for the ten trading days immediately preceding such
date) exceeds the Exercise Price, multiplied by the number of shares of Company
Common Stock purchasable pursuant to the Stock Option (or portion thereof with
respect to which Parent is exercising its rights under this Section 7)).
(b) Payment and Redelivery of Stock Option or Shares. In the
event Parent exercises its rights under this Section 7, Company shall, within 10
business days thereafter, pay the required amount to Parent in immediately
available funds and Parent shall surrender to Company the Stock Option.
4
<PAGE>
8. Registration Rights. In the event that Parent shall desire to sell
any of the shares of Company Common Stock purchased pursuant to the Stock Option
within 3 years after such purchase, and such sale requires in the opinion of
counsel to Parent, which opinion shall be reasonably satisfactory to Company and
its counsel, registration of such shares under the Securities Act of 1933,
Parent may, by written notice (the "Registration Notice") to Company (the
"Registrant"), request the Registrant to register under the Securities Act all
or any part of the shares purchased pursuant to the Stock Option ("Restricted
Shares") beneficially owned by Parent (the "Registrable Securities") pursuant to
a bona fide firm commitment underwritten public offering in which the Parent and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any "group" (as defined in Section 13(d)(3) of the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 2% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Parent and its
proposed managing underwriter, which underwriter shall be an investment banking
firm of nationally recognized standing reasonably acceptable to Company (the
"Manager"), stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price to be specified in such Registration
Notice (the "Fair Market Value"). The Registrant (and/or any person designated
by the Registrant) shall thereupon have the option exercisable by written notice
delivered to the Parent within 10 business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities and (ii) the Fair Market
Value of such Registrable Securities. Any such purchase of Registrable
Securities by the Registrant hereunder shall take place at a closing to be held
at the principal executive offices of the Registrant or its counsel at any
reasonable date and time designated by the Registrant and its designee in such
notice within 20 business days after delivery of such notice. Any payment for
the shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option
pursuant to this Section 8 with respect to all Registrable Securities designated
in the Registration Notice, it shall use its best efforts to effect, as promptly
as practicable, the registration under the Securities Act of the unpurchased
Registrable Securities; provided, however, that (i) Parent shall not be entitled
to more than an aggregate of two effective registration statements hereunder,
and (ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 90 days after such request in
the case of clause (B) below or 120 days in the case of clause (A) below) when
(A) the Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the judgment of the Board of Directors of the Registrant, such information would
have to be disclosed if a registration statement were filed at that time; or (B)
the
5
<PAGE>
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement.
If consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 120 days after the filing with the
SEC of the initial registration statement with respect thereto, the provisions
of this Section 8 shall again be applicable to any proposed registration;
provided, however, that Parent shall not be entitled to request more than two
registrations pursuant to this Section 8 in any 12 month period. The Registrant
shall use its best efforts to cause all Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or
blue-sky laws of such jurisdictions as Parent may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
provided, however, that the Registrant shall not be required to qualify to do
business in, or consent to general service of process in, any jurisdiction by
reason of this provision.
The registration rights set forth in this Section 8 are
subject to the condition that Parent shall provide the Registrant with such
information with respect to Parent's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Parent as, in
the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in such registration statement all material facts
required to be disclosed with respect to a registration thereunder.
A registration effected under this Section 8 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions,
and the Registrant shall provide to the underwriters such documentation
(including certificates, opinions of counsel and "comfort" letters from
auditors) as are customary in connection with underwritten public offerings as
such underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the underwriters
in the customary manner, and (ii) to enter into an underwriting agreement in
form and substance customary to transactions of this type with the Manager and
the other underwriters participating in such offering.
9. Adjustment upon Changes in Capitalization. In the event of any
change in Company Common Stock by reason of stock dividends, stock splits,
mergers (other than the Merger), recapitalizations, combinations, exchange of
shares or the like, the type and number of shares or securities subject to the
Stock Option, and the Exercise Price per share, shall be adjusted appropriately.
10. Restrictive Legends. Each certificate representing shares of
Company Common Stock issued to Parent hereunder shall initially be endorsed with
a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
6
<PAGE>
AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED NOVEMBER
11, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER HEREOF.
11. Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
and permitted assigns. Except as expressly provided in this Agreement, neither
this Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 8 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement. In no event
will any transferee of any Restricted Shares be entitled to the rights of Parent
hereunder. Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear the legend set forth in
Section 10.
12. Specific Performance. The parties recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13. Entire Agreement. This Agreement and the Merger Agreement (together
with the other documents and instruments referred to in the Merger Agreement,
and the exhibits and disclosure schedules thereto) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
14. Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7
<PAGE>
15. No Remedy in Certain Circumstances. Each party agrees that, should
any court or other competent authority hold any provision of this Agreement or
part hereof to be null, void or unenforceable, or order any party to take any
action inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth herein shall not in any way be
affected or impaired thereby, unless the foregoing inconsistent action or the
failure to take an action constitutes a material breach of this Agreement or
makes the Agreement impossible to perform in which case this Agreement shall
terminate. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no liability or
obligation unless such party did not in good faith seek to resist or object to
the imposition or entering of such order or judgment.
16. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, by recognized
national delivery service or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given upon receipt at the following address,
or to such other address or addresses as such person may subsequently designate
by notice given hereunder:
(a) if to Parent, to:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067
Attention: David Lissy, Esq.
with a copy (which shall
not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Jeffrey J. Weinberg, Esq.
(b) if to Company, to:
Hills Stores Company
15 Dan Road
Canton, Massachusetts 02021
Attention: William Friend, Esq.
8
<PAGE>
with a copy (which shall
not constitute notice) to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman, Esq.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state.
18. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
HILLS STORES COMPANY
By: /s/ Chaim Y. Edelstein
----------------------------------------
Name: Chaim Y. Edelstein
Title: Chairman
AMES DEPARTMENT STORES, INC.
By: /s/ Joseph R. Ettore
----------------------------------------
Name: Joseph R. Ettore
Title: President
HSC ACQUISITION CORP.
By: /s/ Joseph R. Ettore
----------------------------------------
Name: Joseph R. Ettore
Title: President
10
<PAGE>
STOCK OPTION AGREEMENT
STOCK OPTION AGREEMENT, dated as of November 12, 1998, by and between
Hills Stores Company, a Delaware corporation ("Company") and Ames Department
Stores, Inc., a Delaware corporation ("Parent").
WHEREAS, concurrently with the execution and delivery of this
Agreement, Company, Parent and HSC Acquisition Corp., a Delaware corporation and
a wholly-owned subsidiary of Parent ("Purchaser"), are entering into an
Agreement and Plan of Merger, dated as of the date hereof (the "Merger
Agreement"), which provides that, among other things, upon the terms and subject
to the conditions thereof, Purchaser will be merged with and into Company (the
"Merger"); and
WHEREAS, as a condition to Parent's and Purchaser's willingness to
enter into the Merger Agreement, Parent has requested that Company agree, and in
order to induce Parent and Purchaser to enter into the Merger Agreement, Company
has so agreed, to grant to Parent an option with respect to certain shares of
Company's common stock on the terms and subject to the conditions set forth
herein.
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto hereby agree as follows:
1. Grant of Option. Company hereby grants Parent an irrevocable option
(the "Stock Option") to purchase up to 2,073,753 shares of common stock, $.01
par value per share, of Company (the "Company Common Stock"), or such other
number of shares of Company Common Stock as equals 19.9% of the issued and
outstanding shares of Company Common Stock at the time of exercise of the Stock
Option, in the manner set forth below, at a price of $1.50 per share (the
"Exercise Price"), payable in cash in accordance with Section 4 hereof.
Capitalized terms used and not otherwise defined herein shall have the meanings
set forth in the Merger Agreement.
2. Exercise of Option. The Stock Option may be exercised by Parent, in
whole or in part, at any time or from time to time (a) after the Merger
Agreement is terminated pursuant to Section 8.01(d)(i) or 8.01(e)(i)(A) (a
"Trigger Event") or (b) at any time after the acceptance of the Offer by
Purchaser and prior to the Effective Time.
In the event Parent wishes to exercise the Stock Option, Parent shall
deliver to Company a written notice (an "Exercise Notice") specifying the total
number of shares of Company Common Stock it wishes to purchase. Each closing of
a purchase of shares of
1
<PAGE>
Company Common Stock (a "Closing") shall occur at a place, on a date and at a
time designated by Parent in an Exercise Notice delivered at least two business
days prior to the date of the Closing.
(a) The Stock Option shall terminate upon the earliest of: (i)
the Effective Time; (ii) the termination of the Merger Agreement pursuant to
Section 8.01 thereof, other than a termination as a result of the occurrence of
a Trigger Event; or (iii) 120 days following any termination of the Merger
Agreement as the result of the occurrence of a Trigger Event (or if, at the
expiration of such 120 day period the Stock Option cannot be exercised by reason
of any applicable judgment, decree, order, law or regulation, or because the
applicable waiting period under the HSR Act has not expired or been terminated,
10 business days after such impediment to exercise shall have been removed or
shall have become final and not subject to appeal, but in no event under this
clause (ii) later than 210 days after the date of termination of the Merger
Agreement).
(b) Notwithstanding the foregoing, the Stock Option may not be
exercised if Parent is in material breach of any of its representations,
warranties, covenants or agreements contained in this Agreement or in the Merger
Agreement.
3. Conditions to Closing. The obligation of Company to issue shares of
Company Common Stock to Parent hereunder is subject to the conditions that (i)
all waiting periods, if any, under the HSR Act applicable to the issuance of
shares of Company Common Stock hereunder shall have expired or have been
terminated, and all consents, approvals, orders or authorizations of, or
registrations, declarations or filings with, any federal administrative agency
or commission or other federal governmental authority or instrumentality, if
any, required in connection with the issuance of shares of Company Common Stock
hereunder shall have been obtained or made, as the case may be; and (ii) no
preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect.
4. Closing. At any Closing, (a) Company will deliver to Parent a single
certificate in definitive form representing the number of shares of Company
Common Stock designated by Parent in its Exercise Notice, such certificate to be
registered in the name of Parent, Purchaser or such other affiliate of Parent as
Parent shall designate in the Exercise Notice and shall bear the legend set
forth in Section 10, and (b) Parent will deliver to Company the aggregate
Exercise Price for the shares of Company Common Stock so designated and being
purchased at such Closing by wire transfer of immediately available funds.
5. Representations and Warranties of Company. Company represents and
warrants to Parent that (a) Company is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Company and the consummation by Company
2
<PAGE>
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Company and no other corporate
proceedings on the part of Company are necessary to authorize this Agreement or
any of the transactions contemplated hereby, (c) this Agreement has been duly
executed and delivered by Company and constitutes a valid and binding obligation
of Company, and, assuming this Agreement constitutes a valid and binding
obligation of Parent, is enforceable against Company in accordance with its
terms, subject to bankruptcy, insolvency, fraudulent conveyance, reorganization,
moratorium and similar laws of general applicability relating to or affecting
creditors' rights and to general equity principles, (d) Company has taken all
necessary corporate action to authorize and reserve for issuance and to permit
it to issue, upon exercise of the Stock Option, and at all times from the date
hereof through the expiration of the Stock Option will have so reserved,
2,073,753 unissued shares of Company Common Stock, all of which, upon their
issuance and delivery in accordance with the terms of this Agreement, will be
validly issued, fully paid and nonassessable, (e) upon delivery of such shares
of Company Common Stock to Parent upon exercise of the Stock Option, Parent will
acquire valid title to all of such shares, free and clear of any and all liens
of any nature whatsoever, (f) the execution and delivery of this Agreement by
Company does not, and the performance of this Agreement by Company will not (1)
violate the certificate of incorporation or by-laws of Company, (2) conflict
with or violate any statute, rule, regulation, order, judgment or decree
applicable to Company or by which it or any of its assets or properties is bound
or affected, or (3) result in any breach or violation of or constitute a default
(or an event which with notice or lapse of time or both would become a default)
under, or give rise to any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of any lien on any of the property or
assets of Company pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which Company or
any of its Subsidiaries is a party or by which Company or any of its assets or
properties is bound or affected (except, in the case of clauses (2) or (3)
above, for violations, breaches or defaults which would not, individually or in
the aggregate, have a Material Adverse Effect on Company), and (g) the execution
and delivery of this Agreement by Company does not, and the performance of this
Agreement by Company will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any governmental or regulatory
authority except for pre-merger notification requirements of the HSR Act.
6. Representations and Warranties of Parent. Parent represents and
warrants to Company that (a) Parent is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware and has
the corporate power and authority to enter into this Agreement and to carry out
its obligations hereunder, (b) the execution and delivery of this Agreement by
Parent and the consummation by Parent of the transactions contemplated hereby
have been duly authorized by all necessary corporate action on the part of
Parent and no other corporate proceedings on the part of Parent are necessary to
authorize this Agreement or any of the transactions contemplated hereby, (c)
this Agreement has been duly executed and delivered by Parent and constitutes a
valid and binding obligation of Parent, and, assuming this Agreement constitutes
a valid and binding obligation of Company,
3
<PAGE>
is enforceable against Parent in accordance with its terms subject to
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws of general applicability relating to or affecting creditors' rights
and to general equity principles, (d) the execution and delivery of this
Agreement by Parent does not, and the performance of this Agreement by Parent
will not (1) violate the certificate of incorporation or by-laws of Parent, (2)
conflict with or violate any statute, rule, regulation, order, judgment or
decree applicable to Parent or by which it or any of its properties or assets is
bound or affected, or (3) result in any breach of or constitute a default (or an
event which with notice or lapse of time or both would become a default) under,
or give rise to any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien on any of the property or
assets of Parent pursuant to, any note, bond, mortgage, indenture, contract,
agreement, lease, license, or other instrument or obligation to which Parent is
a party or by which Parent or any of its properties or assets is bound or
affected (except, in the case of clauses (2) and (3) above, for violations,
breaches, or defaults which would not, individually or in the aggregate, have a
material adverse effect on the business, operations, financial condition, assets
or liabilities of Parent), (e) the execution and delivery of this Agreement by
Parent does not, and the performance of this Agreement by Parent will not,
require any consent, approval, authorization or permit of, or filing with or
notification to, any governmental or regulatory authority, except for pre-merger
notification requirements of the HSR Act, and (f) any shares of Company Common
Stock acquired upon exercise of the Stock Option will be, and the Stock Option
is being, acquired by Parent for its own account and not with a view to the
public distribution or resale thereof in any manner which would be in violation
of applicable United States securities laws.
7. Certain Repurchases. (a) Parent Put. At the request of Parent at any
time during which the Stock Option is exercisable pursuant to Section 2 (the
"Repurchase Period"), Company (or any successor entity thereof) shall repurchase
from Parent the Stock Option, or any portion thereof, for a price equal to the
amount by which the "Market/Tender Offer Price" for shares of Company Common
Stock as of the date Parent gives notice of its intent to exercise its rights
under this Section 7 (defined as the higher of (A) the highest price per share
paid as of such date pursuant to any tender or exchange offer or other Takeover
Proposal or (B) the average of the closing sale prices of shares of Company
Common Stock on the NYSE for the ten trading days immediately preceding such
date) exceeds the Exercise Price, multiplied by the number of shares of Company
Common Stock purchasable pursuant to the Stock Option (or portion thereof with
respect to which Parent is exercising its rights under this Section 7)).
(b) Payment and Redelivery of Stock Option or Shares. In the
event Parent exercises its rights under this Section 7, Company shall, within 10
business days thereafter, pay the required amount to Parent in immediately
available funds and Parent shall surrender to Company the Stock Option.
4
<PAGE>
8. Registration Rights. In the event that Parent shall desire to sell
any of the shares of Company Common Stock purchased pursuant to the Stock Option
within 3 years after such purchase, and such sale requires in the opinion of
counsel to Parent, which opinion shall be reasonably satisfactory to Company and
its counsel, registration of such shares under the Securities Act of 1933,
Parent may, by written notice (the "Registration Notice") to Company (the
"Registrant"), request the Registrant to register under the Securities Act all
or any part of the shares purchased pursuant to the Stock Option ("Restricted
Shares") beneficially owned by Parent (the "Registrable Securities") pursuant to
a bona fide firm commitment underwritten public offering in which the Parent and
the underwriters shall effect as wide a distribution of such Registrable
Securities as is reasonably practicable and shall use their best efforts to
prevent any person (including any "group" (as defined in Section 13(d)(3) of the
Exchange Act)) and its affiliates from purchasing through such offering
Restricted Shares representing more than 2% of the outstanding shares of common
stock of the Registrant on a fully diluted basis (a "Permitted Offering"). The
Registration Notice shall include a certificate executed by the Parent and its
proposed managing underwriter, which underwriter shall be an investment banking
firm of nationally recognized standing reasonably acceptable to Company (the
"Manager"), stating that (i) they have a good faith intention to commence
promptly a Permitted Offering and (ii) the Manager in good faith believes that,
based on the then prevailing market conditions, it will be able to sell the
Registrable Securities at a per share price to be specified in such Registration
Notice (the "Fair Market Value"). The Registrant (and/or any person designated
by the Registrant) shall thereupon have the option exercisable by written notice
delivered to the Parent within 10 business days after the receipt of the
Registration Notice, irrevocably to agree to purchase all or any part of the
Registrable Securities for cash at a price (the "Option Price") equal to the
product of (i) the number of Registrable Securities and (ii) the Fair Market
Value of such Registrable Securities. Any such purchase of Registrable
Securities by the Registrant hereunder shall take place at a closing to be held
at the principal executive offices of the Registrant or its counsel at any
reasonable date and time designated by the Registrant and its designee in such
notice within 20 business days after delivery of such notice. Any payment for
the shares to be purchased shall be made by delivery at the time of such closing
of the Option Price in immediately available funds.
If the Registrant does not elect to exercise its option
pursuant to this Section 8 with respect to all Registrable Securities designated
in the Registration Notice, it shall use its best efforts to effect, as promptly
as practicable, the registration under the Securities Act of the unpurchased
Registrable Securities; provided, however, that (i) Parent shall not be entitled
to more than an aggregate of two effective registration statements hereunder,
and (ii) the Registrant will not be required to file any such registration
statement during any period of time (not to exceed 90 days after such request in
the case of clause (B) below or 120 days in the case of clause (A) below) when
(A) the Registrant is in possession of material non-public information which it
reasonably believes would be detrimental to be disclosed at such time and, in
the judgment of the Board of Directors of the Registrant, such information would
have to be disclosed if a registration statement were filed at that time; or (B)
the
5
<PAGE>
Registrant is required under the Securities Act to include audited financial
statements for any period in such registration statement and such financial
statements are not yet available for inclusion in such registration statement.
If consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 120 days after the filing with the
SEC of the initial registration statement with respect thereto, the provisions
of this Section 8 shall again be applicable to any proposed registration;
provided, however, that Parent shall not be entitled to request more than two
registrations pursuant to this Section 8 in any 12 month period. The Registrant
shall use its best efforts to cause all Registrable Securities registered
pursuant to this Section 8 to be qualified for sale under the securities or
blue-sky laws of such jurisdictions as Parent may reasonably request and shall
continue such registration or qualification in effect in such jurisdiction;
provided, however, that the Registrant shall not be required to qualify to do
business in, or consent to general service of process in, any jurisdiction by
reason of this provision.
The registration rights set forth in this Section 8 are
subject to the condition that Parent shall provide the Registrant with such
information with respect to Parent's Registrable Securities, the plans for the
distribution thereof, and such other information with respect to Parent as, in
the reasonable judgment of counsel for the Registrant, is necessary to enable
the Registrant to include in such registration statement all material facts
required to be disclosed with respect to a registration thereunder.
A registration effected under this Section 8 shall be effected
at the Registrant's expense, except for underwriting discounts and commissions,
and the Registrant shall provide to the underwriters such documentation
(including certificates, opinions of counsel and "comfort" letters from
auditors) as are customary in connection with underwritten public offerings as
such underwriters may reasonably require. In connection with any such
registration, the parties agree (i) to indemnify each other and the underwriters
in the customary manner, and (ii) to enter into an underwriting agreement in
form and substance customary to transactions of this type with the Manager and
the other underwriters participating in such offering.
9. Adjustment upon Changes in Capitalization. In the event of any
change in Company Common Stock by reason of stock dividends, stock splits,
mergers (other than the Merger), recapitalizations, combinations, exchange of
shares or the like, the type and number of shares or securities subject to the
Stock Option, and the Exercise Price per share, shall be adjusted appropriately.
10. Restrictive Legends. Each certificate representing shares of
Company Common Stock issued to Parent hereunder shall initially be endorsed with
a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
6
<PAGE>
AND MAY BE REOFFERED OR SOLD ONLY IF SO REGISTERED OR IF AN EXEMPTION
FROM SUCH REGISTRATION AND APPLICABLE STATE SECURITIES LAWS IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS
ON TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT, DATED NOVEMBER
11, 1998, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER HEREOF.
11. Binding Effect; No Assignment. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective successors,
and permitted assigns. Except as expressly provided in this Agreement, neither
this Agreement nor the rights or the obligations of either party hereto are
assignable, except by operation of law, or with the written consent of the other
party. Nothing contained in this Agreement, express or implied, is intended to
confer upon any person other than the parties hereto and their respective
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement. Any Restricted Shares sold by a party in compliance with the
provisions of Section 8 shall, upon consummation of such sale, be free of the
restrictions imposed with respect to such shares by this Agreement. In no event
will any transferee of any Restricted Shares be entitled to the rights of Parent
hereunder. Certificates representing shares sold in a registered public offering
pursuant to Section 8 shall not be required to bear the legend set forth in
Section 10.
12. Specific Performance. The parties recognize and agree that if for
any reason any of the provisions of this Agreement are not performed in
accordance with their specific terms or are otherwise breached, immediate and
irreparable harm or injury would be caused for which money damages would not be
an adequate remedy. Accordingly, each party agrees that, in addition to other
remedies, the other party shall be entitled to an injunction restraining any
violation or threatened violation of the provisions of this Agreement. In the
event that any action should be brought in equity to enforce the provisions of
the Agreement, neither party will allege, and each party hereby waives the
defense, that there is an adequate remedy at law.
13. Entire Agreement. This Agreement and the Merger Agreement (together
with the other documents and instruments referred to in the Merger Agreement,
and the exhibits and disclosure schedules thereto) constitute the entire
agreement among the parties with respect to the subject matter hereof and
supersede all other prior agreements and understandings, both written and oral,
among the parties or any of them with respect to the subject matter hereof.
14. Further Assurances. Each party will execute and deliver all such
further documents and instruments and take all such further action as may be
necessary in order to consummate the transactions contemplated hereby.
7
<PAGE>
15. No Remedy in Certain Circumstances. Each party agrees that, should
any court or other competent authority hold any provision of this Agreement or
part hereof to be null, void or unenforceable, or order any party to take any
action inconsistent herewith or not to take an action consistent herewith or
required hereby, the validity, legality and enforceability of the remaining
provisions and obligations contained or set forth herein shall not in any way be
affected or impaired thereby, unless the foregoing inconsistent action or the
failure to take an action constitutes a material breach of this Agreement or
makes the Agreement impossible to perform in which case this Agreement shall
terminate. Except as otherwise contemplated by this Agreement, to the extent
that a party hereto took an action inconsistent herewith or failed to take
action consistent herewith or required hereby pursuant to an order or judgment
of a court or other competent authority, such party shall incur no liability or
obligation unless such party did not in good faith seek to resist or object to
the imposition or entering of such order or judgment.
16. Notices. Any notice or communication required or permitted
hereunder shall be in writing and either delivered personally, by recognized
national delivery service or sent by certified or registered mail, postage
prepaid, and shall be deemed to be given upon receipt at the following address,
or to such other address or addresses as such person may subsequently designate
by notice given hereunder:
(a) if to Parent, to:
Ames Department Stores, Inc.
2418 Main Street
Rocky Hill, Connecticut 06067
Attention: David Lissy, Esq.
with a copy (which shall
not constitute notice) to:
Weil, Gotshal & Manges LLP
767 Fifth Avenue
New York, New York 10153
Attention: Jeffrey J. Weinberg, Esq.
(b) if to Company, to:
Hills Stores Company
15 Dan Road
Canton, Massachusetts 02021
Attention: William Friend, Esq.
8
<PAGE>
with a copy (which shall
not constitute notice) to:
Kramer Levin Naftalis & Frankel LLP
919 Third Avenue
New York, New York 10022
Attention: Paul S. Pearlman, Esq.
17. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware applicable to agreements made
and to be performed entirely within such state.
18. Descriptive Headings. The descriptive headings herein are inserted
for convenience of reference only and are not intended to be part of or to
affect the meaning or interpretation of this Agreement.
19. Counterparts. This Agreement may be executed in multiple
counterparts, each of which shall be deemed to be an original, but all of which,
taken together, shall constitute one and the same instrument.
20. Expenses. Except as otherwise expressly provided herein or in the
Merger Agreement, all costs and expenses incurred in connection with the
transactions contemplated by this Agreement shall be paid by the party incurring
such expenses.
21. Amendments; Waiver. This Agreement may be amended by the parties
hereto and the terms and conditions hereof may be waived only by an instrument
in writing signed on behalf of each of the parties hereto, or, in the case of a
waiver, by an instrument signed on behalf of the party waiving compliance.
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
HILLS STORES COMPANY
By: /s/ Chaim Y. Edelstein
----------------------------------------
Name: Chaim Y. Edelstein
Title: Chairman
AMES DEPARTMENT STORES, INC.
By: /s/ Joseph R. Ettore
----------------------------------------
Name: Joseph R. Ettore
Title: President
HSC ACQUISITION CORP.
By: /s/ Joseph R. Ettore
----------------------------------------
Name: Joseph R. Ettore
Title: President
10
<PAGE>
AMES DEPARTMENT STORES, INC.
2418 MAIN STREET
ROCKY HILL, CT 06067-2598
860-257-2000
August 21, 1998
Mr. Gregory K. Raven
President and Chief Executive Officer
Hills Stores Company
15 Dan Road
Canton, Massachusetts 02021
Dear Mr. Raven:
In connection with our consideration of a possible acquisition of Hills
Stores Company and Hills Department Store Company (collectively, the "Company"),
recognizing that the Company has not made a decision whether or not it would be
interested in such a transaction, the Company has agreed to provide Ames
Department Stores, Inc. ("Ames") with certain non-public material, confidential
and proprietary information concerning the Company (the "Evaluation Material").
Evaluation Material shall also be deemed to include all notes, analyses,
compilations, studies, interpretations, charts or other documents prepared by
Ames or its officers, directors, affiliates, associates, financing sources,
investment bankers or advisors (collectively "Representatives") which contain,
reflect or are based upon, in whole or in part, the information furnished by the
Company to Ames or its Representatives pursuant hereto which is not available to
the general public. Evaluation Material includes not only written information,
but information transferred orally, visually, electronically or by any other
means. Evaluation Material does not include information which (a) is or becomes
publicly known or enters the public domain other than as the result of
disclosure by Ames or its Representatives, (b) (i) was available to Ames prior
to its disclosure to Ames by the Company, provided that the source of such
information was not reasonably known by Ames to be bound by a confidentiality
agreement with or other legal obligation of confidentiality to the Company, or
(ii) becomes available to Ames from a source other than the Company, provided
that such source is not reasonably known by Ames to be bound by a
confidentiality agreement with or other legal obligation to the Company or (c)
has been or is subsequently independently conceived or discovered by Ames or any
of its employees. Ames acknowledges and agrees that neither the Company nor any
of its representatives hereby make any express or implied representation or
warranty as to the accuracy or completeness of the Evaluation Material, and,
except to the extent that may be provided for in a subsequent agreement between
Ames and the Company, neither the Company nor any of its representatives shall
have any liability resulting from the use of or reliance by Ames or any
Evaluation Material furnished to it pursuant to this letter agrement or any
errors therein or omissions therefrom.
We hereby agree that the Evaluation Material will be used solely for
the purpose of evaluating a possible acquisition of the Company by Ames and that
such Evaluation Material will
<PAGE>
August 21, 1998
Page 2
be kept confidential by us; provided, however, that (i) any of such information
may be disclosed to such Ames Representatives who need to know such information
for the purpose of evaluating an acquisition by Ames of the Company or the
financing of such an acquisition (it being understood that such Representatives
will be informed of the confidential nature of such Evaluation Material and will
be directed to keep such Evaluation Material confidential and that Ames shall be
in breach of this Agreement in the event that such Representative of Ames fails
to keep such Evaluation Material confidential); and (ii) any disclosure of such
Evaluation Material may be made to which the Company consents. The foregoing
notwithstanding, competitively sensitive Evaluation Material such as information
concerning marketing plans, product prices or pricing plans, cost data,
customers or similar information shall be disclosed by Ames only to those senior
executives and Representatives who are involved in evaluating or negotiating a
potential acquisition by Ames of the Company or evaluating or approving the
value of such a transaction.
Except to the extent that counsel to Ames may advise that it is
required by applicable law, Ames agrees that without the prior written consent
of the Company, neither it nor any of its Representatives will disclose to any
other person the fact that discussions or negotiations are taking place
concerning an acquisition by Ames of the Company or any of the terms, conditions
or other facts with respect thereto (including the status thereof). In the event
counsel to Ames does determine that such disclosure is required by law, Ames
will provide reasonable notice to the Company in advance of making such
disclosure. The term "person" as used in this Agreement will be interpreted
broadly to include the media and any corporation, company, group, partnership or
other entity or individual.
If Ames is requested or required (by oral questions, interrogatories,
requests for information or documents, subpoena or similar process in a court or
as part of any legal or regulatory proceeding) to disclose any of the Evaluation
Material, or if such disclosure is needed in connection with the defense of any
action, suit, or investigation brought against Ames, Ames will promptly provide
the Company with notice of such request or requirement so that the Company may
seek an appropriate protective order and/or waive our compliance with provisions
of this Agreement. If, in the absence of a protective order or the receipt of a
waiver hereunder, Ames or any of its Representatives are nonetheless advised by
counsel that they are obliged to disclose any Evaluation Material, Ames or any
of such Representatives may without liability hereunder disclose only that
portion of the Evaluation material which counsel advises is required to be
disclosed, provided that Ames exercises its reasonable efforts to preserve the
confidentiality of the Evaluation Material including, without limitation, by
cooperating with the Company to obtain an appropriate protective order or other
relief assurance that confidential treatment will be accorded the Evaluation
Material by the party to which it will be disclosed.
Provided Ames shall on a timely basis receive all or substantially all
of the information requested on the list attached hereto as Exhibit A, which
list has been agreed to by the Chief Financial Officer for each of Ames and the
Company, for a period of the later of 12 months from the date of the termination
of this Agreement or 15 months from the date hereof, neither Ames nor its
Representatives shall, without the prior written consent of the Board of
Directors of the Company, commence a tender offer or exchange offer for the
voting securities of the Company,
<PAGE>
August 21, 1998
Page 3
solicit proxies or other similar attempt to influence the voting of the
Company's securities, acquire, offer, finance or seek to propose to acquire or
otherwise act to seek a merger, business combination, acquisition of all or
substantially all of the assets of the Company, restructuring or
recapitalization of the Company, seek to control the management, Board of
Directors or policies of the Company, join any other person or group for any of
the foregoing purposes or disclose any intention, plan or arrangement to do any
of the foregoing, unless there is a public disclosure of a tender offer or
similar attempt by a third party to acquire all or substantially all of the
voting securities of the Company or substantially all of the assets of the
Company. Ames will promptly acknowledge in writing receipt of the information
set forth on Exhibit A. In the event Ames believes any such information is
missing, it will so notify the Company in writing and provide the Company with a
reasonable opportunity to provide the missing information. In the event of a
voluntary or involuntary Chapter 11 filing on the part of the Company, the
restrictions will apply for such time as the Company has exclusive right to file
a plan of reorganization as provided in Title 11 of the U.S. Code, as such
period may be extended by the court, and through the period in which the Company
has the exclusive right to solicit acceptances of any such plan, provided,
however, that at such time as the Company proposes a plan of reorganization that
is premised on the sale of all or substantially all of its assets to a third
party, then the restrictions on Ames set forth herein will immediately no longer
apply (except as to the obligation of Ames to treat information as confidential,
which obligation shall continue). In the event of either a voluntary or
involuntary Chapter 11 filing, however, in no event will the restrictions on
Ames extend beyond the period such restrictions would have been in place but for
the Chapter 11 filing.
Unless otherwise approved in writing by the Company, all inquiries for
information about the Company shall be directed only to the Company's Chairman,
President and Chief Executive Officer, Chief Financial Offer or its Corporate
Counsel. So long as such contacts do not otherwise violate the terms of this
agreement, Ames is not precluded from any of its normal contacts with the
Company's landlords, suppliers, banks, creditors, stockholders or other third
parties doing business with the Company.
Ames hereby acknowledges that it is aware, and agrees to advise its
Representatives, of United States securities laws that relate to persons who
possess material non-public information.
Until the earliest of (i) the consummation by Ames of an acquisition of
the Company, (ii) the acquisition of the Company by a third party, or (iii) the
later of 12 months following the termination of this Agreement or 15 months from
the date hereof, Ames agrees that unless specifically permitted to do so in
writing by the Company, it will not initiate contact with any officer or
senior-level employee of the Company regarding the business, operations,
prospects or finances of the Company nor will Ames initiate or maintain contact
with any such officer, director or senior-level employee regarding the
employment of any such officer, director or senior-level employee. The term
senior-level employee includes, at the Home Office of the Company, Director
level and above, in the buying staff, Merchandise Manager and above and in the
field, District Manager and above. Ames further agrees it will not specifically
target for recruiting and employment non senior-level employees of the Company,
including store managers and buyers, although Ames shall not be precluded from
hiring such individuals.
<PAGE>
August 21, 1998
Page 4
Ames acknowledges that the Company reserves the right in its sole
discretion to reject any offer or proposal made by Ames and that the Company may
terminate this Agreement at any time. In the event that Ames does not proceed
with the acquisition which is the subject of this letter within a reasonable
time, or upon the request of the Company at any time, Ames shall promptly, as
directed by the Company, either destroy or redeliver to the Company all
Evaluation Material furnished to Ames by the Company. Notwithstanding the
destruction or return of the Evaluation Material or the termination of this
Agreement, Ames will still treat the Evaluation Material as confidential in
accordance with the terms of this Agreement.
Ames represents that as of the date hereof it does not own any of the
securities or debt of the Company.
The Company represents 1) that as of the date hereof it has not
provided confidential information related to a potential transaction such as the
one contemplated herein on more favorable terms (including, but not limited to,
stand still and employment matters) to any other party nor is it currently
negotiating any other such confidentiality agreement with a third party and 2)
that should it execute a confidentiality agreement related to a potential
transaction such as the one contemplated herein with a third party at some
future date, it would be its intention to not grant more favorable terms with
regard to the stand still provisions than that contained in this Agreement.
It is further understood and agreed that money damages would not be a
sufficient remedy for any breach or threatened breach of this Agreement by Ames
or any of its Representatives and that the Company shall be entitled to
equitable relief, including injunction and specific performance, as a remedy for
any such breach or threatened breach, without the necessity of posting any bond
or proving that monetary damages would be an inadequate remedy. Such remedies
shall not be deemed to be the exclusive remedies for a breach of this Agreement
but shall be in addition to all other remedies available at law or equity. In
the event of litigation relating to this Agreement, the prevailing party shall
be entitled to reimbursement for its reasonable legal fees incurred in
connection with such litigation, including costs incurred in any appeal
therefrom.
<PAGE>
August 21, 1998
Page 5
Unless earlier terminated in writing by either party hereto, this
Agreement shall have a term of one year from the date hereof. The validity and
interpretation of this Agreement shall be governed by the law of the State of
New York applicable to agreements made and to be fully performed therein.
Sincerely,
AMES DEPARTMENT STORES, INC.
By: /s/ David H. Lissy
-----------------------------------------
David H. Lissy
Senior Vice President
General Counsel
Confirmed and Agreed to
this 21st day of August, 1998
HILLS STORES COMPANY
By: /s/ Gregory K. Raven
-------------------------------------
Name: Gregory K. Raven
Title: President and Chief
Executive Officer
HILLS DEPARTMENT STORE COMPANY
By: /s/ Gregory K. Raven
-------------------------------------
Name: Gregory K. Raven
Title: President and Chief
Executive Officer
